Cook v. Great Western Bank & Trust

Decision Date05 June 1984
Docket NumberCA-CIV
Citation141 Ariz. 80,685 P.2d 145
CourtArizona Court of Appeals
Parties, 39 UCC Rep.Serv. 214 Joseph D. COOK and Willie Mae Cook, husband and wife, Plaintiffs-Appellees, v. GREAT WESTERN BANK & TRUST, an Arizona banking corporation; and the Arizona Bank, an Arizona banking corporation, Defendants-Appellants. 16939.
Karasek & Haddy by David J. Karasek, Phoenix, for plaintiffs-appellees

HAIRE, Presiding Judge, Division 1.

The issues raised in this appeal are: (1) whether delay by a joint payee in informing the banks that his endorsement on a check was a forgery constitutes ratification or precludes recovery against the banks, (2) whether the banks acted in accordance with reasonable commercial standards in dealing with the check, and (3) whether the measure of damages is the face amount of the check.

Joseph D. Cook commenced this litigation by filing a complaint in Maricopa County Superior Court against Great Western Bank and The Arizona Bank for conversion of a check for $36,000 made payable jointly to American General and Joseph D. Cook. On cross-motions for summary judgment the trial court granted judgment in favor of Cook for the face amount of the check. The banks have appealed. 1

The pertinent facts giving rise to this lawsuit are as follows. On or about April 25, 1979, Cook loaned $30,000 to Mel E. Haining, a paving subcontractor doing business as American General. In connection with the loan Haining executed an assignment to Cook of $36,000 of the proceeds of a paving subcontract which Haining had entered into with Ray Stevens Paving. This assignment represented repayment of the principal of the loan plus $6,000 interest. Ray Stevens Paving signed an acceptance of the assignment and agreed to pay $36,000 directly to Cook at his home address.

On June 13, 1979, Ray Stevens Paving issued a check drawn on The Arizona Bank in the amount of $36,000 made payable jointly to American General and Cook. The check was delivered to Haining, rather than to Cook as required by the assignment. Haining's bookkeeper deposited the check at Great Western Bank with the purported endorsements of both payees. In the ordinary course of collection, The Arizona Bank paid the check.

Approximately six months later, in January 1980, Cook contacted Ray Stevens Paving and learned that the check had been issued. On November 5, 1980, without giving prior notice to the banks concerning the alleged forgery, Cook filed a complaint against the banks and Haining, claiming that his purported endorsement was a forgery. Haining could not be located for service of process. At the time the complaint was filed the banks held no proceeds of the check.

Before addressing the legal issues involved, we must first resolve a substantial disagreement between the parties concerning the facts. At the time the cross-motions for summary judgment were filed, the record before the trial court consisted of the affidavits of Cook and John Fox (the banks' expert witness), and copies of the check and assignment. On appeal the banks and Cook draw contrary inferences from the affidavit of Cook as to when Cook first discovered the forgery. The banks argue that the affidavit indicates that Cook knew of the forgery in January 1980. Cook, however, contends that the affidavit indicates that he did not ascertain that his signature had been forged until June 1980. In resolving this disagreement we note that on appeal from a summary judgment the facts and all inferences therefrom must be taken in a light most favorable to the party opposing the motion. Wisener v. State, 123 Ariz. 148, 149, 598 P.2d 511, 512 (1979). Viewed in this manner with all reasonable inferences drawn in favor of the banks, the affidavit must be interpreted as showing that Cook knew of the forgery in January 1980. 2 Consequently, we assume for purposes of this appeal that Cook became aware of the forgery in January 1980.


The banks argue that Cook's ten month delay in notifying them that his endorsement was forged after he had knowledge of the forgery either constitutes ratification of the forged endorsement or precludes Cook from denying its authenticity. This argument is based upon A.R.S. § 44-2541 (U.C.C. § 3-404) which provides in part:

"A. Any unauthorized signature is wholly inoperative as that of the person whose name is signed unless he ratifies it or is precluded from denying it.

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"D. Any unauthorized signature may be ratified for all purposes of this article."

Our supreme court discussed the meaning of ratification for purposes of this statute in United Bank of Arizona v. Mesa N.O. Nelson Co., 121 Ariz. 438, 590 P.2d 1384 (1979). Citing with approval a New Jersey Supreme Court decision involving an identical statute, the Arizona Supreme Court stated:

"At the onset we find the statements of the Supreme Court of New Jersey are enlightening. In Thermo Contracting Corp. v. Bank of New Jersey, 69 N.J. 352, 354 A.2d 291 (1976), in construing U.C.C. § 3-404, the New Jersey court said:

'The meaning of ratification for purposes of negotiable instruments law is not dissimilar from its general meaning in the law of agency. Ratification is defined in Section 82 of Restatement of Agency 2d (1957):

Ratification is the affirmance by a person of a prior act which did not bind him but which was done, or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him.'

" * * * Ratification requires intent to ratify plus full knowledge of all the material facts. Ratification may be express or implied, and intent may be inferred from the failure to repudiate an unauthorized act, from inaction, or from conduct on the part of the principal which is inconsistent with any other position than intent to adopt the act."

121 Ariz. at 440, 590 P.2d at 1386 (citations omitted).

The court then held that there had been no ratification under the facts of that case because the payee had been unaware of the forgery during the period of delay.

The banks cite several cases interpreting U.C.C. § 3-404 as adopted in other jurisdictions where a joint payee discovered a forged endorsement, pursued the forger without success and delayed a substantial period of time prior to making a demand against the banks. These delays were held to constitute ratifications of the forgery. See Fulka v. Florida Commercial Banks, Inc., 371 So.2d 521 (Fla.App.1979); Thermo Contracting Corp. v. Bank of New Jersey, 69 N.J. 352, 354 A.2d 291 (1976); Eutsler v. First National Bank, 639 P.2d 1245 (Okla.1982). However, Cook argues that these cases are distinguishable from the instant case because facts in addition to mere delay resulted in findings that the payees had affirmed the forgeries. Specifically, Cook argues that: in Fulka, the trial court found that the payee's testimony demonstrated that she had no objection to the forger's retention of the funds; in Thermo, the payee gave the forger time to "make it up"; and in Eutsler, the payee requested that the banks delay in prosecuting the forger.

The banks respond that these are distinctions without legal significance. They argue that the payee's singlemindedness in looking to the forger for extended periods of time and the payee's failure to notify the banks were the essential acts that constituted ratification.

Cook also argues that Atlas Building Supply Co. v. First Independent Bank of Vancouver, 15 Wash.App. 367, 550 P.2d 26 (1976) is an analogous case and constitutes strong authority for affirmance of the summary judgment entered in this case. Atlas, as co-payee of a check made payable to it and a forger, first sought relief by attempting to collect from both the forger and the drawer of the check. When the forger went out of business and the drawer experienced some financial difficulties, Atlas then filed an action against the drawee bank. The court found that the defendant bank was first notified of the forgery over ten months after Atlas had become aware of it and long after Atlas had given up efforts to collect from the forger. The bank appealed from a judgment in favor of Atlas on grounds that Atlas had ratified the forged endorsement and was estopped from pursuing its claim due to the lengthy delay in notifying the bank. The court stated:

"Defendant imputes much significance to plaintiff's delay in apprising the bank of the unauthorized endorsement. The mere passage of time, however, will not necessarily establish ratification. And the fact that Atlas had knowledge of the forgery during this period will not establish ratification unless plaintiff delayed its notification under circumstances which require an inference of election to ratify.

* * *

* * *

"Indeed, the fact that plaintiff asserted its 'claim against others is proof it did not abandon its claim for reimbursement and thus did not intend to ratify the unauthorized endorsement.' " 3

550 P.2d at 28-29 (citations omitted).

The banks point out that Atlas was decided after full trial and that the precise holding on appeal was that the trial court's determination that the payee's delay was reasonable under the circumstances was not clearly erroneous. The banks also urge, however, that Atlas was wrongly decided on the ratification question and is against the weight of authority.

In considering this matter, we first note that with the exception of Eutsler, the cases cited by the parties are cases decided after a trial. Whether there has been ratification of a forged signature is usually a question of fact. Common Wealth Ins. Systems, Inc. v. Kersten, 40 Cal.App.3d 1014, 1026, 115 Cal.Rptr. 653, 661 (1974); Johnson v. North Bank, 99 Ill.App.3d 320, 323, 55 Ill.Dec. 220, 221, 426 N.E.2d 4, 5 (1981); Orefice v. First Ntl. City Bank, 37 App.Div.2d 830, 325 N.Y.S.2d 281,...

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