Dalton & Marberry, P.C. v. NationsBank, N.A.
| Decision Date | 03 November 1998 |
| Docket Number | No. 80723,80723 |
| Citation | 982 S.W.2d 231 |
| Parties | 37 UCC Rep.Serv.2d 1 DALTON & MARBERRY, P.C., Appellant-Respondent, v. NATIONSBANK, N.A., Respondent-Appellant. |
| Court | Missouri Supreme Court |
Thomas M. Schneider, Columbia, for appellant-respondent.
Ronald A. Norwood, St. Louis, Marvin E. Wright, Susan Ford Robertson, Columbia, for respondent-appellant.
This is a common law duty of inquiry action brought by Dalton & Marberry, P.C., against NationsBank. The trial court ruled in favor of Dalton & Marberry, following a jury verdict, and awarded $130,334.00. This appeal is before the Court upon transfer, after opinion, from the Court of Appeals, Western District.
Dalton & Marberry, an accounting firm in Columbia, Missouri, maintained an account at NationsBank (formerly known as Boatmen's Bank of Mid-Missouri) to perform payroll services for its clients. Between November 1989 and April 1994 Janet Hollandsworth, a former Dalton & Marberry staff accountant, embezzled $130,334.00 from this payroll account. Hollandsworth carried out the scheme by having Dalton & Marberry checks drawn on the bank signed by an appropriate signatory. After obtaining a signature on a check, which was made payable to the bank, Hollandsworth would take the check to the bank and obtain a blank cashier's check or a money order. She did this approximately 93 times in four and one-half years. Dalton & Marberry officers did not know about the scheme until May 1994. During the entire period, the bank did not inquire as to whether Hollandsworth was authorized to obtain blank cashier's checks or money orders in exchange for Dalton & Marberry's checks made out to the bank and drawn upon the bank.
Dalton & Marberry sued the bank, alleging negligence and conversion. Prior to trial, Dalton & Marberry dropped its conversion claim. The negligence claim, which was tried, alleged that the bank failed in its common law duty to inquire as to the authority of Hollandsworth to obtain money, by cashier's check or money order, from the account. Dalton & Marberry's legal theory is based upon Martin v. First National Bank in St. Louis, 358 Mo. 1199, 219 S.W.2d 312 (Mo.1949), although it somewhere along the way shifted from a tort theory to a contract theory. Either way, the theory is premised on Martin.
The bank asserted a number of affirmative defenses. Its main defense was that it qualified as a holder in due course, under section 400.3-306, RSMo 1994, which would bar Dalton & Marberry from recovery in negligence. The bank further asserted that Dalton & Marberry was contributorily negligent and estopped from recovery because it failed to discover the embezzlement scheme for a period of over four and one-half years.
Prior to trial, the trial court excluded evidence of contributory negligence from the case, on the authority of Martin, supra. The trial court's verdict directing instruction submitted the bank's duty to inquire as follows:
Your verdict must be for plaintiff if you believe:
First, defendant failed to inquire of Dalton & Marberry as to the authority of Janet Hollandsworth to obtain blank money orders and cashier's checks, and
Second, as a direct result of such conduct plaintiff sustained damage, unless you believe plaintiff is not entitled to recover by reason of Instruction Number 7.
Instruction Number 7, which is referred to as the bank's "apparent authority" affirmative defense, provides:
Your verdict must be for defendant if you believe that Janet Hollandsworth, in presenting checks to defendant Boatmen's Bank of Mid-Missouri and obtaining cashier's checks and money orders, acted within the course and scope of agency as a staff accountant with plaintiff.
Acts of Janet Hollandsworth were within the "scope and course of agency" as that phrase is used in this instruction if:
First, the conduct of plaintiff Dalton & Marberry was such that an ordinarily careful and prudent person would believe that Janet Hollandsworth had authority to perform such acts on behalf of plaintiff or its clients, and
Second, defendant Boatmen's Bank of Mid-Missouri reasonably relied on such conduct of plaintiff Dalton & Marberry at the time of the transactions mentioned in the evidence.
While Dalton & Marberry's pleadings denominated this as a negligence action, its jury instructions--- which were given by the trial court--- did not submit the issue of negligence, although the court's verdict form refers to this as a "negligence" action. The bank objected to the failure to submit negligence as part of the plaintiff's verdict directing instruction, but the bank does not directly present that point in this appeal. The bank's point on this appeal, relating to negligence, asserts error in the trial court's failure to allow evidence on the issue of contributory negligence. 1
The jury returned a verdict in favor of Dalton & Marberry in the amount of $130,334.00. The trial court rejected Dalton & Marberry's request for prejudgment interest in the amount of $45,831.41; Dalton & Marberry sought prejudgment interest either on the theory that this is a "contract" action, under which section 408.020, RSMo 1994, would apply, or a "tort" action to which section 408.040, RSMo 1994, would apply. The bank sought credit for $37,084.57, the amount of restitution paid by Hollandsworth to Dalton & Marberry, which suffered losses on the embezzlement greatly in excess of the amounts withdrawn wrongfully from the bank. The bank's request for this credit was also rejected. The bank's motion for judgment notwithstanding the verdict and motion for new trial were overruled.
For reasons set forth below, we believe the common law claim for relief recognized in the Martin case survives, and in this case it is not subject to the holder in due course defense. However, the claim is subject to the defense of actual and apparent authority. We agree with the trial court's decision that contributory negligence is not a bar to recovery. However, the defendant bank should have been given the opportunity to present evidence that its breach of duty was not the cause of all of plaintiff's losses and that plaintiff's own conduct contributed to cause some part of its losses. For this reason, we reverse and remand to the trial court for a new trial.
The common law duty of inquiry recognized in the Martin case is still good law. Martin arose from facts remarkably similar to the present case: Plaintiff's claim was that three checks drawn on and payable to the defendant bank were charged against plaintiff's account without plaintiff's authority or consent. Martin, supra at 314. There, as here, a miscreant bookkeeper obtained valid signatures of persons authorized to sign checks for the plaintiff, presented the checks payable to the bank, and received cashier's checks in the amount of the checks presented. Id. The basis of the plaintiff's claim in Martin, as here, is that the bank was negligent in failing to inquire as to the authority of the person who presented the checks made payable to the bank and received cashier's checks in exchange. Id. The Court stated that a payee bank is liable where a check is made payable to its order and the proceeds are diverted to a use other than that of the drawer-depositor, if the bank does so without authority emanating from the drawer-depositor. Id. at 318. See also, Utley Lumber Co. v. Bank of Bootheel, 810 S.W.2d 610, 612 (Mo.App.1991). A payee bank is liable if it fails to inquire as to the authority of an agent of the drawer-depositor who wrongfully diverts the proceeds of a check made payable to the order of the bank itself. Id. See, C.J.S. Banks and Banking, vol. 9, section 327, pp. 316-317 (1996). Missouri's common law duty of inquiry recognized in Martin is consistent with the majority of other jurisdictions. See, e.g., Transamerica Insurance Co. v. United States National Bank, 276 Or. 945, 558 P.2d 328, 333 (Or.1976). 2
Thus, in this case, the bank can be liable for failing to inquire as to the authority of Hollandsworth, the employee who embezzled the money from the checks made payable to the bank.
The bank's major contention is that it was shielded from liability by the holder in due course doctrine. Missouri's adoption of the Uniform Commercial Code (U.C.C.) did not extinguish the common law duty involved in this case. Section 400.3-302, RSMo 1994, states that:
(a) Subject to subsection (c) and Section 400.3-106(d), "holder in due course" means the holder of an instrument if:
(1) the instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and
(2) the holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in Section 400.3-306, and (vi) without notice that any party has a defense or claim in recoupment described in Section 400.3-305(a) ...
(g) This section is subject to any law limiting status as a holder in due course in particular classes of transactions.
A person other than a holder in due course who takes an instrument is subject to a claim of a property or possessory right in the instrument or its proceeds, including a claim to rescind a negotiation and to recover the instrument or its proceeds. Section 400.3-306, RSMo 1994. A person having rights of a holder in due course takes free of such claims to the instrument. Id.
Under the state's negotiable instruments law that pre-dated the U.C.C. and was in effect at the time of the...
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