First Rome Bank v. Reese Oil Co., Inc.

• Court: Georgia Court of Appeals
• Writing for the Court: ANDREWS; BIRDSONG, P.J., and BEASLEY
• Citation: First Rome Bank v. Reese Oil Co., Inc., 426 S.E.2d 384, 206 Ga.App. 667 (Ga. App. 1992)
• Decision Date: 23 November 1992
• Docket Number: No. A92A0878,A92A0878
• Parties: , 20 UCC Rep.Serv.2d 527 FIRST ROME BANK v. REESE OIL COMPANY, INC.

Page 384

426 S.E.2d 384

206 Ga.App. 667, 20 UCC Rep.Serv.2d 527

FIRST ROME BANK v. REESE OIL COMPANY, INC.

No. A92A0878.

Court of Appeals of Georgia.

Nov. 23, 1992.

Reconsideration Denied Dec. 9, 1992.

Hine, Carroll & Niedrach, John E. Niedrach, Rome, for appellant.

Shaw, Maddox, Graham, Monk & Boling, James D. Maddox, Rome, for appellee.

ANDREWS, Judge.

First Rome Bank, defendant below, appeals the grant of partial summary judgment to Reese Oil Company, Inc. on a claim for conversion under OCGA § 11-3-419.

Viewed in favor of the bank, opponent of summary judgment, the undisputed facts were that Reese Oil had an account with First Rome. Reese Oil supplied First Rome with its corporate authorization, which showed three authorized signers for the account: Sam Reese, Jr., president and sole stockholder of the company; W.C. Reese, Sam's brother and vice-president of the company; and Dorothy Reese, Sam's wife and secretary-treasurer of the company. That authorization allowed any of these three to "[e]ndorse checks and orders for the payment of money and withdraw funds on deposit...."

In late 1988, Sam Reese hired Lisa Raper, the wife of the executive vice-president of First Rome, to work in the office of Reese Oil. Among her responsibilities were opening the mail, posting customers' payments on their accounts, noting on the office ledger with a "P" when amounts had been posted to the customer's account, filling out receipts for the customers, making out deposit slips and taking the deposits to the bank, and reconciling monthly bank statements. There was an endorsement stamp used for the deposits, which read "Reese Oil Co., 1206 N. 5th Ave., Rome, Ga. 30161." Sam Reese had occasionally cashed out checks payable to Reese Oil and bearing the endorsement stamp. He would go inside the bank and personally endorse his name under the stamp.

From July to December 1989, Raper presented numerous checks payable to Reese Oil to First Rome, bearing only the stamped endorsement, and received cash instead of depositing them into the company account, which she was not authorized to do. The defalcation resulted in a loss of over $20,000 to Reese Oil.

Because of its record-keeping system and the fact that Reese Oil had one store which was set up on an electronic funds transfer basis, whereby receipts were sent to Houston and then funds electronically transferred back to the Reese Oil account in Rome, there was no method by which it could be determined if receipts from all sources equaled the bank deposits.

The training manual used by First Rome, as well as other industry publications used in its teller training, provided that "[s]tamped or typed endorsements are acceptable for deposit purposes only[;]" that checks marked "for deposit only" were accepted only for deposit; and generally, "[c]hecks made payable to corporations, businesses, and other organizations should never be cashed by a teller." The president of First Rome stated that these manuals and publications were "non-binding guidelines for practices and procedures," and that the preferences and requests of the bank's customers were also an important consideration in banking procedures.

During this six-month period, First Rome sent six bank statements to Reese Oil. Since his fiscal year ended in September, Sam Reese checked his statements more closely then and noticed a discrepancy between total receipts and monthly deposits, but he assumed it was attributable to the lag in receipt of proceeds from his credit card sales.

There was also an incident in which Sam Reese suspected that a check from Binkley's Exxon had not been deposited into the First Rome account. When Binkley received his statement and Sam Reese examined the check, it bore the stamped endorsement, so he "just assumed that I had --that the check had gone through the normal channels of deposit and that I had just made a mistake."

Reese Oil's motion for partial summary judgment contended that First Rome's cashing of checks payable to a corporate payee, endorsed only by rubber stamp, was not in accordance with reasonable commercial standards of banking as a matter of law and, therefore, First Rome was not entitled to the benefit of the affirmative defense of OCGA § 11-3-419(3).

In granting summary judgment, the court focused on that section and concluded that the conduct of First Rome was "commercially unreasonable as a matter of law," and that First Rome "may not avail itself of the defense of good faith and reasonable commercial standards as a matter of law," relying on Trust Co. Bank v. Henderson, 185 Ga.App. 367, 364 S.E.2d 289 (1987), aff'd 258 Ga. 703, 373 S.E.2d 738 (1988); Nat. Bank of Ga. v. Refrigerated Transport, 147 Ga.App. 240, 248 S.E.2d 496 (1978); and APCOA v. Fidelity Nat. Bank, 703 F.Supp. 1553 (N.D.Ga.1988), aff'd 906 F.2d 610 (11th Cir.1990).

1. First Rome contends that the trial court's conclusion that OCGA § 11-3-406 was inapplicable to this situation is erroneous.

OCGA § 11-3-406 provides that "[a]ny person who by his negligence substantially contributes to a material alteration of the instrument or to the making of an unauthorized signature is precluded from asserting the alteration or lack of authority against ... a drawee or other payor who pays the instrument in good faith and in accordance with the reasonable commercial standards of the drawee's or payor's business."

The court below concluded, as do we, that Raper was authorized to place the endorsement stamp on the checks. "The question of to what use [Raper] was ultimately authorized to put an instrument ... after [s]he had placed the corporate indorsement on it is separate and distinct from the question of whether [s]he was authorized to indorse the instrument in the first instance." Bank South v. Midstates Group, 185 Ga.App. 342, 345(1), 364 S.E.2d 58 (1987). The evidence showed that Raper was authorized to stamp the checks and deposit them, the lack of authorization was only as to obtaining cash in lieu of depositing the checks to the...