Godat v. Mercantile Bank of Northwest County

• Decision Date: 05 July 1994
• Docket Number: No. 63696,63696
• Citation: Godat v. Mercantile Bank of Northwest County, 884 S.W.2d 1 (Mo. App. 1994)
• Parties: 24 UCC Rep.Serv.2d 385 David L. GODAT, Plaintiff/Appellant, v. MERCANTILE BANK OF NORTHWEST COUNTY, Defendant/Respondent.
• Court: Missouri Court of Appeals

Page 1

884 S.W.2d 1

24 UCC Rep.Serv.2d 385

David L. GODAT, Plaintiff/Appellant, v. MERCANTILE BANK OF NORTHWEST COUNTY, Defendant/Respondent.

No. 63696.

Missouri Court of Appeals,

Eastern District,

En Banc.

July 5, 1994.

Motion for Rehearing and/or Transfer to

Supreme Court Denied Aug. 22, 1994.

Application to Transfer Denied

Oct. 25, 1994.

Kenneth Leeds, Preston Roskin, Roskin & Leeds, St. Louis, for appellant.

David Wells, Mike W. Bartolacci, Thompson & Mitchell, St. Louis, for respondent.

SMITH, Judge.

Plaintiff, David Godat, appeals the action of the trial court granting judgment notwithstanding the verdict in favor of defendant, Mercantile Bank of Northwest County (Mercantile). The jury had returned a verdict for plaintiff in the amount of $200,000. The trial court also conditionally granted defendant's motion for new trial on the basis that the verdict was against the weight of the evidence. We affirm.

In this case we review the facts and the inferences to be drawn therefrom in the light most favorable to the verdict and the party who prevailed before the jury. Stark v. American Bakeries Co., 647 S.W.2d 119 (Mo. banc 1983) . We set forth the facts within that framework.

Kevin Hasty was a stockbroker with whom Godat transacted business for many years. In the late 1970's Godat invested approximately $70,000 with Hasty. Some of the investments made by Hasty were profitable but many purportedly made were fictitious. Hasty represented to Godat that the investments were profitable and in fact Godat received from Hasty payments of approximately $280,000. At trial Hasty testified that after early 1982 he no longer had any of Godat's money; however he continued to represent to Godat that Godat's investment balance was in excess of $500,000. Hasty furnished documents showing such investment balances and Godat may have paid taxes on the "profits" from these investments.

Early in 1985 Hasty discussed an investment opportunity with Godat. Godat agreed that he would transfer $200,000 from his investment "account" with Hasty to this new investment. To accomplish this Hasty was to obtain a cashier's check in that amount payable to Godat. On January 12, 1985, Hasty opened an account with Mercantile in the name of Colonial Investors. On January 25, he deposited into that account a check for $221,545 drawn on United Missouri Bank. Contrary to bank policy, the Mercantile teller did not place a hold order on the account. On January 29, Hasty purchased a $200,000 cashier's check from Mercantile payable to Godat. Hasty paid for this cashier's check with a check drawn to cash on the Colonial Investors Mercantile account.

The cashier's check was delivered to Godat that morning. He endorsed it and gave it to a courier service for delivery to Mark Twain Bank. Later that morning United Missouri Bank informed Mercantile it was dishonoring the check Hasty had deposited in the Colonial Investors Mercantile account. Mercantile contacted Godat by phone to advise him that Hasty had insufficient funds to cover his purchase of the cashier's check. Godat called Hasty, who then confessed his misdeeds in an effort to obtain the cashier's check back. Mercantile, which had learned that the check was to be deposited at Mark Twain Bank, notified Mark Twain of its intent to dishonor the cashier's check.

Godat brought this action against Mercantile to recover the face amount of the dishonored cashier's check. The jury returned a verdict in favor of Godat for $200,000. The trial court granted Mercantile's motion for judgment notwithstanding the verdict on the basis that Godat was not a holder in due course because he had not given value for the check, and was therefore subject to any viable defenses of Mercantile. Those, of course, included fraud and theft by Hasty in obtaining the check through his check kiting actions. The trial court alternatively granted Mercantile a new trial because the verdict was against the weight of the evidence.

Godat appealed. His sole point relied on was that the trial court erred in granting defendant's motion for judgment notwithstanding the verdict. No challenge was made to the court's conditional grant of Mercantile's motion for new trial. Division III of this court reversed the grant of judgment notwithstanding the verdict holding that plaintiff was a holder in due course. It also, sua sponte, reversed the grant of the motion for new trial on the basis that plaintiff was entitled to a directed verdict as a matter of law. Mercantile's motion for rehearing en banc was granted.

Commercial paper is a critical aspect of the operation of the capitalistic economy in this and other nations. The utilization, issuance, honoring and dishonoring of such documents is the means by which commerce is transacted. Rules concerning commercial paper, uniformly accepted and uniformly applied, have been in place going back to the law merchant of England from which many of our present rules found their origin. Following the previously codified Uniform Sales Act and Uniform Negotiable Instruments Law, the states of this country adopted the Uniform Commercial Code to regulate and codify the use of commercial paper as well as other aspects of commercial enterprise. Missouri has adopted that Code. The transaction here involved occurred in 1985. In 1992 the Uniform Commercial Code was substantially amended in Missouri. We must in this case apply the law as it existed in 1985, although it does not appear that the result would be altered by application of the present Code. Statutory references are to the Code as it existed in 1985.

Much of Godat's argument before us, consistent with his trial position, is premised upon the proposition that cashier's checks differ from other negotiable instruments and that protection of their use in commerce requires that they be impervious to dishonor. Some discussion is therefore warranted of the nature and legal status of cashier's checks. A cashier's check unlike an ordinary check is a check drawn by a bank on itself. The bank is both drawer and drawee. Acceptance of a draft (which includes checks) is the drawee's signed engagement to honor the draft as presented. Sec. 400.3-410. A cashier's check is accepted by the issuing bank by the mere act of its issuance. State ex rel. Chan Siew Lai v. Powell, 536 S.W.2d 14 (Mo. banc 1976) . In Chan Siew Lai the court dealt with a situation in which the remitter requested that the bank dishonor its cashier's check because of fraud practiced upon the remitter. The court held that because issuance of the check was acceptance by the issuing bank the provisions of Sec. 400.4-303, dealing with stop-orders, came into play and the bank could not after issuance stop payment. The court stated: "The nature and usage of cashier's checks in the commercial world is such that public policy does not favor a rule that would permit stopping payment of them." .

In Environmental Quality Research, Inc. v. The Boatmen's National Bank of St. Louis, 775 S.W.2d 199 (Mo.App.1989) this court was faced with a case in which an action was brought by a cashier's check holder against the bank issuing the check for dishonoring it and his own bank for debiting his account after the check was dishonored. The plaintiff subsequently dismissed his action against the issuing bank. Our court was confronted with the issue of whether, in view of the ruling in Chan Siew Lai, supra, an issuing bank could dishonor its own cashier's check. In a scholarly opinion by Judge Simon this court concluded that under very limited circumstances a bank could do so. The court distinguished Chan Siew Lai on the basis that when a bank issues a cashier's check the check becomes the primary obligation of the bank and the purchaser has no authority to countermand a cashier's check because of fraud allegedly practiced on the purchaser by the payee. Sec. 400.4-303 becomes applicable in that circumstance. We held, however, that statutory provision is for the purpose of settling the relative priorities of conflicting claims to a customer's account and not for the purpose of cutting off a bank's right to assert its own defenses against an instrument issued by it. The section prohibits the purchaser of the cashier's check from stopping payment on it because it is not the purchaser's check; it does not preclude the bank from dishonoring its own check. In making such holding we relied heavily upon Farmers and Merchants State Bank v. Western Bank, 841 F.2d 1433 (9th Cir.1987). In Environmental Quality Research we also quoted and adopted the following language from Rezapolvi v. First National Bank of Maryland, 296 Md. 1, 459 A.2d 183 (1983) :

"Despite the language in some opinions suggesting that a bank may never dishonor its cashier's check, courts have recognized that a bank may do so under very limited conditions. These are where the holder has dealt with the bank in connection with the transaction or is not a holder in due course, and where the cashier's check was obtained by fraud upon the bank or under certain circumstances, where there was no consideration given to the bank for the instrument." (Emphasis supplied).

We held that the action of plaintiff's bank in surcharging plaintiff's account for the amount of the dishonored cashier's check did not give rise to a cause of action against that bank. It is clear from Environmental Quality Research that in Missouri a bank may under limited conditions dishonor its cashier's check. ¹

There can be no question that the cashier's check was obtained by the fraud of Hasty. We then turn to whether the defendant may assert that defense against Godat. Sec. 400.3-306 provides that "Unless he has the rights of a holder in due course any person takes the instrument subject to ... (b) all defenses of any party which would be available in an action on a simple contract; ..." Sec. 400.3-305 provides that "To the extent that a holder is a holder in due course he takes the...