Landrum v. Security Nat. Bank of Roswell

• Decision Date: 28 March 1985
• Docket Number: No. 7875,7875
• Parties: , 1 UCC Rep.Serv.2d 827 Victor F. LANDRUM, d/b/a Vic Landrum Trucking, Plaintiff-Appellee, v. SECURITY NATIONAL BANK OF ROSWELL, Defendant-Appellant.
• Court: Court of Appeals of New Mexico

Page 246

716 P.2d 246

104 N.M. 55, 1 UCC Rep.Serv.2d 827

Victor F. LANDRUM, d/b/a Vic Landrum Trucking, Plaintiff-Appellee, v. SECURITY NATIONAL BANK OF ROSWELL, Defendant-Appellant.

No. 7875.

Court of Appeals of New Mexico.

March 28, 1985.

Certiorari Quashed March 18, 1986.

Rod M. Schumacher, Lee M. Rogers, Jr., Atwood, Malone, Mann & Turner, P.A., Roswell, for defendant-appellant.

Ronald G. Harris, Ruidoso, Hinkle, Cox, Eaton, Coffield & Hensley, Roswell, for plaintiff-appellee.

OPINION

WOOD, Judge.

Victor F. Landrum (Landrum) had a checking account with Security National Bank of Roswell (Security). Landrum deposited checks into this account in February 1982. Landrum was not the payee of these checks. In August 1982, Security was informed that Landrum had forged endorsements on the checks deposited in February. "Forged Endorsement" affidavits were received by Security on August 27 and 30, 1982. Security put a "hold" on Landrum's checking account on August 27, 1982, and removed the "hold" on September 7, 1982. Security refused to honor fifteen checks, written on the checking account, which were presented during the "hold." Landrum sued Security for wrongful dishonor. At the conclusion of the evidence the trial court ruled as a matter of law that there had been a wrongful dishonor and so instructed the jury. Only the question of damages was submitted to the jury. The jury verdict was for $50,000. Security appeals. We (1) state the background; and (2) discuss the propriety of the ruling that there was wrongful dishonor as a matter of law. We reverse and remand for trial, with directions that the issue of wrongful dishonor be submitted to the jury. Because the evidence on retrial may be different, we do not decide the damage issues raised by Security.

BACKGROUND

Landrum is both a trucker and a truck broker. In early 1982 Landrum was the broker for R.W. Wheeler, Wheeler's sons, Dane and Ken, and Arnold Rose. They, along with Landrum, hauled materials for Yucca Oil Field Construction Company of Roswell (Yucca).

Yucca issued checks on its account with Security on February 12 and 22, 1982. The checks were payable to Dane Wheeler, Ken Wheeler, Rose and Landrum as individuals. The checks were in payment for services rendered. Either Landrum or his wife deposited these checks into Landrum's checking account with Security.

On August 27, 1982, Ken Wheeler executed an affidavit in connection with two checks issued by Yucca naming Ken as the payee. The affidavit is entitled a "Forged Endorsement Affidavit" and states that Ken "never received any benefit from or any value of said check or any part thereof, and further states that he did not present said check for negotiation or payment." Similar affidavits were executed by Dane Wheeler and Arnold Rose on August 30, 1982. Before executing the affidavit on August 27, 1982, Ken Wheeler and his father appeared at the bank. Ken stated that his endorsement had been forged and he wanted "that money back * * *." Security did not comply with this demand.

A "hold" was placed on Landrum's checking account on August 27, 1982. The supervisor of Security's bookkeeping department explained the hold on the basis of Ken Wheeler's claim. "[I]f the bank had done something wrong and accepted these checks over forged endorsements, that the bank still might have some liability regardless of the fact that six months had occurred * * *." The supervisor testified that the Wheeler claim would not have resulted in a chargeback to Landrum's account unless Landrum would have agreed to it. The supervisor attempted to contact either Mr. or Mrs. Landrum on August 27 concerning the claim, but was unsuccessful. We do not review Security's attempts to contact Landrum in this appeal. Those attempts, however, are relevant to the reasonableness issue to be decided upon remand.

The checks that were dishonored began arriving at Security on August 30, 1982. The notice rejecting payment stated "refer to maker." Fifteen checks were dishonored; most of the checks were written to merchants in Cuba, New Mexico, where Landrum was working at the time. The "hold" was lifted on September 7, 1982.

Testimony at trial is to the effect that the forged endorsement affidavits were false. There is testimony that the two Wheeler sons and Rose had received cash payment from Landrum for the pay period covered by the checks and that Landrum had authority to deposit the checks into Landrum's account. There is testimony that difficulties arose between Landrum and the Wheelers while working on the job at Cuba, that Landrum fired the Wheelers, that the forged endorsement claims were made as retaliation for the firing. The fact that the affidavits were false was not known by Security at the time of the "hold." What Security knew at the time of the "hold" was that a claim had been made that Landrum had deposited checks with allegedly forged endorsements.

WRONGFUL DISHONOR AS A MATTER OF LAW

Statutory citations are to NMSA 1978 unless otherwise specifically noted. Security was the payor bank, see Section 55-4-105, both for Yucca's checks and Landrum's checks. Section 55-4-402 provides that a payor bank (Security) is liable to its customer (Landrum) for damages proximately caused by wrongful dishonor.

A dishonor is wrongful if "done in a wrong manner, unjustly, unfair, in a manner contrary to justice." Allison v. First National Bank in Albuquerque, 85 N.M. 283, 287, 511 P.2d 769 (Ct.App.), rev'd on other grounds, 85 N.M. 511, 514 P.2d 30 (1973). The Official Comment to Section 55-4-402 states that wrongful dishonor "excludes any permitted or justified dishonor * * *."

Landrum contends that failure to pay the fifteen checks was a wrongful dishonor. One of his theories is that Security charged back his checking account because the balance in his account was not enough to pay both the dishonored checks and the amount of the checks bearing the allegedly forged endorsements. Landrum asserts the charge-back violated Section 55-4-212 because there had been final payment not later than early March 1982. See Sec. 55-4-213. This argument overlooks the undisputed testimony that a charge-back did not occur. What Security did was "freeze" the account by refusing to pay checks on the account during the "hold." The alleged violation of Section 55-4-212 does not support the ruling of wrongful dishonor.

Landrum's main theory of wrongful dishonor is that Security improperly placed a hold on his checking account on the basis of the forged endorsement claims. He asserts that our adverse claim statute, Section 58-1-7, barred any recognition of the claims because those claims were not made in compliance with Section 58-1-7. Security's position is that Section 58-1-7 does not apply.

Security asserts (1) that its "hold" on the basis of the forged endorsement claims was authorized by the common law and that the adverse claim statute did not supplant the common law; (2) the adverse claim statute imposed no duty on Security to its depositor Landrum; and (3) the adverse claim statute did not apply to the forged endorsement claims in this case. These contentions, well briefed and argued by both parties, determine whether there was a wrongful dishonor as a matter of law.

1. Relation of the adverse claim statute to the common law.

The parties agree that under the common law Security could have temporarily frozen Landrum's account. What was the common law rule?

The syllabus by the court in Huff v. Oklahoma State Bank, 87 Okl. 7, 207 P. 963, 963 (1922), states:

Where money is deposited in a bank to the credit of one person, and thereafter the bank receives notice that it is claimed by another, the bank upon proper notice is bound to hold the deposit a sufficient length of time to afford such person opportunity to assert his claim, and if the party has a reasonable time allowed him for the purpose of asserting his claim, and fails to do so, the bank may pay the deposit to the depositor without any liability to the adverse claimant.

Stevenson v. First National Bank of Washington, 395 A.2d 21, 23 (App.D.C.1978), states:

When a bank has notice of an adverse claim to the money in one of its depositor's accounts it attempts to determine which party has the superior right at its own peril, for it will be held liable if it pays out the account erroneously. See Jaselli v. Riggs National Bank, 36 App.D.C. 159, 170-71 (1911). A bank, finding itself in the position of a stakeholder between two claimants, can avoid the potential liability for making an erroneous payment by either of two methods. Either it can interplead the claimants or it can freeze its depositor's account briefly to permit the adverse claimant to file suit. Gender [sic] v. Sibley State Bank, 62 F.Supp. 805, 815 (N.D.Iowa 1945). "Under the majority rule the only duty owed by the bank to the plaintiff was, after notice, to hold up the ... deposit for such time as would enable the plaintiff by proceeding diligently and promptly to tie up the deposit by legal action." Id. Upon notice of a claim a bank can delay in paying out of the contested account for only a reasonable and brief period. See Huff v. Oklahoma State Bank, 87 Okl. 7, 207 P. 963 (1922) (upholding a jury finding that nine days was too long). If the innocent bank may incur liability by paying out erroneously on what appears to be a justified claim, and cannot avoid liability by honoring its deposit contract, it ought not to have to risk liability when it preserves the situation long enough for a judicial resolution of the primary dispute to be initiated. In this regard it makes no difference whether the parties file suit or the bank interpleads them. Goldstein v. Riggs National Bank, 148 U.S.App.D.C. 137, 459 F.2d 1161 (1972).

See also Gendler v. Sibley State Bank; Sanders v. First National Bank & Trust Co. of Tulsa, 292 P.2d 160 (Okl.1955).

At oral argument, Landrum conceded that the trial court's matter of law ruling was...