Mackey-Woodard, Inc. v. Citizens State Bank of Cheney

• Decision Date: 05 November 1966
• Docket Number: MACKEY-WOODAR,INC,No. 44555,44555
• Citation: 197 Kan. 536,419 P.2d 847
• Parties: , Appellant, v. CITIZENS STATE BANK OF CHENEY, Appellee, and Elma Jean MACKEY, Third-Party Defendant.
• Court: Kansas Supreme Court

Page 847

419 P.2d 847

197 Kan. 536

MACKEY-WOODARD, INC., Appellant, v. CITIZENS STATE BANK OF CHENEY, Appellee and Elma Jean MACKEY, Third-Party Defendant.

No. 44555.

Supreme Court of Kansas.

Nov. 5, 1966

Syllabus by the Court

1. In the absence of negligence, laches or estoppel, a collecting bank which cashes a check on a forged or unauthorized indorsement of the payee, and procures the proceeds thereof from the drawee, is liable to the payee, the true owner of the check.

2. A collecting bank which cashes a check on a forged or unauthorized indorsement of the payee acquires no title whatever to the check because the indorsement, its only source of title, is a nullity. The collecting bank is therefore wrongfully in possession of the check and in equity and in good conscience holds it for the payee.

3. Where the intervening bank under the circumstances related in Syllabus 2 collects on the check from the drawee bank, and credits the collection to the wrongdoer, the collecting bank necessarily assumes dominion over the check inconsistent with the payee's control over his own property, thus constituting it a conversion.

4. Where the collecting bank under the circumstances related in Syllabus 2 and 3, while in possession of the check which it has converted, by means of the forged or unauthorized indorsement collects on it from the bank upon which it is drawn, the collecting bank holds the proceeds of the collection in the same way for the payee as it held the check, and that relationship creates a privity between the collecting bank and the payee. If the payee elects to ratify the collection of the check by the intervening bank, the payee may recover from the intervening bank the amount collected as for money had and received without regard to any question of good faith, or of notice or knowledge or duty of inquiry, notwithstanding the fact that the collecting bank may have parted with the money in good faith.

5. On the facts related in Syllabus 1 the payee has an election of remedies to proceed either in tort or in contract against the collecting bank. If the payee elects to waive its remedy for the conversion of the check and prosecutes the action to recover for the proceeds of the check as for money had and received, it is an irrevocable election whereby the payee is confined to the remedy which it thus elected to prosecute.

6. The petition in an action by the payee to recover from a collecting bank, which cashed a check on an unauthorized indorsement of the payee, and procured the proceeds of the check from the drawee which it misapplied to the personal use of the wrongdoer, is examined, and held to state a cause of action sounding in contract, which is not barred by the statute of limitations in that it was commenced within three years from the transaction in question.

7. Where the defendant in an action tried to the court without a jury moves for involuntary dismissal of the action at the close of the plaintiff's case pursuant to the provisions of K.S.A. 60-241(b), based on the ground that upon the facts and the law the plaintiff has shown no right to relief, the trial judge has the power to weigh and evaluate the evidence in the same manner as if he were adjudicating the case on the merits and making findings of fact at the conclusion of the entire case, overruling Pennsylvania National Mutual Cas. Ins. Co. v. Dennis, 195 Kan. 594, 408 P.2d 575.

Thomas A. Wood, Wichita, argued the cause, and Paul V. Smith, Douglas E. Shay, William C. Farmer, Leo R. Wetta, James R. Schaefer, and Larry L. Witherspoon, Wichita, were with him on the brief for appellant.

Robert C. Foulston and Benjamin C. Langel, Wichita, argued the cause, and George B. Powers, Carl T. Smith, John F. Eberhardt, Stuart R. Carter, Malcolm Miller, Robert N. Partridge, Robert M. Siefkin, Richard C. Harris, Gerald Sawatzky, Donald L. Cordes, Robert L. Howard, Charles J. Woodin, Mikel L. Stout, Ronald K. Badger and Phillip S. Frick, Wichita, were with them on the brief for appellee.

Eugene G. Coombs, William H. Dye and John M. Reiff, Wichita, were on the brief for third-party defendant.

SCHROEDER, Justice.

This is an action by the corporate payee of a check to recover the proceeds of the check in the sum of $22,879.62 with interest from a collecting bank which cashed the check and procured payment thereof from the drawee bank upon an unauthorized indorsement of the corporate payee. Appeal has been duly perfected from an order of the trial court which sustained the collecting bank's motion for involuntary dismissal at the close of the plaintiff's evidence on the ground that the action was barred by the two-year statute of limitations. (K.S.A. 60-513.)

The basic question on appeal is whether the petition and the plaintiff's evidence presented pursuant thereto are sufficient to permit recovery on the theory of contract.

If the answer to the foregoing question is in the affirmative, the three-year statute of limitations under K.S.A. 60-512 is applicable and the action is not barred. On the other hand, if the answer is in the negative and the nature of the action sounds in tort, or must be founded on a tort theory, the two-year statute of limitations under 60-513, supra, is applicable, and the action is barred because it was not commenced within two years after it accrued.

The petition filed on the 22nd day of June, 1964, in the district court of Sedgwick County reads:

'1. On July 6, 1961, Frank C. Brosius Co., Inc., drew a check on the Fourth National Bank & Trust Company, payable to the order of the plaintiff in the amount of $22,879.62.

'2. On about July 6, 1961, Charles A. Mackey, who was then the President of the plaintiff corporation, received the check and without authority, endorsed it 'Mackey-Woodard, Inc., Charles H. Mackey', and without authority deposited the check to his personal account in the defendant, Citizens State Bank of Cheney.

'3. On about July 6, 1961, the defendant, Citizens State Bank of Cheney accepted the check from Charles H. Mackey and placed it to his personal credit. In the due course of banking business, the check was paid by the drawee, Fourth National Bank & Trust Company and the defendant, Citizens State Bank of Cheney collected the check and placed the $22,879.62 in proceeds thereof in the personal account and to the personal credit of Charles H. Mackey.

'4. Thereafter, the defendant, Citizens State Bank of Cheney applied the proceeds of the check to the payment of checks drawn by Charles H. Mackey personally for the personal benefit of Charles H. Mackey. The defendant thereby misappropriate the proceeds and converted them to the personal use of Charles H. Mackey.

'5. The defendant accepted and collected the check with notice that the check and the $22,879.62 in proceeds thereof were the property of the plaintiff and the defendant with such notice, deposited the check and placed its proceeds to the personal credit and account of Charles H. Mackey and converted the proceeds to the personal use of Charles H. Mackey.

'6. The conversion of the proceeds of the check was concealed from the plaintiff by Charles H. Mackey and the defendant and did not become reasonably ascertainable to the plaintiff until the death of Charles H. Mackey on February 14, 1963.

'7. On June 18, 1964, plaintiff duly demanded payment of the sum of $22,879.62 from the defendant, but no part thereof has been paid.

'Wherefore, plaintiff demands judgment against defendant in the amount of $22,879.62 together with interest at the rate of 6% per annum from July 6, 1961 together with the costs of this action.'

The answer, among other things, alleged the plaintiff's claim was barred by the statute of limitations.

The issue on appeal is focalized in the petition. And for purposes of our review it may be said the plaintiff's evidence and the findings of the trial court, except as hereinafter noted, establish the allegations of the petition.

The pertinent facts giving rise to the transaction in question may be summarized as follows:

At the time Mackey-Woodard, Inc. (plaintiff-appellant) was organized as a corporation in 1960, Charles Mackey was and had been a real estate developer and operator. Gail Woodard was a wealthy farmer and had cash to loan and invest. These men had in the past been engaged in various financial dealings. They, together with their wives, organized the corporation in question and designated the officers to be Charles Mackey, president; Gail Woodard, vice president; Elma Jean Mackey (wife of Charles), secretary; and Jean Esther Woodard (wife of Gail), treasurer.

Mackey conveyed his equity in two shopping centers, 'Maple Villa' and 'Maize Shopping Center,' in the Wichita area to the corporation in return for one-half of the common stock; and Mr. and Mrs. Woodard paid $60,000 in exchange for their one-half of the stock. At the time of incorporation, there was an existing mortgage on the Maple Villa Shopping Center held by Frank C. Brosius, Inc. in the approximate amount of $40,000 to $45,000. After the Maize Shopping Center was put in the corporation it was mortgaged to Gail Woodard for $50,000, but Woodard failed to record this mortgage. Both mortgages were entered on the books of the corporation.

Mackey, apparently aware that Woodard had failed to record his mortgage, then arranged a loan with the Frank C. Brosius Co., Inc. for $45,000 to be secured by a first mortgage on the Maize Shopping Center. The mortgage was executed by Charles Mackey, president, and his wife as secretary, and dated June 22, 1961.

On the first day the corporation did business, March 1, 1960, it issued numerous checks for large amounts to various persons, including a check to the defendant bank, a personal creditor of Mr. Mackey, in the amount of $12,000. The corporation did not owe any money at the time. It appears from the record that the corporation was thoroughly entwined with the financial affairs of its incorporators wherein...