Maynard Inv. Co. v. McCann

• Decision Date: 19 February 1970
• Docket Number: No. 39676,39676
• Citation: 465 P.2d 657,77 Wn.2d 616
• Parties: MAYNARD INVESTMENT CO., Inc., a Washington corporation, Appellant, v. Marshall McCANN, doing business as E. M. Company, and Jane Doe McCann, husband and wife; and William E. Legg and Jane Doe Legg, husband and wife; the National Bank of Commerce, a national banking corporation; Peoples National Bank, a national banking corporation, Respondents.
• Court: Washington Supreme Court

Page 616

77 Wn.2d 616

465 P.2d 657

MAYNARD INVESTMENT CO., Inc., a Washington corporation, Appellant, v. Marshall McCANN, doing business as E. M. Company, and Jane Doe McCann, husband and wife; and William E. Legg and Jane Doe Legg, husband and wife; the National Bank of Commerce, a national banking corporation; Peoples National Bank, a national banking corporation, Respondents.

No. 39676.

Supreme Court of Washington, En Banc.

Feb. 19, 1970.

Rehearing Denied April 24, 1970.

Haggarty, Hess & Shuey, Jerry T. Haggarty, Seattle, for appellant.

MacBride & Sax, D. Gordon Willhite, McCord, Moen, Sayre, Hall & Rolfe, John R. Martin, Jr., Erik Froberg, Seattle, for respondents.

ROSELLINI, Judge.

This appeal involves a question as to the rights and duties of a drawee, a payor, and a transferor of checks negotiated without the endorsement of the payees.

The plaintiff is the drawer of one of the checks in question and is assignee of the drawer of the other check, seeking recovery of the moneys represented by the checks. At the conclusion of the plaintiff's case, a challenge to the sufficiency of the evidence was sustained, findings of fact and conclusions of law were entered, and the cause dismissed. The plaintiff appeals, challenging the right of the court to enter findings and conclusions, challenging certain findings, and assigning error to the dismissal.

The plaintiff is the owner of a building in Seattle in which the 'Round the Clock' restaurant is housed as a tenant. The defendant Marshall McCann is a building contractor doing business as E. M. Company, who entered into a contract with the plaintiff to remodel the front of the restaurant.

The plaintiff had a cost-sharing agreement on this project with the restaurant owner, Clark's Restaurant Enterprise. The first progress estimate under the building contract was $11,345.03. In payment thereof, the plaintiff issued its check for $10,000 payable to E.M. Company, drawn on the defendant Peoples National Bank of Washington, and Clark's Restaurant issued its check for $1,345.03, payable to E.M. Company, drawn on the defendant The National Bank of Commerce. Both checks were delivered to Mr. McCann personally on September 24, 1964. On the same day, Mr. McCann delivered the checks to defendant William E. Legg, but without endorsement of any kind. Mr. Legg immediately deposited the checks in a 'William E. Legg Special Account' in the Ballard Branch of The National Bank of Commerce, where the total amount was held intact until after October 9, 1964.

The funds were later transferred by Mr. Legg to the checking account of E.M. Company at the Ballard Branch of Peoples National Bank. The entire proceeds from the two checks in issue were drawn from this latter account by Mr. Legg (an authorized signatory) and used to pay creditors of E.M. Company. However, not all of these funds went to creditors on the restaurant project. As a result the plaintiff was faced with lien claims. The plaintiff received full credit on the construction contract for the amount of the two checks.

It is important to understand the relationship which existed between Mr. McCann and Mr. Legg during this time. Prior to the date of this restaurant project, Mr. McCann had bid two other jobs but did not have sufficient bonding capacity to meet the contract terms. Mr. Legg signed as guarantor on Mr. McCann's performance bonds for these two jobs. Financial difficulties arose causing the bonding company to intercede and control the application of Mr. McCann's funds. The bonding company asked Mr. Legg to furnish funds under his guarantee and he deposited $28,000 of his money into the E. M. Company checking account at the Ballard Branch of Peoples National Bank. This account was the only business account of Mr. McCann. Upon deposit of these funds, the bonding company withdrew from its participation and Mr. Legg began to assert some control.

The bank's signature card on the E. M. Company checking account in Ballard Branch of Peoples National Bank, dated September 10, 1964, authorized Mr. Legg to draw checks thereon alone and further authorized him to endorse checks for E. M. Company.

On September 11, 1964, a meeting was held to discuss Mr. McCann's financial plight. In attendance were Mr. McCann, his accountant and his lawyer; Mr. Legg and his accountant. They were concerned, among other matters, that funds in E. M. Company account might be tied up by creditors. The William E. Legg Special Account, into which the two checks in issue were deposited, was created.

On September 16, 1964, Mr. McCann and Mr. Legg executed an agreement under the terms of which Mr. McCann assigned to Mr. Legg the net receivables from various jobs including the Round the Clock restaurant project. On October 9, 1964, this agreement was amended to 'release William E. Legg from any obligation to apply any of the proceeds from the accounts and contracts receivable assigned by Marshall P. McCann to William E. Legg to the payment of any bills attributable to the job generating the funds being applied.' It was after the signing of this amendatory agreement and the specific assignment of the restaurant contract moneys that Mr. Legg transferred the entire proceeds of the two checks into the E. M. Company account and then disbursed the funds to creditors of Mr. McCann. ¹

The plaintiff's challenge to the right of the court to enter findings of fact and conclusions of law is not well taken. Upon a challenge to the sufficiency of the evidence at the end of a plaintiff's case in a nonjury trial, the court may rule either as a matter of law without weighing the evidence or weigh the evidence and enter findings and conclusions based thereon. N. Fiorito Co. v. State, 69 Wash.2d 616, 419 P.2d 586 (1966). It is clear that the court did weigh the evidence and properly entered findings of fact and conclusions of law.

The findings of fact challenged by the plaintiff relate to the authority of Mr. Legg to negotiate or transfer the checks without Mr. McCann's endorsement; the understanding that Mr. Legg would create a special account in the Ballard Branch of The National Bank of Commerce; that all moneys from the two checks were transferred to the E. M. Company account in the Ballard Branch of Peoples National Bank and from there used to pay creditors of Mr. McCann; and that such disbursement was with the approval of Mr. McCann. Although Mr. McCann at one point categorically denied the authority of Mr. Legg, there is ample, substantial and independent evidence to support these findings and they will not be disturbed on appeal.

The gravamen of the plaintiff's position on this appeal is that the defendant banks violated their duty to it by honoring and paying checks without obtaining the endorsement of the payee. It cites 10 Am.Jur.2d Banks §§ 539, 555 (1963); 5A Michie on Banks and Banking, § 181, at 448 (1950), and cases typified by American Nat'l Bank of Denver v. First Nat'l Bank of Denver, 130 Colo. 557, 277 P.2d 951 (1954). However, compliance with this admitted duty of a drawee bank or a paying bank may be fulfilled without the payee's endorsement. True, a bank honoring or paying a negotiable instrument without the payee's endorsement assumes the burden of proving that the payment was In fact authorized by the payee. As was recognized in Coplin v. Maryland Trust Co., 222 Md. 119, 122, 159 A.2d 356, 358 (1960):

It has long been held that, despite the almost universal custom of requiring a payee to indorse a check before payment, a bank is protected if it pays without indorsement, as long as the payee actually receives the money ordered by the drawer to be paid.

There is conclusive evidence that all of the funds represented by these two checks were paid to the creditors of the payee, as the payee and transferee had agreed. The cause against the National Bank of Commerce was properly dismissed.

As to the defendants Legg, we are of the opinion that RCW 9.54.080 compels a different result. At the original hearing before a department of this court, the question of the above statute was raised sua sponte by the court. The court was informed that the issue had not been raised in the trial court and thus it was contended that it could not be considered in the supreme court. On rehearing en banc, the issue was argued.

Normally the rule is that an issue or theory not presented to the trial court will not be considered by the supreme court for the first time on appeal. However, this rule is not inexorable and has its limitations.

In Morrill v. Title Guar. & Sur. Co., 94 Wash. 258, 162 P. 360, 163 P. 733 (1917), it was held that where the facts are before the supreme court, it is not necessary to remand with permission to make a permissible amendment of a cross-complaint but judgment may be given '(as) the justice of the case requires,' under Rem.Code § 406. In Holzer v. Rhodes, 24 Wash.2d 184, 163 P.2d 811, 172 A.L.R. 1173 (1945), it was held that, as a general rule, questions not raised in the court below will not be considered on appeal; however, this rule does not apply when the question raised affects the right to maintain the action. In Wright v. Corbin, 190 Wash. 260, 67 P.2d 868 (1937), it was held that the question of illegality of the contract sued on may be raised at any time, when the fact of its illegality has been made to appear.

In 5 Am.Jur.2d Appeal and Error §§ 548--49, 551 (1962) it is said:

The ordinary rule that errors not raised below will not be considered on appeal has been treated as subject to an exception where the matter raised for the first time on appeal was of such a character as to render the judgment of the lower court void, as where the court had no jurisdiction of the subject matter. The principle that an objection not taken in the trial court is not available on appeal or review has also been held inapplicable where the record discloses a combination of gross irregularities, including the filing of...