Pamar Enterprises, Inc. v. Huntington Banks of Mich.
Decision Date | 20 March 1998 |
Docket Number | Docket No. 196202 |
Citation | 228 Mich.App. 727,580 N.W.2d 11 |
Parties | , 35 UCC Rep.Serv.2d 1298 PAMAR ENTERPRISES, INC., and East Jordan Iron Works, Inc., Plaintiffs-Appellants, v. HUNTINGTON BANKS OF MICHIGAN, Defendant-Cross-Defendant-Third-Party Plaintiff-Appellee, v. FIRST STATE BANK OF EAST DETROIT, Defendant-Cross-Plaintiff-Appellee, and J. Brothers Excavating, Inc., J. Brothers Trucking, Inc., and Patrick C. Jones, Third-Party Defendants. |
Court | Court of Appeal of Michigan — District of US |
Butzel Long (by Edward M. Kalinka), Birmingham, for Pamar Enterprises, Inc. and East Jordan Iron Works, Inc.
Bloomberg, Anderson, Moore & Bahorski, P.C. (by Jeffrey A. Bahorski), Mt. Clemens, for Huntington Banks of Michigan.
Bodman, Longley & Dahling LLP (by Kay E. Malaney), Troy, for First State Bank of East Detroit.
Before HOLBROOK, P.J., and REILLY and JANSEN, JJ.
Plaintiffs appeal as of right from a final judgment dismissing (1) plaintiffs' complaint against First State Bank of East Detroit (First State) pursuant to First State's motion for summary disposition, (2) First State's cross-complaint against Huntington Banks of Michigan (Huntington), and (3) Huntington's third-party complaint against J. Brothers Excavating, Inc., (JBE) and J. Brothers Trucking, Inc., (JBT). Plaintiffs also contest the trial court's earlier order dismissing plaintiffs' complaint against Huntington pursuant to Huntington's motion for summary disposition. We affirm in part and reverse in part.
Pamar Enterprises, Inc., (Pamar) was a general contractor on a public road construction project and JBE was one of the subcontractors on the project. East Jordan Iron Works, Inc., (East Jordan) delivered some construction materials to JBE for use on the project. In order to pay for those materials, Pamar prepared a check for $50,000 payable to JBE "and" East Jordan and presented it to JBE, intending that all of the proceeds would eventually be paid to East Jordan. The check was drawn on Pamar's account at First State, the drawee bank. Without the endorsement of East Jordan, JBE deposited the check (endorsed "for deposit only") into an account held by its "sister corporation," JBT, at Huntington, the depositary bank. When Huntington presented the check to First State through banking channels, First State paid the check from Pamar's account without the endorsement of East Jordan. JBE never paid East Jordan for the supplies, as had been intended by Pamar.
Subsequently, a dispute arose between JBE and Pamar regarding the construction project. On January 20, 1995, JBE filed a lawsuit against Pamar to collect payment for work it had allegedly performed under the contract (hereinafter the construction case). In response, Pamar filed a counterclaim against JBE, alleging a breach of the construction contract and a third-party complaint against JBT and Patrick Jones, an officer and shareholder of JBE and JBT, alleging that JBE, JBT, and Patrick Jones were liable for conversion with regard to the $50,000 that was supposed to have been paid to East Jordan. On June 22, 1995, the trial court dismissed Pamar's conversion claim on the ground that the issuer of a check cannot maintain a conversion claim for its proceeds. On September 25, 1995, the trial court entered an order, pursuant to a stipulation by the parties, providing, in part, (1) that Pamar would make a payment of $50,000 to East Jordan and (2) that Pamar was entitled to a "credit/back charge" against JBE for $117,982.07, attributable to construction materials provided by East Jordan. 1 On the same day, Pamar paid $50,000 to East Jordan, by way of a second check. In return, East Jordan agreed to waive its construction lien rights against Pamar. Because the stipulated order did not completely resolve the issues in the construction case, JBE and Pamar proceeded to trial. 2
On June 7, 1995, before Pamar agreed to pay the second $50,000 check to East Jordan, Pamar and East Jordan filed the instant suit against First State and Huntington, alleging that the banks were negligent and that they had violated various statutory duties in their handling of the first $50,000 check (hereinafter the bank case). Pamar and East Jordan alleged that East Jordan had been damaged in the amount of the $50,000 it never received as payment for the construction materials and that Pamar's damages consisted of the risk of injury it faced in the form of a possible claim by East Jordan against Pamar's construction bond. 3 On July 20, 1995, Huntington filed a third-party complaint in the bank case against JBE, JBT, and Patrick Jones, alleging breach of transfer warranties, misrepresentation, and fraud. On August 14, 1995, First State filed a cross-claim in the bank case against Huntington, alleging negligence, breach of transfer warranties, and breach of presentment warranties.
On August 31, 1995, JBE moved to consolidate the construction case and the bank case. This motion was granted on December 6, 1995. On October 23, 1995, after Pamar paid East Jordan the second $50,000 check for the construction materials, Huntington moved for summary disposition pursuant to MCR 2.116(C)(7), (C)(8), and (C)(10). On October 26, 1995, East Jordan assigned all of its rights to its claim in the bank case to Pamar, ostensibly in return for the $50,000 payment. 4 On November 6, 1995, First State joined in Huntington's motion for summary disposition and, on the same day, Pamar moved for summary disposition pursuant to MCR 2.116(C)(10). On February 5, 1996, the trial court entered an opinion and order denying Pamar's motion for summary disposition and granting Huntington's motion for summary disposition pursuant to MCR 2.116(C)(7). The trial court reasoned that summary disposition was appropriate because East Jordan had been paid for the construction materials and Pamar was not damaged because it received a credit for the payment pursuant to the September 25, 1995, stipulated order entered in the construction case. Finally, on April 30, 1996, the trial court granted First State's motion for summary disposition pursuant to MCR 2.116(C)(10), reasoning that neither Pamar nor East Jordan suffered damages as a result of First State's actions. On the same day, the trial court also denied First State's motion for summary disposition against Huntington on its cross-claim. The final judgment in the bank case, dismissing all the remaining claims, was issued on June 6, 1996.
On appeal, plaintiffs argue that summary disposition was improperly granted to both defendant banks. Specifically, plaintiffs contend (1) that both defendants are liable to plaintiffs for "wrongfully honoring the check" under M.C.L. § 440.3110(4); M.S.A. § 19.3110(4), (2) that both defendants are liable to East Jordan for conversion under M.C.L. § 440.3420; M.S.A. § 19.3420, and (3) that First State is liable to Pamar for conversion. Plaintiffs also argue that the defendant banks are liable to plaintiffs for interest on the damages for the period of the alleged conversion. We will address plaintiffs' arguments together.
Pursuant to M.C.L. § 440.3110(4); M.S.A. § 19.3110(4), an instrument made payable to two or more persons not alternatively, is payable to all of them and may be negotiated, discharged, or enforced only by all of them. When the word "and" separates the names of two payees on an instrument, the instrument is payable jointly and not alternatively. See M.C.L. § 440.3110; M.S.A. § 19.3110, Comment 4. In this case, because the check at issue was made payable to JBE "and" East Jordan, the endorsement of JBE alone was not sufficient to allow negotiation of the check. M.C.L. § 440.3110(4); M.S.A. § 19.3110(4); see also M.C.L. § 440.3420; M.S.A. § 19.3420, Comment 1. Although M.C.L. § 440.3110; M.S.A. § 19.3110 establishes to whom an instrument is properly payable, it does not address the circumstances under, or the extent to, which a bank may be held liable for improperly paying a check. Accordingly, defendants are not liable under M.C.L. § 440.3110(4); M.S.A. § 19.3110(4), though they may be liable under other sections of the Uniform Commercial Code, as adopted in Michigan.
A conversion is any distinct act of dominion wrongfully exerted over another person's personal property. Trail Clinic, PC v. Bloch, 114 Mich.App. 700, 705, 319 N.W.2d 638 (1982). Conversion does not necessarily imply a complete and absolute deprivation of personal property. There may be a deprivation that is only temporary, as where the plaintiff's personal property is restored to him. Even-Heat Co. v. Wade Electric Products Co., 336 Mich. 564, 572, 58 N.W.2d 923 (1953). A check is considered the personal property of the designated payee. Trail Clinic, supra at 705, 319 N.W.2d 638. Under M.C.L. § 440.3420(1); M.S.A. § 19.3420(1), an instrument is converted if a bank "makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment." Thus, a bank may be liable for conversion if it makes or obtains payment on a check that is payable to two payees, not alternatively, but endorsed by only one of the payees. See M.C.L. § 440.3420(1), Comment 1. Payment of a check with a missing endorsement is the legal equivalent of payment over a forged endorsement. Kelly v. Central Bank & Trust Co. of Denver, 794 P.2d 1037, 1042 (Colo.App., 1989); Mandelbaum v. P & D Printing Corp., 279 N.J.Super. 427, 432, 652 A.2d 1266 (1995). A conversion action may be brought by the intended payee against either the depositary bank or the drawee bank. 5 M.C.L. § 440.3420(1); M.S.A § 19.3420(1); 2 White & Summers, Uniform Commercial Code, Practitioner Treatise Series (4th ed.), § 18-4, pp. 222-225. However, the drawer of the check may not maintain an action for conversion, because the check represents an...
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