Peoples Nat. Bank v. American Fidelity Fire Ins. Co.

• Decision Date: 13 June 1978
• Docket Number: No. 1214,1214
• Citation: 386 A.2d 1254,39 Md.App. 614
• Parties: , 24 UCC Rep.Serv. 362 PEOPLES NATIONAL BANK of Maryland v. AMERICAN FIDELITY FIRE INSURANCE COMPANY.
• Court: Court of Special Appeals of Maryland

Page 614

39 Md.App. 614

386 A.2d 1254, 24 UCC Rep.Serv. 362

PEOPLES NATIONAL BANK of Maryland v. AMERICAN FIDELITY FIRE INSURANCE COMPANY.

No. 1214.

Court of Special Appeals of Maryland.

June 13, 1978.

Thomas B. Yewell, Upper Marlboro, for appellant.

T. Roger Harrison, Sparks, with whom were Herbert H. Hubbard, Steven K. Fedder and Weinberg & Green, Baltimore, on the brief, for appellee.

Argued Before GILBERT, C. J., and MORTON and MOORE, JJ.

MOORE, Judge.

This is an appeal from an Order of the Circuit Court for Prince George's County (Ernest A. Loveless, J.) granting summary judgment in favor of the plaintiff, American Fidelity Fire Insurance Company, and awarding damages against the defendant, Peoples National Bank of Maryland, for wrongful payment to a single indorser on a check made payable to joint payees. We are in agreement with the ruling of the lower court that a cause of action in conversion was stated under Md.Com.Law Code Ann. § 3-419 (1975), ¹ and we adopt the opinion of Judge Loveless as set forth below:

"Plaintiff, American Fidelity Fire Insurance Company (hereafter, American Fidelity), brought this action in conversion against the defendant, Peoples National Bank of Maryland. Both parties have moved for summary judgment. The facts are not in dispute.

"The plaintiff was surety on a payment bond for work to be performed by Floors, Inc. for the United States of America. Floors, Inc. was bound contractually to furnish and install stairway landings and treads for Federal Building No. 2 in Arlington, Virginia. A subcontractor, American Mason Safety Tread Co., Inc., furnished the landings and treads to Floors, Inc., demanded payment of $44,200 from Floors, Inc., but was not paid. The subcontractor then demanded payment from American Fidelity. American Fidelity paid the $44,200 from its own funds and then arranged for payment to be made directly from the United States of America to itself and Floors, Inc., to permit deduction of the sum of $44,200. The United States of America issued a check of the United States Treasury drawn on the General Services Administration in the amount of forty-nine thousand three hundred fourteen dollars and forty-seven cents ($49,314.47) payable as follows:

'Floors, Inc.

American Fidelity Fire

Insurance Company

8400 Truck Way

Capitol Heights, Md. 20037.'

"Floors, Inc. indorsed the check by way of a rubber stamped indorsement as follows:

'For Deposit Only

Floors, Inc.'

"On January 6, 1976, the defendant, Peoples National Bank of Maryland, accepted for deposit the check in question. The only indorsement which appeared on the check was the rubber stamped indorsement of Floors, Inc. The defendant did not obtain the indorsement of American Fidelity Fire Insurance Company. The defendant credited the amount of the check to the account of Floors, Inc. This action was taken without the knowledge of the plaintiff. A significant portion of the funds deposited was withdrawn within a week. Plaintiff was required to pay the subcontractor under the terms of its surety agreement, and upon default of Floors, Inc. was required to arrange for completion of the contract.

"Following acceptance of the check by Peoples National Bank, the check was forwarded to the Federal Reserve Bank of Baltimore City, which gave credit to Peoples National Bank, and the Federal Reserve then forwarded the check to the United States Treasury, which credited the Federal Reserve.

"Plaintiff, American Fidelity, argues that, since the defendant bank credited the entire proceeds of the check to one of two jointly-named payees without knowledge of or indorsement by the other payee, it exercised dominion over the check which amounted to conversion. Reliance is placed upon Md.Com.Law Code Ann. § 3-116 (1975), which provides as follows:

'An instrument payable to the order of two or more persons

(a) If in the alternative is payable to any one of them and may be negotiated, discharged or enforced by any of them who has possession of it;

(b) If not in the alternative is payable to all of them and may be negotiated, discharged or enforced only by all of them.'

In plaintiff's view, since the two payees were listed on the check without any indication on the face of the check that it was payable in the alternative, the instrument could not be negotiated by only one of the payees.

"In addition to the statute, plaintiff relies on a California case, Feldman Construction Co. v. Union Bank (28 Cal.App.3d 731), 104 Cal.Rptr. 912 (1972). In that case the check in question was drawn:

'Interstate Steel Corp.

General Pipe and Supply.'

The California court found that the bank was negligent in paying on the check which was only indorsed by one of the payees. The court wrote, 'the absence of "and" or "or" is not controlling.' 104 Cal.Rptr. at 913.

"The defendant, Peoples National Bank, contends on the other hand that the decisive issue in determining whether a check is payable in the alternative is the drawer's intent. The thrust of defendant's argument is that since the United States Treasury eventually honored the check, which was payable to two payees but only indorsed by one, this is evidence of an intent to pay in the alternative.

Defendant also cites Feldman Construction Co. v. Union Bank, supra, in support of its argument. The check in the Feldman case carried the following notation on the back:

'Endorsement of this check acknowledges payment as of this date all material and labor at A.I.C. Bldg. 8060 Florence Ave. Downey, Calif.'

In response to this fact, the court wrote:

'Although direct evidence was not taken below concerning ordinary...