Schoenfelder v. Arizona Bank

• Decision Date: 17 July 1990
• Docket Number: No. CV-89-0215-PR,CV-89-0215-PR
• Citation: 165 Ariz. 79,796 P.2d 881
• Parties: , 12 UCC Rep.Serv.2d 469 G.P. SCHOENFELDER, an individual, Plaintiff-Appellee, v. ARIZONA BANK, an Arizona corporation, Defendant-Appellant.
• Court: Arizona Supreme Court

Page 881

796 P.2d 881

165 Ariz. 79, 12 UCC Rep.Serv.2d 469

G.P. SCHOENFELDER, an individual, Plaintiff-Appellee, v. ARIZONA BANK, an Arizona corporation, Defendant-Appellant.

No. CV-89-0215-PR.

Supreme Court of Arizona, In Banc.

July 17, 1990.

Reconsideration Denied Sept. 18, 1990.

[165 Ariz. 81] Carson Messinger Elliott Laughlin & Ragan by Michael J. Pearce and Michael P. Anthony, Phoenix, for plaintiff-appellee.

Jennings, Strouss & Salmon by Maurice Portley, Rick N. Bryson and James M. Ackerman, Phoenix, for defendant-appellant.

OPINION

CORCORAN, Justice.

This case requires us to decide which of two seemingly innocent parties should bear the loss caused by the apparent fraud of a third person in passing forged checks. The plaintiff, G.P. Schoenfelder, a mandatory signatory on the account on which the checks were forged, seeks review of the court of appeals decision holding that he was not a "customer" entitled to seek recredit of the account from the bank that accepted the forged checks, and directing entry of summary judgment for the bank. Defendant Arizona Bank (Bank) raises a cross-issue not addressed by the court of appeals because of its conclusion that Schoenfelder was not a customer.

We accepted review of two issues, the first raised by Schoenfelder's petition for review and the second raised as a cross-issue by the Bank:

1. Does a person who executes a bank's "depositor's agreement" signature card and who is the only mandatory signatory on the account, although his name differs from the account name, have standing as a "customer" of the bank to seek recredit of the account for wrongful disbursement after the bank accepted checks forged with his name?

2. If such a person is a "customer," did his failure to fulfill the statutory duties of a customer provide the bank with an affirmative defense that would preclude summary judgment in the customer's favor?

We have jurisdiction pursuant to Ariz. Const. art. 6, § 5(3), and A.R.S. § 12-120.24.

Factual and Procedural Background

The facts of this case are described in some detail in Schoenfelder v. Arizona Bank, 161 Ariz. 601, 780 P.2d 434 (App.1989), and we summarize them only briefly here. In April 1986 Schoenfelder was arranging to sell a 4-acre parcel of land to a developer, Apex Development Corporation, whose president was Robert Silvert. Apex planned to finance development of the parcel with a construction loan, and Schoenfelder wanted assurance that the loan proceeds would be properly applied to the property, in which he had a secured interest. Silvert and Schoenfelder agreed to open an account at the Arizona Bank, where Apex had two other accounts. After speaking by phone to a Bank employee, they structured the new account so that Schoenfelder's signature would be required for any withdrawal. The account was opened in the name of "Apex Development Corp." and Silvert deposited the construction funds into the account. The depositor's signature card named Schoenfelder, Silvert, and D.W. Rawn, Schoenfelder's controller, as signatories on the account. The card indicated that two of the three signatures were necessary for withdrawals and that one of them "must be G.P. Schoenfelder." Schoenfelder, 161 Ariz. at 608-09, 780 P.2d at 441-42 (Appendix B). From April through August 1986 the Bank sent monthly statements to Apex at its business address, but did not send statements to Schoenfelder.

The first check Schoenfelder signed was payable to "Marschaun Construction & Development, Inc." However, before the check was paid, Silvert allegedly altered the name of the payee to "Apex Development Corp./Morning Glory Account." The Bank paid this check on April 29, 1986. The "Morning Glory Account" apparently was another Apex account at the same bank from which Silvert could draw funds without Schoenfelder's signature.

Between May 29 and June 19, the Bank paid 4 checks totalling $81,000 that bore Schoenfelder's forged signature. Payment of all 4 checks appeared on a single Bank statement reflecting transactions on the account between May 28 and June 25. Schoenfelder did not learn of the forgeries until he checked with the Bank in September to determine if the construction funds were still intact. At that time he discovered the account balance was only $134.07. He then requested copies of the bank statements and cancelled checks, which the Bank sent him. When he discovered the forgeries, he filed affidavits of forgery and demanded that the Bank recredit the account for the amounts paid on the forged checks. The Bank refused, and Schoenfelder brought this action, alleging breach of contract and breach of fiduciary duty by the Bank.

Schoenfelder's complaint initially sought only to recredit the $81,000 paid on the 4 forged checks. He later amended his complaint to add a claim to recredit the April check on which the payee had been altered after he signed it. That amended claim is not at issue in this review. The Bank subsequently filed an amended answer and a third-party complaint against Silvert, Silvert's wife, and Apex. Those claims are also not at issue here.

The trial court granted Schoenfelder's motion for partial summary judgment, denied the Bank's cross-motion raising its defense, and ordered the Bank to recredit the Apex account for the $81,000 in forged checks. The Bank timely appealed, ¹ and the court of appeals reversed. The court of appeals directed the trial court to grant the Bank's cross-motion for summary judgment, on the ground that Schoenfelder was not a "customer" with standing to sue the Bank to recredit the amount of the forged checks. Because of its disposition on this threshold issue, the court of appeals did not address the remaining issue raised on appeal--whether, if a customer of the Bank, Schoenfelder was precluded from suing the Bank because he breached the statutory duties of a customer.

Discussion

1. Was Schoenfelder a "Customer" of the Bank?

The parties agree that the Uniform Commercial Code (UCC), which has been substantially adopted in Arizona, ² governs the banking transactions involved in this case. See A.R.S. §§ 47-4101 to -4504. The relevant statute defines "customer" as follows:

... any person having an account with a bank or for whom a bank has agreed to collect items and includes a bank carrying an account with another bank.

A.R.S. § 47-4104(A)(5). A customer of a bank can bring an action to require the bank to recredit the account for the wrongful disbursement of a forged check. ³ Wilder Binding Co. v. Oak Park Trust and Sav. Bank, 135 Ill.2d 121, 142 Ill.Dec. 192, 552 N.E.2d 783 (1990); see generally 1 White & Summers, Uniform Commercial Code § 18-3 (3d ed.1988).

In reversing the trial court's grant of partial summary judgment in favor of Schoenfelder, the court of appeals concluded:

Although the case law in this area is sparse, we believe the better reasoned cases support a conclusion that, under the facts of this case, Schoenfelder is not a customer of the Bank, and thus has no standing to seek recrediting of the account.

161 Ariz. at 605, 780 P.2d at 438. The court of appeals relied on a line of cases cited by the Bank for the proposition that the entity named as owner on the account, rather than its individual officers or agents as signatories, is the true "customer" in the absence of a bank's knowledge of any agreement that the signatories have a beneficial interest in the account. See Loucks v. Albuquerque Nat'l Bank, 76 N.M. 735, 418 P.2d 191 (1966) (individual partners who opened a partnership account were not "customers" who could sue the bank for wrongful dishonor of a partnership check); Farmers Bank v. Sinwellan Corp., 367 A.2d 180 (Del.1976) (corporate president was not "customer" who could sue for wrongful dishonor of corporate check). See also Kesner v. Liberty Bank, 7 Mass.App. 934, 390 N.E.2d 259 (1979) (corporate treasurer was not "customer" who could sue for damages for wrongful dishonor of corporate check); Koger v. East First Nat'l Bank, 443 So.2d 141 (Fla.App.1983) (principal stockholder could not bring action against bank for wrongful dishonor of corporate check); Thrash v. Georgia State Bank, 189 Ga.App. 21, 375 S.E.2d 112, 113 (1988) (officer and shareholder of a corporation was not a "customer" with standing to sue for wrongful dishonor of corporate checks). ⁴

In this case, the court of appeals reasoned:

There is no evidence that, at the time the account was actually opened or at any time thereafter, the Bank was aware that Schoenfelder's relationship with it was anything more than a mandatory signatory on a corporate account. Undoubtedly many corporate accounts are opened in bank branches on which a person, often an officer or trusted employee of the corporation, is named a mandatory signatory. A mandatory signatory on a corporate account does not thereby become a customer under A.R.S. §§ 47-4104 and 47-4401. We hold that the evidence in this case is insufficient to establish that Schoenfelder was the Bank's customer under A.R.S. § 47-4401(A). Thus, Schoenfelder has no standing to bring this action.

161 Ariz. at 606-07, 780 P.2d at 439-40.

We disagree that the narrow rule articulated in the Loucks line of cases should be applied to the specific facts of this case. Indeed, the facts of those cases are clearly distinguishable. In Loucks, the court found that the plaintiff was not even a "depositor." 418 P.2d at 197. In Kesner, the court pointed out that "there is no ambiguity here as to who had the account with the bank," nor was there any allegation that the corporate entity was "in effect, nothing but a transparent shell." 390 N.E.2d at 259. In Koger, the court noted that although the stockholder had a relationship with the corporate customer, he had no relationship with the bank as a depositor, as a signatory, or otherwise. 443 So.2d at 142. In none of these cases did the banks have knowledge of a unique arrangement between the plaintiff and the named account owner...