Southern Cal. Permanente Medical Group v. Bozinovski

• Decision Date: 28 October 1983
• Citation: 148 Cal.App.3d 503,196 Cal.Rptr. 150
• Parties: , 37 UCC Rep.Serv. 7 SOUTHERN CALIFORNIA PERMANENTE MEDICAL GROUP et al., Plaintiffs and Respondents, v. Cvetan S. BOZINOVSKI, Defendant, Cross-defendant and Respondent; and Bank of America, Defendant, Cross-complainant and Appellant; First State Bank of Southern California, Cross-defendant and Appellant. Civ. 68350.
• Court: California Court of Appeals Court of Appeals

Page 150

196 Cal.Rptr. 150

148 Cal.App.3d 503, 37 UCC Rep.Serv. 7

SOUTHERN CALIFORNIA PERMANENTE MEDICAL GROUP et al., Plaintiffs and Respondents, v. Cvetan S. BOZINOVSKI, Defendant, Cross-defendant and Respondent; and Bank of America, Defendant, Cross-complainant and Appellant; First State Bank of Southern California, Cross-defendant and Appellant.

Civ. 68350.

Court of Appeal, Second District, Division 1, California.

Oct. 28, 1983.

Cayer & Westrup and R. Duane Westrup, Long Beach, for cross-complainant and appellant Bank of America Nat. Trust and Sav. Ass'n and cross-defendant and appellant First State Bank of Southern California.

Cheong & Denove, Drew R. Antablin and John F. Denove, Los Angeles, for defendant and respondent Cvetan S. Bozinovski.

Thelen, Marrin, Johnson & Bridges, James W. Baldwin and John D. Merrill, Los Angeles, for plaintiffs and respondent.

SPENCER, Presiding Justice.

INTRODUCTION

Defendant and Cross-complainant Bank of America National Trust and Savings Association and Cross-defendant First State Bank of Southern California appeal from a judgment distributing the sum of $50,000 deposited by plaintiff Southern California Permanente Medical Group with the court.

STATEMENT OF FACTS

On November 14, 1977, attorney Milan Moacanin (Moacanin) was retained to represent Cvetan S. Bozinovski (Bozinovski) in a medical malpractice action to be filed against Southern California Permanente Medical Group (Permanente) and George L. Feinstein, M.D. Bozinovski executed a written retainer agreement providing that Moacanin be compensated for his services on a contingency fee basis and granting a lien upon the cause of action in Moacanin's favor.

Bozinovski subsequently terminated Moacanin's services and retained Eugene Bambic (Bambic) in his stead. On July 5, 1978, Bozinovski executed a written retainer agreement granting to Bambic the right to receive as his fee the sum of forty percent of any money or property received by action or compromise in the resolution prior to trial or arbitration of Bozinovski's medical malpractice action or forty-five percent of any money or property received subsequent to a trial setting conference. The retainer agreement also provided that Bambic was given the authority to "sign all documents, papers, releases, drafts, and the like" on behalf of Bozinovski.

During the course of Bambic's representation of Bozinovski, arbitration yielded an award in favor of Bozinovski in the amount of $50,000. Permanente forwarded their check for $50,000, drawn on Bank of America National Trust and Savings Association (Bank of America) and made payable to "Cvetan S. Bozinovski & His Attorney Eugene Bambic & Milan Moacanin," to Bambic's office.

Bambic received the check on January 12, 1981; the check was presented at First State Bank of Southern California (First State) for deposit into Bambic's trust account. In accordance with written instructions, First State transferred $25,000 from Bambic's trust account into Bambic's office account. First State then forwarded Permanente's check to Bank of America for payment; Bank of America debited Permanente's account for $50,000.

Permanente was subsequently advised of Bozinovski's and Moacanin's claim that their signatures had been forged; Permanente requested that Bank of America recredit its account with the $50,000 previously debited. Bank of America complied with Permanente's request.

Permanente then brought this action in interpleader in order for the court to determine the respective parties' interest in the recredited $50,000. On January 27, 1982, prior to the commencement of trial, Bambic executed a Statutory Offer to Compromise providing that he would make no claim against Permanente for any sum and stating that he had no interest in the interpleaded money; Permanente accepted his offer.

On July 26, 1982, Bank of America, First State, Bozinovski, Bambic and Moacanin stipulated a settlement of Moacanin's claim whereby the parties agreed that Moacanin would receive $5,410.34 in settlement of his lien.

At trial, Bambic testified that the signatures purporting to be his on both the $50,000 check and the written instructions directing First State to transfer $25,000 into his office account appeared to be his. With respect to the other signatures on the check, all parties stipulated that Moacanin's signature had been forged; Bozinovski denied the authenticity of his signature. Bank of America and First State contended that Bozinovski's signature was authorized by virtue of his written retainer agreement with Bambic.

The trial court ruled that Permanente's original check was wholly inoperative by virtue of the presence of at least one forged signature. As a result, the court distributed the interpleaded funds in the following manner: (1) nothing to Bambic by virtue of the statutory offer to compromise, (2) $5,410.34 to Moacanin pursuant to the stipulated settlement of July 26, 1982, and (3) the remainder to Bozinovski.

Notice of appeal was timely filed.

CONTENTIONS

Bank of America and First State contend that the trial court erroneously failed to reach a conclusion as to what portion of the interpleaded $50,000, if any, Bank of America and First State were entitled to receive.

DISCUSSION

We agree with Bank of America and First State that the trial court erroneously failed to determine what portion of the interpleaded funds the banks were entitled to receive. The question before the court, essentially, is whether collecting and/or payor banks which have improperly paid out on a joint payee check are liable for the full face value of the instrument where one joint payee has received payment from the improperly paid check. We conclude that a bank's liability for conversion does not require a bank to duplicate its original payment to a joint payee to the extent that the joint payee has received payment in accordance with the drawer's intention. As this is a case of first impression, we supplement our statutory references with citations to the decisions of sister state courts.

Initially, we note that the law applicable to commercial paper and banking is found in articles 3 and 4 of the Uniform Commercial Code, California Commercial Code sections 3101 et seq. and 4101 et seq. There can be no doubt, after a review of the pertinent sections, that Permanente's check was improperly paid by both the collecting bank, First State, and the payor bank, Bank of America.

Commercial Code section 3404, subdivision (1) provides "Any unauthorized signature is wholly inoperative as that of the person whose name is signed ...." As all parties agreed Moacanin's indorsement was forged, we can only conclude that the signature purporting to be Moacanin's was unauthorized (Cal.U.Com.Code, § 1201, subd. (43)) and, thus, wholly inoperative as to him.

The presence of Moacanin's unauthorized signature on the joint payee check precluded proper negotiation, as Commercial Code section 3116 provides in pertinent part: "An instrument payable to the order of two or more persons (b) If not in the alternative is payable to all of them and may be negotiated, discharged or enforced only by all of them." (Harry H. White Lbr. Co. v. Crocker-Citizens Nat. Bk. (1967) 253 Cal.App.2d 368, 375, 61 Cal.Rptr. 381.) ¹ However, neither the Commercial Code nor judicial interpretation thereof require the conclusion that Permanente's check was wholly inoperative. While section 3116 provides that a joint payee check must be negotiated by all payees in order to be properly payable, it does not preclude the consideration of funds received by designated payees in the determination of damages resulting from the improper payment. Furthermore, section 3404, subdivision (1) provides only that unauthorized signatures are wholly inoperative, not that a check bearing both authorized and unauthorized signatures is inoperative. Thus, the code is silent with respect to the determination of damages where an intended payee has received funds improperly paid out by a drawee or collecting bank.

We have concluded, however, from code sections prescribing damages payable as a result of conversion that the extent to which a payee has received funds is pertinent to a determination of a bank's liability for conversion. According to Commercial Code section 3419, subdivision (1), "An instrument is converted when (c) It is paid on a forged indorsement." The California Code Comment to section 3419, subdivision (1) states that an action may be brought against "a drawee [who] actually pays an instrument drawn on him when the instrument bears a forged indorsement." ² An action for conversion, may therefore, be brought against the drawee bank, Bank of America. Similarly, a joint payee may also bring an action for conversion against the collecting bank. (Cooper v. Union Bank (1973) 9 Cal.3d 371, 376, 107 Cal.Rptr. 1, 507 P.2d 609.) As Bank of America voluntarily recredited Permanente's account, neither drawer nor either of the joint payees needed to initiate an action in conversion. The rules which would be applicable to the measure of the banks' liability if the money were still in the banks' hands, however, are applicable here where Bank of America voluntarily recredited the drawer's account, as the recredit does not alter the extent to which the bank is liable for conversion.

The measure of damages for conversion is specified in Commercial Code section 3419, subdivision (2), "In any action under subdivision (1), the measure of liability is presumed to be the face amount of the instrument." The Code presumes, therefore, that the measure of damages where a drawee or payor bank has converted funds is the face value of the instrument.

California Code Comments to section 3419 provide further information on the presumption created by subdivision (2). " 'The California authorities recognize the liability to the payee of a drawee bank which pays out on a forged indorsement, but they are obscure on the...