State ex rel. Housing v. Center Mut.

Decision Date02 August 2006
Docket NumberNo. 20050224.,20050224.
Citation720 N.W.2d 425,2006 ND 175
PartiesSTATE of North Dakota ex rel. NORTH DAKOTA HOUSING FINANCE AGENCY, Plaintiff and Appellee v. CENTER MUTUAL INSURANCE COMPANY, a North Dakota corporation, Defendant and Appellant.
CourtNorth Dakota Supreme Court

Douglas Bruce Anderson, Assistant Attorney General, Office of Attorney General, Bismarck, N.D., for plaintiff and appellee.

Chris A. Edison, Storslee Law Firm, P.C., Bismarck, N.D., for defendant and appellant.

MARING, Justice.

[¶ 1] Center Mutual Insurance Company ("Center Mutual") appealed from a district court judgment holding Center Mutual liable to the North Dakota Housing Finance Agency ("NDHFA") for the amount of an insurance proceeds check paid over a forged endorsement. We affirm, concluding Center Mutual was not discharged on the improperly paid check and was liable to NDHFA for the amount of the check.

I

[¶ 2] In 1994, Brian and Penny Grieme purchased a house in Mandan. They financed the home with a first-time home buyer loan through Bank Center First and executed a mortgage in favor of the Bank. Bank Center First then assigned the loan and mortgage to NDHFA, the state agency that provides financing of home loans which are insured or guaranteed through the first-time home buyer program. Bank Center First continued to service the loan on behalf of NDHFA. The mortgage revenue bonds used to finance the Griemes' mortgage were held in trust by Norwest Bank of Minnesota ("Norwest").

[¶ 3] The mortgage required the Griemes to obtain insurance coverage for the home. The Griemes purchased a dwelling insurance policy from Center Mutual. NDHFA and Norwest were listed as loss payees in the insurance policy, and the insurance premium billing notices were mailed to Norwest and NDHFA, in care of Bank Center First.

[¶ 4] The house was damaged by a hail storm in 2001. Center Mutual's claims adjuster determined that the loss, after adjusting for a $500 deductible, was $4,378. On July 13, 2001, Center Mutual issued a check for $4,378, drawn on Bremer Bank, N.A., made payable jointly to "Brian D. Grieme & Norwest Bank of MN & ND Housing Finance." Center Mutual mailed the insurance check to Brian Grieme at his new address in Arizona.

[¶ 5] Grieme presented the check for payment to Wells Fargo Bank of Tempe. The check bore the endorsement signature of Brian Grieme, and underneath in hand-printed block letters were the words "Norwest Bank" and "ND Housing Finance." The check was processed through the check collection system and was eventually returned to Bremer Bank for payment from Center Mutual's bank account. The check was paid, and the canceled insurance check was returned to Center Mutual.

[¶ 6] In November 2001, Bank Center First requested that Center Mutual provide it with a copy of the canceled insurance check. Bank Center First then informed Center Mutual that the endorsements of NDHFA and Norwest were forged. Center Mutual advised Bank Center First that it would contact Bremer Bank about the matter. Center Mutual and Bremer Bank ultimately refused to make payment to NDHFA. In the meantime, the Griemes had canceled the insurance policy, defaulted on the mortgage, and filed for bankruptcy.

[¶ 7] NDHFA sued Center Mutual seeking payment of the $4,378, claiming that Center Mutual had breached the terms of the insurance policy and the mortgage and that Center Mutual was liable to NDHFA on the forged check. On cross-motions for summary judgment, the district court determined that Center Mutual was not liable for breach of the insurance contract or the mortgage. The court concluded, however, that Center Mutual should have sought reimbursement for the forged check through the banks which had accepted the forged endorsement, and that Center Mutual was therefore liable to NDHFA for the amount of the check. Center Mutual has appealed, alleging the district court erred in granting summary judgment awarding $4,378 plus interest to NDHFA.

II

[¶ 8] Summary judgment is a procedural device for the prompt resolution of a controversy on the merits without a trial if there are no genuine issues of material fact or inferences that can reasonably be drawn from undisputed facts, or if the only issues to be resolved are questions of law. Farmers Ins. Exch. v. Schirado, 2006 ND 141, ¶ 8, 717 N.W.2d 576. Whether the district court properly granted summary judgment is a question of law that we review de novo on the record. Id. at ¶ 9.

[¶ 9] Summary judgment is appropriate if the issues in the case are such that the resolution of any factual disputes will not alter the result. State ex rel. Stenehjem v. FreeEats.com, Inc., 2006 ND 84, ¶ 4, 712 N.W.2d 828. In this case there are no disputed issues of material fact, and the relevant questions presented on appeal involve the interpretation of statutes. The interpretation and application of a statute is a question of law, which is fully reviewable on appeal. Id. at ¶ 5. Accordingly, this case was appropriate for resolution on the cross-motions for summary judgment.

III

[¶ 10] Center Mutual contends the district court erred in holding it liable to NDHFA, because it owed no specific statutory duty to NDHFA to discover the forged endorsement and its obligation on the instrument was discharged when the check was accepted and paid by Bremer Bank. The dispositive issue presented on appeal is whether a joint payee whose endorsement was forged on an instrument has an action on the instrument against the drawer.

A

[¶ 11] The district court concluded that Center Mutual had a duty under N.D.C.C. § 41-04-37 [U.C.C. § 4-406] to discover the forged endorsement and promptly notify Bremer Bank. Section 41-04-37(3) provides:

If a bank sends or makes available a statement of account or items under subsection 1, the customer shall exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized. If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer has a duty to give prompt notification to the bank of the relevant facts.

NDHFA concedes that N.D.C.C. § 41-04-37(3) does not apply to a forged endorsement, and waives any reliance on the statute.

[¶ 12] That does not, however, end our inquiry. This Court will not set aside a correct result merely because the district court assigned an incorrect reason, if the result is the same under the correct law and reasoning. E.g., Cannaday v. Cannaday, 2003 ND 58, ¶ 8, 659 N.W.2d 363; Wilson v. Koppy, 2002 ND 179, ¶ 14, 653 N.W.2d 68.

B

[¶ 13] The crux of this case lies in Center Mutual's contention that its obligation on the instrument was discharged when the draft was accepted and paid by Bremer Bank, and charged against Center Mutual's account. Center Mutual relies upon N.D.C.C. § 41-03-51(3) [U.C.C. § 3-414], which provides:

If a draft is accepted by a bank, the drawer is discharged, regardless of when or by whom acceptance was obtained.

Center Mutual thus contends its obligation to NDHFA was discharged when Bremer Bank accepted the check.

[¶ 14] Although N.D.C.C. § 41-03-51 states the general rule regarding discharge of a drawer, the Uniform Commercial Code contains a more specific provision expressly governing discharge when multiple payees are listed on an instrument. See 41-03-10(4) [U.C.C. § 3-110]. When there is a conflict between statutes, we will construe specific statutes to control general statutes. N.D.C.C. § 1-02-07; Case Credit Corp. v. Oppegard's, Inc., 2005 ND 141, ¶ 16, 701 N.W.2d 891; City of Bismarck v. Fettig, 1999 ND 193, ¶ 15, 601 N.W.2d 247.

[¶ 15] Section 41-03-10(4), N.D.C.C. [U.C.C. § 3-110], provides, in pertinent part:

If an instrument is payable to two or more persons alternatively, it is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument. If an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them.

Center Mutual does not contend that the check was payable to Grieme, NDHFA, and Norwest alternatively, and therefore under the statute it could only be negotiated, discharged, or enforced by all of them.

[¶ 16] This Court has not previously addressed a drawer's liability to a non-alternative joint payee whose endorsement was forged on an instrument. In analogous circumstances, courts in other jurisdictions, applying the current version of U.C.C. § 3-110(4) and the substantively identical pre-1990 version [prior U.C.C. § 3-116] of the statute, have held that the drawer is not discharged on the instrument and is liable to the joint payee. See Crystaplex Plastics, Ltd. v. Redevelopment Agency, 77 Cal.App.4th 990, 92 Cal.Rptr.2d 197, 202-04 (2000); General Motors Acceptance Corp. v. Abington Cas. Ins. Co., 413 Mass. 583, 602 N.E.2d 1085, 1087-89 (1992) ["GMAC"]; Quintana v. Allstate Ins. Co., 378 N.W.2d 40, 43-44 (Minn.Ct.App.1985); Lee v. Skidmore, 49 Ohio App.2d 347, 361 N.E.2d 499, 500-01 (1976); see also 5A Ronald A. Anderson, Uniform Commercial Code § 3-116:24 (3d ed.1994) (joint action by all payees "is required to discharge the paper"). The purpose of the statute is "to protect the interests of all parties entitled to payment under the instrument." Quintana, at 43. As noted by the court in GMAC:

If one of the several joint payees can receive payment without authority from the others, there is no assurance that the consideration necessary to extinguish the underlying liability of the drawer will reach the other payees. On the other hand, if payment must be made to all or with the authority of all, there is an obvious tendency to force the payees together, to encourage compromise of their conflicting claims, and to put...

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