State v. Phelps

• Court: Arizona Court of Appeals
• Writing for the Court: JACOBSON; SCHROEDER, P. J., and WREN; JACOBSON; WREN
• Citation: State v. Phelps, 608 P.2d 51, 125 Ariz. 114 (Ariz. App. 1979)
• Decision Date: 04 October 1979
• Docket Number: CA-CR,No. 1,1
• Parties: STATE of Arizona, Appellee, v. Lyman Lamont PHELPS, aka Monty Phelps, Appellant. 3679.

Page 51

608 P.2d 51

125 Ariz. 114

STATE of Arizona, Appellee, v. Lyman Lamont PHELPS, aka Monty Phelps, Appellant.

No. 1 CA-CR 3679.

Court of Appeals of Arizona, Division 1, Department B.

Oct. 4, 1979.

Supplemental Opinion Jan. 22, 1980.

Review Denied Feb. 5, 1980.

Robert K. Corbin, Atty. Gen. by William J. Schafer, III, Chief Counsel, Crim. Div., Gregory A. McCarthy, Asst. Attys. Gen., Phoenix, for appellee.

Thur & Preston by Calvin C. Thur, Scottsdale, for appellant.

OPINION

JACOBSON, Judge.

This appeal raises several issues, the most intriguing of which is whether the instrument which the defendant attempted to pass was negotiable so as to subject the defendant to prosecution under A.R.S. § 13-316 (drawing a check or draft on insufficient funds).

On January 3, 1978, the defendant, Lyman Lamont Phelps, was charged by indictment with violation of A.R.S. § 13-316. ¹ The pertinent portions of that indictment alleged:

"(O)n or about the 20th day of May, 1976, (the defendant) did then and there make, draw, utter, or deliver to James Greary (Geary) a check or draft, in the amount of $7,636.67 on the Idaho First National Bank, knowing that he did not have sufficient funds in, or credit with the Idaho First National Bank to meet the check or draft in full upon presentation . . . .

Following a plea of not guilty, the defendant moved to dismiss the indictment which was denied. The matter was tried to a jury. The defendant moved for a directed verdict at the close of the state's case and at the close of all evidence, both motions being denied. The jury subsequently returned a verdict of guilty and the defendant was sentenced to not less than two nor more than three years in the Arizona State Prison. The defendant has appealed.

The objective facts are not in material dispute. In April, 1976, the defendant, while a resident of Scottsdale, Arizona, opened an account with the Idaho First National Bank in Twin Falls, Idaho. The initial deposit to this account was $500.00. The defendant subsequently had his own printer prepare "customer drafts" to use in connection with this account. The account was officially opened on April 29, 1976. No deposit other than the initial $500 was made to that account. An official of the Idaho bank testified that no credit arrangements were made between the bank and the defendant.

In May, 1976, the defendant visited the offices of Loeb, Rhodes and Company, a stock brokerage firm in Phoenix, Arizona, and discussed with James Geary, a stockbroker, the opening of an account and the purchase of securities. Loeb, Rhodes had not extended credit to the defendant and all transactions with that company were to be on a cash basis.

On May 12, 1976, the defendant, through Geary, placed an order to purchase fifty State of Texas municipal bearer bonds for the total purchase price of $7,636.37. On May 13, 1976, Loeb, Rhodes notified the defendant that the Texas bond transaction had been completed. According to the prevailing practices of Loeb, Rhodes, defendant's payment was due within five business days of the trade date (the date purchase was made).

On May 20, 1976, the defendant appeared at the offices of Loeb, Rhodes and tendered the instrument which is the subject matter of this prosecution to the cashier of Loeb, Rhodes. That instrument was in the following form:

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

The cashier, after writing Loeb, Rhodes' account number on the instrument, took it to the Operations Manager, Mrs. Moore, who called the Idaho Bank. The bank informed Mrs. Moore that the defendant's account stood at approximately $160 and that the bank had a letter from the defendant advising that "all drafts received and paid on collection."

Mrs. Moore then took the instrument to Mr. Geary, who called the defendant and advised him that the instrument would not be accepted as payment of his account with Loeb, Rhodes and that a cashier's check would be required by the next day. The defendant advised Geary to disregard the qualifying language of "not valid over $900" and to submit the item and it would be paid. Geary reiterated that the instrument would not be accepted and demanded a cashier's check. When the cashier's check was not forthcoming, Loeb, Rhodes sold the Texas bonds at a loss and this prosecution ensued.

During the trial of this matter, the state introduced into evidence, over objections, "customer drafts" issued to Reynolds Securities and drafts and checks issued to Merrill Lynch. All of these items issued to the other brokerage firms were returned dishonored or refused because of insufficient funds. Defendant had a margin account (credit line) with both of these firms.

The defendant requested, but was denied any instructions dealing with the law of negotiable instruments. On appeal, the defendant raises the following issues:

(1) that the "Customer's Draft" was a non-negotiable instrument which on its face was a "collection item" and therefore its tender could not violate A.R.S. § 13-316;

(2) that the admission of drafts and checks presented to Reynolds Securities and Merrill Lynch constituted reversible error;

(3) that there is a fatal variance between the indictment and the proof presented; and

(4) that the court erred in giving and failing to give instructions.

Defendant's threshold attack is that the instrument he presented to Loeb, Rhodes did not constitute a violation of A.R.S. § 13-316. This statute at the times pertinent, provided:

"A person who, for himself or for another, wilfully with intent to defraud, makes, draws, utters or delivers to another person or persons a check or checks or draft or drafts on a bank or depository for payment of money, knowing at the time of such making, drawing, uttering or delivery, that he or his principal does not have an account or does not have sufficient funds in, or credit with, such bank or depository to meet the check or checks . . . or draft . . . in full upon presentation, (is guilty of a crime)."

The defendant's basic argument is that since the instrument on its face contained the words "upon acceptance" (he does not argue under the circumstances of this case that the words "Not valid over $900" are controlling), the negotiability of the instrument was destroyed and thus it became a promise to pay in the future (a debt). From this premise, he argues that the instrument on its face will not support the necessary inference of "intent to defraud" under the statute. See, e. g., the situation as to post-dated checks in State v. Stout, 8 Ariz.App. 545, 448 P.2d 115 (1968) (payee's acceptance of post-dated checks constituted an extension of credit which "purged" the transaction of criminal intent).

In our opinion, the defendant's position is not well taken. We do not need to determine here whether the instrument tendered is in fact a "check" or a "draft" ² as the statute covers both instruments.

We therefore, for the purposes of this opinion, accept the defendant's contention that the instrument was in fact a draft. Under both the Uniform Commercial Code and the former Negotiable Instruments Law, a draft was simply an order to pay. A.R.S. § 44-2504(B)(1). It had three parties: The "drawer" who made the order, the "payee" to whom the order ran, and the "drawee", the individual who was ordered to pay. See J. White & R. Summers, Uniform Commercial Code § 13-1, at 398 (1972). The drawee's liability on that draft only comes into existence if he accepted the draft. As A.R.S. § 44-2547 provides: "Acceptance is the drawee's signed engagement to honor the draft as presented." Under the instrument utilized by the defendant here, the "drawee" was the Idaho First National Bank.

It has always been the general rule that conditions which appear on the face of an instrument which are consistent with what the law implies, do not destroy the instrument's negotiability. Gordon v. Fifth Avenue Bank of Pittsburgh, 308 Pa. 323, 162 A. 825 (1932). As was stated in Merson v. Sun Insurance Company of New York, 44 Misc.2d 131, 253 N.Y.S.2d 51 (1964):

"The words 'upon acceptance' meant acceptance by the drawee bank (cite omitted). These words did not render the instrument conditional, since presentment for acceptance may be required for any check or bill of exchange (citations omitted). A trade acceptance has always been deemed a negotiable instrument (citations omitted); a banker's acceptance even more so. Non-acceptance may be signified by the drawee bank either because it does not have sufficient funds of the drawer, or because the drawer has instructed it not to pay exactly as in the case of a negotiable check or note." 253 N.Y.S.2d at 52.

We therefore hold that the words "upon acceptance" did not destroy the negotiability of the draft and thus there is nothing on the face of the draft to evidence an intent not to defraud.

For this same reason we find that defendant's requested instructions concerning the effect of the words "upon acceptance" and leaving to the jury the determination of whether the draft was negotiable, were properly rejected. The jury was properly instructed upon the elements of this crime, including the necessary intent to defraud. The defendant was free to and did argue that he had no intent to defraud. The jury apparently chose not to believe him. Under the evidence presented by the state, the jury could have properly convicted the defendant of violation of former A.R.S. § 13-316.

The defendant next argues that the state improperly introduced evidence of prior "bad acts". These "bad acts" consisted of proof by the state that the defendant had engaged in similar transactions with stock brokers, using basically the same modus operandi as was employed with Loeb, Rhodes. One of the critical issues in this case is the defendant's intent. These other transactions went specifically to the defendant's intent and as such are an exception to the general rule that evidence of other crimes is not...