Travelers Ins. Co. v. Jefferson Nat. Bank at Kendall

• Decision Date: 20 October 1981
• Docket Number: No. 80-1361,80-1361
• Citation: 404 So.2d 1131
• Parties: 32 UCC Rep.Serv. 1144 TRAVELERS INSURANCE COMPANY, Appellant, v. JEFFERSON NATIONAL BANK AT KENDALL, Appellee.
• Court: Florida District Court of Appeals

Page 1131

404 So.2d 1131

32 UCC Rep.Serv. 1144

TRAVELERS INSURANCE COMPANY, Appellant, v. JEFFERSON NATIONAL BANK AT KENDALL, Appellee.

No. 80-1361.

District Court of Appeal of Florida, Third District.

Oct. 20, 1981.

Joseph A. McGowan, Miami, for appellant.

Kimbrell, Hamann, Jennings, Womack, Carlson & Kniskern and Bruce Charles King, Miami, for appellee.

Before HUBBART, C. J., and HENDRY and BASKIN, JJ.

HENDRY, Judge.

Appellant, Travelers Insurance Company as subrogee of GAC Properties, Incorporated (GAC), and GAC individually, were co-plaintiffs in an action against the defendant/appellee Jefferson National Bank for the conversion of checks on which GAC was the named payee. Sometime in 1973, GAC's employee, Sherwood Savage, opened several bank accounts at Jefferson National in the name of GAL Properties, a Division of American Bancredit Corporation. Due to the similarity between the name of the account, GAL, and the name of the payee, GAC, Savage was able to deposit to the accounts various checks payable to GAC. The proceeds from the checks were paid to or for the order of Savage or GAL. When a fraud was discovered, Travelers paid GAC for its loss under a fidelity bond.

In 1978, Travelers, subrogated to GAC's rights, and GAC jointly filed suit against Jefferson National, alleging negligence and conversion under Section 673.419(1)(c), Florida Statutes (1977). Jefferson National responded by raising three affirmative defenses. First, the bank pled the statute of limitations, Section 95.11. Second, the bank asserted that since it had acted solely as a collecting bank, and had dealt with the instruments "in good faith and in accordance with the reasonable commercial standards applicable to the (banking) business," that it was absolved from any liability beyond the proceeds remaining in its possession by virtue of Section 673.419(3). See Jackson Vitrified China Co. v. People's American National Bank of North Miami, 388 So.2d 1059 (Fla. 3d DCA 1980). Third, Jefferson invoked Section 673.406, alleging that Travelers (as subrogee of GAC) was precluded from asserting the alteration or lack of authority against the bank since Jefferson had paid the checks in good faith and in accordance with the reasonable commercial standards of the banking business, and the negligence of GAC, Travelers' insured, had substantially contributed to the making of the unauthorized signature.

In response to the statute of limitations defense, the court, pursuant to stipulation by both sides, barred all claims which were more than four years old prior to the filing of the suit. At the close of the plaintiff's case in a jury trial, the court directed a verdict against Jefferson National and in favor of Travelers on the reasonable commercial standard defense of Section 673.419(3). The court then instructed the jury on the substantial contribution defense under Section 673.406. The jury returned a verdict in favor of Jefferson. Travelers has appealed from the final judgment; Jefferson has filed a cross-appeal. We reverse and remand for a new trial.

In directing a verdict against Jefferson under Section 673.419(3), the court ruled as a matter of law that Jefferson had not observed reasonable commercial standards so as to avail itself of the defense to a conversion action found in that section:

673.419 Conversion of instrument; innocent representative.

(3) Subject to the provisions of this code concerning restrictive indorsements a representative, including a depositary or collecting bank, who has in good faith and in accordance with the reasonable commercial standards applicable to the business of such representative dealt with an instrument or its proceeds on behalf of one who was not the true owner is not liable in conversion or otherwise to the true owner beyond the amount of any proceeds remaining in his hands. (emphasis supplied)

Good faith and reasonable commercial standards are factual questions to be determined by the trier of fact. Thus, the trial court erred in taking this issue from the jury and deciding it as a matter of law. Barnett Bank of Miami Beach v. Lipp, 364 So.2d 28 (Fla. 3d DCA 1978). This error, moreover, was compounded when the jury rendered a verdict for Jefferson National on the basis of Section 673.406, since this provision is not available as a defense to the bank unless it has acted in accordance with reasonable commercial standards:

673.406 Negligence contributing to alteration or unauthorized signature. Any person who by his negligence substantially contributes to a material alteration of the instrument or to the making of an unauthorized signature is precluded from asserting the alteration or lack of authority against a holder in due course or against a drawee or other payor who pays the instrument in good faith and in accordance with the reasonable commercial standards of the drawee's or payor's business. (emphasis supplied)

The verdict reached by the jury was clearly incompatible with the prior ruling of the trial court. On the one hand, the court determined that the bank did not deal with the instrument in accordance with reasonable commercial standards as required by Section 673.419(3), and, on the other hand, instructed the jury on the substantial contribution defense of Section 673.406, which is also dependent upon good faith and adherence to reasonable commercial standards by the party invoking the defense. Only where a bank has acted in accordance with reasonable commercial standards is the defense of negligence of the true owner of an instrument available. Perley v. Glastonbury Bank and Trust Co., 170 Conn. 691, 368 A.2d 149 (1976); Empire Moving and Warehouse Corp. v. Hyde Park Bank and Trust Co., 43 Ill.App.3d 991, 357 N.E.2d 1196, 2 Ill.Dec. 753 (App.Ct.1976); Seattle-First National Bank v. Pacific National Bank, 22 Wash.App. 46, 587 P.2d 617 (Ct.App.1978).

Because the trial court determined as a matter of law that the bank did not comply with reasonable commercial standards, the cause must be remanded for a new trial. On remand, the bank will have the burden of presenting evidence concerning the applicable standards of the banking industry and its adherence thereto. Barnett Bank of Miami Beach v. Lipp, supra; Siegel Tracking Co., Inc. v. Coral Ridge National Bank, 328 So.2d 476 (Fla. 4th DCA 1976); Robert A. Sullivan Construction Co. v. Wilton Manors National Bank, 290 So.2d 561 (Fla. 4th DCA 1974). This will necessitate more than merely demonstrating that the bank "did not fail to reasonably comply with its own commercial standards." Siegel Trading Co., Inc. v. Coral Ridge National Bank, supra, at 479. Whether GAC's conduct was negligent and substantially contributed to the making of the forgery are also questions of fact for determination by the jury, Ray v. Farmers' State Bank of Hart, 576 S.W.2d 607 (Tex.1979); Thompson Maple Products, Inc. v. Citizens National Bank, 211 Pa.Super. 42, 234 A.2d 32 (1967), and the...