Trust Co. Bank of Augusta N.A. v. Henderson

• Court: Georgia Court of Appeals
• Writing for the Court: SOGNIER; It was appellee's testimony that his operation at the Ramada Inn in Augusta had an excellent credit rating, was not experiencing any difficulty paying bills, and that it was certainly not necessary for Muia to pay them out of his personal ac
• Citation: Trust Co. Bank of Augusta N.A. v. Henderson, 364 S.E.2d 289, 185 Ga.App. 367 (Ga. App. 1987)
• Decision Date: 04 December 1987
• Docket Number: No. 74695,74695
• Parties: , 6 UCC Rep.Serv.2d 167 TRUST COMPANY BANK OF AUGUSTA N.A. v. HENDERSON.

Page 289

364 S.E.2d 289

185 Ga.App. 367, 6 UCC Rep.Serv.2d 167

TRUST COMPANY BANK OF AUGUSTA N.A. v. HENDERSON.

No. 74695.

Court of Appeals of Georgia.

Dec. 4, 1987.

Rehearing Denied Dec. 17, 1987.

Neal W. Dickert, Augusta, for appellant.

James W. Purcell, Mark C. Wilby, Augusta, for appellee.

SOGNIER, Judge.

James S. Henderson instituted action against Trust Company Bank of Augusta N.A. to recover funds allegedly misappropriated from Henderson's business by an employee and converted by the bank when it allowed the employee to endorse in blank checks made payable to the business, and cash them or deposit them to a personal checking account. The case was tried by a jury and at the close of the evidence, the trial court directed a verdict in favor of Henderson as to the checks cashed by the bank, in the amount of $5,239, and denied the bank's motion for a directed verdict as to Henderson's claim for attorney fees and liability for the proceeds of the checks deposited in the employee's personal checking account. These issues were submitted to the jury, which returned a verdict for Henderson for $66,161, representing the amount of the deposited checks, plus interest, and for attorney fees, which the parties stipulated were $12,500. The trial court entered judgment accordingly, and the bank appeals.

The record reveals that appellee owned and operated a Ramada Inn in Augusta, Georgia. In the fall of 1984, appellee hired Thomas Muia for the position of general manager of the inn. It was part of Muia's responsibility as general manager to handle personnel, purchasing, and daily supervision of operations, including depositing operating revenues of the business into one of Ramada Inn's two bank accounts: the regular account, or the special account used to pay such items as musician fees, liquor bills, and other hotel expenses which were not charged. He was specifically authorized by appellee to endorse all checks either with a rubber stamp provided for that purpose, or by running them through the hotel's cash register, both of which provided a restrictive endorsement for deposit to the Ramada Inn's accounts. Muia had authority to write checks on the special account, but not on the regular account. In connection with his banking duties, Muia was introduced by appellee to the personnel at appellant's branch handling the Ramada Inn accounts and soon thereafter opened a personal checking account.

In February of 1985, Muia deposited to his personal account three checks made payable to Ramada Inn which he had endorsed by hand, in blank, both on behalf of the Ramada Inn and himself, and also containing his personal account number. Thereafter, from June through November, 1985, Muia made deposits to his personal account consisting of charge reimbursement checks from American Express Travel Related Services Company, Inc., all made payable to Ramada Inn and all endorsed in blank on behalf of Ramada Inn by Muia. Some also bore Muia's endorsement or account number. On one occasion, a teller questioned her supervisor regarding a Ramada Inn check Muia sought to deposit into his personal account, and was told it was proper. Other transactions typically were not questioned. One transaction was a "split deposit," in which some cash was disbursed and the remainder deposited; one American Express check was cashed by Muia with the approval of appellant's branch manager, rather than deposited to his personal account. The total amount of the checks either cashed or deposited was over $71,000.

1. Appellant contends the trial court erred by denying its motion for directed verdict with regard to its liability for the proceeds of the checks deposited to Muia's personal account because OCGA § 7-1-352(a) protects the bank from liability to appellant. OCGA § 7-1-352(a) provides that "[w]henever any agent, administrator, executor, guardian, trustee, either express or implied, or other fiduciary, whether bona fide or mala fide, shall deposit any money in any bank to his credit as an individual, or as such agent, trustee, or other fiduciary, whether the name of the person or corporation for whom he is acting or purporting to act be given or not, such bank shall be authorized to pay the amount of such deposit, or any part thereof, upon the order of such agent, administrator, executor, guardian, trustee, or other fiduciary, signed with the name in which such deposit was entered, without being accountable in any way to the principal, cestui que trust, or other person or corporation who may be entitled to or interested in the amount so deposited." We do not agree that OCGA § 7-1-352(a) is the statute which governs this case. As this court pointed out in Bank South v. Grand Lodge, etc., 174 Ga.App. 777, 780, 331 S.E.2d 629 (1985), the legislative history of OCGA § 7-1-352(a), resting in common law adhered to by this State for almost a century indicates that the statute means simply that " '[w]hen a trustee [or agent or other fiduciary] deposits money in a bank, the bank has a right to assume that the money so deposited will be applied by the trustee [or agent or other fiduciary] to the proper purposes under the trust, and acting under this assumption it may lawfully pay the checks drawn by the person depositing the money, whether signed in his representative capacity or not.' " Had Muia deposited the checks in question in the case sub judice into the Ramada Inn special account (on which he had been authorized to write checks), and then proceeded unlawfully to enrich himself by writing checks on that account made payable to himself, we could agree with appellant that the bank would be protected by OCGA § 7-1-352(a). However, such is not the case. The record indicates that appellee's claim against the bank is based on the bank's acceptance for deposit into Muia's personal checking account of checks made payable to Ramada Inn.

Contrary to appellant's argument, National Factor, etc., Corp. v. State Bank of Cochran, 224 Ga. 535, 163 S.E.2d 817 (1968), is inapposite. Rather than supporting the claim made by the appellant, that case supports the distinction we draw here. In National Factor, the plaintiff sought to recover from the bank which paid checks drawn by one who had diverted the plaintiff's funds to the embezzler's account. Thus Code Ann. § 13-2042, the predecessor of OCGA § 7-1-352, was appropriately relied on there. The facts in National Factor, supra, are further distinguishable from those here as the embezzler there was the proprietor and operator of a closely held family business, and there was far less reason for the bank to be aware that anything untoward was taking place.

In the case at bar, Muia's endorsements on the checks deposited into his personal account were "forged" because, with intent to defraud, he knowingly signed and presented the checks so as to give the appearance of authority from appellee, which he did not have. See OCGA § 16-9-2(a).

By accepting the checks for deposit into Muia's personal account, the bank converted appellee's funds. OCGA § 11-3-419(1)(c). OCGA § 11-3-419(3) would provide an exception to the bank's liability for conversion had the bank acted "in good faith and in accordance with the reasonable commercial standards" applicable to the banking business. However, good faith and commercial reasonableness are separate requirements, both of which must be met to support the defense. While appellant may have acted in good faith, it was for the jury to decide whether its acceptance of the checks for deposit into Muia's personal checking account was consistent with reasonable commercial standards. " 'In E.L. Von Gohren v. Pacific National Bank of Washington, ... the court held as a matter of law that a bank which accepted checks made payable to a corporation for deposit into the personal account of the bookkeeper could not have acted in a commercially reasonable manner.' " National Bank of Ga. v. Refrigerated Transport Co., 147 Ga.App. 240, 244, 248 S.E.2d 496 (1978). "In a case involving similar circumstances ... this court held that ' "[t]he indorsements were irregular enough on their face to raise some question as to their validity; and certainly when the checks were offered for deposit into the ... account of one not the payee, [the bank] had a duty to inquire to ascertain the authority of [the depositor] to indorse and deposit [the payee's] checks. [The bank] could not escape its duty of inquiry by relying on the word of its customer, [the depositor], [Cits.]." ' " Thornton & Co. v. Gwinnett Bank, etc., Co., 151 Ga.App. 641, 647, 260 S.E.2d 765 (1979).

In the case at bar, the endorsements were unusual for checks made out to the Ramada Inn, in that the customary rubber stamp, containing a restrictive endorsement, was not present, nor had the checks been run through the Ramada Inn's cash register, which also provided a restrictive endorsement. This was an "irregularity" such as the jury could have concluded should have put the bank on notice and activated the bank's duty to make inquiry particularly because here, as in Thornton, supra, the checks were being deposited into the depositor's personal account. In fact, this irregularity was brought to the bank's attention when one of its tellers questioned the propriety of depositing a check made out to the Ramada Inn, and endorsed in blank by Muia, to Muia's personal account. We do not hold that the bank could not, as a matter of law, have asserted the § 11-3-419(3) defense, but that the matter was properly submitted to the jury. "On appeal, the evidence must be construed to uphold the jury's verdict, and the sole question for determination is whether there is any evidence to authorize the verdict. [Cits.]" Gold Kist Peanuts v. Alberson, 178 Ga.App. 253, 254(1), 342 S.E.2d 694 (1986). As the evidence would have authorized the jury to find that the bank did not act in a commercially reasonable manner, the bank is liable to appellee for conversion,...