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

• Court: Georgia Supreme Court
• Writing for the Court: CLARKE
• Citation: Trust Co. Bank of Augusta N.A. v. Henderson, 373 S.E.2d 738, 258 Ga. 703 (Ga. 1988)
• Decision Date: 22 November 1988
• Docket Number: No. 45385,45385
• Parties: , 7 UCC Rep.Serv.2d 1134 TRUST CO. BANK OF AUGUSTA, N.A. v. HENDERSON.

Page 738

373 S.E.2d 738

258 Ga. 703, 7 UCC Rep.Serv.2d 1134

TRUST CO. BANK OF AUGUSTA, N.A. v. HENDERSON.

No. 45385.

Supreme Court of Georgia.

Nov. 22, 1988.

Neal W. Dickert, Hull, Towill, Norman & Barrett, Augusta for Trust Co. Bank of Augusta, N.A.

James W. Purcell, Fulcher, Hagler, Reed, Obenshain, Hanks & Harper, Augusta, for James S. Henderson, et al.

Long, Aldridge & Norman, W. Stell Huie, amicus curiae.

CLARKE, Presiding Justice.

Trust Company Bank (the bank) appeals from the Court of Appeals' affirmance of a jury verdict awarding James S. Henderson, owner and operator of the Ramada Inn, damages, prejudgment interest and attorney fees against the bank in an action brought by Henderson against the bank for conversion. Trust Co. Bank of Augusta N.A. v. Henderson, 185 Ga.App. 367, 364 S.E.2d 289 (1987).

The complaint alleged that the bank accepted a forgery in allowing the inn's general manager, Muia, to cash checks payable to the inn and to deposit checks payable to the inn into his personal account. The total amount of checks deposited to the personal account or cashed was $71,397.33.

After he was hired, Muia was brought into the bank by Henderson and introduced as the inn's general manager. He became friendly with all of the tellers and transacted business on an almost daily basis at the bank. Muia had in his possession an endorsement stamp for the inn which contained a restrictive endorsement. Muia also had authority to write checks on a special checking account used to pay for bands, liquor, and other expenses which could not be charged. The checks cashed by Muia or deposited to Muia's account were endorsed by hand and in blank. The jury awarded Henderson $5,235.52 for checks cashed by Muia. The jury also awarded Henderson $66,161.81 for checks payable to the inn which were deposited into Muia's personal account. In addition, the jury awarded Henderson $5,691.19 in prejudgment interest plus attorney fees. The Court of Appeals affirmed except for writing off the attorney fees.

1. The bank argues OCGA § 7-1-352 protects it from liability. That code section authorizes a bank to honor checks on a fiduciary account when they are signed with the name in which the deposit was entered and absolves the bank from accountability to the persons or organizations who may have an interest in the amount deposited. We read this section to mean that the bank incurs no liability for the uses to which trust funds are applied after they are withdrawn. On the other hand, the statute contains no language protecting the bank against liability for honoring forged or otherwise improper checks or endorsements.

In this case, the bank accepted endorsements which were not authorized by Muia's employer. Because of this action the bank is not shielded by OCGA § 7-1-352 but is subject to the provisions of OCGA § 11-3-419. Subsection (1)(c) of that statute describes an instrument as converted when it is paid on a forged endorsement. Subsection 3 of the same code section absolves a party from liability to the true owner in conversion or otherwise beyond the amount of any proceeds remaining in his hands when the party has dealt with an instrument or its proceeds in good faith and in accordance with reasonable commercial standards. Therefore, the issue is whether the bank acted in good faith and in accordance with reasonable commercial...