United Bank v. Mesa N. O. Nelson Co., Inc.

• Decision Date: 14 February 1979
• Docket Number: No. 13946,13946
• Citation: 121 Ariz. 438,590 P.2d 1384
• Parties: , 25 UCC Rep.Serv. 1113 UNITED BANK of Arizona, a Banking Institution, Appellant, v. MESA N. O. NELSON COMPANY, INC., a corporation, Appellee.
• Court: Arizona Supreme Court

Page 1384

590 P.2d 1384

121 Ariz. 438, 25 UCC Rep.Serv. 1113

UNITED BANK of Arizona, a Banking Institution, Appellant, v. MESA N. O. NELSON COMPANY, INC., a corporation, Appellee.

No. 13946.

Supreme Court of Arizona, In Banc.

Feb. 14, 1979.

Moore & Romley, by Robert O. Dyer, Phoenix, for appellant.

Jacob S. Alpert, Phoenix, for appellee.

STRUCKMEYER, Vice Chief Justice.

This is an appeal by the United Bank of Arizona from the entry of a judgment in the Superior Court favorable to appellee and from an order denying its motion for a new trial. Affirmed.

The appellee, Mesa N. O. Nelson Company, Inc., a wholesale plumbing supply company, brought this action against the United Bank alleging that the bank converted eleven joint payee checks by paying the checks over the forged endorsement of Nelson. ¹ The checks were issued by Douglas P. Patterson Development Corporation, the owner and general contractor of a building project known as Tempe Village and were for plumbing work which had been completed by Henry Sasser. Appellee's signature was forged by Henry Sasser, a plumbing contractor working on the Tempe Village project, who was the Nelson Company's joint payee on the checks.

At the trial, the bank admitted that its employees were guilty of "technical error" when they paid the checks over the appellee's unauthorized endorsement, but argued that appellee was estopped because it was negligent in its business dealings with Sasser. The United Bank also set up the defense of ratification. These defenses are predicated on A.R.S. § 44-2541 (U.C.C. § 3-404). It provides:

"A. Any unauthorized signature is wholly inoperative as that of the person whose name is signed unless he ratifies it or is precluded from denying it; but it operates as the signature of the unauthorized signer in favor of any person who in good faith pays the instrument or takes it for value.

B. Any unauthorized signature may be ratified for all purposes of this article. Such ratification does not of itself affect any rights of the person ratifying against the actual signer."

The trial court found that United Bank's affirmative defenses were not sustained by the evidence and that appellee did not ratify the Sasser forgeries. United Bank argues on appeal that the judgment was not justified by the evidence and that its statutory defenses were established by the evidence.

We have said:

"No principles are better settled in Arizona than, first, that the duty of a reviewing court begins and ends with the inquiry whether the trial court had before it evidence which might reasonably support its action viewed in the light most favorable to sustaining the findings, and, second, that the reviewing court will not weigh conflicting evidence on appeal." O'Hair v. O'Hair, 109 Ariz. 236, 240, 508 P.2d 66, 70 (1973).

Our review of the record leads us to the conclusion that the trial court's findings are supported by the evidence.

Appellant points to sixteen items of evidence which it argues support a conclusion contrary to that of the trial court. But since there are ample facts which support the judgment, we will not weigh the details to resolve conflicts. At the onset we find the statements of the Supreme Court of New Jersey are enlightening. In Thermo Contracting Corp. v. Bank of New Jersey, 69 N.J. 352, 354 A.2d 291 (1976), in construing U.C.C. § 3-404, the New Jersey court said:

"The meaning of ratification for purposes of negotiable instruments law is not dissimilar from its general meaning in the law of agency. Ratification is defined in Section 82 of Restatement of Agency 2d (1957):

Ratification is the affirmance by a person of a prior act which did not bind him but which was done, or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him.

* * * Ratification requires intent to ratify plus full knowledge of all the material facts. Passaic-Bergen Lumber Co. v. United States Trust Co., 110 N.J.L. 315, 164 A. 580 (E. & A. 1933); 2 Anderson, U.C.C. § 3-404:7, p. 924 (2d Ed. 1971). Ratification may be express or implied, and intent may be inferred from the failure to repudiate an unauthorized act, East Orange v. Bd. of Water Comm'rs of East Orange, 73 N.J.Super. 440, 180 A.2d 185 (Law Div. 1962), aff'd 40 N.J. 334, 191 A.2d 747 (1963); Johnson v. Hospital Service Plan of N. J., 25 N.J. 134, 135 A.2d 483 (1957); from inaction, Vogt v. Borough of Belmar, 14 N.J. 195, 101 A.2d 849 (1954); or from conduct on the part of the principal which is inconsistent with any other position than intent to adopt the act. Common Wealth Ins. Systems, Inc. v. Kersten, 40 Cal.App.3d 1014, 115 Cal.Rptr. 653 (Ct. of App. 1974). " 69 N.J. at 360-61, 354 A.2d at 295.

The bank's position in the present case is that Gerald Baker, president of appellee company, ratified Sasser's unauthorized endorsements of the Patterson joint payee checks. The bank points out that appellee initiated the joint payee check arrangement on the expectation of payment of monthly progress checks by Patterson, but that during the fifteen-month period of the project appellee received only ten checks for endorsement, while eleven checks were negotiated by Sasser with unauthorized endorsements. It is argued that Baker should have known that Sasser was receiving the joint payee checks from Patterson since Sasser's sole income at this time came from the Tempe Village project and he was paying appellee for materials with personal checks.

While Sasser testified that he informed Baker that he had received the joint payee checks and had negotiated them without appellee's endorsement, Baker testified that during the course of the Tempe Village project he was not aware of any joint payee checks which he did not personally endorse. The bank insists that it is inconceivable that Baker did not know of Sasser's endorsements. However, the trial court found that Sasser did not advise Nelson of the receipt of the Patterson checks and the subsequent forged endorsements. The court specifically found that Nelson was not aware of the forgeries until September, 1975, when Patterson told Baker that the joint payee checks had been given to Sasser.

It is emphasized that on review the findings of fact of a trial court will not be set aside unless clearly erroneous and that due regard will be given to the opportunity of the trial court to judge the credibility of witnesses. Rossi v. Stewart, 90 Ariz. 207, 367 P.2d 242 (1961); Donahoe v. Marston, 26 Ariz.App. 187, 547 P.2d 39 (1976); Rule 52(a), Arizona Rules of Civil Procedure, 16 A.R.S. The trial court found Baker's testimony more credible than Sasser's and determined that Baker did not know that Sasser was forging the Patterson checks. These findings are not clearly erroneous and, since they are not inherently incredible, we are compelled to accept them. Moreover, since the doctrine of ratification is based upon knowledge of all the material facts see O'Neil v. Goldenetz, 53 Ariz. 51, 85 P.2d 705 (1938); Fuqua Homes, Inc. v. Grosvenor, 116 Ariz. 424, 569 P.2d 854 (App.1977), and the trial court found that Baker was not aware of Sasser's forgeries, it cannot be said that Baker knew of all the material facts and ratified Sasser's actions.

We hold the trial court's determination in this regard is supported by substantial evidence and will not be upset on appeal.

By statute A.R.S. § 44-2541(A), it is provided that "(a)ny unauthorized signature is wholly inoperative as that of the person whose name is signed unless he * * * is precluded from denying it * * *." This language, incorporated in U.C.C. § 3-404(1), was retained from Section 23 of the Uniform Negotiable Instruments Law, "to recognize the possibility of an estoppel against the person whose name is signed, as where he expressly or tacitly represents to an innocent purchaser that the signature is genuine; and to recognize the negligence which precludes a denial of the signature." Official Comment 4, Uniform Commercial Code (U.L.A.) § 3-404.

The bank argues that Nelson is estopped from recovering against it since the losses sustained by appellee were substantially caused by Nelson's negligence. The bank produced evidence at the trial that there was a deviation from appellee's normal credit procedures in that when Sasser's account was established, appellee did not require more than a joint payment arrangement with Patterson; that the Nelson Company continued to provide Sasser with materials in spite of the fact that Sasser's account was many thousands of dollars in arrears with some arrearages being over 120 days old; and that the Nelson Company did not file liens on the Tempe Village property and failed to...