Jones v. Van Norman

522 A.2d 503, 513 Pa. 572, 3 U.C.C. Rep. Serv. 2d (West) 1442, 1987 Pa. LEXIS 662

• Court: Supreme Court of Pennsylvania
• Decided: March 10, 1987
• Status: Published

Opinions

OPINION OF THE COURT

LARSEN, Justice.

In this appeal we are faced with an issue of the liability of appellant First Valley Bank (First Valley) under Section 3-419 of the Uniform Commercial Code (U.C.C.) for conversion of four checks of appellee, Walter Jones (Jones). The checks in question were negotiated at First Valley by appellee, Mary Ellen Van Norman. Jones filed suit against appellees, David Van Norman and Mary Ellen Van Norman and appellant, First Valley Bank. The Northampton County Common Pleas Court, in a non-jury trial, found that Mrs. Van Norman was authorized by Jones to receive certain of his checks and endorse his name to those checks. The trial court found further that Mrs. Van Norman was instructed by Jones to deposit the checks in Jones’ bank account at Manufacturers Hanover Bank in New York. Instead of depositing them in Jones’ bank account as instructed, Mrs. Van Norman took the checks to First Valley where she received some cash and deposited the balance in her and her husband’s personal account. The lower court, concluding that the case involved a misappropriation of funds by an authorized agent, declined to find liability on the part of First Valley.¹ On appeal by Jones and the Van Normans,² the Superior Court reversed, citing its decision in Levy v. First Pennsylvania Bank, 338 Pa.Super. 73, 487 A.2d 857 (1985) as controlling, and held that Mrs. Van Norman’s action in signing Jones’ name and depositing the checks in her personal account was unauthorized, and therefore, for purposes of this action in conversion, was the same as forgery. The Superior Court concluded that First Valley was liable for paying the checks to Mrs. Van Norman on forged or unauthorized endorsements unless First Valley had a defense.³ A new trial was ordered, 343 Pa.Super. 348, 494 A.2d 1119. We granted First Valley’s petition for allocatur.

The appellee Walter Jones owned and operated an interstate boiler installation and repair business. His business involved extensive travel, primarily in the east and mid-west regions of the United States. In or about 1978, appellee David Van Norman was employed to work for Jones. Several months after he was hired, Jones and David Van Norman agreed that they would continue as employer and employee but the method of compensating Van Norman was changed. Instead of an hourly wage or a salary, it was agreed that David Van Norman would receive fifty (50%) percent of the net profits on each job. He also was to be reimbursed for expenses.

Jones lived in Brooklyn, New York and did his banking there. When he was traveling and working in other states, there was no one in New York to handle his mail and make bank deposits. Because of this, checks that were sent to him by customers would stay undeposited until he returned. Apparently, this lag between receipt of customer checks and their deposit into Jones’ bank account presented a cash flow problem for Jones. After discussing this problem with David Van Norman and David’s wife Mary Ellen, Jones reached an agreement with Mrs. Van Norman that she would become involved in handling certain transactions for Jones. Jones notified customers to send their checks to the Van Normans’ address in Bangor, Pennsylvania. Mary Ellen Van Norman was authorized to endorse Jones’ name to the checks she received and deposit them in Jones’ New York bank account. Jones furnished Mrs. Van Norman with a supply of deposit slips for that purpose. It is unclear whether Mrs. Van Norman ever deposited any checks in Jones’ account. It is clear though that there were four checks that Mary Ellen Van Norman did not deposit in Jones’ New York account as instructed. Rather, she applied those checks for the use and benefit of her and her husband.

The first of these checks was dated May 15, 1979, issued by Helicopter Applicators, Inc. in the sum of $1,800.00; the next was dated July 7, 1980, issued by Tabor Products Manufacturing Co. in the sum of $5,856.50; the next was dated November 12, 1980, issued by Highland Fashions, Ltd. in the amount of $1,195.00; and the last was dated December 4, 1980, issued by Southern Athletic in the sum of $2,027.08. As to the check issued by Helicopter Applicators, Inc., Mrs. Van Norman endorsed the name of Walter Jones and then signed her husband’s name directly below. She took that check to First Valley where she received some cash and deposited the balance in her and her husband’s account. Since Mrs. Van Norman requested some cash from First Valley when she presented the check drawn on the account of Helicopter Applicators, Inc., she was questioned by the head teller. Mrs. Van Norman told the teller that there was a partnership type arrangement with Walter Jones. That Jones coordinated and set up jobs that he and David Van Norman worked on together. Based upon the information given and a ten-year history of the Van Normans as good and reliable customers of the bank, the head teller authorized the transaction. (See N.T., p. 70.) As to the other three checks, Mrs. Van Norman signed Jones’ name and then her own below his. When the checks drawn on the accounts of Tabor Products and Highland Fashions were presented to First Valley by Mrs. Van Norman, she likewise requested some cash. In each instance she was questioned by the head teller. In each instance the transaction was approved based upon the same information and for the same reasons as the first check was approved. The last check from Southern Athletic was totally deposited in a personal savings account.

In late 1980 several checks Jones had written on his Manufacturers Hanover account were returned because of insufficient funds. Jones contacted several customers who he believed had paid him. Among the customers he contacted were Helicopter Applicators, Tabor Products, Highland Fashions and Southern Athletic. He obtained photocopies of the check remitted by those customers. He learned that the checks had been deposited in a bank in Penn Argyl, Pennsylvania. After contacting Mrs. Van Norman and discussing her handling of the checks in question, Jones filed suit against the Van Normans and First Valley seeking recovery of $10,878.50, the sum of the four checks. In his complaint Jones alleged that the endorsement of his name on each of the checks was not genuine and was a forgery. Jones based his theory of liability against the appellant, First Valley, upon Section 3-419 of the U.C.C. which, in pertinent part, provides:

(a) Acts constituting conversion. — An instrument is converted when:

(1) a drawee to whom it is delivered for acceptance refuses to return it on demand;

(2) any person to whom it is delivered for payment refuses on demand either to pay or to return it; or

(3) it is paid on a forged indorsement.

13 Pa.C.S.A. § 3419.

The Common Pleas court found that David and Mary Ellen Van Norman were liable to Jones,⁴ but declined to enter a verdict against First Valley. The lower court determined that since Mary Ellen Van Norman was authorized to sign Jones’ name to the checks, the endorsements did not constitute forgeries. The Superior Court, relying upon its decision and reasoning in Levy v. First Pennsylvania Bank, 338 Pa.Super. 73, 487 A.2d 857 (1985), reversed the trial court’s judgment and remanded for a new trial.

In Levy, the plaintiffs, Sidney and Frieda Levy sold their business, Novelty Printing. At the time of the sale they authorized their attorney to take the proceeds of the sale and open an account for them at a local brokerage house in the name of B & J Corp. which was to be the Levy’s new business. With the funds, the broker purchased Treasury Bills on the account of the Levys. When the Treasury Bills matured the Levys instructed their attorney to receive the proceeds from the broker and deposit them into Levys’ bank accounts at Girard Bank and at Industrial Valley Bank. The attorney received three checks totaling $222,776.87 from the broker. The payee of two of the checks was Novelty Printing Company Profit Sharing Trust. The third check was payable to the order of B & J Corp. The attorney signed the back of each check with the name of the payee and added the notation “deposit to account No. 973-784-4.” The number written was the attorney’s personal account number. All of the monies were applied by the attorney for the attorney’s own benefit. The trial court in Levy found that the attorney’s authority was limited to endorsing the checks for deposit into Levys’ bank accounts at Girard Bank and Industrial Valley Bank. That court concluded that the restrictive endorsements he actually made, therefore, were unauthorized.

On appeal, the Superior Court determined that the trial court’s finding that the endorsements were unauthorized was supported by the record. The court then considered the question of whether the unauthorized endorsements constituted forgeries under Section 3-419 of the U.C.C. The Superior Court in Levy concluded that “an unauthorized signature is the same as a forgery for purposes of an action for conversion under 13 Pa.C.S.A. § 3419.” The First Pennsylvania Bank was held to be liable to the Levys for paying the checks to the dishonest attorney.⁵

In the present case, the Superior Court found that the holding in Levy was controlling as to the liability of First Valley for paying the checks to the Van Normans. The Superior Court stated:

Because Mrs. Van Norman was authorized to endorse checks with Jones’ name for one purpose does not mean that she had unlimited power to sign his name for other purposes. It is clear that Mrs. Van Norman’s authority to endorse Walter Jones’ name was limited to endorsing checks payable to Jones in order to deposit those checks into Jones’ New York bank account. Mrs. Van Norman did not have authority to endorse checks with Jones’ name in order to deposit those checks into her personal account at a different bank, or to cash those checks at any bank. Thus, her conduct in signing Jones’ name to achieve such a purpose was unauthorized. Under the holding in Levy, her unauthorized signature was the same as a forgery for purposes of an action for conversion instituted against First Pennsylvania Bank.

The appellant, First Valley, argues that the Superior Court’s holding announced in Levy and applied in the present case imposes an unreasonable burden on appellant, and on banks generally, to bear responsibility for the misconduct of authorized agents who deviate from the instructions of the principal. Appellant points out that the Uniform Commercial Code specifically provides for a signature by an authorized representative. Section 3-403(a) of the U.C.C. provides:

(a) General rule. — A signature may be made by an agent or other representative, and his authority to make it may be established as in other cases of representation. No particular form of appointment is necessary to establish such authority.

13 Pa.C.S.A. § 3403(a). The appellant contends that the authority granted to Mrs. Van Norman in this case is in accord with the general rule set forth in Section 3-403 of the U.C.C.

The appellant’s argument is predicated upon the authority given to Mary Ellen Van Norman to sign Jones’ name to the checks sent to her. Jones saw fit to direct his customers to send their payments to the Van Normans in Bangor, Pennsylvania. He found it convenient and appropriate to vest Mrs. Van Norman with the authority to receive those checks and endorse his name to them. Since the endorsements on the checks in question were authorized by Jones, they cannot be the equivalent of forgeries as determined by the Superior Court. We agree with the lower court that it was not the signing of Jones’ name that was unauthorized. Rather, it was the cashing of the checks and the depositing of the proceeds into Van Normans’ personal account that constituted the wrongful acts. It is obvious that the misappropriation of the checks was unauthorized. The misappropriations, however, did not convert authorized endorsements into forgeries. The signing of the payee-principal’s name on the check is either authorized or it is not. That status does not depend upon whether the authorized representative properly applies the checks to the account of the payee or misapplies them to his own use.

The appellee argues that the principle established by the Superior Court in Levy and applied in the instant case is accepted law in several other jurisdictions. In support of this proposition the appellee refers us to Levy and the cases cited therein by the Superior Court: Top Crop Seed & Supply Co., Inc. v. Bank of Southwest Louisiana, 392 So.2d 738 (La.App.1980); Equipment Distributors, Inc. v. Charter Oak Bank & Trust Company, 34 Conn.Supp. 606, 379 A.2d 682 (1977); Hartford Accident & Indemnity Co. v. South Windsor Bank and Trust Co., 171 Conn. 63, 368 A.2d 76 (1976); and Salsman v. National Community Bank of Rutherford, 102 N.J.Super. 482, 246 A.2d 162 (1968), aff’d 105 N.J.Super. 164, 251 A.2d 460 (1969). We have reviewed these cases and find that in each the signing of a payee’s name to the check or checks in question was without authority.

In Top Crop Seed, a traveling salesman, who never had authority to endorse his employer’s name to checks, converted company funds to his own use by signing the company name on customer checks and depositing them in his own account. In Charter Oak, the name of Equipment Distributors, Inc. was endorsed on a check by a co-payee who did not have authority to sign for the co-payee. In Hartford Accident, an insurance broker endorsed Hartford’s name to a check payable to Hartford and then deposited it in his own agency account. It was found that the broker had no express, apparent or implied authority to endorse Hartford’s name. Finally, in Salsman, Harold Breslow, an attorney, had his administratrix client endorse her name to a cashier’s check which he said was to be deposited in the decedent’s estate account. After his client signed and left his presence, the attorney wrote under her endorsement, “estate of Arthur J. Odgers — for deposit Harold Breslow, Trustee.” Under that his secretary wrote, “For deposit Harold Breslow Trustee.” The checks were deposited in the attorney’s account and converted to his use.

In each of the above cited cases the lower court found no evidence of authority on the part of the purported representative to endorse the name of the payee. On the contrary, the trial court in the instant case found specifically that Mary Ellen Van Norman was authorized' to endorse Jones’ name to the checks. That finding is supported by the record.

When Jones authorized Mrs. Van Norman to endorse his name to checks and gave her instructions to deposit the checks in his bank account, he assumed the risk of her competence and honesty. First Valley in paying Mrs. Van Norman on the four checks she endorsed with Jones’ name assumed the risk that the signature of Jones was authorized.⁶

The liability of First Valley for conversion under Section 3-419 of the U.C.C. depends upon a finding that the checks were paid on unauthorized or forged endorsements. Since Mrs. Van Norman was given authority by Jones to endorse his name and there was no evidence that the bank had knowledge of the limiting instructions given to Mrs. Van Norman, First Valley is not liable to Jones for paying the checks to Mrs. Van Norman.

Next before us is the issue of the Van Normans’ right to a jury trial. One of the alleged errors before the Superior Court was the trial court’s denial of the Van Normans’ request for a trial by a jury. The trial court held that the right to a jury trial was waived because of the failure to make a timely request in accordance with the provision of Pa.R.C.P. 1007.1(a).⁷ The Van Normans first made a request for a jury trial when they filed a written pre-trial memorandum. The pre-trial memorandum was required by the local rules. The Van Normans argue that their request complies with Pa.R.C.P. 1007.1(a) in that the pre-trial memorandum is a permissible pleading. They further argue that there would be no prejudice in granting a jury trial since at the time of their request, discovery was still outstanding and the trial date was at least three months away.

The Superior Court did not consider this issue and the arguments offered. It was merely noted that the remand for a new trial ordered by that court was “without prejudice to the right of the Van Normans to renew their request for a jury trial.”

Although it would be procedurally correct to remand this case to the Superior Court for consideration of the “jury trial question” raised, in the interest of judicial economy, and because the Van Normans’ position is clearly meritless, we now decide this issue.

The pre-trial memorandum filed by the Van Normans did not constitute a permissible pleading under Pa.R.C.P. 1007.1(a). The pleadings allowed by the Rules of Procedure are set forth in Pa.R.C.P. 1017(a) as follows:

(a) The pleadings in an action are limited to a complaint, an answer thereto, a reply if the. answer contains new matter or a counterclaim, a counter-reply if the reply to a counterclaim contains new matter, a preliminary objection and an answer thereto.

The record is clear that the Van Normans’ demand for a jury trial, first asserted in their pre-trial memorandum, was made more than twenty days after the last permissible pleading and, therefore, failed to satisfy the requirements of Rule 1007.1(a). Accordingly the lower court correctly held that a jury trial had been waived. In addition, considerations of prejudice to the other side play no part in enforcing a waiver of a jury trial where the provisions of Rule 1007.1(a) have not been met.

The order of the Superior Court is reversed and the judgment of the trial court reinstated.

HUTCHINSON, J., filed a dissenting opinion. McDERMOTT, J., notes a dissent.

1 . The trial court found liability on the part of the Van Normans only.

2 . The Van Normans appealed from the judgment on their counterclaim and also from the order in an equity action for an accounting brought against Jones.

3 . The Superior Court concluded that since the trial court declined to find First Valley liable, there were issues raised in the pleadings that were not considered. Those issues included, inter alia, First Valley’s allegation of defense that if it was found that the endorsements were forgeries, Jones was negligent and his negligence contributed to the alleged forgeries. (See 13 Pa.C.S. § 3406.)

4 . In response to the suit filed by Jones the Van Normans filed an Answer, New Matter and Counterclaim. In the Counterclaim, the Van Normans alleged that Jones owed David Van Norman $47,160.59 as monies due for his one-half of the net profits, for reimbursement of expenses, and for the decline in value of a Ford truck used for the business. The trial court found that Jones did owe some money to David Van Norman and concluded that the Van Normans were liable to Jones for the proceeds of the four checks less a credit for the sum owed by Jones to David Van Norman. A judgment in the sum of $6,000.00 was entered in favor of Jones and against the Van Normans.

5 . Allocatur was granted in Levy v. First Pennsylvania Bank, supra, and the case is now on appeal awaiting argument in this Court.

6 . Although counsel for appellant First Valley failed to raise and brief the provisions of the Uniform Fiduciaries Act in support of appellant’s position, we note that Section 9 of the Uniform Fiduciaries Act, 7 P.S. § 6393, provides as follows:

If a fiduciary makes a deposit in a bank to his personal credit of checks drawn by him upon an account in his own name as fiduciary; or of checks payable to him as fiduciary; or of checks drawn by him upon an account in the name of his principal, if he is empowered to draw checks thereon; or of checks payable to his principal and indorsed by him, if he is empowered to indorse such checks; or if he otherwise makes a deposit of funds held by him as fiduciary, — the bank receiving such deposit is not bound to inquire whether the fiduciary is committing thereby a breach of his obligation as fiduciary, and the bank is authorized to pay the amount of the deposit, or any part thereof, upon the personal check of the fiduciary, without being liable to the principal, unless the bank receives the deposit or pays the check with actual knowledge that the fiduciary is committing a breach of his obligation as fiduciary in making such deposit or in drawing such check or with knowledge of such facts that its action in receiving the deposit or paying the check amounts to bad faith. 1923, May 31, P.L. 468, § 9.

Section 1 of the Act, 7 P.S. § 6351 defines fiduciary to include an "agent.” Bacher v. City National Bank of Philadelphia, 347 Pa. 80, 31 A.2d 725 (1943). In Bacher, an administratrix of a decedent’s estate gave her attorney the authorization "to collect any and all monies due the said estate, and to endorse any and all checks payable to ... administratrix of the said estate, and to deposit the funds so collected on his attorney’s account.” The attorney received the cash and deposited them in his personal account. He used the funds by writing personal checks on his account. We said there that: ”[U]nder Section 9 of the Act, it is provided that, unless the bank has actual knowledge that the fiduciary is committing a breach of his obligation as fiduciary, it is justified, if the fiduciary is empowered to endorse checks payable to his principal, in accepting them as a deposit to his personal credit.” The summary judgment entered by the trial court in favor of administratrix Bacher was reversed. The case went back to the lower court for trial.

The Bacher case again came before us, under the caption Strong v. City National Bank of Philadelphia, 355 Pa. 390, 50 A.2d 323 (1947). In Strong, the lower court, after hearing the evidence, entered a judgment in favor of the administratrix and against the bank on the theory that the bank had no knowledge of the attorney’s authority to endorse the checks and therefore, absent this knowledge, the bank was not protected by the Uniform Fiduciary Act. We held that the lower court was in error and said:

The bank, as provided in section 9 of the Act, was authorized to pay the amount of the deposits on [the attorney’s] personal checks unless it had actual knowledge of the limitations of his authority in that regard, but its knowledge or lack of knowledge as to his right to indorse the checks was wholly immaterial. The condition prescribed by the Act as necessary to relieve the bank from liability is that the fiduciary must in fact have been empowered to indorse the checks, not that the bank must have known that he had such authority. As stated in our former opinion: "When it accepted the deposit to [the attorney’s] personal credit the only risk it took ... was that [the attorney] might not have been authorized to indorse the checks; if no such authorization had existed, the bank clearly would have been liable for paying out funds on the basis of an unauthorized indorsement of the payee’s name. But [the attorney] did have the power to indorse, and if the bank did not actually know that he had been directed to deposit the checks in his attorney’s account it would not be liable because of his violation of this instruction and his misappropriation of the funds after receiving them upon his authorized indorsement; ...” [the attorney’s] power to indorse depended on his possession of such authority and not on the bank’s knowledge as to whether or not it existed: (Citations omitted.) Since he actually had the authority to indorse, the bank, by the express wording of the Act, was permitted to pay the amount of the deposits on his personal checks unless it had knowledge— which the court below found it did not have — of the provision in the power of attorney designating the account in which the checks should be deposited. (Emphasis in original.)

7 . (a) In any action in which the right to jury trial exists, that right shall be deemed waived unless a party files and serves a written demand for a jury trial not later than twenty (20) days after service of the last permissible pleading. The demand shall be made by endorsement on a pleading or by a separate writing. Pa.R.C.P. 1007.1(a).