May-Li Barki, M.D., Inc. v. Liberty Bank & Trust Co.

1999 OK 87, 20 P.3d 135, 70 O.B.A.J. 3149, 40 U.C.C. Rep. Serv. 2d (West) 238, 1999 Okla. LEXIS 102, 1999 WL 970932

• Court: Supreme Court of Oklahoma
• Decided: October 26, 1999
• Docket: 89,902
• Status: Published

Opinions

WATT, Justice,

11 Between February 1985 and August 1988 plaintiff, May-Li Barki, M.D., an obstetrician and gynecologist, wrote fifty-seven checks totaling $385,639.90 on her corporate account in defendant Liberty Bank and Trust Company to Capitol Federal Savings Bank. Dr. Barki's accountant, Gary Reed, was to see that these checks were deposited to Dr. Barki's credit in a tax deposit account to be used to pay Dr. Barki's taxes. Unbeknownst to Dr. Barki, Reed fraudulently endorsed each check not to Capitol Federal for Dr. Barki's credit, but to an account of his own in Capitol Federal.¹ The record does not explain why Capitol Federal accepted Dr. Barki's checks and deposited them to Reed's account, although they were not payable to Reed.²

T2 Capitol Federal credited Reed's account and endorsed each check with its own endorsement. -It is undisputed that Capitol Federal's endorsement of each check served to warrant its title to each check,. Liberty then paid each check, relying on Capitol Federal's endorsement.

13 Dr. Barki did not discover Reed's defalcations until 1991. By that time Capitol Federal had failed and Dr. Barki made demand upon Liberty to make good her losses, which Liberty declined to do. Dr. Barki then brought suit against Liberty in the District Court of Oklahoma County claiming that the checks that Liberty had honored were not properly payable under the Uniform Commercial Code.³ The trial court granted Liberty's motion for summary judgment on the ground that Dr. Barki's claims were barred by the three year statute of limitations. This ruling gave rise to the first appeal in this case, Barki I, in which the Court of Civil Appeals reversed the trial court. The court in Barki I held that Dr. Barki's cause of action was not barred by the applicable statute of limitations and that the checks were not "properly payable" to Reed under 12A O.S. § 4-401(1)⁴ In Barki I the court held:

We conclude as a matter of law that the checks in controversy in this appeal were not properly payable, for which Liberty is strictly liable unless it is relieved of liability by the claimed affirmative defenses.

[Footnote omitted.]

T4 In Barki I, the Court of Civil Appeals remanded the matter to the trial court with directions to the trial court to determine whether Dr. Barki's own negligence had contributed to her loss and thus barred her from recovery, under 12A 0.8.1991 § 3-406,⁵ and whether Liberty could make out a defense under 12A 0.8. § 8-405(1).° The trial court submitted the issue of whether Dr. Barki had been negligent to the jury. The jury found that Dr. Barki had not been negligent and returned a verdict for her and against Liberty in the amount sued for, $385,639.90. The trial court held, as a matter of law, that Liberty could not make out a defense under § 3-405(1).⁶ Liberty appealed, which appeal gave rise to the second Court of Civil Appeals opinion in this case, Barki II.

15 In Barki II, Division 2 of the Court of Civil Appeals held that Liberty was entitled to prevail as a matter of law under 12A ©.8.1991 § 3-405(1) and, as a result, did not consider the other issues that Liberty asserted. As we conclude that the Court of Civil Appeals's holding on the § 8-405(1) issue in Barki II was erroneous, we will not only address that issue, we will also consider and dispose of the other issues raised in Liberty's briefs.

16 ISSUES

IR Did the trial court correctly hold that there was no defense available to Liberty under 12A O.S8. $ 3-405(1)?

II. Did the trial court correctly hold that Dr. Barki's cause of action against Liberty was not barred by the statute of limitations?

Did the trial court act within its discretion in excluding certain evidence at the trial? IIL.

IV. Did the trial court act within its discretion in denying Liberty's motion to proceed first in presenting evidence?

We answer "yes" to each question.

DISCUSSION

I.

17 Liberty insists that it is entitled to prevail under 12A O.S. § 3-405(1) because "Reed endorsed the checks in the name of Capitol Federal-the payee." We reject Liberty's analysis because the record shows that Reed made a restrictive endorsement on each of the checks so that each check was payable to his account in Capitol Federal, not to Capitol Federal itself.

8 In Barki I, the Court of Civil Appeals dealt with this issue, holding Dr. Barki's checks to Capitol Federal were not properly payable because Reed had not endorsed them to the payee. In Barki I the court relied on the reasoning of the West Virginia Supreme Court in O'Mara Enterprises, Inc. v. People's Bank of Weirton, 187 W.Va. 591, 420 S.E.2d 727 (1992).

T9 The facts the West Virginia court considered were, as the Court of Civil Appeals observed, "strikingly similar" to those in this case. There, as here, a third party endorsed checks payable to a bank for deposit to the third party's own account in that bank, not to the payee bank itself. The payee bank then endorsed the checks for payment by the payor bank, despite the fact that the checks had not been endorsed in accordance with the maker's instructions. The court held that this failure made the checks non-negotiable and that the bank's own later endorsement did not serve to revive the negotiability of the checks. Based on its conclusion that the checks became nonnegotiable when the third party presented them to the payee bank for deposit to his own account, the West Virginia court concluded:

It is axiomatic that absent negotiability, there is no transfer of rights to the funds represented by the commercial instrument. Since the checks were not negotiable because of non-compliance with UCC provisions regarding endorsement, the rights to the funds represented by the checks at issue were never transferred to the Bank. The Bank, therefore, became only a possessor of the checks and not a holder.

The Court of Civil Appeals's holding in Barki I is the law of the case and binding on the parties and is, therefore, not subject to review in this appeal. Shoemaker v. Estate of Freeman, 1998 OK 17 ¶ 15, 967 P.2d 871, 875

T10 Section 3-405(1) applies only to "An endorsement by any person in the name of a named payee" - [Emphasis added.] Although the court in Barki I left open the issue of the availability to Liberty of § 3-405(1) as a defense, the effect of the Barki I court's holding is to render § 3-405(1) inapplicable. Liberty's argument that Reed's endorsement was in the name of the named payee is both contrary to the record and to the holding of the Court of Civil Appeals in Barki I. The trial court, therefore, correctly held that there was no defense available to Liberty under 12A 0.8.1991 $ 38-4051).

II.

¶11 Liberty argues that Dr. Barki's claims against it are barred by the statute of limitations because Dr. Barki asserted them more than three years after she wrote the checks. Dr. Barki claims that the statute of limitations did not start to run until she had demanded repayment and Liberty had refused because her cause of action did not arise until that time. Dr. Barki relies on Allied Fidelity Insurance Company v. Bank of Oklahoma, N.A., 1995 OK 36, 894 P.2d 1101. We held in Allied that when a bank improperly charges its depositor's account no cause of action for repayment arises until after the depositor demands repayment and the bank refuses. The reason for the rule is that a bank and its depositor have a debtor-creditor relationship. Thus, when the bank wrongly pays, as it did here, it is regarded as having paid its own money, not its depositor's money.

1 12 Liberty seeks to distinguish Allied by claiming that while the instrument at issue there was a certificate of deposit, which was not a negotiable instrument, Dr. Barki's checks were negotiable. We reject Liberty's claim on this score because the Court of Civil Appeals expressly held in Barki I that Dr. Barki's checks were non-negotiable when Liberty received them from Capitol Federal. As noted in part I, Liberty is bound by the law of the case doctrine so its contention that Dr. Barki's checks were negotiable must fail, as must its attempt to distinguish Allied. The trial court, therefore, correctly held that Dr. Barki's cause of action against Liberty was not barred by the statute of limitations.⁷

IIL

113 The issue before the Barki II jury was whether Dr. Barki had negligently failed to request copies of her checks, which Liberty had retained as a result of its depository agreement with Dr. Barki. The terms of this agreement were contained on a signature card signed by Dr. Barki in 1982. That 1982 depository agreement did not purport to bind Dr. Barki to any subsequent changes in the agreement when mailed to her by Liberty. No new agreement between Dr. Barki and Liberty was executed until 1990, a date after the losses at issue here had taken place. Nevertheless, Liberty claims that the trial court erred in excluding purported changes in the depository agreement that Liberty had mailed to Dr. Barki in 1985.

114 We hold that the trial court did not abuse its discretion when it exeluded the 1985 mailings from evidence. Liberty did not show that Dr. Barki was bound by those mailings. Further, Liberty failed to demonstrate that the exclusion of those mailings was so substantial that it represented a miscarriage of justice or constituted a substantial violation of Liberty's rights. "The trial court is permitted broad discretion in determining the relevance of evidence. Decisions regarding relevance of evidence and its alleged prejudice to the other party will not be overturned absent an abuse of discretion." Mills v. Grotheer, 1998 OK 33 ¶ 3, 957 P.2d 540, 541, citing with approval, Jordan v. Cates, 1997 OK 9 ¶ 20, 935 P.2d 289, 293 (Okla.1997).

¶15 Liberty also claims that the 1985 mailings would have shown its custom of making checks available to customers. But Liberty called three employee witnesses to establish its customs and practices. Under such circumstances, Liberty's claim that the exclusion from evidence of the 1985 agreements from evidence was reversible error must fail. A trial court has broad discretion in deciding whether evidence should be admitted. The exclusion of cumulative evidence does not constitute reversible error. Bryce v. Maples, 1967 OK 42, 424 P.2d 93.

IV.

¶16 Finally, Liberty argues that the trial court committed reversible error in refusing to change the order of trial and allow Liberty, the defendant, to proceed first. Liberty bases its contention on the fact that the court in Barki I held that Liberty would be strictly liable unless it was relieved of liability by establishing its affirmative defenses. Liberty's contention must fail because the trial court's decision to refuse to change the order of proof was within its discretion and Liberty made no showing that the trial court's failure to allow it to present its evidence out of order was prejudicial to it. "A trial court may allow the introduction of evidence out of its proper order, within his discretion, and, where not prejudicial to the offeror's adversary; but a refusal to do so, is not ordinarily error" Layton v. Purcell, 1954 OK 38, 267 P.2d 547, 553. [Emphasis added.] Liberty's reliance upon Williamson v. Holloway, 69 Okla. 254, 172 P. 44 (1918), is misplaced. There, this Court reversed the trial court solely because, on its own motion, it directed a verdict for plaintiff before the defendant had rested its case, not because it changed the order of trial. Here, the facts are significantly different, as the jury heard the evidence of both parties and returned a verdict. Thus, the trial court acted within its discretion in refusing to change the order of trial.

CERTIORARI GRANTED, COURT OF CIVIL APPEALS OPINION VACATED, JUDGMENT OF THE TRIAL COURT AFFIRMED.

SUMMERS, C.J., HARGRAVE, V.C.J., LAVENDER, OPALA, and WATT, JJ.concur. KAUGER, J.-not participating.

1 . Reed endorsed the checks with a rubber stamp as follows:

Pay to the Order of Capitol Federal Savings Bank, Oklahoma City, OK For Deposit Only Gary Reed Accounting Service Capitol Federal Savings Bank

In January 1987 Reed changed the name of his Capitol Federal account to "Lincoln Nat'l Management Corp." but the account number remained the same.

2 . -After she wrote the checks for tax deposits that are at issue here, Dr. Barki wrote other checks for tax deposits totaling more than $300,000.00. All of the later checks were written within three years of the date upon which Dr. Barki brought suit. Dr. Barki settled her claims for the loss occasioned by Reed's misconduct respecting those later checks with institutions other than Liberty who were also defendants. Consequently, these later checks are not at issue in this appeal.

3 . Articles 3 and 4 of the UCC were substantially amended effective January 1, 1992. The pre-revision version of the UCC, however, was applicable to this appeal as all transactions at issue here took place before the effective date of the amendments. - Consequently all citations are to the pre-1992 version of the UCC.

4 . Section 4-401(1) states in material part:

As against its customer, a bank may charge against the account any item which is otherwise properly payable from that account ...

5 . Section 3-406 provides:

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.

6 . Section 3-405(1) provides:

(1) An indorsement by any person in the name of a named payee is effective if

(a) an imposter by use of the mails or otherwise has induced the maker or drawer to issue the instrument to him or his confederate in the name of the payee; or

(b) a person signing as or on behalf of a maker or drawer intends the payee to have no interest in the instrument; or

(c) an agent or employee of the maker or drawer has supplied him with the name of the payee intending the latter to have no interest.

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7 . We expressly decline to address the question of when the statute of limitations begins to run with respect to negotiable instruments under circumstances like those in the case at bar.