Peoples Life Insurance v. Community Bank

292 S.E.2d 188, 278 S.C. 70, 1982 S.C. LEXIS 344

• Court: Supreme Court of South Carolina
• Decided: May 27, 1982
• Docket: 21716
• Status: Published

Opinions

Harwell, Justice:

*

Appellant alleges the trial court erred in granting respondent’s Motion to Strike the allegation of conversion and in granting respondent a nonsuit on the issue of negligence.

Appellant, a health, accident and life insurance company, entered into a contract with James M. Watt whereby he was to be a Managing General Agent with authority to solicit insurance on appellant’s behalf. Mr. Watt had an insurance agency under the name of Watt & Associates which represented other insurance companies as well as appellant. Under his written contract with appellant, he was to hold all money received on behalf of appellant in a fiduciary capacity until immediately and properly remitted to appellant. In addition, Watt was authorized to receive checks made payable to appellant or Watt & Associates. If he received checks payable to appellant, he was to remit 100% of the premium, but if he received checks payable to Watt & Associates, he could remit the net premiums. He had no authority to endorse checks payable to appellant.

During December 1978 and January 1979, Watt obtained twenty-two (22) checks, totaling $3,364.00 made payable to appellant. The checks were all stamped by Watt “For Deposit Only, Peoples Life Insurance Company Watt Assoc.” and deposited in Watt’s “Watt & Associates” account with respondent. When appellant received inquires from several alleged customers, it discovered that Watt had been collecting premiums which had not been remitted to it. After receiving photostatic copies of the twenty-two checks from respondent, appellant issued the insurance policies to the customers who had previously paid Watt by check. Neither respondent nor Watt paid appellant the $3,364.00, and this action for conversion and negligence followed.

Under S. C. Code Ann. § 15-13-60 (1976), a motion to strike irrelevant or redundant matter is addressed to the sound discretion of the trial court and the court’s decision will not be reversed absent an abuse of discretion. Totaro v. Turner, 273 S. C. 134, 254 S. E. (2d) 800 (1979). We agree with appellant that its allegation of conversion was erroneously stricken from the complaint.

Conversion of an instrument is governed by S. C. Code Ann. § 36-3-419 (1976):

(1) An instrument is converted when ...

(c) is paid op a forged indorsement.

(3) Subject to the provisions of this act concerning restrictive endorsements a representative, including a depositary or collecting bank, who has in good faith and in accordance with the reasonable commercial standards applicative dealt with an instrument or its proceeds on behalf of one who was not the true owner is not liable in conversion or otherwise to the true owner beyond the amount of any proceeds remaining in his hands.

We stated in Palmetto Compress and Warehouse Co. v. Citizens and Southern National Bank, 200 S. C. 20, 20 S. E. (2d) 232, 235 (1942) that a forged or unauthorized endorsement of a check transfers no title, and the taker thereunder who collects the proceeds of the check from the drawee holds such proceeds for the true owner and must respond to the latter’s action therefor in the absence of offsetting facts and circumstances. See, 10 Am. Jur. (2d) Banks § 632 (1963) and Annot., 100 A.L.R. (2d) 670, 673 (1965). In the Palmetto Compress case, Palmetto’s treasurer cashed checks at the defendant bank by endorsing his name and title. On file at the bank were signatures of Palmetto’s authorized endorsers as well as a resolution requiring at least two of the authorized signatures on checks. Although no one forged a signature this Court held the endorsement was nevertheless unauthorized because of the two signature requirement.

We realize the Palmetto Compress case was decided prior to our adoption of the Uniform Commercial Code. However, the South Carolina Reporter’s Comments state that S. C. Code Ann. § 36-3-419(1)(c) merely codified the common law rule as expressed in that case and in Charleston Paint Company v. Exchange Banking and Trust Company, 129 S. C. 290, 123 S. E. 830 (1924).

We believe, therefore that appellant properly stated a cause of action for conversion and should have been allowed to offer evidence on that issue.

At trial appellant offered proof of respondent’s negligence in allowing Watt to deposit in the Watt and Assoc, account the twenty-two checks payable to appellant. At the close of appellant’s evidence, the trial court granted respondent a non-suit. We think a jury issue was created, and therefore, the nonsuit was improper.

When a trial court considers a motion for a nonsuit, it must view the evidence and all reasonable inferences to be drawn therefrom in the light most favorable to the plaintiff. It is not to weigh the evidence but merely to determine whether there is any relevant competent evidence reasonably tending to establish the material elements of the plaintiff’s case. If more than one reasonable inference can be drawn, or if the inferences to be drawn are in doubt, a jury issue is created. Dunsil v. E. M. Jones Chevrolet Co., Inc., 268 S. C. 291, 233 S. E. (1977); Chaney v. Burgess, 246 S. C. 261, 143 S. E. (2d) 521 (1965).

A bank’s defense to an action under S. C. Code Ann. § 36-3-419 is that it acted in good faith and in accordance with reasonable commercial standards applicable to the business of banking. There is no evidence of any authority given by appellant to Watt to endorse, cash, or deposit checks made out to appellant, nor is there any evidence that respondent ever checked or questioned Watt’s authority to endorse and deposit appellant’s check into the account of Watt & Associates. The burden of proving that it acted in good faith and in accordance with reasonable commercial standards is on the bank because the exception set out in S. C. Code Ann. § 36-3-419(3) (1976) is an affirmative defense. National Bank of Ga. v. Refrigerated Transport, 147 Ga. App. 240, 248 S. E. 496 (1978) is a similar case. There the plaintiff’s collection agent had deposited checks in its general corporate checking account with the defendant bank. Although the checks plainly indicated plaintiff as payee, the agent stamped either its own name or its name “as agent for” plaintiff. There, as here, the evidence at trial was undisputed that the endorsements were unauthorized within the meaning of U.C.C. 1-201. The court upheld a judgment n. o. v. for the plaintiff, stating:

The endorsements 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 general corporate checking account of one not the payee, NBG (the bank) had a duty to inquire to ascertain the authority of UAS (plaintiff’s agent) to endorse and deposit RTC’s (plaintiff payee) checks____Therefore, failure to inquire into the validity of the endorsements in question precluded NBG from asserting the defense of commercial reasonableness... as a matter of law. 248 S. E. (2d) at 500.

We believe the granting of the nonsuit was error.

Gregory, J., concurs. Lewis, C. J. and Littlejohn, J, dissent. Ness, J., not participating.

Both Article V, Section 9, of the Constitution of South Carolina and Section 14-3-360 of the Code of Laws of South Carolina (1976), require “... the concurrence of three of the justices ... for a reversal of the judgment below.” Inasmuch as the Court is evenly divided and three justices do not agree to reversal, the rulings of the lower court are affirmed.