Spencer v. Sterling Bank

SHERRI SPENCER, as Executrix, etc., Plaintiff and Appellant, v. STERLING BANK, Defendant and Respondent. No. B108008 (Super. Ct. No. SC040911) California Court of Appeal Second Appellate District Division One Filed May 11, 1998 CERTIFIED FOR PARTIAL PUBLICATION*
        APPEAL from an order of the Superior Court of Los Angeles County, Lorna Parnell and David D. Perez, Judges. Affirmed.

        Jeffrey E. Lieber for Plaintiff and Appellant.

        Kumetz & Glick, Fred J. Kumetz, Stephen Glick and Thomas Swallow for Defendant and Respondent.

        The interesting issue in this case is whether a check indorsed "for deposit only" without further limitation ("X, for deposit only") can be deposited only into the indorser's unidentified account or whether it can be deposited into anybody's account at any bank. In the published portion of this opinion, we explain that this indorsement is both restrictive (the check must be deposited and cannot otherwise be negotiated) and blank (to the extent that it does not identify the person for whose benefit the check must be deposited). "X, for deposit only" is to a deposit as is a blank payee to a signed check. For this reason (and others explained in the unpublished portion of this opinion), we affirm an order of dismissal entered after a demurrer was sustained without leave to amend.

FACTS ¹         On December 6, 1993, Max Wolf died. Within days, Sherri Spencer (later appointed Wolf's executrix) hired Angela Wallace, a lawyer, to initiate probate proceedings. Instead, Wallace allegedly converted assets from Wolf's estate, "forging [Wolf's] signature . . . to obtain funds held in deposit accounts located" at three banks, as follows:
        On December 13, 1993, Home Savings of America issued "a cashier's check . . . payable by . . . Home [Savings] to 'Max or Katherine Wolf' in the amount of $75,926.90 . . . ." On December 15, Wallace deposited this cashier's check to her client trust account at Sterling Bank. The check (issued after Wolf's death) purports to be indorsed (by hand) by Max Wolf, "For Deposit Only," then indorsed again (by indorsement stamp) by Wallace for deposit to her Sterling Bank client trust account. On December 16, Home Savings paid "the full amount of its cashier's check" to Sterling Bank.
        On December 21, 1993, American Savings Bank issued a cashier's check payable by American Savings to Max Wolf in the amount of $79,747.80. On December 22, Wallace deposited this cashier's check to her client trust account at Sterling Bank. This check was indorsed in the same manner as the Home Savings check. On December 23, American Savings paid "the full amount of its cashier's check" to Sterling Bank.
        On December 22, 1993, Great Western Bank issued a cashier's check payable by Great Western to Max Wolf in the amount of $51,264.39. On December 22, Wallace deposited this cashier's check to her client trust account at Sterling Bank. This check was indorsed in the same manner as the Home Savings and American Savings checks. On December 23, Great Western paid "the full amount of its cashier's check" to Sterling Bank.
        Based on these transactions, Spencer (as Wolf's executrix) sued Wallace, Sterling Bank, the issuing banks and others, alleging that "Defendants have failed and refuse[d] to account to [her] for the monies taken . . . ." As against Sterling Bank (the only defendant before us on this appeal), ² Spencer alleged causes of action for conversion, "damages due to unauthorized or forged drawer's and endorser's signature," "breach of restrictive endorsement" and a common count for money had and received. ³ Over Spencer's opposition, Sterling Bank's demurrers were sustained without leave to amend. Spencer appeals.

DISCUSSION I.         Spencer contends that, in light of the indorsements ("Max Wolf 'for deposit only'"), she has a cause of action for "breach of a restrictive indorsement" against Sterling Bank. We disagree.

A.         Checks, including cashiers' checks, are "negotiable instruments" covered by Division Three of the Commercial Code, section 3101 et seq. ⁴ (§ 3104, subds. (c), (f).) ⁵ A "cashier's check" is a draft ⁶ with respect to which the drawer ⁷ and drawee ⁸ are the same bank or branches of the same bank. (§ 3104, subd. (g).) ⁹ A check is "issued" when the drawer first delivers it "for the purpose of giving rights on the instrument to any person." (§ 3105, subd. (a).) For our purposes, a "depositary bank" is "the first bank to take an item . . . ." (§ 4105, subd. (2).)
        As relevant, an "indorsement" is a signature that alone or accompanied by other words is made on an instrument for the purpose of (1) negotiating ¹⁰ the instrument or (2) restricting payment of the instrument. (§ 3204, subd. (a).) An "indorser" is a person who makes an indorsement. (§ 3204, subd. (b).) If an indorsement is made by the holder of an instrument and the indorsement identifies a person to whom it makes the instrument payable, it is a "special indorsement." When specially indorsed, an instrument becomes payable to the identified person and may be negotiated only by the indorsement of that person. (§ 3205, subd. (a).) If an indorsement is made by the holder of an instrument and it is not a special indorsement, it is a "blank endorsement." When indorsed in blank, an instrument becomes payable to the bearer and may be negotiated by transfer of possession alone until specially indorsed. (§ 3205, subd. (b).) The holder may convert a blank indorsement that consists only of a signature into a special indorsement by writing, above the signature of the indorser, words identifying the person to whom the instrument is made payable. (§ 3205, subd. (c).)
        According to Paragraph 2 of the Uniform Commercial Code Comment to section 3205, "[a] blank indorsement is usually the signature of the indorser on the back of the instrument without other words. . . . A 'restrictive indorsement' described in Section [3206] can be either a blank indorsement or a special indorsement. 'Pay to T, in trust for B' is a restrictive indorsement. It is also a special indorsement because it identifies T as the person to whom the instrument is payable. 'For deposit only' followed by the signature of the payee of a check is a restrictive indorsement. It is also a blank indorsement because it does not identify the person to whom the instrument is payable." (Italics added.) As to a "blank indorsement," the "result is analogous to that of a check in which the name of the payee is left blank by the drawer. In that case the check is payable to bearer." (¶ 2, Uniform Comm. Code Com. to § 3205.)
        The plain language of this statutory scheme compels the conclusion that the indorsements in Wolf's name "for deposit only," while restrictive, were also blank indorsements because they did not specify where or for whose benefit the checks were to be deposited. (Cf. Nordin v. Eagle Rock State Bank (1934) 139 Cal.App. 584, 593-594; and see Cameron v. Security First Nat. Bank (1967) 251 Cal.App.2d 450, 457-458; contra La Junta State Bank v. Travis (Colo. 1986) 727 P.2d 48, 54-55.) ¹¹ Accordingly, Sterling Bank's acceptance for collection of the three cashiers' checks from Wallace for deposit to her trust account was not a violation of a restrictive indorsement.

B.         We reject Spencer's contention that Sterling Bank's acceptance of the cashiers' checks was "inconsistent with the indorsement" within the meaning of section 3206. Under subdivision (c)(2) of section 3206, "[i]f an instrument bears an indorsement . . . in blank or to a particular bank using the words 'for deposit,' 'for collection,' or other words indicating a purpose of having the instrument collected by a bank for the indorser or for a particular account, . . . [a] depositary bank that . . . takes it for collection when so indorsed converts the instrument unless the amount paid by the bank with respect to the instrument is received by the indorser or applied consistently with the indorsement." (Italics added.) Wolf's indorsements did not use any words "indicating a purpose of having the instrument[s] collected by a bank for the indorser or for a particular account" as required to create liability under subdivision (c)(2) of section 3206. The restriction was in blank, permitting a deposit to any account, at any bank.
        Spencer cannot state a cause of action for breach of a restrictive indorsement.

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II.         Spencer contends she is entitled to pursue her conversion cause of action. We disagree.
        As relevant, subdivision (a) of section 3420 provides: "The law applicable to conversion of personal property applies to instruments. An instrument is also converted if . . . a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment. An action for conversion of an instrument may not be brought by (1) the issuer or acceptor of the instrument or (2) a payee or indorsee who did not receive delivery of the instrument either directly or through delivery to an agent or a copayee." (Emphasis added.) Since Spencer concedes that Wolf, the named payee, never received delivery of any of the cashiers' checks (he died before they were issued), it follows that Spencer cannot sue Sterling Bank for conversion.
        To avoid this result, Spencer contends section 3420 does not apply "when the drawee and payee are the same." Assuming without deciding that the rule is as she suggests (Jones v. Bank of America (1942) 49 Cal.App.2d 115, 123-125), her argument ignores the fact that we are dealing with cashiers' checks, not Wolf's personal checks, and that the drawees and payees were not the same -- the "drawees" are Home Savings, American Savings and Great Western, the banks "ordered" by the cashiers' checks to make payment (§ 3103, subd. (a)(2)), and the named payee was Wolf (§ 3110 [the payee is the person to whom the instrument is payable].) That the money used to purchase the cashiers' checks allegedly came from Wolf's accounts (see Part III, post) is legally irrelevant. ¹²

III.         The cashiers' checks were all issued, forged and deposited at Sterling Bank in December 1993. Spencer's original complaint was filed in February 1996, more than two years later. Spencer contends she is nevertheless entitled to pursue her cause of action "based upon forgeries or unauthorized signatures," and that, contrary to the trial court's conclusion, it is not time-barred. We disagree.

A.         The cause of action for "damages due to unauthorized or forged drawer's and [i]ndorser's signature[s]" is not based on the cashiers' checks (and the allegations about the cashiers' checks are not incorporated by reference). Instead, this cause of action alleges that Wolf maintained checking accounts at the Santa Monica branches of Home Savings, American Savings and Great Western; that Wolf was the only signatory on those accounts; that beginning on about December 13, 1993 (after Wolf's death), and continuing through December 22, 1993, checks and withdrawal orders were drawn on Wolf's accounts "in which the drawer's and endorser's signature purported to be that of [Wolf but were] in fact forged by Angela Wallace and/or Ronald Campbell who were unauthorized to sign on behalf of [Wolf]." Spencer also alleges that she "first discovered the unauthorized signatures subsequent to her appointment as Executrix on June 12, 1995. [Spencer] was unable to secure such information prior to that date because [Home Savings, American Savings and Great Western] would not release any information to [Spencer] until [she] was appointed Executrix by the Court. [Spencer] is informed and believes and thereon alleges that any statement issued after [Wolf's death] and prior to June 12, 1995, if any, was misdirected, intercepted, diverted and/or procured by . . . Wallace. [¶] . . . Sterling [Bank] was the bank to which the funds were subsequently deposited to the . . . Wallace client trust account . . . ."

B.         We agree with Sterling Bank's contention that this cause of action is barred by section 4406. ¹³ Section 4406 imposes a one-year limitation when a bank sends or makes available to its customer a statement of account showing payment of items for the account, and returns or makes available to the customer the items paid or provides information in the statement of account sufficient to allow the customer reasonably to identify the items paid, but the customer fails to "exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because . . . a purported signature by or on behalf of the customer was not authorized." (§ 4406, subds. (a), (c), (f).) "Without regard to care or lack of care of either the customer or the bank, a customer who does not within one year after the statement or items are made available to the customer . . . discover and report the customer's unauthorized signature on . . . the item is precluded from asserting against the bank the unauthorized signature or alteration." (§ 4406, subd. (f).) Depositary banks are entitled to the protection of section 4406. (Allied Concord etc. Corp. v. Bank of America, supra, 275 Cal.App.2d at pp. 8-9 [the depositary bank is entitled to the benefit of the drawer's statutory duty to the drawee bank to timely discover forged indorsements or suffer the charge against his account to stand]; cf. Roy Supply, Inc. v. Wells Fargo Bank, supra, 39 Cal.App.4th at p. 1070.)
        Spencer's reliance on Paragraph 5 of the Uniform Commercial Code Comment to section 4406 is misplaced. According to this comment, a reference in the predecessor statute "to unauthorized indorsements" was deleted because section 4406 "imposes no duties on the drawer to look for unauthorized indorsements. Section [4111] sets out a statute of limitations allowing a customer a three-year period to seek a credit to an account improperly charged by payment of an item bearing an unauthorized indorsement." Spencer's problem is that this cause of action alleges that the checks themselves were forged, not just the indorsements -- that Wallace and Ronald Campbell forged Wolf's signature as "drawer" as well as "endorser." Since section 4406 does impose upon the customer a duty to look for unauthorized signatures, the one-year limitation of section 4406 is triggered by Spencer's allegation that the signatures on these checks were forged.
        Although Spencer alleged that she was unable to secure the bank statements and canceled checks until she was appointed executor of Wolf's estate two years after his death, she offers no argument to suggest how this would or should affect the one-year period of limitations. Since Spencer has never explained why it took two years to obtain that appointment, and since she does not allege that Wolf's estate was without representation by another personal representative during that two-year period, we treat the "inability" claim as surplusage.

[END OF PART NOT CERTIFIED FOR PUBLICATION]
DISPOSITION         The order of dismissal is affirmed. Sterling Bank is entitled to its costs of appeal.


We concur:
        SPENCER, P.J.
        ORTEGA, J.


*Pursuant to California Rules of Court, rules 976(b) and 976.1, this opinion is certified for publication with the exception of Parts II and III.

¹  On this appeal from an order of dismissal entered after demurrers were sustained without leave to amend, we assume the truth of all well pleaded facts. (Wolfe v. State Farm Fire & Casualty Ins. Co. (1996) 46 Cal.App.4th 554, 559.)

²  The issuing banks demurred at or about the same time as Sterling Bank, and their demurrers were also sustained without leave to amend. Spencer's notice of appeal is limited to Sterling Bank.

³  On this appeal, Spencer offers no argument to support her common count, thereby conceding that this cause of action was properly dismissed. (Rossiter v. Benoit (1979) 88 Cal.App.3d 706, 710-711.)

⁴  Unless otherwise stated, all section references are to the Commercial Code.

⁵  "'Check' means (1) a draft, other than a documentary draft, payable on demand and drawn on a bank, (2) a cashier's check or teller's check, or (3) a demand draft. An instrument may be a check even though it is described on its face by another term, such as 'money order.'" (§ 3104, subd. (f).)

⁶  "An instrument is a 'note' if it is a promise and is a 'draft' if it is an order. If an instrument falls within the definition of both 'note' and 'draft,' a person entitled to enforce the instrument may treat it as either." (§ 3104, subd. (e).) "Order" means a written instruction to pay money signed by the person giving the instruction. (§ 3103, subd. (a)(6).) According to Paragraph 4 of the Uniform Commercial Code Comment to section 3104, "[t]he term 'draft,' defined in subsection (e), includes a 'check' which is defined in subsection (f)."

⁷  The "drawer" is the person who signs or is identified in a draft as the person ordering payment. (§ 3103, subd. (a)(3).)

⁸  The "drawee" is the person ordered in a draft to make a payment. (§ 3103, subd. (a)(2).)

⁹  When a bank issues a "cashier's check," it promises the purchaser that the check will be paid from the bank's resources (not from the purchaser's account) upon presentation. (Jerman v. Bank of America (1970) 7 Cal.App.3d 882, 887.)

¹⁰  "Negotiation" means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder. (§ 3201, subd. (a).)

¹¹  In Cameron (decided before enactment of California's Uniform Commercial Code - Negotiable Instruments [Stats. 1992, ch. 914, § 6]), we noted that, although there was "some question as to the restrictive nature of the words 'For Deposit' on commercial paper [citation], such words are a common form of restrictive endorsement. [Citation.] If the words 'For Deposit Only' should be regarded as restricting the bank to collecting the proceeds of the check for deposit, it is to be noted that there is no direction in said endorsement as to the account in which the proceeds were to be deposited. (Cf. Nordin v. Eagle Rock State Bank, [supra,] 139 Cal.App. 584, 589 . . . , wherein the endorsement was 'For deposit in Bank to order of C. O. Nordin'; and Christian v. California Bank [1947] 30 Cal.2d 421, 422 . . . , wherein the endorsement was 'Pay to order of 303 Bank of America 303 Trust and Savings Association S & R Produce Co.')" (Cameron v. Security First Nat. Bank, supra, 251 Cal.App.2d at p. 457.)

¹²  We summarily reject Spencer's alternative argument based upon her assumption that Wallace (who was "consulted" by Spencer about representing her in her capacity as Wolf's executrix) should be treated as the "implied in law" agent of Spencer and, therefore, of Wolf. (§ 3420, subd. (a) [a payee who did not receive delivery of a check "either directly or through delivery to an agent or a copayee" may not sue for conversion].) There is no allegation in Spencer's complaint that Home Savings, American Savings or Great Western delivered the cashiers' checks to Wallace and there is no factual allegation to support such an inference. Indeed, Spencer does not even allege that she actually retained Wallace. To the contrary, all she alleges is that Wallace "is an attorney at law who was consulted by [Spencer] in order to initiate a probate proceeding" after Wolf died and that, pursuant to this "consultation," an "attorney/client relationship commenced . . . ." Spencer then alleges that the forgeries were the "result of [this] consultation and delivery of documents and information" to Wallace. (Italics added.) Spencer does not say where those documents came from or whether she was the one who delivered them to Wallace. Moreover, Spencer has also sued someone named "Ronald Campbell" who notarized the purported signatures of Max Wolf and who is mentioned in another cause of action (for damages based on the forged indorsements) as the possible forgerer (the allegation is that Wolf's signatures "were in fact forged by Angela Wallace and/or Ronald Campbell who were unauthorized to sign on behalf of [Wolf]"). (Part III, post.) As a result, delivery to Wallace from the issuing banks simply cannot be assumed. (Feldesman v. McGovern (1941) 44 Cal.App.2d 566, 571 [the rule of liberal construction of pleadings embodied in Code of Civil Procedure section 452 does not permit the insertion, by construction, of averments that are neither directly made nor within the fair import of those that are set forth; on the contrary, facts necessary to a cause of action but not alleged must be taken as having no existence].) In any event, it appears that Spencer's agency theory is self-defeating. (See, e.g., Navrides v. Zurich Ins. Co. (1971) 5 Cal.3d 698, 703-704.)

¹³  Sterling Bank's reliance on subdivision (3) of section 340 of the Code of Civil Procedure (an action "by a depositor against a bank for the payment of a forged or raised check, or a check that bears a forged or unauthorized endorsement" must be commenced within one year) is misplaced. The one-year period of limitation imposed by that statute, by its own terms, applies only to an action by a depositor against a payor bank. (Roy Supply, Inc. v. Wells Fargo Bank (1995) 39 Cal.App.4th 1051, 1070, fn. 20; Creditors Collection Service v. Castaldi (1995) 38 Cal.App.4th 1039, 1043 [this statute applies only to an action by a depositor against a bank for payment of a forged check]; Kiernan v. Union Bank (1976) 55 Cal.App.3d 111; Allied Concord etc. Corp. v. Bank of America (1969) 275 Cal.App.2d 1, 4-7; Union Tool Co. v. Farmers etc. Nat. Bk. (1923) 192 Cal. 40; Glassell Dev. Co. v. Citizens' Nat. Bk. (1923) 191 Cal. 375.) This action is against the depositary bank.