Transferability and Holder in Due Course

Chapter 25: Transferability and Holder in Due Course 1

Chapter 25

Transferability and Holder in Due Course

Case 25.1

Fla.App. 3 Dist.,2003.

Hyatt Corp. v. Palm Beach Nat. Bank

840 So.2d 300, 49 UCC Rep.Serv.2d 1039, 28 Fla. L. Weekly D393

Briefs and Other Related Documents

HYATT CORP. v. PALM BEACH NAT. BANK

District Court of Appeal of Florida,Third District.

The HYATT CORPORATION, Appellant,

v.

PALM BEACH NATIONAL BANK, et al., Appellees.

No. 3D02-1276.

Feb. 5, 2003.

LEVY, Judge.

Appellant/defendant the Hyatt Corporation appeals the lower court's Summary Final Judgment in favor of appellee/plaintiff Palm Beach National Bank. Plaintiff/Cross-Appellant, J & D Financial Corporation also appeals the Summary Final Judgment. We affirm.

J & D Financial Corporation is a factoring company. Skyscraper Building Maintenance, LLC, had a contract with Hyatt to perform maintenance work for various Hyatt hotels in South Florida. Skyscraper entered into a factoring agreement with J & D. As part of the factoring agreement, J & D requested Hyatt to make checks payable for maintenance services to Skyscraper and J & D. Of the many checks issued by Hyatt to Skyscraper and J & D, two were negotiated by the bank but endorsed only by Skyscraper. They were made payable as follows:

1. Check No. 1-78671 for $22,531 payable to:

J & D Financial Corp. Skyscraper Building Maint P.O. Box 610250 North Miami, Florida 33261-0250

2. Check No. 1-75723 for $21,107 payable to:

Skyscraper Building Maint J & D Financial Corp. P.O. Box 610250 North Miami, Florida 33261-0250

Only one of the payees, Skyscraper, endorsed these two checks. The bank cashed the checks. According to J & D, it did not receive the benefit of these two payments. J & D filed a complaint against Skyscraper and its principals on the guarantee, Hyatt and the bank. J & D sought damages against Skyscraper under the factoring agreement and separately against Hyatt and the bank for negotiation of the two checks. Hyatt answered and raised the bank's “fault” as an affirmative defense. The bank answered and raised Section 673.1101(4), Florida Statutes (1993) as an affirmative defense. The bank, Hyatt and J & D then moved for summary judgment on the issue of whether the bank properly negotiated the checks. It was uncontested that the bank had a duty to negotiate the checks only on proper endorsement, and if it did not, it would be liable. The bank argued that the checks were payable to J & D and Skyscraper alternatively, and thus the bank could properly negotiate the checks based upon the endorsement of either of the two payees. The bank further argued that the checks were drafted ambiguously as to whether they were payable alternatively or jointly, and thus under Section 673.1101(4), Florida Statutes, the checks would be construed as a matter of law to be payable alternatively.

Hyatt's position was that the checks were not ambiguous, were payable jointly and not alternatively, and thus under Section 673.1101, the checks could only be negotiated by endorsement of both of the payees. J & D similarly argued that the checks were payable jointly. The trial court granted Summary Judgment in favor of the bank, finding that Section 673.1101(4) precluded the bank's liability. Hyatt appealed. J & D filed a cross-appeal. The issue on appeal is whether or not a check payable to

*302 J & D Financial Corporation Skyscraper Building Maintenance

(stacked payees) is payable jointly to both payees requiring the endorsement of both, or whether it is ambiguous regarding whether the check was drafted payable alternatively, so that the bank could negotiate the check when it was endorsed by only one of the two payees.

In 1990, Article 3 of the UCC was revised, and the language of UCC Section 3-116 was added to UCC section 3-110 and became subsection (d). Revised UCC Section 3-110(d), which added language to follow former 3-116(a) and (b), states, “If an instrument payable to two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.” The net effect of the amendment was to change the presumption. What was unambiguous before is now ambiguous. Turning to our jurisdiction, Florida has adopted the statutory revision to UCC 3-110 , with its enactment of Section 673.1101, Florida Statutes (1992). Section 673.1101(4) now provides the following:

(4) If an instrument is payable to two or more persons alternatively, it is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument. If an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them. If an instrument payable to two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.

§ 673.1101(4), Fla. Stat.

The issue under review has not reached Florida's appellate courts. However, two trial courts in Florida have addressed this issue in Bijlani v. Nationsbank of Florida, N.A., 25 UCC Rep. Serv.2d (CBC) 1165, 1995 WL 264180 (Fla.Cir.Ct.1995) and City First Mortgage Corp. v. Florida Residential Property & Casualty Joint Underwriting Ass'n., 37 UCC Rep. Serv.2d (CBC) 126, 1998 WL 1095082 (Fla. Miami-Dade County Ct.1998). We find the reasoning in both cases to be persuasive. In Bijlani, the appellee paid a check which did not have Bijlani's endorsement. The check was made payable to Bay Village Inc. Michael Bijlani & Ron Delo & Assoc 5411 Grenada Blvd Coral Gables, FL 33133

The trial court granted the bank's motion for summary judgment, stating that “The multiple payee designation on the check is ambiguous as to whether it is payable to ‘Bay Village Inc.’ ‘Michael Bijlani ...’ jointly or alternatively.” Holding that the bank was not liable, the trial court noted that the predecessor statute “provided that if an ambiguity existed as to whether multiple payees were intended as joint or alternative payees, they were deemed joint payees,” while the amended statute applicable to this case “reverses the prior rule.” Id. at 1166.

In City First Mortgage Corp. v. Florida Residential Property & Casualty Joint Underwriting Ass'n., 37 UCC Rep. Serv.2d (CBC) 126, 1998 WL 1095082 (Fla. Miami-Dade County Ct.1998), a Florida County Court reached the same conclusion. In City First Mortgage Corp., the bank paid a check which did not have City First Mortgage Corp.'s endorsement. The check was made payable to

BORIS LA ROSA ODALYS LA ROSA CITY FIRST MTG. CORP. ISAOA ATIMA

The county court granted First Union's Motion to Dismiss Complaint, stating that *303 the Complaint failed to state a cause of action against the bank. The court found that,

On its face, the Check is payable to two or more persons and, as a matter of law, the payee designation on the Check is ambiguous as to whether it is payable to the persons alternatively.

Id. at 127. The court cited to § 673.1101(4), Fla. Stat.

Although Florida appellate courts have not yet considered the issue at hand, other courts in the country have. See Dimmitt & Owens Financial, Inc. v. USA Glass & Metal, Inc., 1998 WL 852862 (N.D.Ill.1998) (the listing of names on the check did not contain the word “or” or “and”, thus the complete absence of any indication as to whether the check was intended to be payable alternatively or jointly, the court found that the check was ambiguous as to whether it was made payable to either payee alternatively and held the check could be paid to either payee individually); Harder v. First Capital Bank, 332 Ill.App.3d 740, 266 Ill.Dec. 770, 775 N.E.2d 610 (2002) (checks listing multiple payees without grammatical connectors except between names of two payees were ambiguous as to whether checks were payable jointly or in the alternative, and thus were payable in the alternative with endorsement of any payee listed singly or with endorsement of both payees that were listed together); Meng v. Maywood Proviso State Bank, 301 Ill.App.3d 128, 234 Ill.Dec. 92, 702 N.E.2d 258 (1998) (cashier's check which the named payee specially indorsed to make payable to two new payees was ambiguous where it did not include any language or markings, such as the word “and” or the word “or,” regarding whether the check was payable alternatively or jointly; thus, the check was payable alternatively); Allied Capital Partners, L.P. v. Bank One, Texas, N.A., 68 S.W.3d 51 (Tx.Ct.App.2001)(checks which listed two payees that were not connected by “and” or “or” were ambiguous as to whether they were payable to two payees jointly or alternatively, and thus bank complied with statute in treating ambiguous payees as alternate payees, and cashing checks on endorsement of only one payee).

For example, a case which has addressed this particular issue with almost identical facts to those before us is Allied Capital Partners, L.P. v. Bank One, Texas, N.A., 68 S.W.3d 51 (Tx.Ct.App.2001). In Allied, the checks were made payable to:

Complete Design Allied Capital Partners, LLP. 2340 E. Trinity Mills St. 300 Carrollton, Texas 75006

The debtor endorsed the checks and deposited them into a corporate bank account. The factor then sued the bank for conversion for payment on the debtor's endorsement.

On appeal from the adverse summary judgment, the factor cited pre-revision law. The Texas appellate court affirmed the summary judgment, stating: While it does appear that former section 3.116 would have required the checks in this case to be payable to and negotiable only by all of the payees listed, this is no longer the case ...

Allied Capital Partners, L.P. v. Bank One, 68 S.W.3d at 54. Under these facts, the court found that the check was unambiguous.

We conclude that based on the 1990 amendment to the Uniform Commercial Code, when a check lists two payees without the use of the word “and” or “or”, the nature of the payee is ambiguous as to whether they are alternative payees or joint payees. Therefore, the UCC amendment prevails and they are to be treated *304 as alternative payees, thus requiring only one of the payees' signatures. Consequently, the bank could negotiate the check when it was endorsed by only one of the two payees, thereby escaping liability.

The standard of review when reviewing the entry of summary judgment is de novo. Volusia County v. Aberdeen at Ormond Beach, L.P., 760 So.2d 126, 130 (Fla.2000). As the parties correctly point out, this is a case of first impression in Florida appellate courts. Section 3-116 of the 1952 UCC version provided that:

An instrument payable to the order of two or more persons

(a) if in the alternative is payable to any one of them and may be negotiated, discharged or enforced by any of them who has possession of it;

(b) if not in the alternative is payable to all of them and may be negotiated, discharged or enforced only by all of them.

U.C.C. § 3-116 (1952). Under this version of the UCC, it was presumed that an instrument made payable to two payees was payable jointly. See Allied Capital Partners, L.P. v. Bank One Texas, N.A., 68 S.W.3d 51, 55 (Tex.Ct.App.2001). Florida adopted this provision of the UCC in Section 673.116, Florida Statutes (1969).

Hyatt's position, in sum, is that if a stacked payee designation was considered unambiguous and payable jointly before the amendment of the applicable statute, that same payee designation is unambiguous after the amendment of the statute. However, based on the foregoing case law, we find this position untenable because it ignores the shift in presumption brought about by the UCC revision. With the statutory presumption removed, the same stacked payee designation that was unambiguous and payable jointly pre-1992 is now ambiguous and payable in the alternative. Thus, we hold that the trial court was correct in granting the Summary Final Judgment.

Affirmed.

Case 25.2

862 N.E.2d 716

Court of Appeals of Indiana.

Vernon GRAVES and Shirley F. Graves, Appellants-Plaintiffs,

v.

John Marvin JOHNSON, Jr., Tamara Renee Lynn Johnson and Westport Insurance Company, Appellees-Defendants.

No. 34A02-0607-CV-563.

March 16, 2007.

OPINION

DARDEN, Judge.

STATEMENT OF THE CASE

Vernon and Shirley Graves appeal the trial court's entry of summary judgment in favor of Westport Insurance Company (“Westport”). We affirm.

ISSUE

Whether the trial court erred in granting Westport's motion for summary judgment.

FACTS

The Graveses owned property, including a building and improvements (the “Property”), located in Kokomo. The Graveses leased the Property to John and Tamara Johnson, who operated their business, Johnson's Towing & Recovery (“Johnson's Towing”), on the Property. The Johnsons insured their business interest through Westport, with Johnson's Towing as the named insured. The insurance policy included commercial property, including the building located on the Property, and general liability coverage. The insurance policy contained the following provision: 4. Loss Payment a. In the event of loss or damage covered by this Coverage Form, at our option, we will either: (1) Pay the value of lost of damaged property; (2) Pay the cost of repairing or replacing the lost or damaged property ...; (3) Take all or any part of the property at an agreed or appraised value; or (4) Repair, rebuild or replace the property with other property of like kind and quality.... (App.84). On or about November 13, 2003, a fire destroyed the building and other improvements located on the Property. Westport hired Claims Management Services, Inc. (“CMS”) to investigate and adjust the Johnsons' claim. CMS hired Robert J. Davis to serve as its local adjuster. As the adjuster, Davis “was charged with meeting with the insured, ... accessing [sic] the damage, calculating an estimate for repair, and reaching an agreed price for repair ... with the contractor of the insured's choosing.” (App.194). Subsequently, Davis met with Vernon, who was acting as the contractor in charge of rebuilding the Property's building. Of the $126,000 that Vernon estimated it would cost to rebuild, Davis agreed that Westport would pay $98,000 pursuant to the insurance policy owned by the Johnsons, with Vernon's insurer paying the remainder. “Davis agreed to make three (3) progress payments to [Vernon][.]” (App.214). On December 15, 2003, Westport sent a letter to Johnson's Towing and copied Vernon on the letter. The letter provided, in pertinent part, as follows: We have now established that Mr. Vernon Graves is the owner of this building/premises, but he has not been listed as an additional insured under your property policy. The following excerpt from your property policy sets out the conditions of payment when loss or damage occurs. 4. Loss Payment a. In the event of loss or damage covered by this Coverage Form, at our option, we will either: (1) Pay the value of lost of damaged property; (2) Pay the cost of repairing or replacing the lost or damaged property ...; (3) Take all or any part of the property at an agreed or appraised value; or (4) Repair, rebuild or replace the property with other property of like kind and quality.... After conferring with an insurance attorney, we have decided to proceed under Paragraph 4.a. (2) of the Loss Payment section of the Policy. We have decided to proceed in this manner because your financial interest in the Covered Property is limited to the value of your leasehold interest in the property. Accordingly, we will pay for the cost of repairing/replacing the structure. We will make the payments under the Policy in the form of progress payments payable to you and the contractor that you select to perform the work. These payments would be distributed as co-payable installments, as each stage is completed.... [Westport] will not pay you directly for the damages sustained to the building, as you are not the owner. (App.191-92). On or about January 20, 2004, Westport issued a check in the amount of $30,000. Westport made the check payable to Johnson's Towing and Vernon and “delivered [the check] directly to [Vernon].” (App.215). Vernon voiced no objection and deposited the check into his account on or about February 5, 2004. “Thereafter, [Vernon] was paid $29,000 additional dollars for a subsequent progress payment.” (App.214). On or about February 17, 2004, Westport issued a check (the “Check”), made payable to Johnson's Towing and Vernon in the amount of $68,037.42, and tendered it to Johnson's Towing. The Johnsons allegedly forged Vernon's endorsement of the Check and either cashed or deposited the Check, failing to tender to Vernon the $38,178.23 due for construction costs. On April 11, 2005, the Graveses filed a complaint against the Johnsons FN1 and Westport. The complaint alleged the following against Westport:

FN1. The Johnsons filed for bankruptcy under Chapter 7 of Title 11 of the United States Bankruptcy Code on October 15, 2005, thereby automatically staying the Graveses' action against the Johnsons.

15. At all times relevant hereto, [Davis] acted as adjustor and agent for [Westport]. 16. At all times relevant hereto, Westport insured the premises ... against fire and other casualties on behalf of [the Johnsons], d/b/a Johnson's Towing.... 17. After the casualty loss, Westport entered into negotiations with [the Graveses], as owners of the subject property, for adjustment of the loss and payment for repair of the premises. 18. Westport agreed to pay the [Graveses] the sum of $98,000.00 of policy proceeds for repair of the premises. 19. Of said sum, $38,178.23 remains unpaid. (App.17-18). The Graveses sought judgment against Westport for the $38,178.23. Westport asserted as an affirmative defense that the Graveses' claim against it was “barred or reduced by payment.” (App.34). On October 26, 2005, Westport filed its motion for summary judgment and designated the following evidence: 1) the policy insuring Johnson's Towing; 2) the affidavit of Heather Holden, a claims adjuster for CMS; 3) the affidavit of Davis; 4) a copy of the letter dated December 15, 2003 and sent to Vernon and Johnson's Towing; 5) the first check tendered to Vernon; and 6) the Check. Westport asserted that Westport discharged its obligations to the Graves[es] once the Check was tendered to one of the co-payees, Johnson's Towing, endorsed with the signatures of Johnson's Towing and V. Graves, presented for payment by Johnson's Towing and honored and paid by the bank. (App.45). In support, Westport cited Indiana Code section 26-1-3.1-310(b)(1), which provides in relevant part as follows: [I]f a note or uncertified check is taken for an obligation, the obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instrument were taken, and the following rules apply:... In the case of an uncertified check, suspension of the obligation continues until dishonor of the check or until it is paid or certified. Payment or certification of the check results in discharge of the obligation to the extent of the amount of the check. Westport argued that it was “not liable for the Graves[es]' failure to receive the money from the Check.” (App.45). The Graveses filed their response to Westport's motion for summary judgment on April 11, 2006. The Graveses designated as evidence the affidavit of Vernon. The Graveses argued that “[w]hether [the Graveses] had a direct contract with [Westport]” and “[w]hether delivery of a check to a third party constitute[d] payment under said contract,” precluded the granting of Westport's motion for summary judgment. (App.210). On May 10, 2006, Westport filed its reply, asserting that the Graveses' “designation of facts ... are not materially different than Westport's and do not create a question of fact that would preclude the entry of summary judgment on Westport's motion.” (App.228). Following a hearing on June 5, 2006, the trial court granted Westport's motion for summary judgment. Additional facts will be provided as necessary.