Appeal by defendant from judgment entered 9 April 2001 by
Judge Steven J. Bryant in Buncombe County District Court. Heard in
the Court of Appeals 21 February 2002.
Gary E. Kirby for plaintiff-appellee.
William C. Morris, Jr., for defendant-appellant.
MARTIN, Judge.
Plaintiff brought this action to recover $2,164.46 as damages
to his vehicle following a motor vehicle collision on 8 May 1999
allegedly caused by defendant's negligence. Defendant answered,
denying negligence but asserting as an affirmative defense that
plaintiff had been paid for the damages by defendant's insurance
carrier. The parties subsequently stipulated that defendant's
insurance carrier had mailed a draft in the amount of $2,164.46
drawn on Fleet Bank of Hartford, Connecticut, dated 28 June 1999,
payable to plaintiff, P.O. Box 153, Hillsboro, North Carolina. The
draft was negotiated at Community Bank and Trust at its branch
office in either Marion or Rutherfordton. The name “CrystalBumgarner” was written in handwriting on the back of the draft and
plaintiff's name was written below Crystal Bumgarner's name.
Crystal Bumgarner's driver's license number was handwritten on the
front of the draft. Crystal Bumgarner is plaintiff's former wife
from whom plaintiff was separated at the time the draft was
negotiated. The parties also stipulated that plaintiff had
provided defendant's counsel with an affidavit in which he stated
that the endorsement on the draft was not his handwriting, that he
did not authorize anyone to endorse the draft on his behalf, and
that he had received no proceeds from the negotiation of the draft.
Based upon the stipulated facts, the trial court concluded
that plaintiff had never actually received the payment made on
defendant's behalf in settlement of plaintiff's property damage
claim and that plaintiff was entitled to recover $2,164.46 from
defendant. The trial court also concluded that defendant's
insurance carrier was the party with recourse to recover the amount
paid as a result of the improper negotiation of the draft at
Community Bank and Trust. Defendant appeals.
_______________
By a single argument in support of his five assignments of
error, defendant contends the trial court erred in holding that
plaintiff is entitled to recover judgment against him. For the
following reasons, we reverse.
G.S. § 25-3-420 provides:
(a) The law applicable to conversion of
personal property applies to instruments. An
instrument is also converted if it is taken by
transfer, other than a negotiation, from aperson not entitled to enforce the instrument
or 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 (i) the
issuer or acceptor of the instrument, or (ii)
a payee or indorsee who did not receive
delivery of the instrument either directly or
through delivery to an agent or a co-payee.
(b) In an action under subsection (a) of this
section, the measure of liability is presumed
to be the amount payable on the instrument,
but recovery may not exceed the amount of the
plaintiff's interest in the instrument.
(c) A representative, other than a depositary
bank, who has in good faith dealt with an
instrument or its proceeds on behalf of one
who was not the person entitled to enforce the
instrument is not liable in conversion to that
person beyond the amount of any proceeds that
it has not paid out.
N.C. Gen. Stat. § 25-3-420 (2001). The Official Comment to the
statute explains that the statute applies to “cases in which a
depositary or payor bank takes an instrument bearing a forged
indorsement.” In those cases where delivery to the payee does not
occur, the payee's right to enforce the underlying obligation is
unaffected by the fraud of the thief:
Until delivery, the payee does not have any
interest in the check. The payee never became
the holder of the check nor a person entitled
to enforce the check. Section 3-301. Nor is
the payee injured by the fraud. Normally the
drawer of a check intends to pay an obligation
owed to the payee. But if the check is never
delivered to the payee, the obligation owed to
the payee is not affected. If the check falls
into the hands of a thief who obtains payment
after forging the signature of the payee as an
indorsement, the obligation owed to the payee
continues to exist after the thief receives
payment.
Id.
However:
The situation is different if the check
is delivered to the payee. If the check is
taken for an obligation owed to the payee, the
last sentence of Section 3-310(b)(4) provides
that the obligation may not be enforced to the
extent of the amount of the check. The
payee's rights are restricted to enforcement
of the payee's rights in the instrument. In
this event the payee is injured by the theft
and has a cause of action for conversion.
Id. The Official Comment to G.S. § 25-3-420 states that delivery
of an instrument occurs when it “comes into the payee's possession,
as for example when it is put into the payee's mailbox.” Although
the Official Comment is not controlling authority, it provides
guidance in the interpretation of the statutory provisions.
See
Constantine v. Miller Industries, Inc., 33 S.W.3d 809, 814
(Tenn.Ct.App.,2000).
Moreover, although the appellate courts of North Carolina have
not addressed the specific question of when and how delivery of a
negotiable instrument to a payee must occur in order for the payee
to have a claim for relief in conversion, a case with similar facts
to those in the present case was recently decided by the
Mississippi Court of Appeals. In
Hancock Bank v. Ensenat, ___
So.2d ___ WL 1610059, (Miss.App., 18 December 2001), where four
negotiable instruments were issued by two investment companies and
sent to the plaintiff's home address; the plaintiff's niece stole
the checks from the plaintiff's mailbox, then fraudulently endorsed
and deposited them into an account at Hancock Bank, the defendant.
There was no evidence that the plaintiff ever physically possessed
the checks. The court in that case stated that “[t]he officialcomments to this Code section explain what the term 'delivery'
should mean in this context.”
Id. at slip op. p. 6.
The official Code comments are entitled to
significant weight as aids to interpretation.
¶ 31. The official comments to section 3-420
state that a "payee receives delivery when the
check comes into the payee's possession, as
for example when it is put into the payee's
mailbox." U.C.C. § 3-420 cmt. (1). . . Ensenat
received delivery of the four checks. The
comments explain that if a payee such as
Ensenat was not "delivered" the instruments,
then it is the investment service and not the
bank that is liable. U.C.C. § 3-420 cmt (1).
Id. at
slip op. p. 6-7
. “[C]
ase law from outside jurisdictions
interpreting the U.C.C., while not conclusive, affords guidance to
this Court.”
Alamance County Bd. of Educ. v. Bobby Murray
Chevrolet,
Inc., 121 N.C. App. 222, 226-27, 465 S.E.2d 306, 310
disc. review denied, 342 N.C. 893, 467 S.E.2d 899 (1996) (citation
omitted).
In the present case, the parties stipulated:
3. Payment was forwarded to Plaintiff by
Defendant's carrier by a draft dated the 28
th
day of June, 1999 in the amount of $2,164.46
and made payable to Corey Bumgarner at P.O.
Box 153, Hillsboro, North Carolina.
Since the parties stipulated that the instrument was sent to
plaintiff's post office box, plaintiff received delivery of the
instrument within the meaning of G.S. § 25-3-420. Thus, while
plaintiff has a claim for relief for conversion against the
individual who allegedly took the instrument and obtained payment,
i.e., Crystal Bumgarner, and the depositary bank, Community Bank
and Trust, which wrongfully honored the draft, he has no claim
against defendant or the drawer of the draft, defendant's insurer. Reversed.
Judges HUDSON and CAMPBELL concur.
Report per Rule 30(e).
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