Appeal by Plaintiff from order entered 28 February 2005 by
Judge Gregory A. Weeks in Superior Court, Cumberland County. Heard
in the Court of Appeals 24 January 2006.
Anderson, Johnson, Lawrence, Butler & Bock, L.L.P., Steven C.
Lawrence for plaintiff-appellant.
McCoy, Weaver, Wiggins, Cleveland, & Raper, PLLC, Jim Wade
Goodman for defendant-appellee.
WYNN, Judge.
Plaintiff C. Douglas Maxwell, acting in his capacity as
guardian of the estate of Bradley P. Union
(See footnote 1)
brought this action to
recover damages from Defendant Branch Banking and Trust Company
(“BB&T”) alleging negligent management of Mr. Union's two trust
accounts, and wrongful payment on fraudulently endorsed checks
drawn on Mr. Union's checking account. Because BB&T is entitled to
judgment as a matter of law, we affirm the trial court's order
granting summary judgment.
Mr. Union is the beneficiary of two trusts established by his
father, respectively the “1977 Trust” and the “1981 Trust”.
The
1977 Trust funded Mr. Union's personal checking account at BB&T.
The 1981 Trust, established as a revocable trust, paid income to
Mr. Union's father until his death in 1986; thereafter, it funded
the 1977 Trust for the benefit of Mr. Union.
On 17 April 1998, Mr. Union executed a power of attorney to
James Johnson, his personal caretaker and assistant since the
1960s, authorizing him to handle his banking transactions.
Mr.
Johnson testified that his wife, Louise Johnson, assisted in caring
for Mr. Union, handled the payroll, and wrote checks to pay Mr.
Union's bills.
Mrs. Johnson testified that when she wrote the
checks, she normally signed the name “Brad Union.”
Both testified
that the checks written in Mr. Union's name were authorized by Mr.
Union or Mr. Johnson as attorney-in-fact.
Lou Gentry, Vice President of BB&T's Wealth Management
Division and manager of Mr. Union's trust accounts since the 1990s,
testified that all of the money paid from the 1977 Trust was made
pursuant to a request from Mr. Union or one of his representatives,
including Mr. Johnson.
In 2000, Mr. Union's primary care physician became concerned
with his healthcare and condition and contacted the Department of
Social Services for Adult Protection Services (“DSS”).
DSS
instituted a competency hearing, and the Clerk of Superior Court,
Cumberland County appointed Mr. Maxwell as interim guardian for Mr.
Union.
In that capacity, Mr. Maxwell revoked the Power of Attorney
issued to Mr. Johnson and notified BB&T of his appointment.
On 21 December 2000, Mr. Union was declared incompetent. Mr.
Maxwell qualified as guardian of Mr. Union's estate and requested
financial records from BB&T. By mid-July 2001, BB&T provided Mr.
Maxwell with nearly all of the returned checks requested from Mr.
Union's checking account.
Upon review of the checks with the
assistance of a handwriting expert, Mr. Maxwell alleged that before
1997 and through December 2000, Mr. Johnson and his family members
forged Mr. Union's signature on personal checking account checks
and improperly converted large sums of money from the checking
account.
On 13 October 2003, Mr. Maxwell brought this action against
BB&T alleging negligence in its management and handling of the 1977
and 1981 Trust Accounts and payment on fraudulently endorsed checksdrawn on Mr. Union's checking account. From the trial court's
grant of summary judgment in favor of BB&T, Mr. Maxwell appealed.
[1] Mr. Maxwell first contends the trial court erred in
granting BB&T summary judgment
(See footnote 2)
on his claims for breach of
fiduciary duty and negligent management of the 1977 and 1981 Trust
Accounts. He alleges “[t]hat the Defendant breached its
contractual obligations under the trusts and N.C. Gen. Stat. § 36A-
2(a), by failing to properly manage, administer, retain and protect
the trust assets for Brad Union[.]”
Section 32-71(a) of the North Carolina General Statutes
provides in pertinent part:
In . . . managing property for the benefit of
another, a fiduciary shall observe the
standard of judgment and care under the
circumstances then prevailing, which anordinarily prudent person of discretion and
intelligence, who is a fiduciary of the
property of others would observe as such
fiduciary; and if the fiduciary has special
skills or is named a fiduciary on the basis of
representation of special skills or expertise,
the fiduciary is under a duty to use those
skills.
N.C. Gen. Stat. § 32-71(a) (2005) (recodified from N.C. Gen. Stat.
§ 36A-2 by S.L. 2005-192, § 1, eff. 1 Jan. 2006).
Mr. Maxwell does not dispute the evidence showing that the
requests for money from the 1977 Trust came from Mr. Union, or from
someone representing Mr. Union. Instead, he asserts (without
citing any authority to support his argument) that in light of Mr.
Union's impaired judgment, BB&T had a duty to take measures to
protect the 1977 Trust assets and, by continuing to allow the
withdrawal of funds from the 1977 Trust to deposit into Mr. Union's
checking account, BB&T breached its fiduciary duty under section
32-71(a)to protect the trust assets.
The dispositive portions of the 1977 Trust, which Mr. Maxwell
admits is the only trust from which funds were disbursed into Mr.
Union's checking account,
provide in relevant part:
1. DISPOSITIVE PROVISIONS.
The Trustees shall hold, manage, invest and
reinvest the trust property, and shall collect
the income thereof and dispose of the net
income and principal as follows:
A. The trustees
shall accumulate the net
income of the trust property for the
benefit of Trustors' son, Bradley P.
Union and,
as long as he shall live, pay
to him for his benefit periodically, not
less frequently than quarter-annually, so
much of the net income of the Trust as
the said Bradley P. Union shall requestor, absent such a request, so much of the
net income as the trustees in their
discretion deem proper and in the best
interest of Bradley P. Union.
(Emphasis added).
In
First Nat'l Bank of Catawba Cty. v. Edens, this Court
distinguished between the mandatory and discretionary powers of a
trustee, stating:
[a] power is mandatory when it authorizes and
commands the trustee to perform some positive
act. . . . A power is discretionary when the
trustee may either exercise it or refrain from
exercising it, . . . or when the time, manner,
or extent of its exercise is left to his
discretion.
First Nat'l Bank of Catawba Cty. v. Edens, 55 N.C. App. 697, 701,
286 S.E. 2d 818, 821 (1982) (internal citation and quotation
omitted). “The court will always compel the trustee to exercise a
mandatory power.”
Woodard v. Mordecai, 234 N.C. 463, 471, 67
S.E.2d 639, 644 (1951) (citation omitted).
Here, the 1977 Trust Agreement
required BB&T to distribute
funds to Union “so much of the net income of the Trust as the said
BRADLEY P. UNION shall request.”
The record reveals that when BB&T
made the distributions, the net income was in the 1977 Trust, and
that Mr. Union requested the funds to be deposited from the 1977
Trust into his checking account.
When properly requested, no
provisions in the 1977 Trust Agreement afford BB&T any discretion
on withholding distributions from the 1977 Trust to Mr. Union's
checking account, regardless of Mr. Union's alleged mental
incompetency at the time of the request. In distributing the fundsfrom the 1977 Trust to Mr. Union's account at his request, BB&T
performed the duties expressly required by the 1977 Trust
Agreement. Because there is no evidence in the record to support
a breach of BB&T's fiduciary duty as it relates to the 1977 or the
1981 Trust, Mr. Maxwell's assignment of error is without merit.
[2] In his final argument on appeal, Mr. Maxwell contends the
trial court erred in granting summary judgment on his claim that
BB&T improperly honored forged checks drawn on Mr. Union's checking
account. Specifically, Mr. Maxwell contends that there is a
material factual dispute as to whether Mr. Maxwell complied with
the notice requirement for this claim under section 25-4-406(f) of
the North Carolina General Statutes. Mr. Maxwell's argument is
without merit.
Section 25-4-406(f) provides in pertinent part:
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 or any
alteration on the item is precluded from
asserting against the bank the unauthorized
signature or alteration.
N.C. Gen. Stat. . 25-4-406(f) (2005). As a matter of first
impression, to interpret the language of section 25-4-406(f) to
determine whether Mr. Maxwell's claims are precluded, we first look
to the plain meaning of the statute.
Burgess v. Your House of
Raleigh, Inc., 326 N.C. 205, 388 S.E.2d 134 (1990). Where the
language of a statute is clear, the courts must give the statute
its plain meaning; however, where the statute is ambiguous orunclear as to its meaning, the courts must interpret the statute to
give effect to the legislative intent.
Id. Notwithstanding,
“where a literal interpretation of the language of a statute will
lead to absurd results, or contravene the manifest purpose of the
Legislature, as otherwise expressed, the reason and purpose of the
law shall control and the strict letter thereof shall be
disregarded.”
Mazda Motors of Am., Inc. v. Southwestern Motors,
Inc., 296 N.C. 357, 361, 250 S.E.2d 250, 253 (1979) (internal
quotation and citation omitted).
In this case, we conclude that the language of section 25-4-
406(f) is clear: failure of a customer or his representative to
report his unauthorized signature within one year after the bank
makes account statements available precludes a claim against the
bank, even if the customer is incompetent (whether adjudicated or
unadjudicated) during the one-year period for providing notice.
Our interpretation of section 25-4-406(f) is consistent with
the courts of other jurisdictions interpreting similar statutes.
See Siecinski v. First State Bank of East Detroit, 531 N.W.2d 768
(Mich. App. 1995)
(affirming the trial court's grant of summary
judgment to a bank where plaintiff, although incompetent, failed to
comply with notice requirement for filing a claim against a bank
for honoring unauthorized checks);
Brown v. Cash Management Trust of
America, 963 F. Supp. 504 (D. Md. 1997) (holding that the one-year
notice provision for forged checks is “an unalterable condition
precedent to suit,”
against a bank and mental incompetence does not
excuse failure to provide notice);
see also Jensen v. Essexbank,483 N.E.2d 821 (Mass. 1985) (holding that the one-year notice
requirement for filing a claim against a bank for forged checks
governed the time within which a party to a contract was obligated
to act, and was not a statute of limitations subject to tolling);
Indiana Nat'l Corp. v. Faco, Inc., 400 N.E.2d 202 (Ind. Ct. App.
1980) (same).
Here, the undisputed record shows that during the period of
1997-2000, BB&T sent monthly statements and returned checks to Mr.
Union's residence
. Mr. Johnson, who was Mr. Union's personal
assistant and attorney-in-fact, reviewed these statements and never
reported an unauthorized check written on Mr. Union's checking
account.
Mr. Maxwell argues that because Mr. Union was incompetent
at the time the fraudulent checks were written, and the power of
attorney given to Mr. Johnson, the alleged wrongdoer, was thus
invalid, he should be entitled to recover for the wrongfully
endorsed checks for one year preceding the 27 December 2000 date he
was appointed interim guardian for Mr. Union.
Even if this Court were to accept Mr. Maxwell's argument that
the requirements of section 25-4-406(f) should not be triggered
until he was appointed guardian of Mr. Union's estate, Mr.
Maxwell's claims would still be barred by the statute. The record
shows that Mr. Maxwell obtained the allegedly forged checks from
BB&T by mid-July 2001.
At the earliest, Mr. Maxwell notified BB&T
of the unauthorized signatures by letter dated 1 August 2002, which
is still outside the one-year notification period required in
section 25-4-406.
We reject Mr. Maxwell's contention that a
material factual dispute exists as to whether Mr. Maxwell's“freezing” Mr. Union's checking account upon his appointment as
interim guardian in December 2000 satisfied the notice requirements
of section 25-4-406(f). Likewise, Mr. Maxwell's argument that BB&T
received notice of the unauthorized signatures when BB&T's
employees attended Mr. Union's competency hearing where evidence
was presented to show that Mr. Johnson had been forging Mr. Union's
signature is without merit.
Because Mr. Maxwell failed to comply with the notice
requirements of section 25-4-406(f), Mr. Maxwell is barred from
asserting the unauthorized signatures against BB&T. Accordingly,
the trial court properly granted BB&T summary judgment on Mr.
Maxwell's claim of negligent payment on forged checks drawn on Mr.
Union's checking account.
Affirmed.
Judges HUNTER and JACKSON concur.
Footnote: 1