Hitching Post v. Patton, C. ( 2017 )

J-A33030-16
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
HITCHING POST, INC. IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellant
v.
CYNTHIA PATTON A/K/A CINDY PATTON
AND NORTHWEST SAVINGS BANK
Appellee No. 697 WDA 2016
Appeal from the Order Entered June 22, 2015
In the Court of Common Pleas of Clearfield County
Civil Division at No(s): 2013-1677-CD
BEFORE: LAZARUS, J., SOLANO, J., and STRASSBURGER, J.*
MEMORANDUM BY SOLANO, J.: FILED JUNE 26, 2017
Appellant, Hitching Post, Inc., appeals from the order granting
summary judgment in favor of Appellee, Northwest Savings Bank. 1 We
affirm.
The trial court accurately recited the relevant factual and procedural
background of this case, which we summarize here. See Trial Ct. Op.,
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*
Retired Senior Judge assigned to the Superior Court.
1
Appellant also sued Cynthia Patton, seeking entry of a civil judgment based
on an order of restitution entered against Patton in a criminal case. Patton
has advised that she is not participating in this appeal because she “has
already entered into a Settlement and Stipulated Judgment with Hitching
Post regarding their underlying claim against her . . . [and] . . . the issues
involved deal with the Participant/Appellee, Northwest Savings Bank.”
Correspondence, 8/30/16. Because the trial court entered judgment against
Patton on April 28, 2016, this appeal is properly before this Court, as all
claims against all parties have been resolved.
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6/23/15, at 1-4. Cynthia Patton, the accountant and bookkeeper at Hitching
Post’s restaurant, embezzled thousands of dollars from Hitching Post by
illegally cashing ten checks made payable to the order of “cash.” The checks
were intended to be used to restock an ATM machine. Id. at 2. Six checks
bore the authentic signature of Hitching Post’s owner, Dianne Harmick. Id.
Hitching Post could not exclude Ms. Harmick as the person who signed the
four remaining checks or otherwise identify the signer. Id.
Patton presented the checks to her bank, First Commonwealth Bank,
which then presented the checks to Hitching Post’s bank, Northwest, for
payment. Trial Ct. Op., 6/23/15, at 2. As a result of her misconduct, Patton
pleaded guilty to criminal charges on April 9, 2013. Id. at 2 n.1. As part of
her sentence, she was ordered to pay restitution to Hitching Post totaling
$62,026.19. As of a May 20, 2015 hearing, she had paid “just shy of
$21,000 . . . $20,900, close to that.” N.T., 5/20/15, at 9.
Hitching Post then sued Northwest for negligence in negotiating the
ten checks and specifically alleged the following:
17. That [Northwest] should have had policies or procedures to
refuse to negotiate corporate checks made to the order of cash,
when there is no indication on the check as to whom is
authorized to endorse said check.
18. That [Northwest] should have had policies and procedures to
refuse to negotiate corporate checks made to the order of cash,
when an individual whose name does not appear on the check,
attempts to cash such a corporate check.
19. That [Northwest] knew that the person endorsing the forged
checks written to cash was [Patton].
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20. That [Northwest] knew or should have known that [Patton]
was not an authorized person to endorse a corporate check
made to the order of cash.
21. That [Northwest] did not adhere to industry standards in
relation to policies and procedures regarding the depositing or
cashing of corporate checks made to the order of cash.
Hitching Post’s Am. Compl., 11/15/13, at 7.
The parties engaged in discovery and traded various motions that
contested whether Northwest could be held liable in light of provisions of the
Uniform Commercial Code (“UCC”), as enacted in Pennsylvania, dealing with
negotiable instruments. Northwest relied primarily on UCC provisions
allowing it to pay checks made payable to “cash” without requiring any
indorsement. See 13 Pa.C.S. § 3109(a)(3). Hitching Post focused on
liability under the UCC’s provisions dealing with presentment warranties,
arguing that an account holder may recover from a bank if the bank pays a
check that the account holder has not authorized. See id. § 3417(b). Late
in the case, Hitching Post focused more directly on a liability claim under
Section 4401 of the UCC, which addresses when a bank may withdraw
money from a customer’s account and suggests that the bank may not do so
if an instrument contains a forged drawer’s signature or a forged
indorsement. See id. § 4401 & Cmt. 1.
Ultimately, both parties filed cross-motions for summary judgment.
On June 23, 2015, the trial court entered summary judgment for Northwest,
denied Hitching Post’s motion for summary judgment, and dismissed
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Hitching Post’s amended complaint with prejudice.2 Among other things, the
trial court held that Northwest had no liability because it merely had paid
checks that were made payable to cash, which was entirely appropriate
under UCC § 3109(a)(3). Trial Ct. Op. at 5-6. The court concluded that
Hitching Post waived its Section 4401 argument by raising it too late in the
case. Id. at 8-9.
Hitching Post filed this timely appeal,3 and states its issues as follows:
1. Did the lower court err in determining that [Hitching Post]
waived 13 Pa.C.S. 4401 as a legal theory upon which to deny
Appellee’s motion for summary judgment?
2. Did the lower court err in not considering 13 Pa.C.S. 4401 as
a bar to Appellee’s motion for summary judgment?
3. Did the lower court err in granting Appellee’s motion for
summary judgment due to the fact that there is an
outstanding genuine issue of material fact as to whether the
checks at issue were forgeries?
4. Did the lower court err in determining that [Hitching Post]
never specifically averred that any of the checks at issue were
forged?
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2
The order was dated June 22, 2015.
3
Initially, Hitching Post had filed a notice of appeal on July 23, 2015. On
August 7, 2015, Northwest filed an application with this Court to quash the
appeal, pointing to the then-unresolved claim against Patton. See n.1,
supra. On August 21, 2015, we ordered Hitching Post to explain why the
appeal should not be quashed. On August 24, 2015, we granted Northwest’s
application to quash and vacated our August 21 order as moot. Order,
8/24/15. After judgment was entered against Patton on April 28, 2016,
Hitching Post filed this timely appeal on May 13, 2016.
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5. Did the lower court err in determining that there is a
distinction between forged checks written to cash or payable
to order?
Hitching Post’s Brief at iv (reordered to facilitate disposition).4
Our Supreme Court recently explained:
Summary judgment is appropriate where the record clearly
demonstrates there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law.
Atcovitz v. Gulph Mills Tennis Club, Inc., 571 Pa. 580, 812
A.2d 1218, 1221 (2002); Pa. R.C.P. No. 1035.2(1). When
considering a motion for summary judgment, the trial court must
take all facts of record and reasonable inferences therefrom in a
light most favorable to the non-moving party. Toy [v.
Metropolitan Life Ins. Co., 928 A.2d 186, 195 (Pa. 2007)
(plurality opinion)]. Whether there are no genuine issues as to
any material fact presents a question of law, and therefore, our
standard of review is de novo and our scope of review plenary.
Weaver v. Lancaster Newspapers, Inc., 592 Pa. 458, 926
A.2d 899, 902–03 (2007).
Estate of Agnew v. Ross, 152 A.3d 247, 259 (Pa. 2017).
The principal focus of Hitching Post’s appeal is UCC § 4401, the
application of which, in Hitching Post’s view, should have precluded entry of
summary judgment in favor of Northwest. Hitching Post’s Brief at 13.
Section 4401 states:
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4
The order of arguments presented in Hitching Post’s brief does not
correspond to the order of questions presented, and, in fact, there is not a
clear congruence between what Hitching Post lists as its “Questions
Presented” and what it then argues. Our decision focuses on the arguments
Hitching Post actually makes in its brief, rather than issues that Hitching
Post lists but does not clearly argue.
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When bank may charge account of customer
(a) General rule.—A bank may charge against the account of a
customer an item that is properly payable from that account
even though the charge creates an overdraft. An item is
properly payable if it is authorized by the customer and is in
accordance with any agreement between the customer and the
bank.
13 Pa.C.S. § 4401. A comment to Section 4401 states, “[a]n item
containing a forged drawer’s signature or forged indorsement is not properly
payable.” 13 Pa.C.S. § 4401, Cmt. 1. Hitching Post contends that the
checks that were drawn on its account at Northwest and then cashed by
Patton were not “properly payable” to Patton because they were “forged,”
and that Northwest therefore may be held liable for cashing the checks.
In support of its contention, Hitching Post argues, “[a]n unauthorized
indorsement is equivalent to a forged indorsement, and an instrument is
converted when it is paid on a forged indorsement under the UCC.” Hitching
Post’s Brief at 13 n.1 (quoting Nisenzon v. Morgan Stanley DW, Inc., 546
F. Supp. 2d 213, 224 (E.D. Pa. 2008)).5 Hitching Post posits that: “Under
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5
In Nisenzon, the plaintiffs wrote two checks made payable to FISERV
Securities, Inc., for a total of $300,000 from their account at Morgan
Stanley, and gave the checks to a third party to deposit into the FISERV
account. 546 F. Supp. 2d at 219-20. Instead, the third party fraudulently
indorsed the checks by writing on the back of the checks “For Deposit Only”
and the account number of the third party’s company. Id. The court held
that Morgan Stanley “improperly paid two fraudulently indorsed checks
drawn on their account at Morgan and improperly debited $300,000.” Id. at
219-20. Therefore, Morgan Stanley was liable to the plaintiffs because
(Footnote Continued Next Page)
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the UCC, a bank breaches its agreements with a customer when it pays the
holder of a forged check. It is this breach which constitutes the customer’s
cause of action against a bank to recover the sums paid out on checks
bearing forged signatures.” Id. at 14-15 (quoting Nisenzon, 546 F. Supp.
2d at 225 (citing Hardex–Steubenville Corp. v. W. Pa. Nat’l Bank, 285
A.2d 874, 876 (Pa. 1971)).6 In Hitching Post’s view, Northwest breached its
contract by paying Patton, as the bearer of the allegedly forged checks, and
entry of summary judgment in favor of Northwest therefore was improper.
Id. at 15-16. Upon careful review, we conclude that Hitching Post’s
argument confuses the applicable legal principles and glosses over the facts
of record.
A check is a draft, a type of negotiable instrument that orders the
payment of money. 13 Pa.C.S. § 3104(e), (f). The person signing the check
is its “drawer.” Id. § 3103(a). Usually, the drawer will have an account at a
bank in which funds have been deposited for payment of the check, and, by
_______________________
(Footnote Continued)
“Morgan was not authorized to charge [the p]laintiffs’ account based upon a
forged indorsement.” Id. at 225.
6
In Hardex-Steubenville, a third-party forged the signature of the
plaintiff’s president on numerous checks made payable to that party. 285
A.2d at 876. The defendant-bank honored the checks, and the plaintiff then
sued the bank for doing so. Id. The bank conceded the checks were forged
and defended on a theory that a customer has a duty to discover and
promptly report forged checks. Id. The jury found in favor of the bank, but
our Supreme Court reversed and remanded for a new trial because of errors
in the jury charge. Id. at 878, 880.
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writing a check, the drawer orders that bank (in UCC terminology, the
“drawee”) to pay funds from that account pursuant to the order in the check.
The check may be payable either to an identified person (in which case it is
“payable to the order” of that person) or to whoever possesses it (in which
case it is “payable to the bearer” of the check). Id. § 3109(a), (b). If a
check is made payable to a specific person, that person can cash the check
by signing (“indorsing”) it. Id. § 3201(b); see id. § 3104.7 If a check is
made payable to its bearer, the bearer may cash the check merely by
presenting it to the bank; indorsement is not necessary. Id. § 3201(b).
These fundamental UCC rules determine a bank’s potential liability if it
honors a check that has an unauthorized or forged signature.8 This liability
was summarized in Perini Corp. v. First Nat’l Bank of Habersham Cty.,
Ga., 553 F.2d 398 (5th Cir. 1977):
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7
“‘Indorsement’ means a signature, other than that of a signer as maker,
drawer or acceptor, that alone or accompanied by other words is made on
an instrument for the purpose of negotiating the instrument, restricting
payment of the instrument or incurring indorser’s liability on the instrument
. . . .” 13 Pa.C.S. § 3204.
8
We recognize that the transactions here contained an intermediate step:
Patton did not present the checks directly to Northwest for payment, but
instead presented them to her own bank, First Commonwealth, which paid
them and then presented the checks to Northwest for payment
(reimbursement). That intermediate step has no bearing on the applicable
analysis here. See generally Nisenzon, 546 F. Supp. at 225-26 (resolving
Section 4401 claim against Morgan Stanley, notwithstanding that checks
were actually deposited at Citizens Bank of Pennsylvania, id. at 219-20,
which in turn had presented the checks to Morgan Stanley for payment).
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In general, the drawee bank is strictly liable to its customer
drawer for payment of either a forged check or a check
containing a forged indorsement. In the case of a forged
indorsement, the drawee generally may pass liability back
through the collection chain to the party who took from the
forger and, of course, to the forger himself if available. In the
case of a forged check, however, liability generally rests with the
drawee.
553 F.2d at 403; accord Travelers Indem. Co. v. Stedman, 895 F. Supp.
742, 746-47 (E.D. Pa. 1995) (“where the only forged signature is an
indorsement, the drawee normally may pass liability back through the
collection chain to the depositary or collecting bank, or to the forger herself
if she is available, by a claim for breach of presentment warranties”).9
An initial question therefore is whether the allegedly forged or
unauthorized signature10 is that of the check’s drawer or is an indorsement
by its payee. Here, the record is undisputed that, of the ten Hitching Post
checks that were cashed by Patton, six were signed by Hitching Post’s
owner, Ms. Harmick, as their drawer. Hitching Post’s Am. Compl. at 6; Ex. C
to Northwest’s Mot. for Summ. J., 3/13/15 (copy of Hitching Post’s response
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9
Though we are not bound by decisions of federal courts or courts of other
jurisdictions, we may cite them as persuasive. Nicholas v. Hofmann, ___
A.3d ___, ___n.21, 2017 WL 1102790, *10 n.21 (Pa. Super. 2017);
Commonwealth v. Chambers, ___ A.3d ___, ___ n.5, 2017 WL 900006,
*8 n.5 (Pa. Super. 2017). Because of a dearth of Pennsylvania decisions on
the questions presented here, the parties have looked to the decisions of
federal courts applying those provisions of the UCC that have been enacted
in Pennsylvania, and we have done the same.
10
An “unauthorized signature” is a “signature made without actual, implied
or apparent authority. The term includes a forgery.” 13 Pa.C.S. § 1201(41).
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to Northwest’s Interrogatory No. 21, which asked Hitching Post to identify
the person who actually placed the signature on the checks in dispute). They
therefore were not forgeries and were not unauthorized.
To recover with respect to the other four checks, Hitching Post had to
show that those checks were not signed by Ms. Harmick or by someone else
with authority to sign them. The record contains no evidence by which
Hitching Post can make such a showing at trial, however. When presented
with interrogatories by Northwest seeking the identity of the four checks’
signators, Hitching Post responded only with question marks, see Ex. C to
Northwest’s Mot. for Summ. J., 3/13/15, and in its brief to this Court,
Hitching Post fails to identify any specific evidence supporting its contention
that these four checks had unauthorized signatures. Although Hitching Post
cites to general deposition testimony by Patton that she sometimes forged
checks, see Hitching Post’s Brief at 5-6 (citing N.T. Patton Dep., 2/10/15, at
24, 31), it has presented no evidence (from Patton’s deposition or any other
source) that Patton forged the signatures on these four checks, even
though the checks are in evidence and Hitching Post has had ample
opportunity to examine them or to retain an expert to examine them. The
burden to produce evidence to avoid summary judgment belonged to
Hitching Post, and Northwest correctly argues that Hitching Post failed to
meet that burden.
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Nor did Hitching Post present evidence that any of the checks at issue
contained forged or unauthorized indorsements. All of the checks were
payable to “cash.” Therefore, under the UCC, they were bearer instruments
that did not require any indorsement at all. 13 Pa.C.S. §§ 3109(a),
3201(b). 11 Northwest therefore was free to pay the checks regardless of
whether they were signed, or by whom.
We therefore conclude that Hitching Post’s argument under Section
4401 is without merit and the trial court therefore did not err in entering
summary judgment for Northwest.12 In view of this conclusion, we need not
decide whether the trial court erred in holding that Hitching Post’s argument
under Section 4401 was waived because it was crafted too late in the case. 13
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11
“If the drawer writes in the word ‘bearer’ or ‘cash,’ the check reads ‘to the
order of bearer’ or ‘to the order of cash.’ In each case the check is payable
to bearer.” 13 Pa.C.S. § 3109, Cmt. 2. Therefore, any person possessing a
check made out to “cash” may cash it at the bank.
12
We may affirm on grounds other than those stated by the trial court.
Mariner Chestnut Partners, L.P. v. Lenfest, 152 A.3d 265, 277 (Pa.
Super. 2017).
13
We note, however, that both the trial court and Northwest make
compelling arguments that Hitching Post may not invoke Section 4401 as a
basis for recovery because Hitching Post did not raise its argument under
that section until “the day of argument, after Northwest filed its response to
Hitching Post’s Motion and briefed the Cross-Motions.” Trial Ct. Op. at 9.
The trial court noted Hitching Post’s fluid litigation strategy, first asserting
that it was proceeding under a common law theory, then alternatively
seeking relief under Section 3405 of the UCC. Id. at 6. Subsequently, in its
motion for summary judgment, Hitching Post cited UCC § 3417(b), and then,
finally, within its brief on cross-motions for summary judgment it asserted
(Footnote Continued Next Page)
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Finally, at the end of its brief, Hitching Post presents three one-
paragraph arguments in support of what it labels additional issues. See
Hitching Post’s Brief at 16-18. We conclude that no relief is due with respect
to those issues. Hitching Post’s argument regarding the first of those three
issues merely reiterates the standard for resolving a motion for summary
judgment. See id. at 16. On the next issue, Hitching Post refers back to its
Section 4401 argument in contending that the trial court erred “in
determining that Hitching Post never specifically averred that any of the
checks at issue were forged.” See id. at 17. Hitching Post’s last issue talks
about whether the court erred in distinguishing forged checks written to cash
or payable to order and states, “Appellant understands the finding of the
lower court that an indorsement is not required on checks made payable to
cash.” Id. at 18. Because we conclude that Hitching Post’s Section 4401
argument is meritless, we similarly conclude that Hitching Post’s last three
issues, which all in some way seek to supplement that argument, lack merit
as well. After viewing the record in a light most favorable to Hitching Post,
we discern no material issues of fact or errors of law. See Ross, 152 A.3d
at 259. Accordingly, we affirm the order below.
_______________________
(Footnote Continued)
for the first time that it was entitled to relief under Section 4401. Id. at 7,
8. By that time, the opportunity for Northwest to take discovery on that
issue had expired — the court-ordered February 28, 2015 discovery deadline
had long since passed.
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The application of Northwest’s counsel to withdraw is granted. Order
affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 6/26/2017
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