First Federal Savings & Loan Ass'n v. Branch Banking & Trust Co.

191 S.E.2d 683 (1972) 282 N.C. 44

FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF NEW BERN, North Carolina
v.
BRANCH BANKING & TRUST COMPANY, a banking corporation, et al.

No. 39.

Supreme Court of North Carolina.

October 11, 1972.

Barden, Stith, McCotter & Sugg by Laurence A. Stith, New Bern, for plaintiff.

Ward, Tucker, Ward & Smith by David L. Ward, Jr., and J. Troy Smith, Jr., New Bern, for defendants.

LAKE, Justice.

The question for decision is whether the record before us will support summary judgment for the defendant. Rule 56(c) provides that upon motion for summary judgment such judgment shall be rendered if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, "show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law."

Paragraph (e) of this rule provides that when a motion for summary judgment is made and supported as provided in Rule 56, "an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." This paragraph of the rule then provides that if the adverse party "does not so respond, summary judgment, if appropriate, shall be entered against him." (Emphasis added.)

The plaintiff, though served with notice of the defendants' motion for summary judgment 17 days before the opening of the session at which the motion was heard, and though appearing at such hearing, filed no counter affidavit or other evidence and did not seek a continuance, as permitted by paragraph (f) of this rule, in order to permit the obtaining of affidavits, the taking of depositions or the filing of interrogatories. Thus, the question is whether summary judgment is appropriate, that is, whether the pleadings, together with the affidavit of Hanover's counsel, including the attachment thereto, show (1) that there is no genuine issue as to any material fact, and (2) that Hanover is entitled to a judgment as a matter of law.

Summary judgment is a drastic remedy. Its purpose is not to provide a quick and easy method for clearing the docket, but is to permit the disposition of cases in which there is no genuine controversy concerning any fact, material to issues raised by the pleadings, so that the litigation involves questions of law only. See: Kessing v. National Mortgage Corp., 278 N.C. 523, 180 S.E.2d 823.

Irrespective of who has the burden of proof at trial upon issues raised by the pleadings, upon a motion for summary judgment the burden is upon the party moving therefor to establish that there is no genuine issue of fact remaining for determination and that he is entitled to judgment as a matter of law. Phillips, 1970 Supplement to McIntosh, North Carolina Practice and Procedure, 2d Ed., 1660.10. Dean Phillips also says in section 1660.5 of this supplement, "If the movant's forecast [of evidence which he has available for presentation at trial] fails to do this, summary judgment is not proper, whether or not the opponent responds." Thus, as Judge Morris said for the Court of Appeals in Pridgen v. Hughes, 9 N.C.App. 635, 177 S.E.2d 425, "The evidentiary matter supporting the moving party's motion may not be sufficient to satisfy his burden of proof, even though the opposing party fails to present any competent counter-affidavits or other materials."

Paragraph (e) of Rule 56 provides that affidavits filed in support of a motion for summary judgment "shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein." The affidavit of Mr. Ward, counsel for Hanover, which, together with an attached and incorporated affidavit by Agnes L. Coate made in another action, and a copy of the draft, is the sole support for Hanover's motion for summary judgment, does not meet the requirements of this portion of Rule 56. It does not show affirmatively that Mr. Ward is competent to testify, of his own personal knowledge, concerning the matters therein stated. The far greater probability is that his account of the delivery of the draft to Geraldine M. Stallings, of its deposit with the plaintiff and of the procedure followed in making the charge-back are based on hearsay. Clearly, the attached and incorporated affidavit of Agnes L. Coate concerning the forgery of Winter Park's indorsement is, as to Mr. Ward, hearsay. The Coate affidavit was prepared for and was filed in a different action between Winter Park and the present plaintiff. Nothing in the Ward affidavit brings the Coate affidavit within any exception to the hearsay rule. Thus, Mr. Ward, if called as a witness at the trial of the present action, would not be competent to testify to the fact of the alleged forgery. Since the affidavit filed by Hanover does not comply with Rule 56(e), the granting of its motion for summary judgment was error.

To send this action back to the superior court for further proceedings on that ground alone would merely invite a renewal of the motion for summary judgment, supported by affidavits from persons competent to testify concerning the matters set forth in the Ward affidavit. Consequently, we observe that, had the affiant Ward been competent to testify of his personal knowledge to all matters set forth in his affidavit and in the attachment thereto, the entry of a summary judgment in favor of Hanover upon such affidavit would not be appropriate for the further reason that it does not show "there is no genuine issue as to any material fact" and that Hanover "is entitled to a judgment as a matter of law." While the Ward affidavit, if not subject to the above mentioned objections, considered in conjunction with the silence of the plaintiff, would have been sufficient to show that there is no genuine issue as to the fact of the forgery of the purported indorsement by Winter Park, or as to the facts that the draft was collected and then charged back by the respective banks, the establishment of these facts would not entitle Hanover to a judgment as a matter of law, there being other material issues raised by the pleadings and not touched by the Ward affidavit.

The complaint, liberally construed, alleges that Hanover, the drawee of the draft, negligently failed to give the plaintiff notice within a reasonable time of the plaintiff's lack of title to the draft due to the forgery of the indorsement of Winter Park and that, by reason of such negligence by Hanover and the charge-back, the plaintiff has been damaged. Hanover, in its answer, denies this allegation and affirmatively alleges that it exercised due diligence following its ascertainment of the forgery of the indorsement, issued notices of dishonor and charged the draft back through commercial channels. Upon these conflicting allegations, an issue of fact arises. The affidavit on which Hanover relies in its motion for summary judgment does not state when Hanover discovered the forgery of the indorsement or how soon thereafter it notified the collecting bank, the intermediate bank or the plaintiff. Nothing in Hanover's affidavit relates to whether Geraldine M. Stallings withdrew the amount credited to her account by the plaintiff before or after Hanover discovered the forgery of the Winter Park indorsement.

Again, construing the complaint liberally, it alleges that by virtue of the indorsement by Geraldine M. Stallings the plaintiff became the absolute owner of the draft. The answer of Hanover denies this allegation, thus raising an issue of law and of fact. Upon its appeal, both in the Court of Appeals and in this Court, the plaintiff contends that Geraldine M. Stallings had, at least, some interest in the draft, which interest passed to the plaintiff by her indorsement and subsequent withdrawal of the credit given her by the plaintiff. Nothing in Hanover's affidavit touches upon the extent of the interest, if any, which Geraldine M. Stallings had in the proceeds of the draft and which, by her indorsement, she transferred to the plaintiff.

Thus, there remain genuine issues of fact raised by the pleadings and not resolved by the affidavit in support of Hanover's motion. If these are material to the plaintiff's right to recover from Hanover, summary judgment in favor of Hanover was unauthorized.

We observe that this draft was not a negotiable instrument since it was payable to the two named payees without the addition of the words "or order," or any similar words of negotiability. G.S. § 25-3-104; G.S. § 25-3-110. Nevertheless, Article 3 of the Uniform Commercial Code applies to this draft, except that no holder of it could be a holder in due course. G.S. § 25-3-805. Thus, for the purposes of this appeal, the rights of the parties are to be determined as if the draft were a negotiable instrument.

The plaintiff took the draft upon the indorsement of one of the payees and the forged indorsement of the other. Such transfer conferred upon the plaintiff the interest of Geraldine M. Stallings in the draft, and no more. G.S. § 25-3-202(3); 11 Am.Jur.2d, Bills and Notes, § 323; 10 C.J.S. Bills and Notes § 194. Neither the right of Hanover, the drawee of the draft, to refuse to pay it upon presentment by one claiming under the indorsement of only one of the two joint payees nor Hanover's liability to the non-indorsing payee is before us. See, Britton, Bills and Notes, § 81. The draft was paid.

The plaintiff alleges and Hanover admits that, thereafter, Hanover caused Branch to charge back to the plaintiff's account the full amount so paid by Hanover on the draft when it was presented for payment. If, as the plaintiff alleges, Geraldine M. Stallings, at the time of her indorsement to the plaintiff, was entitled to any part of the proceeds of the draft, this right passed to the plaintiff, and the plaintiff was entitled to retain that portion of the proceeds so paid by Hanover upon the presentment of the draft for payment. If, on the other hand, Winter Park was entitled to the full amount of the draft, as Hanover seems to imply in its allegation that, since the discovery of the forgery of the indorsement, it has paid the full amount to Winter Park, then the plaintiff, who succeeded to none of the rights of Winter Park, would have no right to retain any portion of the proceeds of the draft. Thus, a material issue of fact was raised by the pleadings in this action and the affidavit filed by Hanover in support of its motion for summary judgment, even if otherwise competent, does not resolve this so as to show the absence of any genuine issue of fact in relation to this matter. The issue of fact which remains is the amount of interest, if any, of Geraldine M. Stallings in the proceeds of the draft which was transferred by her indorsement to the plaintiff.

Hanover, not Chase, was the drawee of the draft. G.S. § 25-3-120. The draft states upon its face that it was payable "upon acceptance." No acceptance appears upon the face of the paper. Therefore, it was not accepted. G.S. § 25-3-410. However, Hanover, the drawee, having paid the draft, is not in a position to assert, and it does not assert in this action, that the payment could be recovered for this reason. Hanover asserts that the charge-back, which it caused Branch to make to the plaintiff's account with Branch, was proper because the indorsement of Winter Park, one of the joint payees, was forged and Hanover has subsequently paid the full amount of the draft to Winter Park; i. e., to the person entitled to the entire proceeds.

Assuming arguendo that Geraldine M. Stallings had no right to retain any portion of the proceeds of the draft at the time of her indorsement to the plaintiff, we turn to the right of the drawee, Hanover, to charge the draft back to the collecting bank, and, through it, to the plaintiff, approximately 27 months after the draft was paid by Hanover. G.S. § 25-3-417 provides that any person who obtains payment of an instrument, and any prior transferor thereof, warrants to a person who pays it in good faith that he has a good title to the instrument or is authorized to obtain payment on behalf of one who has a good title to it. This warranty is broken if such person claims through the forged instrument of a joint payee having any interest in the proceeds of the paper.

Article 4 of the Uniform Commercial Code, Chapter 25 of the General Statutes, is applicable to drafts forwarded for collection through a bank or banks. G.S. § 25-4-207(1) provides that each customer or collecting bank who obtains payment of such paper, and each prior customer and collecting bank, "warrants to the payor bank or other payor", who in good faith pays the paper, that he has a good title to it or is authorized to obtain payment on behalf of one who has a good title thereto. With reference to the transaction involved in this action, Hanover is such "other payor," Chase was the collecting bank who obtained payment, Branch was such prior collecting bank and the plaintiff was such prior customer. Paragraph (4) of G.S. § 25-4-207 provides: "Unless a claim for breach of warranty under this section is made within a reasonable time after the person claiming learns of the breach, the person liable is discharged to the extent of any loss caused by the delay in making claim." If, under this statute, or under G. S. § 25-3-407, Hanover was entitled to proceed directly against the plaintiff for reimbursement of the amount paid by Hanover upon the draft, Hanover would not be liable to the plaintiff in this action for having caused Branch to make the charge-back against the plaintiff's account with Branch.

G.S. § 25-4-406, relating to the duty of a customer of a bank to discover and report to his bank unauthorized signatures and alterations, has no application to the right of Hanover to proceed against the plaintiff for the recovery of the amount paid by Hanover upon this draft. The applicable rule is thus stated in 11 Am.Jur.2d, Bills and Notes, § 1015:

"It is generally recognized that the right of a maker or drawee to recover a payment made on a forged indorsement may be lost if he is guilty of negligence or laches whereby the position of the person receiving payment is changed to the damage of such person. Thus, it is held that a drawee may recover if, after discovery of the forgery, he is guilty of no negligence that is injurious to the person receiving payment. But delay in discovering a forged indorsement ordinarily is not negligence and does not preclude recovery, particularly where no injury to the holder results.

"In order for a drawee or other person to recover a payment made upon a forged indorsement it is a general requisite that he give timely notice after discovery of the forgery. Prompt notice of the discovery of the forgery is not a condition precedent to suit, but if it is shown that the drawee or other payor on learning that an indorsement was forged did not give prompt notice of it, and that damage resulted, recovery of the payment by such person is barred. * * * But the damage occasioned by the delay must be established, and not left to conjecture."

The drawee of a draft is not held to know the signature of an indorser, whether the payee or an intermediate indorser. He is under no duty to examine the draft to determine the genuineness of an indorsement, but may rely upon the warranty made to him by the person receiving payment that such person has title to the instrument. When, however, the drawee learns that an indorsement, necessary to the title of the person who has received payment, if forged, the drawee must then act with reasonable promptness or his right to recover from the person receiving payment, or a prior indorser, will be barred, to the extent of any loss which such person sustains by reason of the drawee's delay.

Here, the plaintiff alleges Hanover negligently induced the plaintiff to rely upon Hanover's payment of the draft and thereby induced the plaintiff to pay over to Geraldine M. Stallings the amount received by it as the proceeds of the draft, and that Hanover thereby damaged the plaintiff in the amount of $11,107.71. Hanover, in its answer, has denied this allegation. Thus, the pleadings raised an issue of fact material to the plaintiff's cause of action. The affidavit in support of Hanover's motion for summary judgment is silent as to when Hanover discovered the forgery of Winter Park's indorsement. Thus, Hanover has failed to show that there is no genuine issue as to a material fact.

Furthermore, there is no rule of law establishing the time within which the drawee must notify the person receiving payment, or a prior indorser, that such person's title to the draft was defective by reason of a forged indorsement. A reasonable time for such action depends upon the circumstances in each case. 10 Am. Jur.2d, Banks, § 636. Generally, summary judgment is not appropriate in actions wherein the right of recovery depends upon the exercise of reasonable care. Phillips, 1970 Supplement to McIntosh, North Carolina Practice and Procedure, 2d Ed., § 1660.5.

It was error to grant summary judgment in favor of Hanover upon the showing made on this record. The judgment of the Court of Appeals, affirming such summary judgment, is, therefore, reversed and the matter is remanded to the Court of Appeals for the entry by it of a judgment remanding this action to the superior court for further proceedings according to law.

Reversed and remanded.