Reliance Ins. Co. v. Wells Fargo Bank

Filed 11/28/05 Reliance Ins. Co. v. Wells Fargo Bank CA2/2

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

RELIANCE INSURANCE COMPANY, Plaintiff and Appellant, v. WELLS FARGO BANK, N.A., et al., Defendants and Respondents.

B181301 (Los Angeles County Super. Ct. No. BC296105)

APPEAL from a judgment of the Superior Court of Los Angeles County.

Mel Red Recana, Judge. Affirmed.

Pierce & Weiss, Brian S. Letofsky for Plaintiff and Appellant.

Renner & Hollomon, Michael P. Hollomon, Jr., for Defendants and Respondents.

___________________________________________________

The case presents the question of which statute of limitations, if any, applies to an action by a payor to recover from banks for improper payment of a check presented with the endorsement of only one of several named payees. We find the trial court properly granted summary judgment in favor of respondents Wells Fargo Bank, N.A. (Wells Fargo, the collecting bank) and JP Morgan Chase Bank (JP Morgan Chase, the payor bank) and against appellant Reliance Insurance Company (Reliance, the drawer) based on a three-year statute of limitations in the California Uniform Commercial Code.^[1]

FACTUAL AND PROCEDURAL SUMMARY

On February 26, 1999, in response to an insurance policy claim, Reliance issued a check from its account at JP Morgan Chase in the amount of $72,620.58 to three payees, LDJ Charters, Inc., Robert J. McMynn and Joanne J. McMynn. One of the payees, LDJ Charters, Inc., endorsed the check and deposited it with its bank, Wells Fargo. The check did not have the endorsements of the other two payees, but Wells Fargo accepted the check for deposit without their signatures.

Wells Fargo then forwarded the check to JP Morgan Chase, which also accepted the check for deposit despite the missing signatures. On March 3, 1999, JP Morgan Chase paid the check at issue. The following month, the corresponding bank statement was mailed to Reliance. Meanwhile, LDJ Charters, Inc., absconded with the money from the check. Reliance thereafter issued a replacement check payable to the McMynns in the amount of $72,620.58.

On February 28, 2000, Reliance requested reimbursement for the replacement check from JP Morgan Chase. On May 4, 2000, JP Morgan Chase denied the request for reimbursement, noting that Wells Fargo had denied repayment and alleging that the payee who had received the funds “had authorization to transact the check and the two other parties received benefit of funds.”

On May 21, 2003, Reliance sued Wells Fargo and JP Morgan Chase, alleging causes of action for breach of warranty, breach of the implied covenant of good faith and fair dealing, negligence, breach of contract, and declaratory relief for costs and attorney fees. Wells Fargo and JP Morgan Chase demurred on the grounds, inter alia, that the complaint was barred by the one-year statute of limitations (Code Civ. Proc., § 340, subd. (c)) and 2 three-year statutes of limitations (§§ 4111, 3118, subd. (g)).^[2] The trial court overruled the demurrer (but for the cause of action alleging breach of contract) and denied a motion for reconsideration. This court then summarily denied a petition for writ of mandate by Wells Fargo and JP Morgan Chase which had asserted the trial court’s error in overruling the demurrer.

Thereafter, the trial court judge (Judge Paul Gutman) recused himself from the case, and the matter was assigned to a different judge (Judge Mel Red Recana). Wells Fargo and JP Morgan Chase then moved for judgment on the pleadings, which the trial court denied on procedural grounds.

Wells Fargo and JP Morgan Chase subsequently moved for summary judgment, urging that the complaint was barred by the one- and three-year statutes of limitations noted above, as well as by the contractually established 18-month limitation period set forth in the terms and conditions for Reliance’s commercial account with JP Morgan Chase. The trial court granted summary judgment in favor of Wells Fargo and JP Morgan Chase on the ground that Reliance’s action sought to enforce duties or rights under Division 4 of the Commercial Code, including warranty of good title under section 4207, subdivision (a), and the action was barred by the three-year statute of limitations in section 4111.

DISCUSSION

I. The standard of review.

We review the record and determine this appeal in accordance with the customary rules of appellate review following a summary judgment. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843-857.) The general rule is, of course, that summary judgment is appropriate where “all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. . . .” (Code Civ. Proc., § 437c, subd. (c).)

We review de novo the trial court’s decision to grant summary judgment (City of Vista v. Robert Thomas Securities, Inc. (2000) 84 Cal.App.4th 882, 886), and “consider all of the evidence set forth in the papers, except that to which objections have been made and sustained by the court, and all [uncontradicted] inferences reasonably deducible from the evidence . . . .” (Code Civ. Proc., § 437c, subd. (c).) The defendant moving for summary judgment bears the burden of persuasion that one or more elements of the cause of action in question cannot be established or, as with the statute of limitations defense here, that there is a complete defense to the action. (See Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 850.)

Exercising our independent judgment to determine as a matter of law the construction and effect of the facts presented (Spitler v. Children’s Institute International (1992) 11 Cal.App.4th 432, 439), we find the trial court properly granted summary judgment.

II. The trial court correctly ruled that the action is time barred.

As set forth in section 4111, “An action to enforce an obligation, duty, or right arising under this division shall be commenced within three years after the cause of action arises.” Similarly, section 3118 subdivision (g) provides that generally an action “(1) for conversion of an instrument, for money had and received, or like action based on conversion, (2) breach of warranty, or (3) to enforce an obligation, duty, or right under this division . . . shall be commenced within three years after the cause of action accrues.” Since Reliance’s claim accrued prior to May of 1999 (when it received the relevant bank statement) and the complaint herein was filed on May 21, 2003, the action was approximately one year too late under sections 4111 and 3118, subdivision (g).

Under section 4207, the warranty provision specifically noted by the trial court, “[a] customer or collecting bank that transfers an item and receives a settlement or other consideration warrants to the transferee and to any subsequent collecting bank that . . . [a]ll signatures on the item are authentic and authorized.” This warranty has been described as the warranty of “good title” and refers to “the validity of the chain of necessary indorsements” (Sun ’n Sand, Inc. v. United California Bank (1978) 21 Cal.3d 671, 684 (Sun ’n Sand)), and more specifically refers to whether “the instrument presented contain[s] all necessary indorsements and are such indorsements genuine or otherwise deemed effective.” (Id. at p. 687.)

Reliance apparently urges, however, that since it is neither a “customer” of Wells Fargo nor a “collecting bank” (§ 4207), the above statutes of limitations do not apply to the warranty-related causes of action. Although Reliance’s reading of the language in section 4207 is correct, its conclusion is not.

The California Supreme Court in Sun ’n Sand, supra, addressed the question of whether section 4207 governs a claim by a drawer (here, Reliance) as against a collecting bank (here, Wells Fargo) for negotiation of checks drawn against the drawer’s account. The Supreme Court reviewed the development of the law in this area and agreed with the holding in a prior case (Allied Concord etc. Corp. v. Bank of America (1969) 275 Cal.App.2d 1 (Allied)) that an action by a drawer against a collecting bank is authorized by the Commercial Code. The plurality opinion of the court in Sun ’n Sand, supra, found it unnecessary to rely upon third-party beneficiary principles used by the court in Allied, supra, at pages 3-4; rather, the court drew inferences from the structure of section 4702 (as previously worded) and the language in the official comments to the Commercial Code to conclude that a drawer whose account is debited by his bank is entitled to claim the benefit of the section 4207 warranty of good title. (Sun ’n Sand, supra, 21 Cal.3d at pp. 681-682.)

As observed in Sun ’n Sand, supra, 21 Cal.3d at page 682, “The inferences thus compelled by the structure of [former] section 4207 indicate the Code contemplates that the drawer of a check is an ‘other payor’ for purposes of that section who may, unless specifically excepted, claim the benefits of the warranties therein created. . . .” Significantly, although the statute no longer extends its warranties to “the payor bank or other payor” (former § 4207), the current statutory language now under review describes the beneficiaries of the warranty in even broader terms, extending the warranty “to the transferee and to any subsequent collecting bank.” (§ 4207, subd. (a), as enacted by Stats. 1992, ch. 914, §26, p. 4385.)

It is thus of no consequence that Reliance was neither a customer of Wells Fargo nor a collecting bank. The point is that Reliance was a “transferee” under section 4207, subdivision (a) (and an “other payor” under former section 4207). As such, the causes of action alleged by Reliance against Wells Fargo (the collecting bank) and JP Morgan Chase (the payor bank) constitute claims for breach of the section 4207 warranty of good title and are governed by the Commercial Code, including the three-year statute of limitations period in section 4111. Even the negligence causes of action alleged by Reliance are governed by the Commercial Code. (See Roy Supply, Inc. v. Wells Fargo Bank (1995) 39 Cal.App.4th 1051, 1067-1070.)

Equally unavailing is Reliance’s argument that the provisions of the Commercial Code do not apply in the absence of fraud or forgery, and that here the situation merely involves missing endorsements. To the contrary, case law clearly establishes that “where the validity of an endorsement is not in issue but the endorsement is missing . . . the warranties contained in section 4207 do apply in this situation.” (Feldman Constr. Co. v. Union Bank (1972) 28 Cal.App.3d 731, 736.) The action here, in its entirety, is governed by the provisions of Division 4 of the Commercial Code (§ 4101 et seq.), which in all-encompassing manner “defines rights between parties with respect to bank deposits and collections.” (Uniform Commercial Code com., 23B pt. 1 West’s Ann. Cal. U. Com. Code (2002 ed.) foll. § 4101, p. 29.) “The enactment of section 4111 establishes the time within which an action to enforce an obligation, duty, or right pursuant to Division 4 of the California Uniform Commercial Code--Bank Deposits and Collections--must be filed.” (Edward Fineman Co. v. Superior Court (1998) 66 Cal.App.4th 1110, 1125 [suit against a bank, alleging it had paid checks drawn on plaintiff’s account that had only one of two required signatures].)

Accordingly, an action against a bank for the negotiation of a check with missing endorsements is governed by the provisions of Division 4 of the Commercial Code, specifically the warranty of “good title” set forth in section 4207, subdivision (a). Therefore, Reliance’s complaint in this action is entirely subject to the provisions of Division 4, specifically including the three-year statute of limitations in section 4111, as the trial court properly held.

III. Code of Civil Procedure section 348, providing for “no limitation” in an action brought to recover money deposited with a bank, does not apply.

Reliance urges that there is no statute of limitations applicable. It mistakenly relies upon Code of Civil Procedure section 348, which provides, in pertinent part, that for “actions brought to recover money or other property deposited with any bank . . . there is no limitation.” This venerable provision (added by Code Amends. 1873-1874, ch. 383, § 36, p. 293) was intended to permit an action against a bank which wrongfully refuses to give a depositor back the money deposited. It does not apply to a situation, as here, where money was improperly paid out to a third party. (See Union Tool Co. v. Farmers etc. Nat. Bk. (1923) 192 Cal. 40, 52.)

Moreover, this general “no limitation” provision is obviated by the one-year statute of limitations for a suit against a bank based on the narrower and more specific situation of an “unauthorized endorsement” (Code Civ. Proc., § 340, subd. (c)), which by statute includes the situation of a required but missing endorsement. (§ 3403, subd. (b); see also Edward Fineman Co. v. Superior Court, supra, 66 Cal.App.4th at pp. 1119-1120.) The more particular and recent limitations period enacted in Code of Civil Procedure section 340 thus would prevail over the general “no limitation” rule urged by Reliance. (Glassell Dev. Co. v. Citizens’ Nat. Bk. (1923) 191 Cal. 375, 386.)

IV. It is unnecessary to determine whether the suit is also time barred by the terms and conditions of the applicable bank agreement which sets forth an 18-month period for commencing an action.

Wells Fargo and JP Morgan Chase also argue an additional and alternative statute of limitations theory. They note that the Legislature has permitted that the effect of the provisions of Division 4 of the Commercial Code “may be varied by agreement” of the parties as long as the agreed to standards of the bank’s responsibility “are not manifestly unreasonable.” (§ 4103, subd. (a), italics added.) They thus urge that since the terms and conditions for Reliance’s commercial account with JP Morgan Chase provide that all legal proceedings against the bank for claims, including a claim based on a missing endorsement, must be commenced within 18 months, Reliance’s complaint was untimely by approximately two and one-half years.

As previously discussed, however, since section 4111 provides for a three-year statute of limitations for an action to enforce an obligation, duty, or right arising under Division 4 of the Commercial Code, Reliance’s action filed beyond that period is barred. And, if that were not so, the situation would in any event be covered by the one-year statute of limitations in Code of Civil Procedure section 340, subdivision (c). It is thus unnecessary to construe the bank’s “terms and conditions for commercial accounts” and determine whether reducing by half the statute of limitations period otherwise required under the Commercial Code is “manifestly unreasonable.” (§ 4103, subd. (a).)

DISPOSITION

The judgment is affirmed.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS.

BOREN, P.J.

We concur:

DOI TODD, J.

ASHMANN-GERST, J.

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^[1] Unless otherwise indicated, all statutory references are to the California Uniform Commercial Code, which we refer to in this opinion as the Commercial Code.

^[2] Code of Civil Procedure section 340, subdivision (c) provides that an action must be commenced “[w]ithin one year . . . by a depositor against a bank for the payment of a forged or raised check, or a check that bears a forged or unauthorized endorsement . . . .”

Section 4111 provides as follows: “An action to enforce an obligation, duty, or right arising under this division [i.e., Division 4 of the Commercial Code which sets forth uniform rules governing bank deposits and collections] shall be commenced within three years after the cause of action accrues.”

Section 3118, subdivision (g) provides as follows: “Unless governed by other law regarding claims for indemnity or contribution, an action (1) for conversion of an instrument, for money had and received, or like action based on conversion, (2) breach of warranty, or (3) to enforce an obligation, duty, or right arising under this division [i.e., Division 3 of the Commercial Code pertaining to negotiable instruments] and not governed by this section [on the statute of limitations] shall be commenced within three years after the cause of action accrues.”