(Code 1981, §11-3-420, enacted by Ga. L. 1996, p. 1306, § 3.)
Law reviews.- For article surveying recent judicial developments in commercial law, see 31 Mercer L. Rev. 13 (1979). For article surveying Georgia cases in the area of commercial law from June 1979 through May 1980, see 32 Mercer L. Rev. 11 (1980). For note, "The Law of Evidence in the Uniform Commercial Code," see 1 Ga. L. Rev. 44 (1966). For comment on Perini Corp. v. First Nat'l Bank, 553 F.2d 398 (5th Cir. 1977), see 27 Emory L.J. 393 (1978). For comment on Trust Co. of Columbus v. Refrigeration Supplies, Inc., 241 Ga. 406, 246 S.E.2d 282 (1978), discussing liability of collecting and payor banks for payment of check over missing endorsement of copayee, see 13 Ga. L. Rev. 677 (1979).
JUDICIAL DECISIONSANALYSIS
General Consideration
Editor's notes.
- In light of the similarity of the provisions, decisions under former Code 1933, § 14-223 and former Code Section 11-3-419 are included in the annotations for this section.
Noncompliance with O.C.G.A.
§ 11-4-302 does not constitute an action for conversion. - It is O.C.G.A. § 11-4-302(b), not O.C.G.A. § 11-3-108, which governs as to the "time allowed" the bank for responding to the original presentment of the documentary drafts to it for payment. Accordingly, an otherwise untimely failure on the part of the bank to accept, pay or return the documentary drafts pursuant to their original specification merely as "sight drafts" may be actionable as a failure to comply with O.C.G.A. § 11-4-302(b), but could not constitute an intentional "refusal" to comply with a demand for payment or return so as to be actionable as a conversion under this section. Bank S. v. Roswell Jeep Eagle, Inc., 204 Ga. App. 432, 419 S.E.2d 522 (1992) (decided under former Code Section11-3-419).
Direct relief for "true owner."- This section provides check's "true owner," payee or endorsee from whom it was stolen and whose name was falsely endorsed, direct relief from drawee. Perini Corp. v. First Nat'l Bank, 553 F.2d 398 (5th Cir. 1977) (decided under former Code Section 11-3-419).
When action for conversion available.
- Action for conversion available only to one with title, possession, or right to possession of property. First Bank & Trust Co. v. Insurance Serv. Ass'n, 154 Ga. App. 697, 269 S.E.2d 527 (1980) (decided under former Code Section11-3-419).
Action for conversion available only to one who has title, possession, or right to possession of the property; inclusion of party as payee on check gives one right to possession of the check. Thornton & Co. v. Gwinnett Bank & Trust Co., 151 Ga. App. 641, 260 S.E.2d 765 (1979) (decided under former Code Section11-3-419).
Action for conversion not available.
- On plaintiff commercial checking account customer's suit against defendant, its payor bank, for conversion, O.C.G.A. § 11-3-420(a) preempted any claim for conversion because O.C.G.A. § 11-3-420(a), by its plain terms, barred the customer, as the issuer of the forged checks, from bringing an action for conversion relating to the forged checks. Ownbey Enters. v. Wachovia Bank, N.A., 457 F. Supp. 2d 1341 (N.D. Ga. 2006).
Payee of a check who never received the check and was unaware that the check had been made out to the payee due to fraud by the payee's cousin was not a person who could enforce the check or recover against the bank for the bank's payment of the check over the fraudulent endorsement of the payee's cousin, pursuant to O.C.G.A. §§ 11-3-301 and11-3-420. Jenkins v. Wachovia Bank, Nat'l Ass'n, 309 Ga. App. 562, 711 S.E.2d 80 (2011).
Nursery's conversion claim under O.C.G.A. § 11-3-420 failed because the nursery never had possession of a check as the first check which was mailed to the nursery was lost in the mail so that the nursery never received delivery or otherwise had possession of the check, while a second check, if the check even existed, was never mailed to the nursery. Sun Nurseries, Inc. v. Lake Erma, LLC, 316 Ga. App. 832, 730 S.E.2d 556 (2012).
Bank's acceptance as conversion.
- By accepting the checks payable to a motel for deposit into the motel manager's personal account, bank converted the motel owner's funds. Trust Co. Bank v. Henderson, 185 Ga. App. 367, 364 S.E.2d 289 (1987), aff'd, 258 Ga. 703, 373 S.E.2d 738 (1988) (decided under former Code Section11-3-419).
Forged endorsement.
- Where evidence in suit to recover amount of check payed over alleged forged endorsement conclusively shows that endorsement of payee's name was a forgery, as such it was wholly ineffective to pass any title to or to confer any interest in the check; consequently, the maker can recover amount of check from drawee bank. Citizens & S. Nat'l Bank v. New York Cas. Co., 84 Ga. App. 47, 65 S.E.2d 461 (1951) (decided under former Code Section11-3-419).
Where name of endorsee is forged, bank which collects check bearing such forgery and credits proceeds to account of forger commits conversion and it is liable to person who was lawful holder prior to forged endorsement. First Bank & Trust Co. v. Insurance Serv. Ass'n, 154 Ga. App. 697, 269 S.E.2d 527 (1980) (decided under former Code Section11-3-419).
Where an attorney lacked authority to endorse checks on behalf of a client, a bank which accepted for deposit to the attorney's trust account a check payable to the client and the attorney containing the attorney's forged endorsement of the client's name was liable for conversion; overruling John Bean Mfg. Co. v. Citizens Bank of Gainesville, 60 Ga. App. 616, 4 S.E.2d 924 (1939). Titus v. Commercial Bank, 214 Ga. App. 657, 448 S.E.2d 753 (1994); Tifton Bank & Trust Co. v. Knight's Furn. Co., 215 Ga. App. 471, 452 S.E.2d 219 (1994) (decided under former Code Section11-3-419).
Standing.
- There is no statutory basis to conclude that O.C.G.A. § 11-3-301's incorporation into O.C.G.A. § 11-3-420 limits a plaintiff's standing to bring a claim under § 11-3-420. Estate of Bass v. Regions Bank, Inc., 947 F.3d 1352 (11th Cir. 2020).
Payment of check without joint payee's endorsement.
- Payment of check payable to order of two or more payees without endorsement of joint payee is an exercise of dominion and control over the check inconsistent with nonsigning payee's rights amounting to conversion, analogous to payment of check on forged endorsement, which former Code section § 11-3-420(c) acknowledges to be a conversion. Trust Co. v. Refrigeration Supplies, Inc., 241 Ga. 406, 246 S.E.2d 282 (1978).
Proof required for conversion of a check.
- Appellate court erred in reversing a trial court's grant of summary judgment pursuant to O.C.G.A. § 9-11-56 to an auto dealership in a conversion action against a bank, which alleged that the bank deliberately cashed a check after the dealership had placed a stop payment on the check. The law applicable to conversion of personal property applied to instruments pursuant to O.C.G.A. § 11-3-420(a), and checks were one form of instrument included in this provision, O.C.G.A. § 11-3-104(c), (f); therefore, the dealership was not required to establish the existence of specific dollars or coins in order to recover for the conversion of its check and the full value of the intangible rights identified with that check. Decatur Auto Ctr., Inc. v. Wachovia Bank, N.A., 276 Ga. 817, 583 S.E.2d 6 (2003).
Trustee's withdrawal and improper use of trust funds.
- Fact that trustee withdrew and used trust funds for an improper purpose did not make trustee's endorsements for the withdrawals forged or unauthorized so as to make the bank liable for the withdrawals. Bank S. v. Grand Lodge of Free & Accepted Masons, 174 Ga. App. 777, 331 S.E.2d 629 (1985) (decided under former Code Section11-3-419).
Corporate officer's misuse of corporate account.
- Because a company's corporate resolution authorized one of its officers to make deposits to and withdrawals from an account maintained at a bank, and the officer, in the process of making deposits to the account, illegally took cash back from the deposits for personal use, the bank was not liable for conversion because the corporate resolution, as well as a signature card bearing the officer's signature, gave the officer authority to deal with the account. Atlanta Sand & Supply Co. v. Citizens Bank, 276 Ga. App. 149, 622 S.E.2d 484 (2005).
Slight variance between payee and endorsement.- A bank did not act in a commercially unreasonable manner when it accepted checks made payable to "Coulter Electronics, Inc." upon endorsements reading simply "Coulter Electronics". Coulter Elecs., Inc. v. Commercial Bank, 727 F.2d 1078 (11th Cir. 1984) (decided under former Code Section 11-3-419).
Ratification of attorney's signature.
- If a bank customer, by the customer's own conduct, ratified attorney's unauthorized signature on a check, the customer's was precluded from recovering on a claim for conversion against the bank which accepted for deposit to the attorney's escrow account a check payable to the customer bearing an allegedly forged endorsement. Hendrix v. First Bank, 195 Ga. App. 510, 394 S.E.2d 134 (1990) (decided under former Code Section11-3-419).
Preemption.
- Because the Georgia Uniform Commercial Code (UCC) explicitly defined when a plaintiff may recover in circumstances such as this, it would have undermined the statutory scheme to allow the plaintiff to circumvent the Georgia UCC's provisions by simultaneously litigating the same claims under two different legal standards; i.e., the common law and the Georgia UCC. Therefore, the district court properly held that O.C.G.A. § 11-3-420 preempted the plaintiff's common law conversion and negligence claims. Estate of Bass v. Regions Bank, Inc., 947 F.3d 1352 (11th Cir. 2020).
Summary judgment precluded.
- Trial court did not err in granting summary judgment to a bank and a credit union, on claims of conversion, civil conspiracy and for attorney fees and punitive damages, as: (1) no probative evidence existed that the buyer received delivery of the check, and thus, it never became a holder of the instrument at issue or entitled to enforce it; (2) no evidence was presented that the bank and credit union acted in concert against the buyer; (3) no evidence of misconduct or bad faith on the part of the bank or the credit union was presented; but, the trial court properly found that a genuine issue of material fact existed as to whether the bank and the credit union were holders in due course and whether the check bore evidence of forgery or alteration so as to call into question its authenticity. Hartsock v. Rich's Emples. Credit Union, 279 Ga. App. 724, 632 S.E.2d 476 (2006).
Measure of Damages
Liquidation of damages.
- Under subsection (2) of this section measure of liability is presumed to be face amount of instrument. Thus, plaintiff does not have election as to recovery, and amount of damages is liquidated. National Bank v. Refrigerated Transp. Co., 14 Ga. App. 240, 248 S.E.2d 496 (1978) (decided under former Code Section11-3-419).
Blank payment checks were valueless.
- On cross-motions for summary judgment in a Fair Labor Standards Act case filed by plaintiff Mexican national agricultural laborers against defendant employers that included a claim for conversion of certain "reimbursement" checks in that the employers directed the laborers to endorse and return the checks, and the employers argued that it was entitled to the returned checks due to the employers paying for bus fares and subsistence and additional transportation expenses in cash, and also argued that the checks were blank, the court agreed with the employers that because the checks were blank, under O.C.G.A. §§ 11-3-104(c) and11-3-420(a), they were valueless, so there would be no damage from converting the checks. Morales-Arcadio v. Shannon Produce Farms, Inc., F. Supp. 2d (S.D. Ga. July 18, 2007).
Payment of check without joint payee's endorsement.
- Assuming paragraph (c) of subsection (1) does apply to missing endorsements, subsection (2) is not construed as providing a rule of absolute liability against the drawee bank for the face amount of a check where a payee who suffered no actual damage would be unjustly enriched; the measure of damages with respect to missing endorsements is one of actual damages. White County Bank v. Noland Co., 214 Ga. App. 780, 449 S.E.2d 325 (1994) (decided under former Code Section11-3-419).
Credit for prior payment.
- A bank which was liable for conversion to the client of an attorney who deposited a forged check to the attorney's trust account was entitled to a credit against the face amount of the instrument for a prior payment made to the client from the trust account. Tifton Bank & Trust Co. v. Knight's Furn. Co., 215 Ga. App. 471, 452 S.E.2d 219 (1994) (decided under former Code Section11-3-419).
Commercial Reasonableness
Exception set out in subsection (3) of this section is an affirmative defense, burden of proving it being on the bank. National Bank v. Refrigerated Transp. Co., 147 Ga. App. 240, 248 S.E.2d 496 (1978) (decided under former Code Section11-3-419).
Bank's duty to inquire into validity of irregular endorsements.
- Where endorsements are irregular enough on their face to raise question as to their validity; and when checks are offered for deposit into account of one not payee, bank has duty to inquire to ascertain authority of depositor to endorse and deposit payee's checks, and cannot escape its duty of inquiry by relying on word of its customer, the depositor, nor does fact that bank could proceed against its customer under warranty provisions of O.C.G.A. §§ 11-3-417 and11-4-207 absolve it of obligation of inquiry. Failure to inquire into validity of such endorsements precludes a bank from asserting defense of commercial reasonableness of subsection (3) of this section as a matter of law. Thornton & Co. v. Gwinnett Bank & Trust Co., 151 Ga. App. 641, 260 S.E.2d 765 (1979) (decided under former Code Section11-3-419).
Where checks endorsed by and deposited into the account of an aluminum siding contractor were clearly made out to both a manufacturer and the contractor, the endorsements of both were required, and the bank's failure to examine the checks precluded their reliance on commercial reasonableness as a defense, as a matter of law; therefore, the trial court erred in allowing the jury to consider the issue of commercial reasonableness as to checks which bore no endorsement by the manufacturer. Stolle Corp. v. McMahon, 195 Ga. App. 270, 393 S.E.2d 52 (1990) (decided under former Code Section11-3-419).
In a suit by a shopping center mortgagee seeking damages after the insurer paid the mortgagor insurance proceeds for damage to the premises by hail (and the mortgagor's agent fraudulently endorsed the check and left the country), the mortgagee was not entitled to summary judgment on the mortgagee's claims against the collecting bank and the drawee bank for failing to detect the irregular endorsement because genuine issues of fact remained as to whether the banks' conduct was commercially reasonable. Auto-Owners Ins. Co. v. Hale Haven Props., 346 Ga. App. 39, 815 S.E.2d 574 (2018), cert. denied, No. S18C1423, 2019 Ga. LEXIS 75, cert. denied, No. S18C1418, 2019 Ga. LEXIS 88, cert. denied, No. S18C1421, 2019 Ga. LEXIS 92 (Ga. 2019), cert. denied, No. S18C1417, 2019 Ga. LEXIS 93 (Ga. 2019).
Bank accepting check with "patently irregular endorsement" does not comply with reasonable commercial standards, and fact that depositor of check is customer of the bank does not absolve bank of its duty to inquire. National Bank v. Refrigerated Transp. Co., 147 Ga. App. 240, 248 S.E.2d 496 (1978) (decided under former Code Section11-3-419).
Deposit to attorney's trust account.
- A bank did not act in a commercially reasonable manner when it accepted for deposit to an attorney's trust account a check payable to a client and the attorney without inquiring whether the attorney was authorized to endorse the check and where there was evidence that the bank had encountered numerous other problems with the attorney; overruling John Bean Mfg. Co. v. Citizens Bank of Gainesville, 60 Ga. App. 616, 4 S.E.2d 924 (1939). Titus v. Commercial Bank, 214 Ga. App. 657, 448 S.E.2d 753 (1994); Tifton Bank & Trust Co. v. Knight's Furn. Co., 215 Ga. App. 471, 452 S.E.2d 219 (1994) (decided under former Code Section11-3-419).
Typewritten endorsement.
- Defense that bank acted in good faith and in accordance with reasonable commercial standards applicable to business of banking may not even be raised where endorsement is typewritten and therefore suspect on its face, and such acceptance by a bank cannot be shown to be commercially reasonable. National Bank v. Refrigerated Transp. Co., 147 Ga. App. 240, 248 S.E.2d 496 (1978) (decided under former Code Section11-3-419).
Checks payable to corporation, endorsed in blank, presented by third party.
- Since checks payable to a corporation are not normally endorsed in blank by corporate officers and delivered to third parties, a collecting bank should inquire as to reason and authority for deposit in third party's account. National Bank v. Refrigerated Transp. Co., 147 Ga. App. 240, 248 S.E.2d 496 (1978) (decided under former Code Section11-3-419).
Bank's allowing customer's employee to withdraw customer's funds was not commercially reasonable conduct, where bank which was not authorized to pay a check drawn against any funds deposited to the customer's credit unless the check contained two authorized signatures, paid funds out of unauthorized customer accounts on the employee's single signature. APCOA, Inc. v. Fidelity Nat'l Bank, 703 F. Supp. 1553 (N.D. Ga. 1988), aff'd, 906 F.2d 610 (11th Cir. 1990) (decided under former Code Section 11-3-419).
Bank's conduct in opening accounts which had not been authorized by its customer and then accepting checks written on the accounts on the single signature of the customer's employee, thereby facilitating the employee's embezzlement scheme, was not in accordance with reasonable commercial standards. Apcoa, Inc. v. Fidelity Nat'l Bank, 906 F.2d 610 (11th Cir. 1990) (decided under former Code Section 11-3-419).
Rubber stamp endorsement.
- Bank's cashing of checks payable to a corporate payee, endorsed only by rubber stamp, was in accordance with reasonable commercial standards. First Rome Bank v. Reese Oil Co., 206 Ga. App. 667, 426 S.E.2d 384 (1992) (decided under former Code Section11-3-419).
Question for jury.
- Whether bank's acceptance of checks made payable to a motel for deposit into the motel manager's personal account was consistent with reasonable commercial standards was a question for the jury, where the motel's customary rubberstamped restrictive indorsement was missing. Trust Co. Bank v. Henderson, 185 Ga. App. 367, 364 S.E.2d 289 (1987), aff'd, 258 Ga. 703, 373 S.E.2d 738 (1988) (decided under former Code Section11-3-419).
Acceptance of blank-endorsed cashier's checks.
- Bank was properly granted summary judgment in a suit filed against it by a law firm for negligently accepting stolen checks and for conversion with regards to blank-endorsed cashier's checks, as such were bearer paper transferable by possession alone; however, because a fact issue remained as to whether it acted in good faith in accepting forged checks, it could not be a holder in due course, and summary judgment was improper. Gerber & Gerber, P.C. v. Regions Bank, 266 Ga. App. 8, 596 S.E.2d 174 (2004).
RESEARCH REFERENCES
Am. Jur. 2d.
- 11 Am. Jur. 2d, Banks and Financial Institutions, § 918. 11 Am. Jur. 2d, Bills and Notes, §§ 138, 384, 386, 416. 18 Am. Jur. 2d, Conversion, § 47.
C.J.S.- 9 C.J.S., Banks and Banking, § 382 et seq. 10 C.J.S., Bills and Notes, §§ 12 et seq., 80 et seq., 239. 89 C.J.S., Trover and Conversion, § 13 et seq.
U.L.A.- Uniform Commercial Code (U.L.A.) § 3-420.
ALR.
- Who must bear loss from mistake in name, preventing payment of check before failure of drawee, 21 A.L.R. 1556.
Rights as between one who deposits commercial paper for collection without any indication on the paper of that purpose, and one who takes it in good faith from the depositary, 49 A.L.R. 1373; 58 A.L.R. 259.
Duty of depositor to turn over to bank forged checks, or checks with forged endorsements, which have been paid by bank, 60 A.L.R. 527.
Liability as between bank which issues and pays certificate of deposit and another bank which endorsed and collected it on faith of a forged endorsement of the payee's name, 62 A.L.R. 803.
Payment of check upon forged or unauthorized indorsement as affecting the right of the true owner against the bank, 69 A.L.R. 1076; 137 A.L.R. 874.
Who must bear loss as between drawer induced by fraud of employee or agent to issue check payable to nonexisting person or a person having no interest in the proceeds thereof, and one who cashes or pays it on the forged indorsement by such employee or agent of the name of such ostensible payee, 99 A.L.R. 439.
Right of drawee of forged check or draft to recover amount paid thereon, 121 A.L.R. 1056.
Right of drawee who paid check or draft bearing forged indorsement to recover against indorser prior to the one to whom payment was made, 127 A.L.R. 122.
Right and remedy of drawer of check against collecting bank which receives it on forged indorsement and collects it from drawee bank, 99 A.L.R.2d 637.
Procuring signature by fraud as forgery, 11 A.L.R.3d 1074.
Bank's liability to nonsigning payee for payment of check drawn to joint payees without obtaining indorsement by both, 47 A.L.R.3d 537.
Payee's right of recovery, in conversion under UCC § 3-419(1)(c), for money paid on unauthorized indorsement, 23 A.L.R.4th 855.
Bank's "reasonable commercial standards" defense under UCC § 3-419(3), 49 A.L.R.4th 888.
Payee's and drawer's right of recovery, in conversion under pre-1990 UCC § 3-419, or post-1990 UCC § 3-420, for money paid on unauthorized endorsement, 91 A.L.R.5th 89.
Drawer's right of recovery against depositary bank that accepts check with missing endorsement or in violation of restrictive covenant, 104 A.L.R.5th 459.
PART 5 DISHONOR
Cross references.
- Duty of banks to notify customers of changes in rules governing deposits or withdrawal of deposits, § 7-1-350.
Penalty for criminal issuance of bad check, § 16-9-20.