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decided: March 10, 1987.


Appeal from the Order of the Pennsylvania Superior Court dated June 14, 1985, Docketed to Nos. 315 and 384 Philadelphia 1984 and Docketed in the Court of Common Pleas of Northampton County at No. 1981-C-11353. Pa. Super. , Nix, C.j., and Larsen, Flaherty, McDermott, Hutchinson, Zappala and Papadakos, JJ. Hutchinson, J., filed a dissenting opinion. McDermott, J., notes a dissent.

Author: Larsen

[ 513 Pa. Page 574]


In this appeal we are faced with an issue of the liability of appellant First Valley Bank (First Valley) under Section 3-419 of the Uniform Commercial Code (U.C.C.) for conversion of four checks of appellee, Walter Jones (Jones). The checks in question were negotiated at First Valley by appellee, Mary Ellen Van Norman. Jones filed suit against appellees, David Van Norman and Mary Ellen Van Norman and appellant, First Valley Bank. The Northampton County Common Pleas Court, in a non-jury trial, found that Mrs. Van Norman was authorized by Jones to receive certain of his checks and endorse his name to those checks. The trial court found further that Mrs. Van Norman was instructed by Jones to deposit the checks in Jones' bank account at Manufacturers Hanover Bank in New York. Instead of depositing them in Jones' bank account as instructed, Mrs. Van Norman took the checks to First Valley where she received some cash and deposited the balance in her and her husband's personal account. The lower court, concluding that the case involved a misappropriation of funds by an authorized agent, declined to find liability on the part of First Valley.*fn1 On appeal by Jones and the Van Normans,*fn2 the Superior Court reversed, citing its decision in Levy v. First Pennsylvania Bank, 338 Pa. Super. 73, 487 A.2d 857 (1985) as controlling, and held that Mrs. Van Norman's action in signing Jones' name and depositing the checks in her personal account was unauthorized, and therefore, for purposes of this action in conversion, was the same as forgery. The Superior Court concluded that First Valley was liable for paying the checks to Mrs. Van Norman on forged or unauthorized endorsements unless First Valley

[ 513 Pa. Page 575]

    had a defense.*fn3 A new trial was ordered, 343 Pa. Super. 348, 494 A.2d 1119. We granted First Valley's petition for allocatur.

The appellee Walter Jones owned and operated an interstate boiler installation and repair business. His business involved extensive travel, primarily in the east and mid-west regions of the United States. In or about 1978, appellee David Van Norman was employed to work for Jones. Several months after he was hired, Jones and David Van Norman agreed that they would continue as employer and employee but the method of compensating Van Norman was changed. Instead of an hourly wage or a salary, it was agreed that David Van Norman would receive fifty (50%) percent of the net profits on each job. He also was to be reimbursed for expenses.

Jones lived in Brooklyn, New York and did his banking there. When he was traveling and working in other states, there was no one in New York to handle his mail and make bank deposits. Because of this, checks that were sent to him by customers would stay undeposited until he returned. Apparently, this lag between receipt of customer checks and their deposit into Jones' bank account presented a cash flow problem for Jones. After discussing this problem with David Van Norman and David's wife Mary Ellen, Jones reached an agreement with Mrs. Van Norman that she would become involved in handling certain transactions for Jones. Jones notified customers to send their checks to the Van Normans' address in Bangor, Pennsylvania. Mary Ellen Van Norman was authorized to endorse Jones' name to the checks she received and deposit them in Jones' New York bank account. Jones furnished Mrs. Van Norman with a supply of deposit slips for that purpose. It is unclear whether Mrs. Van Norman ever deposited any

[ 513 Pa. Page 576]

    checks in Jones' account. It is clear though that there were four checks that Mary Ellen Van Norman did not deposit in Jones' New York account as instructed. Rather, she applied those checks for the use and benefit of her and her husband.

The first of these checks was dated May 15, 1979, issued by Helicopter Applicators, Inc. in the sum of $1,800.00; the next was dated July 7, 1980, issued by Tabor Products Manufacturing Co. in the sum of $5,856.50; the next was dated November 12, 1980, issued by Highland Fashions, Ltd. in the amount of $1,195.00; and the last was dated December 4, 1980, issued by Southern Athletic in the sum of $2,027.08. As to the check issued by Helicopter Applicators, Inc., Mrs. Van Norman endorsed the name of Walter Jones and then signed her husband's name directly below. She took that check to First Valley where she received some cash and deposited the balance in her and her husband's account. Since Mrs. Van Norman requested some cash from First Valley when she presented the check drawn on the account of Helicopter Applicators, Inc., she was questioned by the head teller. Mrs. Van Norman told the teller that there was a partnership type arrangement with Walter Jones. That Jones coordinated and set up jobs that he and David Van Norman worked on together. Based upon the information given and a ten-year history of the Van Normans as good and reliable customers of the bank, the head teller authorized the transaction. (See N.T., p. 70.) As to the other three checks, Mrs. Van Norman signed Jones' name and then her own below his. When the checks drawn on the accounts of Tabor Products and Highland Fashions were presented to First Valley by Mrs. Van Norman, she likewise requested some cash. In each instance she was questioned by the head teller. In each instance the transaction was approved based upon the same information and for the same reasons as the first check was approved. The last check from Southern Athletic was totally deposited in a personal savings account.

[ 513 Pa. Page 577]

In late 1980 several checks Jones had written on his Manufacturers Hanover account were returned because of insufficient funds. Jones contacted several customers who he believed had paid him. Among the customers he contacted were Helicopter Applicators, Tabor Products, Highland Fashions and Southern Athletic. He obtained photocopies of the check remitted by those customers. He learned that the checks had been deposited in a bank in Penn Argyl, Pennsylvania. After contacting Mrs. Van Norman and discussing her handling of the checks in question, Jones filed suit against the Van Normans and First Valley seeking recovery of $10,878.50, the sum of the four checks. In his complaint Jones alleged that the endorsement of his name on each of the checks was not genuine and was a forgery. Jones based his theory of liability against the appellant, First Valley, upon Section 3-419 of the U.C.C. which, in pertinent part, provides:

(a) Acts constituting conversion. -- An instrument is converted when:

(1) a drawee to whom it is delivered for acceptance refuses to return it on demand;

(2) any person to whom it is delivered for payment refuses on demand either to pay or to return it; or

(3) it is paid on a forged endorsement.

13 Pa.C.S.A. § 3419.

The Common Pleas court found that David and Mary Ellen Van Norman were liable to Jones,*fn4 but declined to enter a verdict against First Valley. The lower court determined that since Mary Ellen Van Norman was authorized to sign Jones' name to the checks, the endorsements did not

[ 513 Pa. Page 578]

    constitute forgeries. The Superior Court, relying upon its decision and reasoning in Levy v. First Pennsylvania Bank, 338 Pa. Super. 73, 487 A.2d 857 (1985), reversed the trial court's judgment and remanded for a new trial.

In Levy, the plaintiffs, Sidney and Frieda Levy sold their business, Novelty Printing. At the time of the sale they authorized their attorney to take the proceeds of the sale and open an account for them at a local brokerage house in the name of B & J Corp. which was to be the Levy's new business. With the funds, the broker purchased Treasury Bills on the account of the Levys. When the Treasury Bills matured the Levys instructed their attorney to receive the proceeds from the broker and deposit them into Levys' bank accounts at Girard Bank and at Industrial Valley Bank. The attorney received three checks totaling $222,776.87 from the broker. The payee of two of the checks was Novelty Printing Company Profit Sharing Trust. The third check was payable to the order of B & J Corp. The attorney signed the back of each check with the name of the payee and added the notation "deposit to account No. 973-784-4." The number written was the attorney's personal account number. All of the monies were applied by the attorney for the attorney's own benefit. The trial court in Levy found that the attorney's authority was limited to endorsing the checks for deposit into Levys' bank accounts at Girard Bank and Industrial Valley Bank. That court concluded that the restrictive endorsements he actually made, therefore, were unauthorized.

On appeal, the Superior Court determined that the trial court's finding that the endorsements were unauthorized was supported by the record. The court then considered the question of whether the unauthorized endorsements constituted forgeries under Section 3-419 of the U.C.C. The Superior Court in Levy concluded that "an unauthorized signature is the same as a forgery for purposes of an action for conversion under 13 Pa.C.S.A. § 3419." The

[ 513 Pa. Page 579]

First Pennsylvania Bank was held to be liable to the Levys for paying the checks to the dishonest attorney.*fn5

In the present case, the Superior Court found that the holding in Levy was controlling as to the liability of First Valley for paying the checks to the Van Normans. The Superior Court stated:

Because Mrs. Van Norman was authorized to endorse checks with Jones' name for one purpose does not mean that she had unlimited power to sign his name for other purposes. It is clear that Mrs. Van Norman's authority to endorse Walter Jones' name was limited to endorsing checks payable to Jones in order to deposit those checks into Jones' New York bank account. Mrs. Van Norman did not have authority to endorse checks with Jones' name in order to deposit those checks into her personal account at a different bank, or to cash those checks at any bank. Thus, her conduct in signing Jones' name to achieve such a purpose was unauthorized. Under the holding in Levy, her unauthorized signature was the same as a forgery for purposes of an action for conversion instituted against First Pennsylvania Bank.

The appellant, First Valley, argues that the Superior Court's holding announced in Levy and applied in the present case imposes an unreasonable burden on appellant, and on banks generally, to bear responsibility for the misconduct of authorized agents who deviate from the instructions of the principal. Appellant points out that the Uniform Commercial Code specifically provides for a signature by an authorized representative. Section 3-403(a) of the U.C.C. provides:

(a) General rule. -- A signature may be made by an agent or other representative, and his authority to make it may be established as in other cases of representation. No particular form of appointment is necessary to establish such authority.

13 Pa.C.S.A. § 3403(a). The appellant contends that the authority granted to Mrs. Van Norman in this case is in

[ 513 Pa. Page 580]

    accord with the general rule set forth in Section 3-403 of the U.C.C.

The appellant's argument is predicated upon the authority given to Mary Ellen Van Norman to sign Jones' name to the checks sent to her. Jones saw fit to direct his customers to send their payments to the Van Normans in Bangor, Pennsylvania. He found it convenient and appropriate to vest Mrs. Van Norman with the authority to receive those checks and endorse his name to them. Since the endorsements on the checks in question were authorized by Jones, they cannot be the equivalent of forgeries as determined by the Superior Court. We agree with the lower court that it was not the signing of Jones' name that was unauthorized. Rather, it was the cashing of the checks and the depositing of the proceeds into Van Normans' personal account that constituted the wrongful acts. It is obvious that the misappropriation of the checks was unauthorized. The misappropriations, however, did not convert authorized endorsements into forgeries. The signing of the payee-principal's name on the check is either authorized or it is not. That status does not depend upon whether the authorized representative properly applies the checks to the account of the payee or misapplies them to his own use.

The appellee argues that the principle established by the Superior Court in Levy and applied in the instant case is accepted law in several other jurisdictions. In support of this proposition the appellee refers us to Levy and the cases cited therein by the Superior Court: Top Crop Seed & Supply Co., Inc. v. Bank of Southwest Louisiana, 392 So.2d 738 (La.App. 1980); Equipment Distributors, Inc. v. Charter Oak Bank & Trust Company, 34 Conn.Supp. 606, 379 A.2d 682 (1977); Hartford Accident & Indemnity Co. v. South Windsor Bank and Trust Co., 171 Conn. 63, 368 A.2d 76 (1976); and Salsman v. National Community Bank of Rutherford, 102 N.J.Super. 482, 246 A.2d 162 (1968), aff'd 105 N.J.Super. 164, 251 A.2d 460 (1969). We have reviewed these cases and find that in each the signing

[ 513 Pa. Page 581]

    of a payee's name to the check or checks in question was without authority.

In Top Crop Seed, a traveling salesman, who never had authority to endorse his employer's name to checks, converted company funds to his own use by signing the company name on customer checks and depositing them in his own account. In Charter Oak, the name of Equipment Distributors, Inc. was endorsed on a check by a co-payee who did not have authority to sign for the co-payee. In Hartford Accident, an insurance broker endorsed Hartford's name to a check payable to Hartford and then deposited it in his own agency account. It was found that the broker had no express, apparent or implied authority to endorse Hartford's name. Finally, in Salsman, Harold Breslow, an attorney, had his administratrix client endorse her name to a cashier's check which he said was to be deposited in the decedent's estate account. After his client signed and left his presence, the attorney wrote under her ...

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