Opinion
No. 73-178
Decided March 5, 1974. Rehearing denied April 2, 1974. Certiorari granted May 13, 1974.
Action on two checks assigned to plaintiff by bank in which they had been deposited by the payee. From judgment for plaintiff, defendant appealed.
Reversed
1. BILLS AND NOTES — Action on Checks — Collecting Bank — Stamped Checks — "Pay Any Bank" — Finding — Assignee of Bank — "Holder" — Error. In action by assignee of collecting bank to recover on certain checks, where checks were indorsed in blank when deposited by payee and subsequently stamped by collecting bank with the words "Pay Any Bank," and no further indorsements appeared on the checks, and assignee was neither the customer initiating collection nor a bank, and the checks were not specially indorsed to him, the trial court erred in finding that plaintiff was a "holder" of checks.
2. Agreement — Band and Plaintiff — Stapled to Checks — Not Effective — — Indorsement — Plaintiff — Not a Holder. Where, in action on checks, a two-page typewritten agreement signed by plaintiff and the bank recited that the bank "hereby" negotiated the checks to plaintiff, and where that agreement was, in the record, stapled to the checks in question, such agreement stapled to the checks was not effective as an indorsement, and plaintiff did not become a holder of the checks by virtue of that agreement.
3. Checks — Stamped — "Pay Any Bank" — Absent Special Indorsement — Assignee of Bank — Not Recover As a Holder — Nor — As Transferee. Where checks had been stamped by collecting bank with the words "Pay Any Bank," absent a special indorsement, provisions of the Uniform Commercial Code not only preclude an individual from becoming a holder of the checks but also from "acquiring the rights of a holder"; thus, where assignee of the checks did not receive the necessary special indorsement from the collecting bank, he may not recover either as a holder or as the transferee of a holder of the checks.
Appeal from the District Court of the County of Larimer, Honorable Dale E. Shannon, Judge.
Allen, Mitchell Rogers, Garth Rogers, for plaintiff-appellee.
Hellerstein, Hellerstein Shore, P.C., Steven A. Hellerstein, for defendant-appellant.
Defendant Commercial Credit Corp. appeals from a judgment in favor of plaintiff Lamson for $55,960, the face amount of two checks issued by defendant. We reverse.
Both checks involved in this suit were issued by defendant payable to the order of Rauch Motor Co. (payee). The payee indorsed the checks in blank and deposited them in its account with University National Bank of Fort Collins (bank). The bank initiated collection on the checks, but they were dishonored by the drawee and returned to the bank with the notation "Payment Stopped." Some months later the bank assigned the checks to plaintiff, who sued defendant for their face amount.
[1] Defendant contends that the trial court erred in finding that plaintiff was a "holder" of the checks. We agree.
The Uniform Commercial Code defines a "holder" as:
"a person who is in possession of . . . an instrument . . . drawn, issued or indorsed to him or to his order or to bearer or in blank." C.R.S. 1963, 155-1-201(20).
When payee deposited the checks, he indorsed them in blank, thereby transforming them into bearer paper. See C.R.S. 1963, 155-1-201(5) and 155-3-204(2). However, when the bank initiated the collection process, it stamped the checks "Pay Any Bank." No further indorsements appear on the checks. After an item has been indorsed with these words, "only a bank may acquire the rights of a holder: (a) Until the item has been returned to the customer initiating collection; or (b) Until the item has been specially indorsed by a bank to a person not a bank." C.R.S. 1963, 155-4-201(2). Plaintiff is neither the customer initiating collection nor a bank, and the checks were not specially indorsed to him.
[2] Apparently the trial court found that a two-page typewritten agreement signed by plaintiff and the bank, which recites that the bank "hereby" negotiates the checks to plaintiff, constituted the necessary special indorsement. In the record, this document is stapled to the checks in question.
The Code provides that:
"an indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to become a part thereof." C.R.S. 1963, 155-3-202(2).
Comment 3 to this section states that indorsement on "separate paper pinned or clipped to an instrument is not sufficient for negotiation." The agreement stapled to the checks was not effective as an indorsement and plaintiff did not become a holder. See Tallahassee Bank Trust Co. v. Raines, 125 Ga. App. 263, 187 S.E.2d 320.
[3] Plaintiff argues that even if he did not become a holder, he is entitled to recover on the instruments under Section 3-201(1). which states that "transfer of an instrument vests in the transferee such rights as the transferor has therein . . . ." Plaintiff's transferor, the bank, was a holder and plaintiff claims that he succeeded to the bank's rights in the checks. However, absent a special indorsement, Section 4-201(2) not only precludes plaintiff from becoming a holder but also from "acquiring the rights of a holder." Where provisions in Articles Three and Four of the Code conflict, Article Four governs. C.R.S. 1963, 155-4-102(1). Therefore, plaintiff may not recover either as a holder or as the transferee of a holder.
This result may appear to place a hypertechnical construction on the requirements of Section 4-201, particularly in light of Section 3-201(3), which gives a transferee for value the right to require the unqualified indorsement of his transferor. However, if the drawer were required to pay a non-bank transferee on the checks as presently indorsed, the payment would be made in a manner not consistent with the restrictive indorsement, i.e., "Pay Any Bank." Therefore, the drawer would not be discharged on the checks, C.R.S. 1963, 155-3-603(1)(b), or on the underlying obligation, C.R.S. 1963, 155-3-802(1)(b). A special indorsement is essential to protect the drawer from double liability.
Judgment reversed and cause remanded with directions to dismiss the action.
JUDGE PIERCE and JUDGE RULAND concur.