Southern National Bank of North Carolina v. Universal Acceptance Corp.

Parker, J. The transactions giving rise to this case all occurred prior to 30 June 1967, the effective date in North Carolina of the Uniform Commercial Code. G.S. 25-10-101. The rights of the parties are, therefore, controlled by the prior law. Defendant assigns as error the court’s refusal to grant its motions of nonsuit made at the close of plaintiff’s evidence and again at the close of all evidence and the court’s exclusion of evidence offered by defendant as to its reason for stopping payment on the check. Defendant contends that under the evidence in this case the court *322 erred in finding plaintiff to be a holder in due course of the check sued upon and that the court should have found that plaintiff acted only as a collecting agent for Insurance Agency, against whom defendant asserts it has a good defense. In support of its contention defendant points to the language on the signature card on file with plaintiff bank in connection with Insurance Agency’s account and the similar language on the deposit slip used when the Insurance Agency deposited defendant’s check to its account in plaintiff bank. This language is to the effect that in receiving items for deposit or collection, the bank acts only as depositor’s collecting agent and all items are credited subject to final payment in cash or solvent credits. A similar contention was made in the case of Bank v. Courtesy Motors, 250 N.C. 466, 109 S.E. 2d 189. In that case, Parker, J. (now C.J.), speaking for the Court said: “Although the overwhelming majority of the courts have held that the mere crediting of the proceeds of a cheque to the account of its depositor will not, without more, make the bank a holder in due course of the cheque, it has been held or stated by a large majority of the courts that when the bank permits its depositor to withdraw completely or otherwise completely employ the proceeds of the cheque deposited in advance of collection and prior to receipt of any notice that payment of the cheque has been stopped or that there is any infirmity in the cheque or defect in the title of the person negotiating it, the bank of deposit, in the absence of an agreement to the contrary, has given value for the cheque, and is the owner of it and a holder in due course. (Citing cases and authorities.)” In Bank v. Courtesy Motors, supra, the defendant contended, as the defendant in the case before us now contends, that the language on the deposit slip reciting that the plaintiff bank acts as a collecting agent in receiving the check and that the check is credited to the payee’s account subject to final payment in cash or solvent credits, prevents the passing of title to the check to the plaintiff bank. In answer to this contention, the Court said (p. 474): “. . . Regardless of formal statements on a deposit slip such as that deposits are accepted for collection only, or that items are credited conditionally, or are subject to final payment, if the facts and circumstances surrounding the making of the deposit indicate at the time it was made it was the actual agreement and intention of the parties that the depositor might withdraw completely the deposit, or otherwise completely employ it, and he does so, the title to the item deposited thereupon passes to the bank.” *323 Defendant seeks to distinguish Bank v. Courtesy Motors, supra, from the present case by pointing out that in that case there was evidence that the depositary bank, at the time it accepted the check for deposit, knew that payee had already drawn checks against its account and the bank had agreed to honor these outstanding checks out of the credit created by the deposited check. It is true that in the present case there is no evidence that Insurance Agency had already drawn checks against its account in plaintiff bank at the time defendant’s check was deposited. However there was ample evidence that, despite the language on the signature card and the deposit slip, the plaintiff bank had customarily permitted its depositor, the Insurance Agency, to draw against credits created in its account by deposit of checks drawn by defendant prior to the time that the plaintiff had completed ultimate collection of the proceeds of those checks from the drawee bank. The language on its deposit slip was placed there by the plaintiff bank for its own protection. The bank may waive such a provision. Ledwell v. Milling Co., 215 N.C. 371, 1 S.E. 2d 841. Evidence that it had customarily waived this protection was competent as tending to show that it also intended to do so with reference to the check here in suit. It was for the trier of the facts, in this case the district court judge, to determine what the actual agreement between the plaintiff bank and its depositor was when plaintiff accepted for deposit the check here in suit and whether the bank waived with reference to this check the protective provisions on its deposit slip. There was ample evidence to support the court’s finding that the plaintiff did so waive those provisions and that in good faith it paid full value for the check without notice of any defenses the drawer might have had against the payee and prior to receiving any notice that payment had been stopped. This finding supports the court’s conclusion that as a matter of law plaintiff was a holder in due course of the check. See § 52 of the N.I.L; G.S. 25-58, as the same was in effect prior to 30 June 1967. As a holder in due course the plaintiff holds the check free of any defenses defendant might have had against the payee. For other cases reaching a result consistent with our present holding, see Annotation in 59 A.L.R. 2d 1173. Nor does the fact that the check was endorsed with a stamp “For deposit only” change the situation. While the cases are in conflict as to whether such an endorsement is restrictive within the language of the N.I.L., the more reasonable construction would support the holding that such an endorsement is nonrestrictive. N.I.L., § 36 (old G.S. 25-42) provided: “An indorsement is restrictive which either (1) prohibits the *324 further negotiation of the instrument; or (2) constitutes the in-dorsee the agent of the indorser; or (3) vests the title in the in-dorsee in trust for, or- to the use of, some other person. But the mere absence of words implying power to negotiate does not make an indorsement restrictive.” An endorsement “for deposit” does not prohibit further negotiation. any more than would an endorsement to the order of a named person. In either case the parties generally intend the check to be further negotiated, in the one case by the further endorsement of the person to whose order it has been endorsed and in the other by sending the check forward through normal banking channels with bank endorsements thereon for ultimate collection from the drawee bank. Further, it is difficult to find in the words “for deposit” any disclosure of the creation of an agency or trust. See Britton, Bills and Notes 2d, § 70, p. 160; Bank v. Niles, 190 Iowa 752, 180 N.W. 880; Bank v. Products Company, 240 Iowa 547, 37 N.W. 2d 16; 9 A.L.R. 2d 459. Other authorities have held that while an endorsement “for deposit” should be regarded as restrictive and should be notice to any subsequent taker of rights in the instrument reserved by the endorser, nevertheless a bank taking such a check for deposit to the account of its customer acquires rights of ownership and holder in due course status if the proceeds are withdrawn before collection is completed. See Brady, Bank Checks, 1968 Supp., § 5.11. Still other authorities give protection to the bank by finding operation of an estoppel. See Bank v. Lumber Co., 107 N.J. 492, 155 Atl. 762, 75 A.L.R. 1413. In the present case the plaintiff bank in good faith and without notice of any defenses of the drawer as against the payee paid to the payee full value for the check. "As between the purchaser for value of negotiable paper and the maker or acceptor who puts it in circulation, the loss, if any arises, should fall upon one who places it in circulation.” Bank v. Stirling, 65 Idaho 123, 140 P. 2d 230, 149 A.L.R. 314. Nor do we think that it was necessary for plaintiff to come forward with specific evidence as to the identity or authority of the person who stamped “For deposit only” and the name of the payee on the check. On its face such an endorsement was for the sole benefit of the named payee and it may be presumed that the person who placed it there acted with full authority of the payee. The endorsement “for deposit only” to the payee's account is very extensively used in the business world in the handling of checks. Such an endorsement protects the payee against the hazards of loss or theft of the check prior to the time its proceeds are credited to his account. In many cases the depositary bank would not later be able and we *325 hold it is not required to prove the identity or the extent of authority of the particular clerk or other person who pressed the rubber stamp bearing such endorsement on the back of the check. Such an endorsement which is so obviously for the payee’s benefit does, in effect, “prove itself” and the principle announced in Mayers v. McRimmon, 140 N.C. 640, 53 S.E. 447, does not apply. While, as noted above, the Uniform Commercial Code became effective in this State only after the transactions here involved occurred, our present decision is consistent with the policy followed by the General Assembly when it adopted the Code. G.S. 25-4-208 gives to a depositary bank under the circumstances here involved a security interest in the deposited check and G.S. 25-4-209 provides that, for purposes of determining its status as a holder in due course, the bank has given value to the extent it has such a security interest. Holding as we do that the trial court was correct in according to the plaintiff the status of a holder in due course of the check here in suit, evidence concerning the defenses which defendant may have had as against the payee and concerning defendant’s reasons for stopping payment on the check was not relevant, and appellant’s assignments of error directed to the exclusion of such evidence are without merit. We have also reviewed all of appellant’s remaining assignments of error and find them to be without merit. The decision of the District Court is Affirmed. Mallaed, C.J., and BboCK, J., concur.