Stewart Office Suppliers, Inc. v. First Union National Bank

EAGLES, Judge. Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to judgment as a matter of law.” G.S. 1A-1, Rule 56(c). “If, on a motion for judgment on the pleadings, matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56.” G.S. 1A-1, Rule 12(c). On this record, we conclude that summary judgment in favor of defendant Southern National was erroneous on the conversion — 357 — and breach of contract claims. We affirm the lower court’s holding with respect to all other claims against Southern National and all claims against defendant First Union. I. Conversion and Breach of Restrictive Indorsement Claims A. Claims Against Defendant Southern National The plaintiff first assigns as error the trial court’s determination that defendant Southern National was not liable for conversion and breach of restrictive indorsement to plaintiff as a matter of law for paying checks inconsistent with the restrictive indorsement. Plaintiff argues that the trial court erred in granting summary judgment for defendant Southern National based on the Bank’s contention that there was not a material issue of fact in dispute. Plaintiff agrees that the facts were not in dispute but asserts that they warranted summary judgment in plaintiff’s favor. Plaintiff asserts that the entry of summary judgment for the bank is contrary to an admission by defendant Southern National and the plain language of G.S. 25-3-205(c). Plaintiff points out that defendant admitted in its answer that it was “a federally chartered Bank and received certain checks for deposit which were made payable to the order of the plaintiff and which bore varying restrictive indorsements.” After careful review of the record, we agree with plaintiff and accordingly reverse the summary judgment for the defendant Southern National on the conversion and breach of contract claims. We note initially that General Statutes Chapter 25, the Uniform Commercial Code, governs commercial transactions in North Carolina. Chapter 25 begins with these general guidelines: “(1) This chapter shall be liberally construed and applied to promote its underlying purposes and policies. (2) Underlying purposes and policies of this chapter are (a) to simplify, clarify and modernize the law governing commercial transactions; (b) to permit the continued expansion of commercial practices through custom, usage and agreement of the parties; (c) to make uniform the law among the various jurisdictions.” G.S. 25-1-102. G.S. 25-3-205(c) provides that an indorsement is restrictive if it includes inter alia the words “for deposit” or “like terms signifying a purpose of deposit or collection.” G.S. 25-3-205. Also, G.S. 25-3-419(3) provides that: — 358 — Subject to the provisions of this chapter concerning restrictive indorsements a representative, including a depository or collecting bank, who has in good faith and in accordance with the reasonable commercial standards applicable to the business of such representative dealt with an instrument or its proceeds on behalf of one who was not the true owner is not liable in conversion or otherwise to the true owner beyond the amount of any proceeds remaining in his hands. Here, the record from the Southern National case includes a photostatic copy of a check which does in fact bear varying stamped restrictive indorsements. On the back of a check made payable to S.O.S. the following stamped indorsements appear: (1) Stewart Office Suppliers For Deposit Only (2) For Deposit Only Acct.: Illegible Since both of the indorsements contain the language “For Deposit Only,” under G.S. 25-3-205(e) they are restrictive indorsements. They are the “varying restrictions” admitted by the defendant. However, in order to hold defendant Southern National liable for “conversion or otherwise” plaintiff must show that defendant did not act with good faith or failed to use reasonable commercial standards. G.S. 25-1-201(19) defines good faith as “honesty in fact in the conduct or transaction concerned.” The defendant Southern National knew of the contractual arrangement between the parties and acted in reliance on the contractual arrangement. Scott Anderson, an officer of Southern National, stated that he was “aware of the business relationship and contractual agreement.” He stated he knew that S.O.S. solicited orders for office products which LVP Corporation would fill and that S.O.S.’s accounts receivable were assigned to LVP Corp. in return for a certain percentage of commission for sales. From that we conclude its transactions with Key were done in good faith. With respect to the commercial reasonableness, this court held in Parks Chevrolet, Inc. v. Watkins, 74 N.C. App. 719, 329 S.E. 2d 728 (1985) that “commercial reasonableness presents a factual issue to be determined by the jury in light of the relevant cir — 359 — cumstances of each case.” Id. at 722, 329 S.E. 2d at 728, citing ITT-Industrial Credit Co. v. Milo Concrete Co., Inc., 31 N.C. App. 450, 458, 229 S.E. 2d 814, 820 (1976). In Parks the defendant appealed on the issue of whether the resale of his automobile was commercially reasonable citing G.S. 25-9-504(3) which provided that every aspect of the disposition of collateral after default “including the method, manner, time, place and terms must be commercially reasonable.” Id. at 721, 329 S.E. 2d at 730. While the test Parks articulated for commercial reasonableness was under Article 9, the same test should apply to all commercial transactions under Chapter 25. “Because reasonable minds may differ over the application of a standard such as commercial reasonableness, this determination is inherently a jury question which does not readily lend itself to summary judgment.” Id. at 722, 329 S.E. 2d at 730. Secondly, plaintiff argues that the trial court erred in allowing summary judgment for defendant Southern National on the issue of breach of restrictive indorsement. Our research discloses no North Carolina cases addressing whether an action exists for breach of restrictive indorsement in these circumstances. We hold that upon a proper showing, a plaintiff may recover for conversion and breach of restriction when a restrictive indorsement is violated. See Mid-Atlantic Tennis Courts, Inc. v. Citizens Bank and Trust Co., 658 F. Supp. 140 (D. Md. 1987). However, we note that G.S. 25-3-419(3) provides liability for conversion or otherwise will not exist beyond the amount of any proceeds remaining in his hands if the depository.bank acted in “good faith and in accordance with the reasonable commercial standards applicable to the business.” Accordingly, we reverse the trial court’s entry of summary judgment for defendant Southern National and remand the cause for further proceedings on the issues of conversion and breach of restrictive indorsement. B. Claims Against Defendant First Union Initially, we note that the same principles of law would apply to plaintiff’s claim of wrongful negotiation of instrument against defendant First Union. However, the record before us does not include the reverse sides of the checks found in Exhibit One that were made payable to S.O.S. The record does not contain evidence to indicate the indorsements appearing on those checks. There is nothing in the First Union record to dispute the trial court’s findings that the indorsements there were not restrictive. Where — 360 — there is no evidence of record that the indorsements are restrictive, the jury determination of commercial reasonableness required to resolve the claim against Southern National is not necessary here. Accordingly, on the issues of conversion and wrongful negotiation of an instrument, we affirm the court below with respect to defendant First Union. II. Holder in Due Course Next, plaintiff contends that the trial court committed reversible error in denying its motion for summary judgment because as payee it is a holder in due course and this status cuts off any defenses raised by defendant bank First Union and defendant bank Southern National. We disagree. “To qualify as a holder in due course, plaintiff . . . must have been a holder who took the check for value, in good faith, and without notice that it was overdue, had been dishonored, or of any defense against or claim to it.” City National Bank v. Rojas, 64 N.C. App. 347, 349, 307 S.E. 2d 387, 389 (1983), citing G.S. 25-3-302. If the plaintiff is a holder in due course, he takes a check free from all claims to it or all defenses against it by any party. Id., citing G.S. 25-3-305. In order to show that summary judgment was improperly granted for the defendant Bank, plaintiff is required to produce a forecast of evidence to show that no genuine issue of fact exists to plaintiffs status as a holder in due course. Here, plaintiff was not responsible, for filling its customers’ orders. Instead, Key had this responsibility and in return was assigned plaintiff’s accounts receivable as compensation. Here Key, not plaintiff, gave value for the checks. Even if plaintiff’s role as a solicitor of orders could be considered value, plaintiff fails to meet another criterion of the holder in due course test. Since plaintiff and Key had executed a binding agreement which gave Key a claim against plaintiff’s accounts receivable, plaintiff could not be a holder in due course because it had notice of adverse claims as to its accounts receivable. Because plaintiff has failed to produce a forecast of evidence establishing its status as holder in due course, this assignment of error must fail. III. Motion to Amend Finally, plaintiff assigns as error the trial court’s denial of a motion to amend its complaint in each separate action. Plaintiff — 361 — contends that it filed its motion to amend in a timely fashion. The proposed amendment alleged a claim for unfair and deceptive trade practices. Plaintiff argues that the trial court erred in denying its motion. We disagree. We note that “Rule 15(a) gives the trial court broad discretion in determining whether leave to amend will be granted after the time for amending as a matter of course has expired.” Tyson v. Ciba-Geigy Corp., 82 N.C. App. 626, 629, 347 S.E. 2d 473, 476 (1986), citing Willow Mountain Corp. v. Parker, 37 N.C. App. 718, 247 S.E. 2d 11, disc. rev. denied, 295 N.C. 738, 248 S.E. 2d 867 (1978). “The denial of such a motion is not reviewable absent a clear showing of abuse of discretion.” Id., citing Carolina Garbage, Inc. v. Holston, 40 N.C. App. 400, 253 S.E. 2d 7 (1979). Here, plaintiff has attempted to amend its complaint to bring an allegation of unfair and deceptive trade practices. These allegations were not brought in the initial complaint and plaintiff made no showing of excuse for the delay in pleading them. We find no abuse of discretion. Accordingly, this assignment of error must fail. For the foregoing reasons the summary judgment in favor of defendant First Union National Bank is affirmed. The summary judgment in favor of defendant Southern National Bank is reversed and remanded for further proceedings not inconsistent with this opinion. As to First Union — affirmed. As to Southern National — reversed and remanded. Judge JOHNSON concurs. Judge GREENE concurs in part and dissents in part.