                            No. 82-04
          IN THE SUPRE.MJ3 COURT OF THE STATE OF !JIONTANA

                               1982


RUTH H. EATPNGER,
                           Plaintiff and Appellant,
    VS.

FIRST NATIONAL BANK OF
LEWISTOWN, a National Banking
Corporation,
                           Defendant and Respondent.


Appeal from:    District Court of the Tenth Judicial District,
                In and for the County of Fergus
                Honorable LeRoy L. McKinnon, Judge presiding.
Counsel of Record:
    For Appellant:
          K. Robert Foster argued, Lewistown, Montana
    For Respondent:
          Peter L. Rapkoch argued, Lewistown, Montana


                               Submitted: July 8, 1982

                                  Decided:   August 11, 1982
Mr. Chief Justice Frank I. Haswell delivered the Opinion of
the Court.
        In an action by         a depositor       against   a   bank   for
conversion of two checks, the jury returned a verdict in
favor of the bank and judgment was entered thereon.              Follow-
ing denial of her motion for a new trial, the depositor
appeals.     We reverse.
        On August 4, 1976, plaintiff Eatinger drew a check on
her account at defendant First National Bank of Lewistown in
the amount of $7,128.32. She gave the check to Ervan Glover,
a contractor working for her, who was to take the check to
Great Falls to pick up the various supplies indicated on the
face of the check (specific dollar amounts were allocated
for "poles," "form material," "lumber ,' etc.,
                                       I                        totaling
$7,128.32)    from Intermountain Company, the payee.             Unknown
to plaintiff, Glover endorsed the check at defendant bank
"for exchange      only    to Intermountain Company by             Ervan
Glover."     Defendant issued a cashier's check to Intermoun-
tain Company for $7,128.32 which listed plaintiff as the
remitter and was signed by an officer of the bank.                Glover
applied the cashier's check to his own account with Inter-
mountain     rather   than     using   it   to    buy   materials      for
plaintiff.
       On August 17, 1976, plaintiff similarly drew a check
for   $5,500, and     Glover    followed    the   same procedure       and
applied defendant's cashier's check to his account at Custom
Corrugating and Supply, the payee.
        After plaintiff reviewed her August bank statement
wherein the two checks were charged against her account, she
discovered    that Glover      had   endorsed them.         She went to
defendant bank and was told by one of the bank's employees
that there was nothing to worry about since the cashier's
checks were made out to the appropriate payees.
          Late in October Glover called plaintiff and told her
he was out of money and was not finishing his contracting
job for her.          Plaintiff then discovered that Glover had
applied the proceeds to his own accounts with the payees
rather than her account.             Glover has subsequently disap-
peared.
          On March 27, 1977, plaintiff filed an amended com-
plaint    for     the conversion by           defendant bank   of    the two
checks and prayed for judgment in the total sum of the two
checks        ($12,628.32)    plus   interest.       Defendant      answered,
denying any failure to properly perform                  its duties, and
raised    as defenses plaintiff's              failure to timely notify
defendant of any claimed mistakes and the fact that the
intended payees of the checks received the proceeds thereof.
          After plaintiff's motion for summary judgment was
denied,       the case was      tried    to a jury which         returned a
verdict for defendant.           Plaintiff's motion for a new trial
was denied, and plaintiff appeals.
          Although appellant presents numerous issues for our
review on appeal, one issue is dispositive in this case,
i.e.,    whether the District Court erred in denying plain-
tiff's motion for summary judgment.
          A    successful motion        for    summary judgment requires
that there be no genuine issues of material fact and that
the moving party be entitled to judgment as a matter of law.
Rule 56(c), l4.R.Civ.P.
          Appellant contends that the denial of her summary
judgment motion        runs    counter        to several cases including
H i l l s l e y v.   S t a t e Bank of A l b a n y ( 1 9 6 6 ) , 1 8 N.Y.2d              952,     277

N.Y.S.2d       1 4 8 , 22.3 N.E.2d         5 7 1 , and T o n e l l i v . C h a s e M a n h a t t a n

Bank     (1977),       4 1 N.Y.2d         667,     394 N.Y.S.2d              858,     363 N.E.2d

564.      B o t h o f t h e s e cases h o l d t h a t ,        i n a forged endorsement

o r a b s e n t endorsement c a s e ,            even though t h e              intended payee

may    receive       t h e p r o c e e d s of     a check,          if     t h e funds a r e n o t

applied       for     the purpose          for     which       they      were       intended      the

bank may be h e l d             liable.       A p p e l l a n t a l s o c i t e s Conwed Cor-

p o r a t i o n v . F i r s t C i t i z e n s Bank    &   T r u s t Co.      ( 1 9 7 4 ) , 262 S.C.

48,    202 S.E.2d         22, w h i c h r e v e r s e d a summary j u d g m e n t f o r t h e

d e f e n d a n t bank     i n s i m i l a r c i r c u m s t a n c e s and remanded f o r a

t r i a l on t h e m e r i t s .
           R e s p o n d e n t a t t e m p t s t o d i s t i n g u i s h T o n e l l i on s e v e r a l

g r o u n d s i n c l u d i n g t h e f a c t t h a t t h e r e a c a s h i e r ' s c h e c k was

i s s u e d on an unendorsed check whereas h e r e Glover e n d o r s e d

t h e checks.            Respondent a l s o a r g u e s          t h a t d e f e n d a n t is n o t

l i a b l e because the payee r a t i f i e d Glover's actions.                           On o r a l

argument         respondent              further      contended            that      Glover      had

apparent authority                 t o negotiate p l a i n t i f f ' s         checks because

many     residents         of      the    area    knew       that     he     was    employed       by

plaintiff.

           W e a r e n o t p e r s u a d e d by r e s p o n d e n t ' s r e a s o n i n g .     Here

t h e d e f e n d a n t a c c e p t e d and n e g o t i a t e d two c h e c k s w h i c h w e r e

n o t e n d o r s e d by t h e p a y e e s o r by a n y o n e who was c l o t h e d w i t h

a p p a r e n t o r a c t u a l a u t h o r i t y t o s o a c t f o r them.           G l o v e r was

n o t c o n n e c t e d w i t h t h e p a y e e s i n a n y way.

            S e c t i o n 30-4-401(1),           MCA,        provides        that    a bank may
charge a customer's                 a c c o u n t f o r a n i t e m t h a t is " p r o p e r l y

payable."            There      a r e a number          of    cases w h i c h h a v e i n t e r -
preted      this     language         t o require         proper         endorsements.            For
example,        i n K o s i c v.     N a r i n e M i d l a n d Bank     ( 1 9 8 l ) , 5 5 N.Y.2d

620,      446       N.Y.S.2d        264,      430     N.E.2d      1317,       a    check          with
"Captain Blake's,                 Inc."    as t h e p a y e e was         endorsed           by    "S.

Ferry."          The c o u r t f o u n d t h a t t h e d e f e n d a n t bank b r e a c h e d
its d u t y t o its customer                  by c h a r g i n g t h e s e c h e c k s a g a i n s t

h i s a c c o u n t b e c a u s e t h e y were n o t p r o p e r l y p a y a b l e           (citing
U.C.C.       s e c t i o n 4-401).         The c o u r t a l s o r e j e c t e d t h e b a n k ' s

defense        that     t h e funds reached             t h e intended payee because
t h e proceeds never reached t h e account of Captain B l a k e ' s ,
Inc.
             Similarly,           i n Cincinnati           I n s u r a n c e Co.        v.    First
National         Bank       of    Akron     (1980),       63 O h i o    St.       2d    220,       407
N.E.2d       519,     a c h e c k l a c k i n g t h e e n d o r s e m e n t of      one of         the

joint        payees        was     held     not       properly      payable            under      the
c o u n t e r p a r t of    our    s e c t i o n 30-3-116,       MCA.       Here,       t h e bank
a c c e p t e d and c h a r g e d a g a i n s t p l a i n t i f f ' s a c c o u n t two c h e c k s
which were n o t p r o p e r l y e n d o r s e d and t h e r e f o r e n o t p r o p e r l y

payable.             The     bank     may       not    charge      plaintiff's               account
therefor.

             The b a n k ' s d e f e n s e on t h e g r o u n d s t h a t t h e p r o c e e d s

of     the    checks        reached       the    i n t e n d e d p a y e e s must       similarly
fail.        T h i s r u l e is b a s e d o n t h e e q u i t a b l e p r i n c i p l e t h a t
t h e d r a w e r s h o u l d n o t be u n j u s t l y e n r i c h e d o r be p e r m i t t e d
t o recover          f r o m t h e d r a w e e bank w h e r e h e h a s s u f f e r e d no

l o s s from t h e improper payment of                      t h e check, Kosic,               supra.
Here i t i s u n c o n t r o v e r t e d        that plaintiff          suffered substan-
tial      losses           because     she      did     not    receive        the       building
m a t e r i a l s f o r which t h e c h e c k s were drawn.                   Consequently,
t h e r e is no u n j u s t e n r i c h m e n t .
             The c o r r e c t r u l e o f l a w t o b e a p p l i e d i n t h i s case i s
outlined    in Tonelli and Hillsley, supra.          In Tonelli a
messenger    took a certified check made payable to Totowa
Savings and Loan to the drawee bank and, at the messenger 's
request, the bank issued a cashier's check payable to Totowa
without    Totowa's   endorsement.      The   messenger   opened   an
account at Totowa but used the funds for a purpose other
than that for which        the original check was drawn.           In
finding liability in favor of the drawer against the drawee
bank, the New York Court of Appeals stated the following:
          ". . .
               Totowa, the true payee, never actually
       received the proceeds of the original certi-
       fied check for the purpose i n t e n d e d b y the
       drawer.    By virtue of the issuance of the
       cashier's check, the thieves were able to
       convert the fund's moneys to their own use.
       Under these circumstances, the reasoning of
       Hillsley v. State Bank of Albany (24 A.D.2d
       28, 263 N.Y.S.2d    578, aff'd. 18 N.Y.2d 952,
       277 N.Y.S. 2d 148, 223 N.E. 2d 571), is appli-
       cable to the instant case. In Hillsley (pp.
       30-31, 263 N.Y.S.2d pp. 580-581), the court
       held that a drawee bank, which paid a certi-
       fied check over a forged indorsement, could
       not rely upon the defense that the funds
       eventually reached the rightful payee where
       the proceeds of the check were not applied by
       the payee for the purpose intended by the
       drawer."    (Emphasis added.)   394 N.Y.S.2d at
       861, 363 N.E.2d at 567.
       Respondent contends that plaintiff's summary judgment
motion was properly denied        because there were      issues of
rnaterial fact including the standard of commercial reason-
ableness to be applied to the bank and plaintiff's lack of
timely notice of the bank's purported errors.        We disagree.
       The    issue   of   commercial   reasonableness    arises   by
virtue of section 30-3-406, MCA, which reads as follows:
       -- -- - -
      "Nepl igence contributing to alteration or
      unauthorized signature.   Any person who by
      his negligence substantially contributes to a
      material alteration of the instrument or to
      the making of an unauthorized signature is
      precluded from asserting the alteration or
      lack of authority against a holder in due
          course or against a drawee or other payor who
          pays the instrument in good faith ind -    in
                                              --------
          accordance with the reasonable commercial
          standards of the drawee's or Davor's
          business."  (Emphasis added.)
          The scheme of the U.C.C.           requires that the depository
bank authenticate the signatures on instruments presented to
it.    Tubin v. Rabin (N.D. Tex. 1974), 389 F.Supp. 787.                  See,
Atlas Building Supply Co., Inc. v. First Independent Bank of
Vancouver (1976), 15 Wash.App. 367, 550 P.2d 26 (the bank's
failure to determine whether a copayee's endorsement was
authorized was        not    in accord with          reasonable commercial
standards).
          In Twellman v. Lindell Trust Co. (Mo.App. 1976), 534
S.W.2d    83, 93 ALR3d 943, the court held, as a matter of law,
that the drawee bank, in accepting a check whose first en-
dorsement was made by someone other than the payee, did not
act in accordance with reasonable commercial standards and
affirmed    the directed verdict for the plaintiff.                      Here,
copies of the checks were attached to the amended complaint
and clearly showed the endorsement was by someone other than
the payee.         Because    of     this,       the bank   did   not   act    in
accordance with reasonable commercial standards as a matter
of law.
          Moreover, section 30-4-207(4), MCA, gives the plain-
tiff a reasonable time to notify the bank after learning of
any breach.        Here, plaintiff's affidavit indicated that she
notified     the    bank    immediately after          she discovered         the
irregular endorsements.            This sworn affidavit must be taken
as true on motion for summary judgment.                       See, State v.
Conrad (1982),               Mont.           ,   643 P.2d   239, 39 St.Rep.
680.     The notice here was certainly given within a reason-
a b l e t i m e under          s e c t i o n 30-4-207(4),        MCA.       See,     Twellman,

supra,      where        the     court       held   that,       within     the     time     frame

given there,         t h e r e had been n o t i f i c a t i o n w i t h i n a r e a s o n a b l e

t i m e as a m a t t e r o f law.
           S i n c e w e h o l d t h a t p l a i n t i f f s h o u l d have been g r a n t e d

summary       judgment,           we    need      not    address        plaintiff's        other

i s s u e s w h i c h d e a l w i t h t h e s u b s e q u e n t t r i a l . By o u r v a c a t i o n

of   t h e D i s t r i c t C o u r t judgment,          t h e award of c o s t s is l i k e -

w i s e vacated,         Rule      3 3 ( a ) , M.R.App.Civ.P.             Appellant         shall

s u b m i t a memorandum o f                her   costs a s prescribed             in section

25-10-503,        MCA.

           R e v e r s e d a n d remanded t o t h e D i s t r i c t C o u r t f o r e n t r y

of    judgment       in favor          of    plaintiff      d e p o s i t o r i n t h e sum o f

$12,628.32,          interest          from August         4,    1976,     on    the      sum    of

$7,128.32       a n d f r o m A u g u s t 1 7 , 1 9 7 6 , o n t h e sum o f $ 5 , 5 0 0 ,        to

d a t e of judgment,            and c o s t s .




                                                    %&
                                                     A,                   g#
                                                        Chief J u s t i c e

We concur:
     /'
Mr. J u s t i c e F r a n k B. M o r r i s o n , J r . ,          s p e c i a l l y concurring:

            I concur           but take exception t o t h e language i n t h e
m a j o r i t y o p i n i o n which s t a t e s : " T h i s sworn a f f i d a v i t must be

t a k e n as t r u e on m o t i o n f o r summary judgment.''                                 The C o u r t
c i t e s S t a t e v. Conrad ( 1 9 8 2 ) ,                     Mont.               ,   643 P.2d 2 3 9 ,
39 S t . R e p .       680.       The C o n r a d case h o l d s            t h a t an a f f i d a v i t
must be t a k e n a s t r u e where f i l e d i n s u p p o r t of a n informa-
t i o n and w h e r e p r o b a b l e c a u s e is s o u g h t t o t h e r e b y b e e s t a b -
lished.            T h i s is w e l l - a c c e p t e d     law b u t h a s no a p p l i c a t i o n
here.      I n C o n r a d t h e a f f i d a v i t a l l o w s t h e case t o g o f o r w a r d
where h e r e ,        under t h e m a j o r i t y h o l d i n g ,         t h e a f f i d a v i t ends
the litigation.
           I n t h i s case p l a i n t i f f s u p p o r t s a m o t i o n f o r summary
judgment       with an a f f i d a v i t .                The a f f i d a v i t ,       if u n r e f u t e d ,

may f o r m t h e b a s i s f o r g r a n t i n g summary j u d g m e n t .                     However,

i t n e e d n o t be a c c e p t e d by t h e t r i a l c o u r t a s t r u e .                          The
t r i a l c o u r t c o u l d f i n d t h a t t h e d o c u m e n t was n o t c r e d i b l e .
           The r e s u l t h e r e d o e s n o t c h a n g e . T h e r e i s no c o n f l i c t
i n t h e e v i d e n c e p r o d u c i n g a g e n u i n e i s s u e of                fact.        Given

t h i s r e c o r d t h e p l a i n t i f f is e n t i t l e d t o summary j u d g m e n t .
