                                                 No.   80-467

                            I N THE SUPREME COURT O T E STATE O MONTANA
                                                   F H         F

                                                       1981



FIRST NATIONAL BANK I N MILES CITY,

                                         P l a i n t i f f and Respondent,

            VS.

G A Y NUNN
 L D S

                                         Defendant and A p p e l l a n t .



Appeal from:           D i s t r i c t Court of t h e S i x t e e n t h J u d i c i a l D i s t r i c t ,
                       I n and f o r t h e County o f C u s t e r .
                       Honorable A. B. M a r t i n , J u d g e p r e s i d i n g .

Counsel o f Record:

     For A p p e l l a n t :

                 Nye Law Firm, B i l l i n g s , Montana
                 J e r r o l d L. Nye a r g u e d , B i l l i n g s , Montana

         F o r Respondent:

                 Lucas and Monaghan, M i l e s C i t y , Montana
                 Thomas Monaghan a r g u e d , M i l e s C i t y , Montana



                                                  Submitted:         A p r i l 2 3 , 1981



Filed:
         \JUI$    '3   IC6.
                        a bl*
                        d




                                             -          Clerk
Mr. Chief J u s t i c e Frank I . Haswell d e l i v e r e d t h e Opinion of t h e
Court.
           The F i r s t N a t i o n a l Bank i n Miles C i t y i n i t i a t e d t h i s

a c t i o n i n t h e S i x t e e n t h J u d i c i a l D i s t r i c t Court, C u s t e r County,

t o r e c o v e r t h e amount o f a c h e c k d e p o s i t e d by i t s c u s t o m e r ,
G l a d y s Nunn.      The c h e c k had b e e n r e t u r n e d t o F i r s t N a t i o n a l

t h r o u g h t h e c o l l e c t i o n c h a i n because of a n improper endorsement.

F i r s t N a t i o n a l a l l e g e d i n i t s c o m p l a i n t t h a t G l a d y s Nunn had
b r e a c h e d h e r w a r r a n t y u n d e r t h e U n i f o r m Commercial C o d e , s e c t i o n
30-4-207,       MCA,    and was t h e r e f o r e r e q u i r e d t o r e i m b u r s e t h e bank

f o r t h e amount o f t h e c h e c k .         G l a d y s Nunn f i l e d a c o u n t e r c l a i m

f o r damages f o r l i b e l and s l a n d e r , m e n t a l a n g u i s h , costs and

attorney fees.            A f t e r d i s c o v e r y , b o t h p a r t i e s moved f o r summary
judgment.         G l a d y s Nunn a p p e a l s from t h e o r d e r g r a n t i n g summary
j u d g m e n t i n f a v o r o f F i r s t N a t i o n a l o n b o t h t h e c o m p l a i n t and t h e

counterclaim.           W e a f f i r m t h e judgment o n t h e c o u n t e r c l a i m ,

r e v e r s e t h e judgment o n t h e c o m p l a i n t and remand f o r e n t r y o f
j u d g m e n t i n f a v o r o f G l a d y s Nunn o n t h e c o m p l a i n t .

           I n O c t o b e r o f 1 9 7 9 , G l a d y s Nunn moved t o Miles C i t y t o

l i v e w i t h h e r f o r m e r h u s b a n d , P a u l Nunn, who w a s employed by
Continental-Keil,            Inc.      On O c t o b e r 1 8 , 1 9 7 9 , G l a d y s Nunn opened a

c h e c k i n g a c c o u n t a t t h e F i r s t N a t i o n a l Bank i n Miles C i t y .         Two

o f P a u l N u n n ' s p a y c h e c k s , p r o p e r l y e n d o r s e d b y him, were used t o
open Gladys Nunn's a c c o u n t .             O n l y G l a d y s Nunn was a u t h o r i z e d t o

draw on t h i s account.
           On a m o n t h l y b a s i s t h e r e a f t e r , G l a d y s Nunn d e p o s i t e d P a u l

Nunn's paychecks from C o n t i n e n t a l - K e i l          i n t o h e r checking account.
S h e would t h e n u s e t h e f u n d s t o p a y t h e l i v i n g e x p e n s e s and b i l l s
o f t h e h o u s e h o l d w h i c h c o n s i s t e d o f h e r s e l f , P a u l Nunn, and a
m i n o r c h i l d o f P a u l Nunn f r o m a p r e v i o u s m a r r i a g e .
           On A p r i l 2, 1 9 8 0 , G l a d y s Nunn d e p o s i t e d i n t o h e r c h e c k i n g
account Continental-Keil               I s   c h e c k No. 33326 d a t e d March 29, 1 9 8 0 ,
i n t h e amount o f $ 1 , 3 6 4 . 3 3 .       The c h e c k was made p a y a b l e to P a u l

Nunn.      On t h e b a c k o f t h e c h e c k , G l a d y s Nunn wrote " f o r d e p o s i t
only."        P a u l Nunn had n o t e n d o r s e d t h e c h e c k , n o r had G l a d y s Nunn

s i g n e d h i s name o r h e r name.             The b a n k ' s e m p l o y e e a c c e p t e d t h e
c h e c k and t h e d e p o s i t t i c k e t .      A f t e r G l a d y s Nunn l e f t t h e b a n k ,

t h e employee stamped t h e f o l l o w i n g words on t h e back of t h e

check:
                                DEPOSITED TO THE CREDIT OF



                                     FIRST NATIONAL BANK
                                     MILES CITY, MONTANA


The e m p l o y e e w r o t e t h e name o f P a u l Nunn o n t h e l i n e .                 Addition-

a l l y t h e bank stamped i t s g u a r a n t e e of p r i o r endorsements.                        The
c h e c k was c r e d i t e d t o G l a d y s N u n n ' s a c c o u n t and f o r w a r d e d t h r o u g h
t h e usual banking channels f o r c o l l e c t i o n .
            G l a d y s Nunn t e s t i f i e d i n h e r d e p o s i t i o n t h a t s h e had

p i c k e d up t h e c h e c k a t t h e p o s t o f f i c e box which s h e and P a u l
Nunn owned.           She s t a t e d t h a t s h e t a l k e d t o P a u l Nunn o n t h e

t e l e p h o n e on Monday e v e n i n g , March 31, 1 9 8 0 , and t h a t he t o l d h e r

t o s i g n t h e c h e c k , d e p o s i t it and p a y t h e b i l l s .           When P a u l Nunn
r e t u r n e d home on Wednesday, A p r i l 2, he a s k e d G l a d y s f o r $ 2 5 0 ,
w h i c h s h e g a v e t o him i n t h e form o f a c h e c k drawn o n h e r a c c o u n t

o u t of t h e paycheck funds.                 A s a r e s u l t of domestic d i f f i c u l t i e s

G l a d y s Nunn moved o u t o f t h e home i n Miles C i t y and r e t u r n e d to
Livingston.           When s h e l e f t Miles C i t y o n A p r i l 8 , s h e had
w i t h d r a w n a l l of t h e p r o c e e d s from t h e C o n t i n e n t a l - K e i l    c h e c k by
w r i t i n g c h e c k s f o r h o u s e h o l d e x p e n s e s and p u r c h a s i n g a money
o r d e r p a y a b l e to h e r s e l f i n t h e amount o f $600.
           Continental-Keil              c h e c k No. 33326 w a s drawn o n t h e
c o r p o r a t i o n ' s a c c o u n t a t S e c u r i t y Bank i n B i l l i n g s .    Security
Bank r e c e i v e d t h e c h e c k from F i r s t Bank o f B i l l i n g s , t h e i n t e r -
m e d i a t e o r c l e a r i n g h o u s e bank i n t h e c o l l e c t i o n c h a i n , o n o r

a b o u t A p r i l 3 and d e b i t e d t h e a c c o u n t o f C o n t i n e n t a l - K e i l .    On
A p r i l 11, S e c u r i t y Bank s e n t a s t a t e m e n t t o C o n t i n e n t a l - K e i l ,
which i n c l u d e d check N o .         33326.
           J e r r y Wagner, t h e c o m p t r o l l e r o f C o n t i n e n t a l - K e i l     was con-

t a c t e d by P a u l Nunn o n o r a b o u t A p r i l 1 2 , 1980.                 P a u l t o l d Wagner

t h a t h i s ex-wife       had r e c e i v e d h i s p a y c h e c k and d e p o s i t e d it i n t o

h e r a c c o u n t and t h a t h i s name had b e e n f o r g e d to t h e c h e c k .

Wagner went t o S e c u r i t y Bank o n A p r i l 1 7 and c o m p l e t e d a " f o r g e d

e n d o r s e m e n t d o c u m e n t " and o t h e r n e c e s s a r y p a p e r s t o h a v e t h e

c h e c k r e t u r n e d t o t h e F i r s t N a t i o n a l Bank.         Subsequently J e r r y

Wagner i s s u e d a new c h e c k t o P a u l Nunn i n r e p l a c e m e n t of c h e c k

No.    33326.       P a u l Nunn h a s n e v e r b e e n a v a i l a b l e f o r t e s t i m o n y

b e c a u s e i n e a r l y May, 1 9 8 0 , he a 1 l e g e d l y e m b e z z l e d c o n s i d e r a b l e

f u n d s f r o m h i s e m p l o y e r and d i s a p p e a r e d .

           S e c u r i t y Bank r e t u r n e d c h e c k No. 33326 t o F i r s t Bank o f

B i l l i n g s , which i n t u r n r e t u r n e d t h e check t o F i r s t N a t i o n a l

Bank.      S e c u r i t y Bank c r e d i t e d t h e a c c o u n t o f C o n t i n e n t a l - K e i l      and

r e c e i v e d c r e d i t f r o m F i r s t Bank.      F i r s t Bank w a s r e i m b u r s e d by

F i r s t N a t i o n a l Bank f o r t h e $ 1 , 3 6 4 . 3 3 .        F i r s t N a t i o n a l Bank

r e s e a r c h e d G l a d y s N u n n ' s c h e c k i n g a c c o u n t and found it to h a v e

i n s u f f i c i e n t funds t o cover t h e r e t u r n e d check.                On A p r i l 24,

1 9 8 0 , P a u l M o t t r a m o f F i r s t N a t i o n a l Bank c o n t a c t e d G l a d y s Nunn

and n o t i f i e d h e r o f t h e f a c t t h a t t h e c h e c k had b e e n r e t u r n e d d u e

t o an improper endorsement.                     The F i r s t N a t i o n a l Bank demanded

t h a t G l a d y s Nunn r e f u n d t h e amount o f t h e c h e c k , which s h e

r e f u s e d to do.

           The F i r s t N a t i o n a l Bank f i l e d i t s c o m p l a i n t a g a i n s t G l a d y s

Nunn on J u n e 1 0 , 1 9 8 0 , a l l e g i n g t h a t G l a d y s Nunn b r e a c h e d h e r

w a r r a n t y u n d e r s e c t i o n 30-4-207,       MCA,     and t h a t s h e was t h e r e f o r e

l i a b l e f o r t h e $1,364.33.           G l a d y s Nunn f i l e d a c o u n t e r c l a i m f o r

d a m a g e s f o r l i b e l and s l a n d e r i n t h e amount o f $ 1 5 , 0 0 0 ;           f o r men-

t a l a n g u i s h , s u f f e r i n g and damage i n t h e amount of $ 5 , 0 0 0 ;                   and

f o r h e r s p e c i f i c e x p e n s e s , c o s t s and a t t o r n e y f e e s f o r d e f e n d i n g

F i r s t National Bank's a c t i o n .

           The i s s u e p r e s e n t e d f o r d e t e r m i n a t i o n is w h e t h e r t h e
D i s t r i c t C o u r t e r r e d i n g r a n t i n g summary j u d g m e n t t o F i r s t

N a t i o n a l Bank on t h e c o m p l a i n t and c o u n t e r c l a i m .         In its conclu-

s i o n s o f law, t h e D i s t r i c t C o u r t found t h a t G l a d y s Nunn b r e a c h e d

h e r w a r r a n t y as a c u s t o m e r u n d e r s e c t i o n 30-4-207,            MCA,   and t h a t
u n d e r s e c t i o n 30-4-212,        MCA,     F i r s t N a t i o n a l Bank was e n t i t l e d t o

a r e f u n d f r o m h e r i n t h e amount o f $ 1 , 3 6 4 . 3 3 ,            plus interest.

The c o u r t f u r t h e r f o u n d t h a t C o n t i n e n t a l - K e i l   r e t u r n e d t h e check

w i t h i n t h e t i m e s p e c i f i e d i n s e c t i o n 30-4-406,          MCA,    after
l e a r n i n g o f t h e i m p r o p e r e n d o r s e m e n t , t h a t F i r s t N a t i o n a l Bank

g a v e t i m e l y n o t i c e t o G l a d y s Nunn o f t h e r e t u r n of t h e c h e c k and

made t i m e l y demand upon h e r f o r a r e f u n d , t h a t F i r s t N a t i o n a l
Bank made a p r o v i s i o n a l s e t t l e m e n t w i t h G l a d y s Nunn o n t h e d a t e

o f t h e d e p o s i t , and t h a t t h e s e t t l e m e n t n e v e r became f i n a l .          For
t h e f o l l o w i n g r e a s o n s we f i n d t h a t t h e District Court e r r e d i n

i t s i n t e r p r e t a t i o n o f t h e U n i f o r m Commercial Code as it a p p l i e s

t o t h i s case.
            The F i r s t N a t i o n a l Bank is b o t h a d e p o s i t a r y and a

c o l l e c t i n g bank under t h e d e f i n i t i o n s of s e c t i o n 30-4-105(a)               and
(d)   .   G l a d y s Nunn w a s a c u s t o m e r o f F i r s t N a t i o n a l Bank a s
d e f i n e d i n s e c t i o n 30-4-104 ( e )      .    S e c t i o n 30-4-212,        MCA,   provides

f o r t h e r i g h t o f c h a r g e - b a c k o r r e f u n d from t h e c u s t o m e r a s

follows:

           " ( 1 )-f -a c o l l e c t i n g ---- r o v i s i o n a l
                      I                         b a n k h a s made p
           s e t t l e m e n t -- c u s t o m e r f o r a n i t e m - i t s e l f
                               with its                                         and
           f a i l s by r e a s o n o f d i s h o n o r , s u s p e n s i o n of p a y m e n t s
           b y a bank or o t h e r w i s e t o r e c e i v e a s e t t l e m e n t f o r
           -----h is o r becomes f i n a l , ---
           t h e item w h i c                                           t h e b a n k may
           r e v o k e t h e s e t t l e m e n t g i v e n - -, c h a r g e --
                                                           by i t                 back t h e
           amount - -y c r e d i t g i v e n -r-h e - - t o i t s
                        of an                             fo t -item
           c u s t o m e r ' s a c c o u n t or o b t a i n r e f u n d from its customer
           w h e t h e r o r n o t it i s a b l e to r e t u r n t h e items --        i f by
           its midnight d e a d l i n e or w i t h i n a l o n g e r reasonable
           t i m e a f t e r i t l e a r n s the f a c t s it r e t u r n s -e-t- o r
                                                                                  th i e m
           s e n d s n o t i f i c a t i o n o f t h e facts.         These r i g h t s t o
           revoke, charge b a c k a n o b t a i n refund t e r m i n a t e i f
           -n- -when a s e t t l e m e n t f o r t h e i t e m r e c e i v e d by tG
           a d
           b a n k i s o r becomes f i n a l ( s u b s e c t i o n ( 3 ) o f 30-4-211
           a n d s u b s e c t i o n s ( 2 ) and ( 3 ) o f 30-4-213)."               (Emphasis
           added. )

By c r e d i t i n g G l a d y s Nunn's a c c o u n t w i t h t h e amount o f t h e

Continental-Keil             c h e c k , F i r s t N a t i o n a l Bank made a " p r o v i s i o n a l
settlement" with her.                 The bank had t h e r i g h t t o a u t o m a t i c a l l y

r e v o k e t h a t s e t t l e m e n t up t o s u c h t i m e as t h e s e t t l e m e n t became
final   .    The q u e s t i o n becomes w h e t h e r t h e s e t t l e m e n t e v e r became
final.       The D i s t r i c t C o u r t f o u n d t h a t t h e s e t t l e m e n t d i d n o t

become f i n a l .      W e c o n c l u d e t h a t t h e s e t t l e m e n t became f i n a l .

            S e c t i o n 30-4-213(2),        MCA,     provides t h a t a provisional

s e t t l e m e n t becomes f i n a l upon t h e o c c u r r e n c e o f Iff i n a l p a y m e n t "
o f t h e i t e m by t h e p a y o r b a n k .       F i n a l payment is d e f i n e d by sec-
t i o n 30-4-213 ( I ) , MCA, as f o l l o w s :

            " (1) An i t e m is f i n a l l y p a i d by a p a y o r bank
            when t h e b a n k h a s d o n e a n y o f t h e f o l l o w i n g ,
            whichever happens f i r s t :
            "(a)     paid t h e i t e m i n cash; or

            " ( b ) s e t t l e d f o r t h e item without r e s e r v i n g a
            r i g h t t o r e v o k e t h e s e t t l e m e n t and w i t h o u t
            having such r i g h t under s t a t u t e , c l e a r i n g h o u s e
            r u l e o r agreement; or

            " ( c ) c o m p l e t e d t h e p r o c e s s o f p o s t i n g --
                                                                            the i t e m
            -     th                                 o f the
            t o -e i n d i c a t e d a c c o u n t - - d r a w e r , -- o r  maker
            o t h e r p e r s o n - - charged t h e r e w i t h ; or
                                  t o be                                   -
              ( d ) made a p r o v i s i o n a l s e t t l e m e n t f o r t h e item
            and f a i l e d to revoke t h e s e t t l e m e n t i n t h e t i m e
            a n d manner p e r m i t t e d by s t a t u t e , c l e a r i n g h o u s e
            r u l e o r a g r e e m e n t . Upon a f i n a l payment u n d e r
            s u b p a r a g r a p h s ( b ) , ( c ) , o r ( d ) t h e p a y o r bank
            s h a l l be a c c o u n t a b l e f o r t h e amount o f t h e i t e m . "
            (Emphasis added. )

I f S e c u r i t y Bank ( t h e p a y o r b a n k ) c o m p l e t e d t h e p r o c e s s o f
p o s t i n g t h e check t o Continental-Keil's                   ( t h e drawer's) account,

t h e n t h e p r o v i s i o n a l s e t t l e m e n t s i n t h e c o l l e c t i o n c h a i n became
f i n a l , i n c l u d i n g t h e s e t t l e m e n t made by F i r s t N a t i o n a l Bank w i t h
G l a d y s Nunn.      The p r o c e s s o f p o s t i n g i n c l u d e s t h e f o l l o w i n g s t e p s

t a k e n by t h e b a n k , a c c o r d i n g to s e c t i o n 30-4-109,          MCA:

            "(a)     v e r i f i c a t i o n of any s i g n a t u r e ;
            "(b)     a s c e r t a i n i n g t h a t s u f f i c i e n t funds a r e
                     available;
            " ( c ) a f f i x i n g a ' p a i d ' o r o t h e r stamp;
            "(d)     e n t e r i n g a c h a r g e o r e n t r y to a c u s t o m e r ' s
                     account;

            "(e)     c o r r e c t i n g or r e v e r s i n g a n e n t r y o r e r r o n e o u s
                     a c t i o n w i t h r e s p e c t to t h e i t e m . "
            G a r y M.   J o h n s o n o f S e c u r i t y Bank t e s t i f i e d i n h i s d e p o s i -

t i o n t h a t check No.         33326 was r e c e i v e d by h i s bank f r o m t h e F i r s t

Bank o f B i l l i n g s ( a n i n t e r m e d i a r y bank i n t h e c o l l e c t i o n c h a i n )
o n o r a b o u t A p r i l 3 , 1 9 8 0 , and p o s t e d t o C o n t i n e n t a l - K e i l ' s
a c c o u n t o n t h a t same d a t e .       C o n t i n e n t a l - K e i l ' s a c c o u n t was

d e b i t e d i n t h e amount o f $ 1 , 3 6 4 . 3 3 .
           Continental-Keil              r e t u r n e d t h e c h e c k to S e c u r i t y Bank o n
A p r i l 17, 1980, c l a i m i n g a forged or improper endorsement of t h e
payee's signature.                T h i s r e t u r n o f t h e c h e c k t o S e c u r i t y and t h e
subsequent r e c r e d i t i n g of Continental-Keil 's account occurred
a f t e r t h e p r o c e s s o f p o s t i n g had b e e n c o m p l e t e d and t h e r e f o r e

a f t e r t h e s e t t l e m e n t s e x t e n d e d on t h e i t e m became f i n a l .

           Respondent argues t h a t the p r o v i s i o n a l s e t t l e m e n t s do n o t
become f i n a l u n t i l t h e d r a w e r h a s had time to e x a m i n e h i s bank

s t a t e m e n t , r e l y i n g o n s e c t i o n 30-4-406,       MCA.      T h a t s t a t u t e con-
c e r n s t h e c u s t o m e r l s d u t y t o d i s c o v e r and r e p o r t u n a u t h o r i z e d
signatures within a reasonable t i m e after receiving h i s

statement.          I f t h e customer f a i l s to t i m e l y r e p o r t a f o r g e r y he

i s p r e c l u d e d from r e c o v e r i n g from h i s b a n k .          Although s e c t i o n
30-4-109(e),          MCA,    states t h a t p o s t i n g is n o t completed u n t i l t h e
bank h a s " c o r r e c t [ed] or r e v e r s [edl a n e n t r y o r erroneous a c t i o n
with respect t o the item,"                   t h a t s u b s e c t i o n c a n n o t be c o n s t r u e d to

allow u n l i m i t e d t i m e f o r t h e customer to examine h i s s t a t e m e n t
and r e p o r t a f o r g e r y .      The p u r p o s e o f s u b s e c t i o n ( e ) was t o allow

t i m e f o r a bank e m p l o y e e t o e x a m i n e items a f t e r t h e c o m p u t e r
a u t o m a t i c a l l y d e b i t e d t h e c u s t o m e r ' s a c c o u n t and to make a f i n a l

d e c i s i o n w i t h r e s p e c t t o t h e item.        S e e F i n a l Payment and t h e
P r o c e s s o f P o s t i n g u n d e r t h e U n i f o r m Commercial Code, 6 8 Colum.
L.   Rev. 349 ( 1 9 6 8 ) .
           S i n c e Continental-Keil d i d n o t r e t u r n t h e check u n t i l
a f t e r f i n a l s e t t l e m e n t , S e c u r i t y Bank no l o n g e r had t h e r i g h t t o

r e v o k e t h e s e t t l e m e n t g i v e n t o F i r s t N a t i o n a l Bank, t h r o u g h t h e

c o l l e c t i o n chain, under t h e p r o v i s i o n a l s e t t l e m e n t d o c t r i n e       .
Also,     F i r s t N a t i o n a l Bank no l o n g e r had t h e r i g h t o f c h a r g e -

b a c k t o i t s c u s t o m e r ' s a c c o u n t o r t h e r i g h t to o b t a i n r e f u n d from
i t s c u s t o m e r , G l a d y s Nunn, u n d e r s e c t i o n 30-4-212,            MCA.     The

D i s t r i c t C o u r t ' s c o n c l u s i o n t h a t F i r s t N a t i o n a l was e n t i t l e d to a

r e f u n d u n d e r s e c t i o n 30-4-212,       MCA,     was e r r o n e o u s .
            The c o n c l u s i o n t h a t t h e s e t t l e m e n t s i n t h e c o l l e c t i o n

c h a i n became f i n a l d o e s n o t r e s o l v e t h i s case, h o w e v e r .            The l o s s

o f t h e r i g h t t o c h a r g e - b a c k o r r e f u n d u n d e r s e c t i o n 30-4-212,
MCA, d o e s n o t p r e c l u d e F i r s t N a t i o n a l Bank f r o m s e e k i n g t o h o l d

i t s c u s t o m e r l i a b l e f o r b r e a c h o f h e r w a r r a n t y p u r s u a n t t o sec-
t i o n 30-4-207.          S e c t i o n 30-4-212(5),         MCA; S u n s h i n e v.      Bankers

T r u s t Co.    ( 1 9 7 4 ) , 34 N.Y.2d       404, 3 5 8 N.Y.S.2d            1 1 3 , 3 1 4 N.E.2d      860.

           A c c o r d i n g t o s e c t i o n 30-4-207 ( 2 ) , MCA, e a c h c u s t o m e r who

t r a n s f e r s a n item t o a c o l l e c t i n g bank w a r r a n t s to t h e c o l l e c t i n g
bank t h a t :

           " ( a ) h e h a s a good t i t l e t o t h e i t e m o r is
           a u t h o r i z e d t o o b t a i n payment o r a c c e p t a n c e o n b e h a l f
           o f o n e who h a s a good t i t l e and t h e t r a n s f e r is
           o t h e r w i s e r i g h t f u l ; and

            "(b)      a l l s i g n a t u r e s a r e g e n u i n e or a u t h o r i z e d ; and

            "(c)      t h e item h a s n o t b e e n m a t e r i a l l y a l t e r e d ; and

           "(d)       no d e f e n s e o f a n y p a r t y is good a g a i n s t him;
           and

           " ( e ) h e h a s no k n o w l e d g e o f a n y i n s o l v e n c y p r o -
           c e e d i n g i n s t i t u t e d w i t h r e s p e c t t o t h e maker o r
           a c c e p t o r or t h e d r a w e r o f a n u n a c c e p t e d item.        In
           a d d i t i o n e a c h c u s t o m e r and c o l l e c t i n g bank so t r a n s -
           f e r r i n g a n item and r e c e i v i n g a s e t t l e m e n t o r o t h e r
           c o n s i d e r a t i o n e n g a g e s t h a t upon d i s h o n o r and a n y
           n e c e s s a r y n o t i c e o f d i s h o n o r and p r o t e s t h e w i l l t a k e
           up t h e i t e m . "

The D i s t r i c t C o u r t f o u n d t h a t as a c u s t o m e r o f F i r s t N a t i o n a l
Bank, G l a d y s Nunn g a v e t h e w a r r a n t i e s of s u b s e c t i o n ( a ) a b o v e ,
and t h a t s h e b r e a c h e d t h e s e w a r r a n t i e s .    Appellant argues t h a t
s h e d i d n o t b r e a c h t h e w a r r a n t y o f good t i t l e o r a u t h o r i t y

b e c a u s e s h e was g i v e n t h e a u t h o r i t y to o b t a i n payment o f t h e
c h e c k b y P a u l Nunn.        None o f t h e o t h e r w a r r a n t i e s or p r o v i s i o n s

i n s u b s e c t i o n s ( b ) t h r o u g h ( e ) a p p l y to t h i s case.
            The f i r s t w a r r a n t y i s t h a t t h e c u s t o m e r h a s good t i t l e t o

the item.          It is c e r t a i n t h a t i f t h e p a y e e ' s        e n d o r s e m e n t were

f o r g e d , t h e f o r g e r would n o t h a v e good t i t l e .             T h a t is n o t t h e

situation here.              A c c o r d i n g to A n d e r s o n , U n i f o r m Commercial Code,

V o l . 3 S 3-417:         8 (2nd E d i t i o n ) , good t i t l e r e q u i r e s t h a t a l l

n e c e s s a r y e n d o r s e m e n t s be g e n u i n e and a u t h o r i z e d .   I t c a n be

i n £ e r r e d f r o m t h i s comment t h a t t h e n e c e s s a r y e n d o r s e m e n t s m u s t

e x i s t , and i n t h i s case w h e r e t h e p a y e e ' s e n d o r s e m e n t is m i s s i n g ,

G l a d y s Nunn d i d n o t h a v e good t i t l e .            G l a d y s Nunn d i d n o t

breach her warranty,                however,        i f s h e had a u t h o r i t y t o o b t a i n

p a y m e n t o n b e h a l f o f o n e who d i d h a v e good t i t l e , i . e . o n b e h a l f

o f P a u l Nunn.        A c c o r d i n g t o A n d e r s o n , s u p r a , S 3-417:       1.8,    the

s e c o n d w a r r a n t y o f s u b s e c t i o n ( a ) i s m e a n t t o c o v e r t h e case o f

a n a g e n t who t r a n s f e r s f o r a n o t h e r .      The f a c t s o f t h i s case show

t h e e x i s t e n c e o f a n a g e n c y r e l a t i o n s h i p b e t w e e n P a u l and G l a d y s

Nunn.       G l a d y s opened h e r a c c o u n t w i t h P a u l ' s p a y c h e c k s , p r o p e r l y

e n d o r s e d by him.        S u b s e q u e n t l y t h e r e were a t l e a s t f o u r d e p o s i t s

b y G l a d y s o f P a u l ' s p a y c h e c k s , p r o p e r l y e n d o r s e d by him.        A l l of

t h e s e f u n d s w e r e used t o p a y t h e h o u s e h o l d e x p e n s e s o f P a u l and

Gladys.        T h i s p r i o r conduct is s t r o n g evidence t h a t Gladys w a s an

a g e n t o f P a u l ' s f o r t h e p u r p o s e of d e p o s i t i n g h i s c h e c k s .

            I n a d d i t i o n , Gladys t e s t i f i e d i n h e r d e p o s i t i o n t h a t she

t a l k e d t o P a u l on t h e t e l e p h o n e w i t h r e g a r d t o c h e c k No. 33326,

t h a t h e t o l d h e r t o s i g n t h e c h e c k , d e p o s i t it and pay t h e b i l l s .

She t h o u g h t s h e had s i g n e d t h e c h e c k .          I f s h e had s i g n e d P a u l ' s

name, t h i s would h a v e b e e n p e r m i s s i b l e u n d e r s e c t i o n 30-3-403,

MCA.      F u r t h e r , when P a u l came home o n t h e e v e n i n g o f A p r i l 2,

1 9 8 0 , he a s k e d G l a d y s i f s h e had d e p o s i t e d t h e c h e c k and p a i d t h e

bills.       H e a s k e d how much money was l e f t , and t h e n a s k e d h e r

f o r $250.        P a u l r e c e i v e d a c h e c k from G l a d y s f o r $ 2 5 0 o u t o f t h e

p r o c e e d s of h i s paycheck.            H e a l s o r e c e i v e d b e n e f i t i n t h e form

o f payment o f t h e h o u s e h o l d b i l l s .           Gladys also t e s t i f i e d t h a t he

r e c e i v e d a n o t h e r $200 i n c a s h from t h e p r o c e e d s of h i s p a y c h e c k .
About a week l a t e r , P a u l w e n t to h i s e m p l o y e r and a l l e g e d t h a t

h i s p a y c h e c k had b e e n s t o l e n and h i s s i g n a t u r e f o r g e d .

            The UCC p r o v i d e s t h a t a g e n c y l a w a p p l i e s u n l e s s d i s p l a c e d

b y Code p r o v i s i o n s .     S e c t i o n 30-1-103,      MCA.      Agency p r i n c i p l e s

a r e used i n s e c t i o n 30-3-403,            MCA,    r e g a r d i n g s i g n a t u r e s made by

agents.        Where t h e r e is no s i g n a t u r e o f t h e p r i n c i p a l o r o f t h e

a g e n t , a g e n c y law may n o n e t h e l e s s be a p p l i d to e s t a b l i s h t h e
                                                                   (23
a u t h o r i t y r e f e r r e d to i n s e c t i o n 30-4-207qa),           MCA.         It is w e l l -

s e t t l e d t h a t a p r i n c i p a l who a c c e p t s t h e b e n e f i t s o f a n a g e n c y

t r a n s a c t i o n cannot l a t e r deny t h e r e w a s an agency.                     P u r c e l l v.

G i b b s ( 1 9 5 8 ) , 1 3 3 Mont. 481,        326 P.2d       6 7 9 ; A r n o l d v. G e n z b e r g e r

( 1 9 3 4 ) , 96 Mont. 358, 3 1 P.2d 2 9 6 ; N e w Home Sewing M a c h i n e Co. v .

S o n g e r ( 1 9 3 1 ) , 9 1 Mont. 1 2 7 , 7 P.2d          238.      Even i f t h e a g e n t ' s

a c t i o n s were u n a u t h o r i z e d , t h e p r i n c i p a l r a t i f i e s them b y re-

c e i v i n g t h e b e n e f i t s and i s e s t o p p e d t o d e n y t h e a g e n c y . A r n o l d

v. Genzberger, supra.

           W e f i n d t h a t G l a d y s Nunn had t h e r e q u i s i t e a u t h o r i t y t o

o b t a i n payment o f t h e c h e c k o n b e h a l f o f P a u l Nunn and t h a t s h e

was n o t i n b r e a c h o f h e r w a r r a n t y u n d e r s e c t i o n 3 0 - 4 - 2 0 7 ( 2 ) ( a ) ,

MCA.      C o n s e q u e n t l y F i r s t N a t i o n a l Bank c a n n o t r e c o v e r from G l a d y s

Nunn.       The b a n k ' s remedy,        i f any,      is a g a i n s t Continental-Keil

o r P a u l Nunn.

           W i t h r e s p e c t t o t h e c o u n t e r c l a i m made by G l a d y s Nunn, w e

f i n d t h a t t h e D i s t r i c t C o u r t was c o r r e c t i n g r a n t i n g summary

j u d g m e n t f o r F i r s t N a t i o n a l Bank.     Where t h e r e c o r d shows n o

g e n u i n e i s s u e of m a t e r i a l f a c t , t h e p a r t y opposing t h e motion f o r

summary j u d g m e n t h a s t h e b u r d e n of coming f o r w a r d w i t h s u b s t a n -

t i a l evidence r a i s i n g the issue.                R u l e 5 6 ( c ) and ( e ) , M.R.Civ.P.;

Van Uden v . H e n d r i c k s e n ( 1 9 8 0 ) ,           Mont.              ,   615 P.2d       220,     37

St.Rep.       1 4 3 1 ; R i i s v. Day ( 1 9 8 0 ) ,           Mont   .           ,   6 1 3 P.2d     6 9 6 , 37

St.Rep.       1 0 9 3 ; Downs v. Smyk ( 1 9 7 9 ) ,                Mont   .           ,   6 0 4 P.2d    307,

36 S t . R e p .   2300.

            Here, t h e r e c o r d shows no g e n u i n e i s s u e of m a t e r i a l f a c t ,
G l a d y s Nunn d i d n o t p r o d u c e e v i d e n c e r a i s i n g s u c h i s s u e   ,   and t h e

r e c o r d d o e s n o t s u p p o r t h e r claim f o r d a m a g e s .       F i r s t National

Bank was e n t i t l e d t o judgment o n t h e c o u n t e r c l a i m as a matter o f
law.
           A t t o r n e y f e e s a r e r e c o v e r a b l e by t h e p r e v a i l i n g p a r t y o n l y

w h e r e e x p r e s s l y a u t h o r i z e d by s t a t u t e o r by a g r e e m e n t by t h e
parties.        S t a l c u p v. Montana T r a i l e r S a l e s ( 1 9 6 5 ) , 1 4 6 Mont. 494,
409 P.2d 5 4 2 , and cases c i t e d t h e r e i n .              S i n c e t h e r e is no s t a t u t e

o r a g r e e m e n t p r o v i d i n g f o r a n award of a t t o r n e y f e e s i n t h i s
c a s e , t h e r e is no b a s i s f o r s u c h a n a w a r d .
           The j u d g m e n t o f t h e D i s t r i c t C o u r t o n t h e c o u n t e r c l a i m i s

a f f i r m e d , t h e j u d g m e n t o n t h e c o m p l a i n t is r e v e r s e d , and t h e case
i s remanded f o r e n t r y o f summary j u d g m e n t i n f a v o r of G l a d y s Nunn

on the complaint.




                                                Chief J u s t i c e
