Pelican National Bank v. Provident Bank

BELL, C.J. The issue in this case is whether a check made payable to multiple payees, listed in stacked formation on its face, without any grammatical connector or punctuation, is ambiguous as to whether it is negotiable only jointly, thus, requiring the indorsement of all of the named payees, or alternatively, requiring the indorsement of any one of the named payees. The Circuit Court for Baltimore City held that a check so drawn is ambiguous and, accordingly, entered summary judgment in favor of Provident Bank of Maryland, the appellee, ³³⁰ and against Pelican National Bank, the appellant. We shall affirm the judgment of the Circuit Court. I. Harford Mutual Insurance Company issued a check, drawn on Allfirst Bank, in the amount of $60,150.00, to payees as follows: “Andrew Michael Bogdan, Jr., Crystal Bogdan Oceanmark Bank FSB Goodman-Gable-Gould Company”.

The check was in payment of a casualty claim made by Bogdan on an insurance policy, issued by Harford Mutual, on commercial property owned by Bogdan and his wife and on which Oceanmark, the appellant’s predecessor in interest, 1 held a mortgage. Thus, the payees of the check were the property owners, the mortgage holder and the insurance agent who adjusted the casualty claim. In addition to the payees, the face of the check listed, in small print, the insurance policy number, claim identification number and the “loss date” and a small notation that read “MEMO Fire — building.” The check, indorsed only by the Bogdans and the insurance adjuster, was presented to the appellee, which cashed it. Michael Bogdan deposited the proceeds in a commercial account he held at the appellee bank.

When the appellant filed its Complaint for Money Judgment, Bogdan had not distributed any of the proceeds of the check to the appellant. Having failed in its attempt to obtain reimbursement from the appellee for negotiating the check without Oceanmark’s endorsement, the appellant filed against the appellee, in the Circuit Court for Baltimore City, a Complaint for Money ³³¹ Judgment. Alleging conversion, 2 it argued that the subject check was negotiable only if each of the listed payees indorsed it and, since the check was not indorsed by Oceanmark, the appellee improperly negotiated the check. After it filed its answer to the complaint, 3 arguing as an affirmative defense, that the check was payable in the alternative pursuant to Maryland Code, (1975, 2002 Replacement Volume) § 3-110(b) of the Commercial Law Article, 4 the appellee moved for summary judgment on that basis.

The appellant responded with its Cross-Motion for Summary Judgment. 5 ³³² The Circuit Court granted the appellee’s motion for summary judgment. Interpreting § 3 — 110(b) as resolving any ambiguity with respect to whether a check payable to two or more persons is payable jointly or in the alternative in favor of the latter, i.e., that such checks are payable in the alternative, and noting the parties’ arguments acknowledging that the issue was whether the check was ambiguous, the court held: “[o]n its face, the check is payable to two or more persons and has no intervening connectors, marks or punctuation, such as ‘and’, ‘or,’ or ‘and/or’. Therefore, this court finds as a matter of law that the check is ambiguous as to whether or not it is payable to the persons jointly or alternatively.” It relied on City First Mortgage Corp. v. Florida Residential Property & Casualty, 37 U.C.C. Rep. Serv.2d 126 (Miami-Dade County Ct.1998) 6 and Bijlani v. Nationsbank of Florida, N.A., 25 U.C.C. Rep.

Serv.2d 1165 (Fla.Cir.Ct.1995), 7 but neither addressed, nor cited, Peoples National Bank v. Amer ³³³ ican Fid. Fire Ins. Co., 39 Md.App. 614 , 386 A.2d 1254 (1978). The court also rejected Bank of America National Trust and Savings Assoc. v. Allstate Insurance Co., 29 F.Supp.2d 1129 (C.D.Cal.1998) as supporting the appellant’s argument.

The court explained that the court in Allstate Insurance Company, 29 F.Supp.2d at 1139 , “required extrinsic evidence and determined that the check was unambiguous based [on] the custom and usage developed under the prior UCC provision, § 3-116;” however, it pointed out, “ ‘[negotiability [should be] determined from the face, the four-corners, of the instrument without reference to extrinsic facts.’ ” (quoting Participating Parts Associates v. Pylant, 460 So.2d 1299, 1301 , 40 U.C.C. Rep. Serv. 498 (Ala.Civ.App.1984) and Holsonback v. First State Bank of Albertville, 394 So.2d 381, 383 , 30 U.C.C. Rep. Serv. 222 (Ala.Civ.App.1980)). The appellant timely filed a Notice of Appeal to the Maryland Court of Special Appeals.

This court issued a writ of certiorari before the intermediate appellate court considered the case. Pelican National Bank v. Provident Bank of Maryland, 369 Md. 659 , 802 A.2d 438 (2002). In this Court, the appellant argues that the Circuit Court erred when it granted the appellee’s motion for summary judgment and denied its motion. In so arguing, it acknowledges the applicability to the case sub judice of § 3-110(d) and that, pursuant to that provision, the default rule with regard to the payment of checks with ambiguous multiple payee designations is that they are payable alternatively, rather than jointly.

Nor does the appellant dispute that the default rule was changed from the prior law. Nevertheless, the appellant asserts, as it did in the Circuit Court, that the listing of multiple payees in stacked format on a check, without any terms or connectors, is not ambiguous. To the contrary, again as it did in the Circuit Court, the appellant maintains that the Court of Special Appeals resolved the matter in Peoples National Bank , where the court “held the bank liable [in that case] because the check was payable jointly, not payable in the alternative.” (appellant’s Brief at 7). According to the appellant, the rule enunciated by that case is ³³⁴ that checks containing multiple payees in “stacked” format are per se unambiguous and jointly payable.

The appellant also relies on Allstate Insurance Co., supra for the proposition that, notwithstanding the change in the language of the relevant U.C.C. provision, “the case law that existed under § 3-116 with respect to stacked payee designations on the checks (specifically including Peoples Nat. Bank) remains firmly in place under § 3-110(d).” Rejecting the argument that the sentence in § 3-110(d) prescribing the default rule for ambiguity is dispositive of this case, the appellant submits: “The last sentence to § 3-110(d) only applies if the check is ambiguous. The second sentence to § 3-110(d) (which was applied in both the Peoples Nat. Bank and Allstate Ins.

Co. decisions) remains firmly in place. The second sentence of § 3-110(d) provides that ‘[iff an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them. ’ (emphasis added). Because the Check in the present case was in the stacked payee designation format and ‘payable to two or more persons not alternatively,’the Court need not reach the last sentence of § 3-110(d) which would only apply if the Check was ambiguous.” The appellee acknowledges that, prior to 1996, pursuant to § 3-116 and People’s National Bank, cheeks with stacked payees, as is the case with the check sub judice, were deemed payable only jointly. Noting that “Maryland law regarding checks payable to multiple payees was changed with the adoption of the 1990 version of the UCC in 1996,” in particular, the addition of a sentence, which provides that checks with an ambiguous multiple payee designation are payable in the alternative, it argues that, under that provision, checks listing multiple payees in stacked format without terms or connectors are ambiguous and thus, payable in the alternative.

Consequently, the appellee contends that People’s National Bank, having been decided under § 3-116, is inapposite to the case sub judice. Because § 3-110 expressly resolves the situation in which a check with multiple payees is ambiguous as to ³³⁵ whether it is alternatively or jointly payable, it asserts that the default rule enunciated in People’s National Bank is abrogated.

II

The only issue that we must resolve is one of law, whether a check with stacked payees, unseparated by a term, punctuation, connector or symbol indicating joint or alternative payment, is ambiguous. Where a statutory provision of the U.C.C. purports to cover an area of the law, it is the language and the intent of the statute that will govern a conflict that arises within that particular area of law. Hartford Fire Ins. Co. v. Maryland Nat’l Bank, N.A., 341 Md. 408, 413 , 671 A.2d 22, 24 (1996) (“The rights and duties of drawers and depositary banks are governed by ...

Titles 3 and 4 of the Commercial Law Article, which are essentially the same as Articles 3 and 4 of the Uniform Commercial Code (U.C.C.)”); see § 1-301 of the Commercial Law Article. 8 This is, in other words, a matter of statutory interpretation, 9 the canons of which are well settled. ³³⁶ This Court has often stated the paramount goal of statutory interpretation, to “ascertain and effectuate the intention of the legislature.” Oaks v. Connors, 339 Md. 24, 35 , 660 A.2d 423, 429 (1995); Nationsbank v. Stine, 379 Md. 76, 85 , 839 A.2d 727, 732-33 (2003). The quest to ascertain legislative intent requires examination of the language of the statute as written and if, given the plain and ordinary meaning of the words used, the meaning and application of the statute is clear, we end our inquiry. Comptroller of the Treasury v. Kolzig, 375 Md. 562, 567 , 826 A.2d 467, 469 (2003). It is also true, however, that: “While the language of the statute is the primary source for determining legislative intention, the plain meaning rule of construction is not absolute; rather, the statute must be construed reasonably with reference to the purpose, aim, or policy of the enacting body.

The Court will look at the larger context, including the legislative purpose, within which statutory language appears. Construction of a statute which is unreasonable, illogical, unjust, or inconsistent with common sense should be avoided.” Tracey v. Tracey, 328 Md. 380, 387 , 614 A.2d 590, 594 (1992) (Citations omitted). In seeking to “avoid constructions of a statute which is unreasonable, illogical, unjust, or inconsistent with common sense,” Pak v. Hoang, 378 Md. 315, 323 , 835 A.2d 1185, 1189 (2003), we prefer an interpretation of the statute that avoids rendering any “part of the statute ... meaningless or nugatory.” Toler v. Motor Vehicle Admin., 373 Md. 214, 220 , 817 A.2d 229, 234 (2003) (citing Gillespie v. State, 370 Md. 219, 222 , 804 A.2d 426, 428 (2002)). Enacted by Acts of 1996, ch. 1, § 2, as part of the 1996 revision to the Maryland Uniform Commercial Code, § 3-110(d) enunciates the rules for determining, objectively, the intent of a drawer with respect to an instrument made payable to multiple payees.

Therefore, we must first examine § 3-110(d) to determine whether the stacked payee format in this ³³⁷ case is an ambiguous multiple payee designation as contemplated by the Maryland Legislature when it enacted the statute. Section 3 — 110(d) provides: “(d) If an instrument is payable to two or more persons alternatively, it is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument. If an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them. If an instrument payable to two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.” The Official Comment to that section provides further guidance regarding how to treat a check with multiple payees: “An instrument payable to X or Y is governed by the first sentence of subsection (d).

An instrument payable to X and Y is governed by the second sentence of subsection (d). If an instrument is payable to X or Y, either is the payee and if either is in possession that person is the holder and the person entitled to enforce the instrument.... If an instrument is payable to X and Y, neither X nor Y acting alone is the person to whom the instrument is payable.... The instrument is ‘payable to an identified person.’ ” The “identified person” is X and Y acting jointly. * * * * * * “The third sentence of subsection (d) is directed to cases in which it is not clear whether an instrument is payable to multiple payees alternatively.

In the case of ambiguity persons dealing with the instrument should be able to rely on the indorsement of a single payee. For example, an instrument payable to X and/or Y is treated like an instrument payable to X or Y.” Thus, § 3-110(d), confirmed by the explanation in the Official Comment, clearly and unambiguously enunciates the default rule, that, unless checks payable to multiple payees, are specifically and clearly made payable jointly or in the ³³⁸ alternative, they are ambiguous with respect to how they are to be paid and, therefore, are payable alternatively. Indeed, that is precisely what the last sentence of the section states. Confirmation is also supplied by an analysis of the statute that § 3-110(d) replaced.

Prior to 1996, the controlling provision with respect to multiple payee instruments was Maryland Code, (1975, 1992 Replacement Volume) § 3-116 of the Commercial Law Article. It provided: “An instrument payable to the order of two or more persons “(a) If in the alternative is payable to any one of them and may be negotiated, discharged or enforced by any of them who has possession of it; “(b) If not in the alternative is payable to all of them and may be negotiated, discharged or enforced only by all of them.” Like § 3-110(d), § 3-116 is clear and unambiguous. Unlike § 3-110(d), which addressed three scenarios, however, it addressed only two scenarios, where the multiple payee instrument is payable in the alternative and where it is payable “not in the alternative.” In the case of the former, § 3-116 provided for the payment of the instrument on the indorsement of any one of the payees. When, however, the instrument was payable “not in the alternative,” that statute required the indorsement of all of the payees for negotiation.

Essentially, therefore, under § 3-116, joint payment was the default— when the payment direction did not clearly make the instrument payable jointly, i.e. by using the word, “and” or an ampersand, or clearly make it payable in the alternative, i.e. by using, “or”, “and/or”, or a virgule, 10 then it was payable only jointly. ³³⁹ The Court of Special Appeals considered, and applied, § 3-116 in Peoples Nat’l Bank v. American Fid. Fire Ins. Co., 39 Md.App. 614 , 386 A.2d 1254 (1978). In that case, pursuant to a surety payment bond arrangement, the plaintiff, American Fidelity, arranged for payment from the United States of America, to cover the costs of an unpaid amount to a subcontractor.

The United States Treasury issued the check, payable to multiple payees, as follows: “Floors Inc. American Fidelity Fire Insurance Company 8400 Truck Way Capitol Heights, Md. 20037” Id. at 616 , 386 A.2d at 1255 . Floors Inc. received and indorsed the check, but failed to obtain the indorsement of the plaintiff insurance company before submitting it for payment. The defendant, Peoples National Bank, accepted the check and deposited the entire amount in the Floors, Inc. account. The plaintiff sued the defendant for conversion and the Circuit Court for Prince George’s County granted it summary judgment.

On appeal, the intermediate appellate court held: “As previously stated, Md. Com. Law Code Ann. § 3-116 (1975) clearly provides that a check ‘payable to the order of two or more persons ... (i)f not in the alternative ... may be negotiated, discharged or enforced only by all of them.’ ... Since the check was not payable in the alternative, then it could not have been negotiated by less than all the payees.

The fact that the defendant bank was unaware of the ‘joint pay’ agreement between the United States and the plaintiff does not change the result. ³⁴⁰ “ ‘A payment upon a missing indorsement is equivalent to a payment over a forged indorsement.’ Federal Deposit Insurance Corp. v. Marine National Bank, 431 F.2d 341 (5th Cir.1970). An instrument is converted when paid on a forged indorsement, Md. Com. Law Code Ann. § 3-419(1)(c) (1975). Since the bank paid the amount of the check with a missing indorsement, it converted the check.” Id. at 618-19, 386 A.2d at 1257 .

Thus, the court interpreted, and applied, the default rule prescribed by § 3-116, that, if the check is drawn payable to multiple payees, but “not in the alternative,” it is payable jointly. Other courts considering their state’s equivalent of § 3-116, reach the same result. See Moram Agencies, Inc. v. Farrell Transp., Inc., 35 U.C.C. Rep. Serv. 1236 , (E.D.Pa.1982) (noting, referring to a check with multiple payees listed in stacked format, “[i]t was not made payable in the alternative and therefore the indorsement of both purported payees is necessary,” citing People’s National Bank); Midwest Industrial Funding v. First National Bank, 973 F.2d 534, 537 (7th Cir.1992) (explaining that “[t]he general rule is that if there are two names on the check and the check is not payable in the alternative then the statute establishes that check is jointly payable” and, thus, under the “literal application of ¶ 3-116, the checks could be negotiated only by both [of the named parties]”); Van Lunen v. State Central Savings Bank of Keokuk, Iowa, 751 F.Supp. 145, 148 (S.D.Iowa 1990) (holding that the critical inquiry is not whether the drawer of the check intended to make a check containing multiple payees jointly payable and enunciating a preference to rely on the plain language of Iowa Code, § 554.3116(b) which clearly stated that “ ‘[a]n instrument’ ... payable to the order of two or more persons ... if not in the alternative is payable to all of them and may be negotiated ... only by all of them.”); Feldman Constr.

Co. v. Union Bank, 28 Cal.App.3d 731, 735 , 104 Cal.Rptr. 912 (1972). As we have seen, the General Assembly amended the Maryland U.C.C. in 1996, and, in the process substituted § 3-110(d) for § 3-116. In so doing, the General Assembly also changed ³⁴¹ the default rule regarding checks with multiple payees. Rather than retaining the test requiring a determination of whether the check is unambiguously payable in the alternative, the General Assembly added a new test; by adding the last sentence to the statute, it established the default rule that if a check, drawn payable to multiple payees, does not clearly indicate the indorsements required for negotiation, and thus, is “ambiguous as to whether it is payable to two or more persons alternatively,” the check is payable in the alternative and may be negotiated on the indorsement of any one of the payees.

Applying § 3-110(d) and this default rule to the facts of the case sub judice produces a clear result. The subject check was drawn to the order of three payees, listed in stacked format, with no grammatical connector, punctuation or symbol indicating their relationship or how the check was intended to be paid. Therefore, the check was neither clearly payable in the alternative, the payees not being connected by “or” or its equivalent, nor clearly payable jointly, the payees not being joined by “and” or its equivalent. It was, consequently, we hold, “ambiguous as to whether it is payable to the persons alternatively.” Accordingly, we further