A federal district court in Alabama has dismissed a claim that a bank converted an insurance proceeds check, finding that the bank could negotiate the check itself, without the insureds' consent.
The Case
After Jeannette Bennett and Maggie Bell (together, the "plaintiffs") inherited a house from their mother, Catherine Getaw, the house was damaged by a fire. The plaintiffs filed a claim for the fire damage with Foremost Insurance Company, which had issued an insurance policy that covered the house.
Then, CIT Bank, N.A., which serviced a mortgage on the property, foreclosed and sold the house at the foreclosure sale to the Federal National Mortgage Association ("Fannie Mae").
Thereafter, CIT, which then was operating as "Financial Freedom, a Division of OneWest Bank," and Fannie Mae both filed claims for the fire damage under the Foremost insurance policy.
Foremost issued a check for the fire damage claim in the amount of $62,262.13 payable to "Financial Freedom, a Division of Onew [sic] Estate of Catherine Getaw."
The plaintiffs alleged that CIT endorsed and deposited the check into its account without the plaintiffs' signatures as personal representatives of their mother's estate and that CIT transferred some or all of those funds to Fannie Mae. The plaintiffs demanded that CIT and Fannie Mae give the proceeds to the plaintiffs, but CIT and Fannie Mae refused.
The plaintiffs sued CIT, asserting a claim for conversion of the insurance check.
CIT moved to dismiss that claim, arguing that the Uniform Commercial Code ("UCC") provided that either party named as payee on the Foremost check could deposit the check without the consent of the other.
The District Court's Decision
The district court granted the motion to dismiss.
In its decision, the district court explained that, under UCC § 7-3-110(d), when a check names two or more persons as payees, who can enforce the check depends on whether the check is payable "alternatively."
The district court observed that, if a check is payable to two or more persons alternatively, then the check "is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument."
The district court added that if a check is not payable to two or more persons alternatively, then the check "may be negotiated, discharged, or enforced only by all of them."
Finally, the district court said, if a check "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."
Generally, the district court continued, a check that states:
- "or" between two payees is payable alternatively; either the first payee or the second payee can enforce the check; and
- "and" between two payees is not payable to either payee alternatively; only the first payee and the second payee can enforce the check.
The district court then pointed out that the Foremost check did not say "Financial Freedom or Estate of Catherine Getaw," which would be a check payable alternatively, or "Financial Freedom and Estate of Catherine Getaw," which would be a check not payable alternatively.
Instead, the check "simply stack[ed] the names of the two payees in the 'To The Order Of' section."
Concluding that the check was payable alternatively because it was ambiguous as to whether it was payable alternatively, the district court ruled that CIT could enforce the check without the plaintiffs' consent and, therefore, that CIT had not converted the check.
The case is Bennett v. CIT Bank, N.A., No. 2:18-CV-00852-KOB (N.D. Ala. Sep. 17, 2019).
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].