The full case caption appears at the
end of this opinion. Delta Chemical and Petroleum, Inc. and Elaine Chemical, Inc. appeal the judgment of the Circuit Court of Marshall Countyraising the following assignment as error: I. WHETHER THE CIRCUIT COURT ERRONEOUSLY GRANTED THE APPELLEES MOTION FORDIRECTED VERDICT. Finding error, we reverse and remand in part and affirm in part. This case involves the apparent misuse of trust by a corporate president, Richard Sands, who was also a partial owner of thetwo Appellant corporations, Delta Chemical and Petroleum, Inc., and Elaine Chemical, Inc. Sands, through the misappropriationand fraudulent endorsement of several chemical rebate checks made payable to the respective corporations, diverted said assetstotaling approximately $800,000 into similarly named non-corporate sole proprietor accounts, Delta Chemical and Petroleum (NotInc.) and Elaine Chemical (Not Inc.). The two accounts were opened by Sands and maintained at the Citizens Bank of Byhalia,Mississippi. In their complaint, Delta, Inc. and Elaine, Inc. assert three theories of liability against Citizens Bank of Byhalia,William T. Dawson and his wife, Joyce Dawson. William Dawson was an executive vice-president, president and a member ofthe board of directors for Citizens Bank at the time the activity took place. Joyce Dawson was an employee of Sands and hisbookkeeper for his various other companies. Delta, Inc. and Elaine, Inc. first allege that Citizens Bank and William Dawson are, jointly and severally, negligent in failing toexercise ordinary or reasonable care with regard to the deposit of checks belonging to both Delta, Inc. and Elaine, Inc. into “sham”accounts of different but similar names at Citizens Bank. In their second theory of liability, Delta, Inc. and Elaine, Inc. allege thatCitizens Bank, William Dawson, and Joyce Dawson, jointly and severally, did convert funds belonging to Delta, Inc. and Elaine,Inc. in absence of good faith or reasonable business standards, by allowing deposit and collecting on said checks based on theimproper endorsements. The third theory of liability alleges that Citizens Bank, through its employees and officers, together withWilliam Dawson and Joyce Dawson, jointly and severally, intentionally, maliciously, wilfully, and wantonly, by both material falserepresentation and fraudulent concealment entered into a conspiracy with Sands to defraud Delta, Inc. and Elaine, Inc.,respectively. The trial court entertained a motion for a directed verdict made at the close of the plaintiff’s case and granted said motion.Without any detailed findings or any elaboration as to the trial court’s conclusion, the trial court simply concluded that having hadan opportunity to hear the testimony and view the exhibits, that the plaintiff’s, Delta, Inc. and Elaine, Inc., case should fail as amatter of law. Under what basis the trial court made this conclusion, we do not know. FACTS In February of 1990, Richard Sands and William T. Latimer, III entered into a partnership. Together, they formed DeltaChemical and Petroleum, Inc. in an effort to increase their own respective operations both regionally and financially. The newlyformed partnership was actually incorporated in the State of Mississippi on January 8, 1990. Both men had been in the agriculturalchemical and supply business for a great number of years. Latimer had been in the farm and chemical supply business since thelate 1960′s and was designated vice-president of Delta, Inc. Sands had also been in the farm and chemical supply business for anumber of years and was designated president and chief executive officer of Delta, Inc. Ownership of the newly createdcorporation was vested between the two men and their respective businesses. Chickasaw Chemical, in which Latimer was also apart owner, obtained part-ownership in Delta, Inc. while Sands owned the remaining interest. Sands also owned and operated,among other businesses, two chemical supply businesses known as D & H Chemical and Delta Chemical & Supply. At thecreation of Delta, Inc., the assets of Delta Chemical & Supply were sold, its debts assumed by Delta, Inc. and the two merged. In 1992, Latimer also became a partner and part owner in Elaine, Inc., an Arkansas corporation located in Elaine, Arkansas,with Sands as a partner and part owner as well. Elaine, Inc. was also in the farm and chemical supply business servicing portionsof Arkansas. Elaine, Inc. has ceased to exist and is no longer a corporate entity within Arkansas. Delta, Inc. and Elaine, Inc. both operated as suppliers to area farmers, which partly entailed selling chemicals, fertilizer, seed,and other farm supplies. Sometimes, the two corporations would, in turn, purchase crops produced by the various farmers. Themethods of payment were generally made in cash upon purchase or net thirty, and in some cases credit was extended through thefall, at which time the crops were harvested and accounts would then be settled. As a large supplier of farming chemicals, Delta,Inc. and Elaine, Inc. participated in various rebate programs with the chemical manufacturers to encourage sales of their products.The rebate program operates much like an incentive program and is common in the industry. Several chemical manufacturesincluding DuPont, Ciba, Geigy, Baylant, Griffin, Mobay, and FNC offered such programs. The rebate program rewards thesuppliers, Delta, Inc. and Elaine, Inc., with rebates based on the quantity of the manufacturer’s chemicals that have been soldduring the previous months. Supplies of chemicals are ordered from the manufactures and stored in the supplier’s warehouse untilsuch time as they are needed by the farmers. Payments for the chemicals were received from the farmers in one of the threepreviously listed methods and the proceeds are then forwarded to the respective manufactures as payments on the chemicals.Rebate checks were usually remitted between October and February. Everything appeared to run smoothly at the two corporations until 1992, when DuPont Chemical notified Latimer that theysuspected that false invoices were being manufactured at Delta, Inc. in order to get additional rebates. Latimer began aninvestigation into the allegations and discovered that Sands was responsible. To prevent any additional problems, a computerizedinventory system was installed at Delta, Inc. to monitor inventory and sales on a daily basis. Delta, Inc. reimbursed Dupont for thefraudulent invoices and rebates, but their business relationship remained soured. Elaine, Inc., however, did continue its businessrelationship with DuPont Chemical. Additional problems, and the source of the current dispute now before this Court, surfaced during an annual audit required byFirst Systems Bank of Colorado. First Systems Bank had lent Sands and Latimer the necessary funds to create Delta, Inc. Duringthis audit, it was discovered that Delta, Inc. had an abnormally high inventory. This discovery resulted in further investigations, inwhich Latimer learned that Sands had opened two sole proprietorship accounts with Citizens Bank of Byhalia under the names ofDelta Chemical and Petroleum Company (Not Inc.) and Elaine Chemical Company (Not Inc.). Approximately $800,000 in rebateschecks were diverted from Delta, Inc. and Elaine, Inc. by Sands through the fraudulent endorsements and subsequent depositinginto the two similarly named account at Citizens. As part of the agreement between Delta, Inc. and First Systems Bank, the only approved depositary bank for Delta, Inc. wasNorthwest Bank in Tunica, Mississippi. Per this agreement, Delta, Inc. argues that any deposits or banking activity with a bankother than Northwest Bank was prohibited. Delta, Inc. argues that Sands was aware of this and that he had neither implied norexpress authority to open a separate account with an unauthorized bank, Citizens. Likewise, with respect to Elaine, Inc., Latimertestified that Elaine, Inc.’s only approved bank account was with First National Bank in Helena, Arkansas. Elaine, Inc. also assertsthat Sands neither had implied nor expressed authority to open a separate account with Citizens. Latimer further maintains thatSands withheld the existence of the two fraudulent accounts opened at Citizens. Delta, Inc. and Elaine, Inc. submit that Sands’s fraudulent activities were further facilitated through assistance from two ofhis lifelong friends and mutual business partners, William and Joyce Dawson. William Dawson was executive vice-president,president, and a member of the board of directors for Citizens Bank. Joyce is William’s spouse and part-time bookkeeper for someof Sands’s businesses. Sands had developed an extensive banking history with Citizens through the businesses he previouslyowned and some that he continued to operate: Delta Chemical and Supply, D & H Chemical, Byhalia Oil Company, and others. In October and November of 1991, Sands went to Citizens Bank and opened the two accounts, Delta Chemical andPetroleum Company (Not Inc.) and Elaine Chemical Company (Not Inc.). No inquiry by Citizens Bank was made as to Sands’sauthority to open the two accounts as they were both opened as sole proprietorships and not as corporate accounts; therefore, nocorporate resolutions were required. The signature card with instructions for mailing the monthly banking statements for ElaineChemical Company was marked at William Dawson’s direction “Do not mail, Give: Bill Dawson.” The banking statements forDelta Chemical and Petroleum Company were also retained by William Dawson for personal delivery to Sands and never mailed.Two endorsement stamps were procured and maintained in William Dawson’s desk drawer at Citizens Bank for the two accounts,which Sands, and sometimes William Dawson, would use to endorse the rebate checks made payable to either Delta, Inc. orElaine, Inc. and then deposit them into the two similarly named accounts. Since Joyce Dawson also acted as Sands’s bookkeeperwith his other businesses, she would sometimes deliver rebate checks given to her by Sands to her husband William for depositinto the two accounts at Citizens. The rebate checks, payable to either Delta, Inc. or Elaine, Inc., were accepted uponpresentment at Citizens Bank and deposited into the two “sham” accounts without any inquiry as to why the proper payee nameand the endorsements did not match. By virtue of these direct acts with respect to the actual handling, presentment, and acceptance of assets rightfully belongingto Delta, Inc. and Elaine, Inc., both corporations maintain that sufficient evidence was presented to support their claim ofnegligence against Citizens Bank and William Dawson for failing to exercise ordinary or reasonable care with regard to the depositof check belonging to them. Delta, Inc. and Elaine, Inc. further assert that the above stated facts support their second claim ofconversion in the absence of good faith or reasonable business standards by allowing deposit and collecting on said rebate checksbased on improper endorsements. In addition to the aforementioned facts, Delta, Inc. and Elaine, Inc. submit that the Dawsons’s involvement with Sands wentfar beyond a mere close friendship. At trial, testimony revealed that Joyce Dawson was Sands’s bookkeeper for D & H Chemicaland Byhalia Oil Company. Joyce Dawson received and balanced the bank statements for D & H Chemical and Byhalia OilCompany and was on the signature card for both companies as well. The Dawsons’s children also worked for Sands, on occasion,helping with Byhalia Oil Company. Through these accounts, the Dawsons received benefit through the purchasing of variouspersonal items and the making of some personal loans. These facts, in addition to the personal relationship between the twofamilies, are asserted to be supportive of Delta, Inc.’s and Elaine, Inc.’s third theory of liability. It is alleged that Citizens Bank,through its employees and officers, together with William Dawson and Joyce Dawson, jointly and severally, intentionally,maliciously, wilfully, and wantonly, by both material false representation and fraudulent concealment entered into a conspiracy withSands to defraud Delta, Inc. and Elaine, Inc., respectively. The complaint in this matter was filed on March 15, 1996 and set forth the three previously listed theories of liability againstCitizens Bank, William Dawson, and Joyce Dawson. Citizens Bank answered on May 29, 1996, and Joyce Dawson and WilliamDawson filed separate answers and defenses on June 7, 1996. The case went to trial on April 6, 1998. On April 8, 1998, at theclose of Delta, Inc.’s and Elaine, Inc.’s case, the trial court granted the defendants’s motion for directed verdict with said orderentered on April 15, 1998. Delta, Inc. and Elaine, Inc. filed a motion to reconsider and for a new trial on April 30, 1998. Thedefendant’s joint response was filed on May 7, 1998; the court denied plaintiffs’s motion to reconsider and for a new trial on May12, 1998. Appeal was then taken with this Court. STANDARD OF REVIEW In reviewing a trial court’s decision to grant a directed verdict, we review such decisions under the de novo standard ofreview. Long v. Harris, 744 So. 2d 839 (� 8) (Miss. Ct. App. 1999); Northern Elec. Co. v. Phillips, 660 So. 2d 1278, 1281(Miss. 1995). The same standard is employed in evaluating motions for directed verdict as is employed in evaluating motions forjudgment notwithstanding the verdict. American Fire Protection, Inc. v. Lewis, 653 So. 2d 1387, 1390 (Miss. 1995); Sperry-NewHolland v. Prestage, 617 So. 2d 248, 252 (Miss. 1993). This Court considers the evidence in the light most favorable to thenon-moving party when evaluating whether the granting of a directed verdict is proper, giving that party the benefit of all favorableinferences that may be drawn from the evidence. Little by Little v. Bell, 719 So. 2d 757 (� 13) (Miss. 1998). We will concludethat the motion should not have been granted if, in reviewing the all of the favorable inferences which benefit the non-movingparty, we find that the quality and weight of the evidence could present differing conclusions among reasonable and fairmindedjurors exercising impartial judgment. Sperry-New Holland, 617 So. 2d at 252; Pace v. Financial Sec. Life of Mississippi, 608So. 2d 1135, 1138 (Miss. 1992). ANALYSIS I. WHETHER THE CIRCUIT COURT ERRONEOUSLY GRANTED THE APPELLEES MOTION FOR DIRECTED VERDICT. A. Conversion under UCC � 3-419 and Negligence. We quickly note that substantial interplay exists among differing legal areas of agency law and the relevant provisions of theUniform Commercial Code, specifically the provisions touching banking liability as it pertains to endorsements and reasonablecommercial standards. Each is pertinent in their own right to our resolution of this case. In determining whether the lower courterred in granting the motion for a directed verdict against Delta, Inc. and Elaine, Inc., we must first turn to the relevant portions ofthe Mississippi Uniform Commercial Code that were controlling during the period in which Sands’s alleged fraudulent diversion ofthe assets of Delta, Inc. and Elaine, Inc. into the ‘sham’ accounts with Citizens took place. The Uniform Commercial Code wascompleted in 1950 and has since undergone periodic amendments and revisions. The latest revisions pertaining to the relevantsections applicable to our analysis in the case sub judice occurred in 1990, but were not effective in Mississippi until January 1,1993. Therefore, any banking activity conducted prior to January 1, 1993 is governed under the former applicable UCC sections. Under � 3-419 of the UCC, codified as � 75-3-419 Miss. Code Ann. (Rev. 1991), a proper payee is permitted to seek directaction on conversion against a depositary or collecting bank that accepts an instrument bearing a forged endorsement. Section75-3-419 provides: (1) An instrument is converted when (a) a drawee to whom it is delivered for acceptance refuses to return it on demand; or (b) any person to whom it is delivered for payment refuses on demand either to pay or to return it; or (c) it is paid on a forged indorsement. (2) In an action against a drawee under subsection (1) the measure of the drawee’s liability is the face amount of the instrument. In any other action under subsection (1) the measure of liability is presumed to be the face amount of the instrument. (3) Subject to the provisions of this code concerning restrictive [e]ndorsements a representative, including a depositary 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. (4) An intermediary bank or payor bank which is not a depositary bank is not liable in conversion solely by reason of the fact that proceeds of an item indorsed restrictively (Sections 3-205 and 3-206) [� � 75-3-205 and 75-3-206] are not paid or applied consistently with the restrictive indorsement of an indorser other than its immediate transferor. Miss. Code Ann. � 75-3-419 (Rev. 1991) (emphasis added). Mississippi has allowed the recovery by the proper payee from both the drawee bank and the collecting bank. MississippiBank & Trust Co. v. County Supplies & Diesel Serv., Inc., 253 So. 2d 828, 830 (Miss. 1971) (holding that payee of checkendorsed by unauthorized endorsee had right of recovery against both drawee bank and collecting bank which obtained possessionof check under unauthorized endorsement and collected amount of check from drawee); Hart v. Moore, 171 Miss. 838, 158 So.490, 496 (1935) (holding that bank held liable to make good loss to maker of check, paid by bank to payee’s agent on latter’s forgedendorsement of payee’s signature; bank’s failure to make investigation as to genuineness of endorsement being direct andproximate cause of loss). E.g. Commercial Nat. Bank & Trust Co. of Laurel v. Hughes, 243 Miss. 252, 137 So. 2d 800 (1962);Masonic Benefit Ass’n v. First State Bank of Columbus, 99 Miss. 610, 55 So. 408 (1911). The code further offers the following definitions with respect to “depositary bank” and “collecting bank.” A “depositary bank”is “the first bank to which an item is transferred for collection even though it is also the payor bank;” while, a “collecting bank” is”any bank handling the item for collection except the payor bank.” Miss. Code Ann. � 75-4-105 (a), (c) (Rev. 1991). The officialcomment to UCC � 3-419 (1)(c) recognizes that as an addition to the original version of the UCC: “It adopts the prevailing view ofdecisions holding that payment on a forged [e]ndorsement is not acceptance, but that even though made in good faith it is anexercise of dominion and control over the instrument inconsistent with the rights of the owner, and results in liability forconversion.” UCC � 3-419 (1)(c) cmt. While the code does define “unauthorized” as a “signature or [e]ndorsement . . . made without actual, implied or apparentauthority and includes a forgery,” the code does not define what actions constitutes a forgery. Miss. Code Ann. � 75-1-201 (43)(Rev. 1991). Forgery, however, has been defined as “a signature of a person
null that is made without the person’s
nullconsent and without the person
null otherwise authorizing it.” BLACK’S LAW DICTIONARY 650 (6th ed. 1990). Presently, there areno Mississippi cases which address the definition of “forgery” as it relates interchangeably with the UCC’s definition of”unauthorized.” However, in keeping with one of the expressed purposes of the UCC, that being the aim “to make uniform the lawamong the various jurisdictions,” we will generally afford great difference to the decisions reached by our sisters jurisdictions indeciding similar matters. Miss. Code Ann. � 75-1-102 (2)(c) (Rev. 1991). See Bay Springs Forest Prods., Inc. v. Wade, 435 So.2d 690, 695 (Miss. 1983) (holding that as a legislative mandate to construe the UCC so as to “make uniform the law among thevarious jurisdiction,” we give considerable weight to construction placed upon the code provisions by the highest courts of oursister states). Many of our sister jurisdictions have addressed the term “forgery” as it applies to � 3-419′s “unauthorized endorsement” andas it applies in a strict or literal sense of the term. They have held that “forgery” under � 3-419 includes “unauthorized signature,”and have interpreted the UCC in a myriad of cases as allowing the terms “unauthorized” and “forgery” to operate interchangeablyfor purposes of determining bank liability under � 3-419. See Oswald Mach. & Equip., Inc. v. Yip, 13 Cal. Rptr. 2d 193, 196(Cal. Ct. App. 1992) (holding that as with a forgery, when a bank pays on an instrument via an unauthorized endorsement, thatbank has exercised dominion and control over the instrument inconsistent with the rights of the true owner, thus resulting theconversion of the instrument); Levy v. First Pennsylvania Bank N.A., 487 A.2d 857, 860 (Pa. Super. Ct. 1985) (holding that forpurposes of a conversion action under the UCC, an unauthorized signature is the same as a forgery); Confederate Welding &Safety Supply, Inc. v. Bank of the Mid-South, 458 So. 2d 1370, 1373-74 (La. Ct. App. 1984) (holding that a forgedendorsement, within the meaning of UCC � 3-419, encompasses an unauthorized endorsement); Aetna Cas. and Surety Co. v.Hepler State Bank, 630 P.2d 721, 725 (Kan. Ct. App. 1981) (holding that forged endorsement as pertains to conversion underrelevant statute governing conversion of instruments does not preclude a finding of conversion where an unauthorized signaturedoes not constitute forgery in strict sense); Equipment Distrib., Inc. v. Charter Oak Bank & Trust Co., 379 A.2d 682, 684(Conn. Super. Ct. 1977) (holding that both an unauthorized and a forged endorsement of an instrument are one and the same,whether one construes the phrase under the more liberal framework of UCC or under the strict interpretation of the forgerystatute); Salsman v. National Community Bank of Rutherford, 246 A.2d 162, 167-68 (N.J. Super. Ct. Law Div. 1968) (holdingthat applicable New Jersey statute provides that an unauthorized signature or endorsement is one made without authority (actual,implied or apparent) and includes a forgery). See generally, Barbara Singer, Uniform Commercial Code Section 3-419 AndThe Battle To Preserve A Payee’s Right To Sue Directly A Depositary Or Collecting Bank That Pays On A ForgedIndorsement, 15 SETON HALL LEGIS. J. 39, 77-78 (1991). Further, comment 1 to � 3-404 provides that an unauthorizedendorsement “includes both a forgery and a signature made by an agent exceeding his actual or apparent authority.” Singer, supra,at 77-78, n.192. Therefore, we, like many of our sister jurisdictions, agree that for purposes of a conversion suit there is little, ifany, difference between “unauthorized” endorsements and forged endorsements. This proposition was best said in Oswald: “There is no substantial difference between an unauthorized endorsement and aforged endorsement, the result being the same in so far as concerns the passing of title.” Oswald, 13 Cal. Rptr. 2d at 196 (citingSalsman, 246 A.2d at 167-68). In maintaining an action for conversion under both the common law and � 3-419 of the UCC, aproper payee, such as Delta, Inc. or Elaine, Inc., in choosing to sue in conversion must meet the initial burden of proof by showing:(1) title to, possession of or right to possession of a check, (2) the payee’s forged, unauthorized or missing endorsement on thecheck, and (3) the depositary or collecting bank’s unauthorized payment of the check. Singer, supra, at 70. We need not discussfurther whether the evidence produced at trial supports a meeting of the first prong as this was clearly done and is not at disputebetween the parties. However, it is with the second and third prongs that the parties take issue. Nevertheless, before reaching the question of whether Citizens Bank is liable for accepting and honoring the checks in amanner that was negligent from a commercially unreasonable standpoint, it must first be settled whether the manner in whichSands endorsed and presented the checks exceeded his implied or actual authority as given by the corporation whether actual andexpressed or implied and constructive. We now turn to the law as it applies to an agent and his principal. As previously stated under � 1-201, “unauthorized” isdefined as a “signature or [e]ndorsement . . . made without actual, implied or apparent authority and includes a forgery,” the codedoes not define what actions constitutes a forgery. Miss. Code Ann. � 75-1-201 (43). Equally so, the code does not define theabove listed authority concepts, but does state that “the law related to . . . principal and agent . . . shall supplement its provisions.”Miss. Code Ann. � 75-1-103. A determination of Sands’s capacity as an authorized agent of the two corporations to effectuate endorsements of the rebatechecks belonging to Delta, Inc. and Elaine, Inc. is necessary. As previously stated, the development of Mississippi law in thisparticular area, as it specifically pertains to the facts of the case sub judice, is minuscule at best; there are no Mississippi casesdirectly, or even closely, on point. We are, however, persuaded with the analysis and decisions reached by our sister jurisdictions inconcluding similar matters. One case in particular, Oswald, is strikingly similar with the particular facts in the case sub judice. Oswald Machine & Equipment, Inc. was a small, closely held corporation, much like that of Delta, Inc. and Elaine, Inc.Oswald, 13 Cal. Rptr. 2d at 194. Oswald was engaged in the business of selling, servicing, and repairing of industrial and marinediesel and gas engines. On August 1, 1983, Oswald hired Jonathan Yip as their bookkeeper and clerical assistant. Yip was electedsecretary/treasurer of the corporation within a few months of his hiring. Naturally, part of Yip’s responsibilities includedmaintaining the company’s account receivables. Yip was also authorized to endorse checks made payable to Oswald for depositinto Oswald’s various commercial bank accounts. As part of these responsibilities, Yip was authorized to utilize certaindeposit-endorsement stamps provided by Oswald’s banks to make the deposits to the company’s accounts. The evidence producedat trial revealed that within one week of his hire, Yip began siphoning and diverting company funds into “sham” banking accountsopened at various banks. This is not unlike the evidence produced at trial concerning the activities of Sands. Id. On August 9, 1983, just eights days after he was hired, Yip opened his first “sham” account with The Hibernia Bank in thename of “Oswalds Machine Equipment Co.” Id. at 194-95. Yip identified himself as the sole proprietor of the company. Threemonths later, Yip produced a forged “corporate resolution” purportedly authorizing the account. After procuring adeposit-endorsement stamp in the name of the fictitious company, Yip began endorsing checks made payable to the true OswaldCorporation, albeit in varying but similar variations of “Oswald Machine & Equipment, Inc., for the next 43 months until at suchtime he had diverted approximately $1 million. Id. at 195. A second “sham” account, “Oswold Equipment,” was opened by Yip in March of 1987 with the Bank of America. Yipbasically followed the same procedure used in establishing the first “sham” account to establish the second. A deposit-endorsementstamp was procured and Yip signed the signature card as president of the company. Yip’s continuing scam lasted another fourmonths following this second account, until in July of 1987, Oswald discovered and alerted banking officials of the fraud. By thistime, Yip had deposited approximately $51,000 into the Bank of America account and withdrawn all but around $5,000. Id. It was later discovered that Yip had once served a six-month term in federal prison for bank larceny in 1977 and that sameyear had pleaded guilty to misdemeanor grand theft, conspiracy, and receiving stolen property. Oswald, Inc. brought suit againstboth Hibernia and Bank of America alleging conversion of those instruments under � 3-419 of the UCC. Both banks moved forsummary judgment asserting that Oswald, Inc. had expressly authorized Yip to endorse company checks made payable toOswald. At the trial level, the banks successfully argued that an authorized endorsement cannot be a “forgery” for purposes ofconversion, and that therefore, no liability could be held against them for honoring the forged checks upon presentment. Summaryjudgment was granted with the trial court concluding that “no triable issue of material fact as to whether the endorsementsstamped on the misappropriated checks were ‘forgeries’ within the meaning of the code.” However, the matter was reversed andremanded on appeal to the First District Court of Appeal, California. Id. We note that while the Oswald case was decided by the California Appeal’s Court based on the specific argumentsadvanced and the conclusions reached at trial as to whether the “endorsements stamped on the misappropriated checks were’forgeries’ within the meaning of the code,” and that this specific question was not argued in the case sub judice, we neverthelessfind credence in their analysis as it applies to the matter now before us. Id. The Oswald court concluded, just as we now do, that: Although the code does not define forgery, it does provide that an unauthorized endorsement includes a forgery. Unauthorized signature or [e]ndorsement means one made without actual, implied or apparent authority and includes a forgery. Conversely, numerous other jurisdictions have determined the term “forgery” in their equivalent of [� 3-419] applies to unauthorized endorsements, as well as to forgeries in the strict sense of the word. . . . As with a forgery, if a bank pays an instrument on an unauthorized endorsement, then it has exercised “dominion and control over the instrument inconsistent with the rights of the owner, and [resulting] in liability for conversion. Conversely, a signature that is authorized cannot be a forgery. Id. at 196 (citations omitted). Having said this, we turn to the evidence presented at trial and the grant of directed verdict. We are reminded that thisreview is undertaken in the light most favorable to the non-moving party, giving that party the benefit of all favorable inferencesthat may be drawn from the evidence. Little by Little, 719 So. 2d at (� 13). It necessarily turns that the evidence presented at trialmust raise some question as to whether “differing conclusions among reasonable and fairminded jurors exercising impartialjudgment,” could be found as to what Sands’s actual authority was with respect to the endorsements and deposits that were madeto the two “sham” accounts. Sperry-New Holland, 617 So. 2d at 252. Following these standards and the testimony presented at trial, clearly Sands’s had the actual authority to operate the twobusinesses on a day-to-day basis which included accepting chemical rebate checks, or any other checks for that matter, fordeposit. Equally so, however, we can only conclude that the evidence submitted at trial, at the very least, raises some reasonablequestion from which differing conclusions could be reached. The jury should have been left to decide whether Sands’s actual orimplied authority did or did not extend to opening fictitious accounts with non-approved banks including the subsequent endorsingof the said checks in the fictitious names for deposit into “sham” accounts. With respect to Sands’s authority to endorse checksmade payable to the incorporated companies, his authority, as supported at trial, was limited to restrictively endorsing the checksinto the Incorporated accounts, and he was not necessarily authorized to endorse those checks as he did. We look to the testimonyand evidence presented at trial for closure on this issue. Latimer testified that Sands’s actual authority was limited with respect toaccepting, endorsing, and depositing checks made payable to the two corporations. It is undisputed that Sands had the actualauthority to accept and endorse checks payable to either Delta, Inc. or Elaine, Inc. for deposit into their respective authorizedaccounts at Northwest Bank in Tunica, Mississippi and First National Bank in Helena, Arkansas. The disputed question, therefore,is whether the “unauthorized” endorsements made by Sands in the name of the two fictitious companies and their subsequentdeposit into the two ‘sham’ accounts was in furtherance of his authority, whether actual, implied, or apparent to run the day-to-dayoperations of the two corporations. As stated in Oswald, the question, therefore, is whether Sands’s actual authority to do the firstembraced, as a matter of law, the actual authority to do the second. See Oswald, 13 Cal. Rptr. 2d at 197-98. As previously stated, the UCC expressly provides that, “[u]nless displaced by the particular provisions of this code . . . thelaw related to . . . principal and agent . . . shall supplement its provisions.” Miss. Code Ann. � 75-1-103. Under agency principles,it has long been accepted that a principal may confer as much or as little authority to the agent as the principal sees fit. Adetermination of liability for conversion under the pertinent sections of the UCC is limited to the existence and scope of Sands’sauthority when the deposits were actually made, rather that any subsequent misconduct with respect to Sands’s use of the funds.See In re Bartoni-Corsi Produce, Inc., 130 F.3d 857, 862-63 (9th Cir. 1997) (holding that actual authority is such that of aprincipal intentionally conferring upon the agent, or intentionally, or by want of ordinary care, allows the agent to believe himself topossess). Under general Mississippi law, an agent’s authority may be either actual or apparent. Andrew Jackson Life Ins. Co. v.Williams, 566 So. 2d 1172, 1180 (Miss. 1990). The issue of actual authority need not be reached if the agent had apparentauthority. Baxter Porter & Sons Well Servicing Co., Inc. v. Venture Oil Corp., 488 So. 2d 793, 796 (Miss. 1986) (citingMcPherson v. McLendon, 223 Miss. 694, 221 So. 2d 75, 79 (1969)). “Apparent authority exists when a reasonably prudentperson, having knowledge of the nature and usages of the business involved, would be justified in supposing, based on thecharacter of the duties entrusted to the agent has the power he is assumed to have.” Andrew Jackson, 566 So. 2d at 1180 (citingFord v. Lamar Life Ins. Co., 513 So. 2d 880, 888 (Miss. 1987)). Restated: [T]he principal is bound if the conduct of the principle is such that persons of reasonable prudence, ordinarily familiar with business practices, dealing with the agent might rightfully believe the agent to have the power he assumes to have. The agent’s authority as to those with whom he deals is what it reasonably appears to be so far as third persons are concerned, the apparent powers of an agent are his real powers. Andrew Jackson, 566 So. 2d at 1180-81 (citing Steen v. Andrews, 223 Miss. 694, 697-98, 78 So. 2d 881, 883 (1955) (quotingGulf Guar. Life Ins. Co. v. Middleton, 361 So. 2d 1377, 1383 (Miss. 1978); McPherson, 221 So. 2d at 78). As was held in Oswald, an analysis under agency principles results in our concluding that “endorsements to improperaccounts may be ‘unauthorized,’ although the employee who signed the instruments was in fact authorized to endorse checks fordeposit to the employer’s account.” Oswald, 13 Cal. Rptr. 2d at 199. See also Confederate Welding, 458 So. 2d at 1374-75(holding that authority to endorse checks for deposit into corporate account did not encompass additional authority to endorsecorporate checks for deposit into president’s personal account.); In re Taco Ed’s, Inc., 2 UCC Rep. Serv. 2d 209, 221, 223-24(Bankr. N.D. Ohio 1986) (holding that absent an authorization to deposit corporate checks into personal accounts in a corporatecapacity, endorsements were forgeries); Grosberg v. Michigan Nat’l. Bank-Oakland, 362 N.W.2d 715, 719 (Mich. 1984)(holding that while actual authority may exist to endorse and deposit corporate checks only into approved corporate bankingaccounts, that same authority did not extend to endorsements which were deposited into ‘sham’ accounts); Trust Co. Bank ofAugusta, N.A. v. Henderson, 364 S.E.2d 289, 291 (Ga. Ct. App. 1987) (holding that despite employee’s authority to endorse anddeposit checks into employer’s account, a forgery exists when employee endorses checks and deposits them into personalaccount). Having resolved the issue of Sands’s authority as a matter for the jury to decide, the issue thus becomes whether Citizensapplied “reasonable commercial standards” in accepting that Sands possessed the authority, which he held himself out as having,when he opened the two fictitious accounts and subsequently endorsed and presented the checks for deposit into the two “sham”accounts. We are reminded that in addressing whether Citizens acted with reasonable prudence, � 75-3-419 (3) proscribes that: Subject to the provisions of this code concerning restrictive [e]ndorsements a representative, including a depositary 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. Miss. Code Ann. � 75-3-419 (3) (emphasis added). Section 75-3-419 (3), with its “reasonable commercial standards” provision operates as an affirmative defense for thedefendant bank to the conversion claims asserted. Carol J. Miller, Annotation, Bank’s “Reasonable Commercial Standards”Defense Under UCC � 3-419(3), 49 A.L.R.4th 888, � 2[b] (1986); Michael A. Rosenhouse, Annotation, Payee’s Right ofRecovery, in Conversion Under UCC � 3-419 (1)(c), For Money Paid on Unauthorized Indorsement, 23 A.L.R. 4th 855,� 2 [b] (1983). See also National Sur. Corp. v. Citizens State Bank, 651 P.2d 460, 462 (Colo. Ct. App. 1982). Just as was thecase in deciding whether Sands’s actual authority extended to his subsequent activities, the issue of whether Citizens did or did notact in accordance with a specific standard of care is a question of fact better left for juries to decide given the testimonypresented. In this case, we are faced with the issue of whether the actions, or inactions for that matter, of Citizens in accepting thechecks presented for deposit by Sands was undertaken in accord with “reasonable commercial standards” as relates to the bankingindustry. We note that in addressing whether the bank acted in a reasonable commercial manner, it is not enough to weigh thebank’s actions against its own commercial standards. The bank’s actions must be weighed against good faith dealings andreasonable commercial standards as apply to the banking industry. Siegal Trading Co. v. Coral Ridge Nat’l. Bank, 328 So. 2d476, 478 (Fla. Dist. Ct. App. 1976). “Reasonableness,” as it pertains to the transactions at issue, is defined as whether a reasonable person would be on noticethat something is running afoul of what is commercially reasonable, whether from some impropriety appearing in the form of theinstrument and the accompanying endorsements or from knowledge of extrinsic facts outside of the instrument itself. Trust Co. ofGeorgia Bank of Savannah, N.A. v. Port Terminal & Warehousing Co., 266 S.E.2d 254, 258 (Ga. Ct. App. 1980). See alsoFirst Rome Bank v. Reese Oil Co., Inc., 426 S.E.2d 384 (Ga. Ct. App. 1992) (holding that material issue of fact as to whetherbank acted with commercial reasonableness in cashing corporate checks accompanied by only stamped endorsement precludedentry of summary judgment in corporate customer’s favor on its conversion claim); Hydroflo Corp. v. First Nat’l. Bank ofOmaha, 349 N.W.2d 615, 619 (Neb. 1984) (holding that the issue of whether a bank has acted in a commercially reasonablemanner is a question of fact, and where reasonable minds could differ as to the conclusions or inferences to be drawn from theevidence, such issues must be submitted to the jury). We need not discuss further the viability of the claims, with respect to conversion and negligence, against Citizens andWilliam Dawson as an avenue of redress for the asserted wrongs. Clearly there exists within the provisions of the UCC,specifically � 3-419 as codified in Miss. Code Ann. � 75-3-419, just such an avenue. In the instant case, there is no doubt thatSands had the actual authority to operate the day-to-day activities of the two corporations. This included the actual authority toendorse, restrictively, checks received and payable to the respective corporations for deposit to their accounts as approved by theboard of directors. However, what is in doubt, as evidenced in the testimony presented, is whether the scope of Sands’s authorityextended beyond the above stated authority. In other words, were the endorsements and subsequent deposits to the two “sham”accounts at Citizens an extenuation of Sands’s actual authority to operate the day-to-day activities. As previously discussed,Latimer testified to the contrary. Latimer testified that Sands was well aware, as partner and president, that Delta, Inc.’s only approved depositary bank wasNorthwest Bank in Tunica, Mississippi, as limited by the original agreement between Delta, Inc. and First Systems Bank. Latimeralso testified that Sands was never authorized by the board of directors to open separate accounts with Citizens or any other bankfor that matter. Likewise, Latimer testified that Elaine Inc.’s only approved depositary bank was with First National Bank in Helen,Arkansas, and that Elaine’s board of directors never authorized Sands to open separate as well. It therefore follows that from the evidence presented, the directed verdict was erroneously granted with respect to Delta Inc.and Elaine, Inc.’s claims of conversion and negligence. This is said in light of our well established standard of review. It can bereasonably adduced that sufficient evidence was presented, from which reasonable minds could differ, to overcome a directedverdict. Further, with respect to the “reasonable commercial standard” defense, we likewise find that sufficient evidence waspresented to overcome any finding from the bench that Citizens had met this standard or that the plaintiff’s had failed in theirburden. Consequently, it remains a disputed issue. William Dawson, himself, admitted that checks made payable to a corporate entity and bearing the “Inc.” name as properpayee should not be deposited into “non-Inc.” sole proprietorship accounts. We find that this testimony alone is sufficient evidenceto at least allow the issue of whether Citizens acted in accordance with “reasonable commercial standards” in accepting thechecks for deposit to go to a jury. Therefore, we reverse and remand for a new trial with respect to the claims of conversion andnegligence. B. Conspiracy to Defraud. Finally, we address Delta, Inc. and Elaine, Inc.’s third claim of liability: that Citizens, through its employees and officers,together with William Dawson and Joyce Dawson, jointly and severally, intentionally by both false representation and fraudulentconcealment entered into a conspiracy with Sands to defraud Delta, Inc. and Elaine, Inc. The two companies, Delta, Inc. andElaine, Inc., assert that a conspiracy existed between Sands, Joyce Dawson, and William Dawson, as an employee of Citizens, todefraud and convert funds belonging to Delta, Inc. and Elaine, Inc. into other or personal funds from which the Dawson’sbenefitted. Delta, Inc. and Elaine, Inc., in support of said contention, argue that the evidence produced at trial sufficientlyestablished a common intent to commit defraud and enter into a conspiracy. Delta, Inc. and Elaine, Inc. maintain that as proof ofthe conspiracy between the Dawsons and Sands to defraud both companies, the following strongly supports their claim: 1) theexistence of a close, personal, and lifelong friendship between the Dawsons and Sands, 2) the cooperative investments venturesand mutual business assistance between the Dawsons and Sands, 3) that Joyce Dawson was employed by Sands as hisbookkeeper for Byhalia Oil Company, 4) that the Dawson’s children received compensation from Sands from his other businesses,and 5) that the Dawsons received personal gain and benefit from Sands in the form of various favorable personal loans, purchases,and payments through his other businesses. In addition to the above listed facts, Delta, Inc. and Elaine, Inc. further assert with respect to the activities of WilliamDawson that specific evidence exists to have precluded the trial court’s grant of a directed verdict as to William Dawson on theclaim of conspiracy. They are, in part, as follows: 1) that William Dawson had knowledge of the incorporated status of both Delta,Inc. and Elaine, Inc. yet nevertheless directed his secretary to open the two “sham” sole proprietorship accounts for Sands, 2) thatWilliam Dawson furthered the fraudulent activities of Sands and participated in the alleged conspiracy by directing that all bankingstatements pertaining to the two “sham” accounts, “Do not mail, Give: Bill Dawson”, and 3) that William Dawson further aidedSands by retaining the endorsement stamps for Delta Chemical and Petroleum (Not Inc.) and Elaine Chemical (Not Inc.)personally in his desk drawer at Citizens and even personally utilized said endorsement stamps on occasion at Sands’s direction.Both Delta, Inc. and Elaine, Inc. argue that these instances, which are supported by the record and brought out at trial, are morethan sufficient to have overcome a directed verdict, thus allowing the issue to go to a jury. We agree, at least as far as anyconspiracy between Sands and William Dawson, as an employee of Citizens, is concerned. A “conspiracy” has been termed as “a combination of persons for the purpose of accomplishing an unlawful purpose or alawful purpose unlawfully.” Levens v. Campbell, 733 So. 2d 753 (� 32) (Miss. 1999) (citing Shaw v. Burchfield, 481 So. 2d 247,255 (Miss. 1985)). While Mississippi has never expressly defined the elements in a conspiracy to defraud suit, we agree that thecommon elements, generally accepted, are: 1) a conspiracy; 2) an overt act of fraud in furtherance of the conspiracy; and 3)damages to the plaintiff as a result of the fraud. Bosak v. McDonough, 549 N.E.2d 643, 646 (Ill. Ct. App. 1989). The difficulty in the instant case is that despite the evidence put forth by the plaintiffs, that the Dawsons and Sands were longtime personal friends, co-investors, and sometimes acted as employee and employer, the evidence put forth nevertheless iscomprised of nothing more than speculation and conjecture without any direct, or indirect for that matter, proof that they wereparticipants in the fraudulent activities of Sands, as far as Joyce Dawson is concerned. These activities and relationships areequally unpersuasive as to William Dawson’s alleged part as well. The fact that the Dawsons received some favorable loans andother items of compensation due to their personal relationship with Sands does not ipso facto create the existence of aconspiracy. However, what is of great concern to this Court is the specific acts committed by William Dawson, as an employee ofCitizens, and may be construed as evidence of his active part in the alleged conspiracy. Based on the evidence presented, we holdthat differing conclusions, as to the activities of William Dawson, as an employee of Citizens, could be reached on the issue of hisinvolvement in the alleged conspiracy. As to Joyce Dawson, without additional proof connecting the her to the fraudulent activitiesof Sands, a suit cannot be maintained. From the evidence presented, with our familiar standard of review in mind, we hold thatdespite all the favorable inferences available the evidence was such that differing conclusions among reasonable and fairmindedjurors could not be reached with respect to the conspiracy claim against Joyce Dawson. No reasonable linkage establishing aconspiracy, either directly or indirectly, between Joyce Dawson and Sands was put forth. Accordingly, we affirm the trial court’sgrant of directed verdict with respect to the claim of conspiracy against Joyce Dawson and reverse and remand with respect tothe claim of conspiracy against William Dawson and Citizens. THE JUDGMENT OF THE CIRCUIT COURT OF MARSHALL COUNTY IS AFFIRMED IN PART ANDREVERSED AND REMANDED IN PART FOR PROCEEDINGS CONSISTENT WITH THIS OPINION. COSTSARE ASSESSED EQUALLY AMONG THE PARTIES. KING AND SOUTHWICK, P.JJ., BRIDGES, IRVING, LEE, AND PAYNE, JJ., CONCUR. McMILLIN, C.J., AND MOORE, J., NOT PARTICIPATING.
Delta Chemical and Petroleum, Inc. v. Citizens Bank of Byhalia In the Court of Appeals of the State of Mississippi Delta Chemical and Petroleum, Inc. and Elaine Chemical, Inc. Appellants v. Citizens Bank of Byhalia, Mississippi, William T. Dawson and Joyce M. Dawson, Jointly and Severally Appellees No. 1998-CA-01035-COA Filed: May 2, 2000 Before: SOUTHWICK, P.J., IRVING, and THOMAS, JJ. Court from which appealed: Marshall County Circuit Court. Trial Judge: Hon. R. Kenneth Coleman. Date Of Judgment: April 15, 1998 Attorneys for appellants: Barrett Jerome Clisby, Andrew T. Dulaney Attorneys for appellees: S. Duke Goza, Robert K. Upchurch, Dion Jeffery Shanley, David W. Upchurch
