PUBLISHED
OPINION
COURT OF
APPEALS
DECISION
DATED AND FILED
October 10,
2000
Cornelia G. Clark
Clerk, Court of Appeals
of
Wisconsin
NOTICE
This opinion is subject to further editing. If published, the official version will
appear in the bound volume of the Official Reports.
A party may file with
the Supreme Court a petition to review an adverse decision by the Court of Appeals.
See
Wis. Stat. §808.10
and Rule 809.62.
No. 99-1557
STATE OF
WISCONSIN IN COURT OF APPEALS
DISTRICT
I
Weber, Leicht, Gohr
& Associates,
Plaintiff-Respondent,
v.
Liberty Bank and Kansas
Bankers Surety Company,
Defendants-Appellants.
APPEAL from a judgment of the circuit court for Milwaukee County: DAVID A.
HANSHER, Judge. Reversed.
Before Wedemeyer, P.J., Fine and Schudson, JJ.
¶1. FINE, J.Liberty Bank and Kansas Bankers Surety Company appeal from a
judgment entered on a jury verdict awarding Weber, Leicht, Gohr & Associates some
$66,000 plus costs. Liberty and Kansas Bankers contend that the Uniform Commercial Code
as adopted in Wisconsin bars the judgment.1 We agree.
I.
¶2. Weber is an advertising agency that suffered significant embezzlement by
one of its employees, who forged and altered the company's checks. The total loss was a
little more than $120,000.
¶3. Weber had a checking account with Liberty. Weber sued Liberty under
various legal theories, claiming in essence that Liberty was responsible for the loss because
Liberty did not discover the forgeries or alterations. Among the legal theories Weber
asserted against Liberty was strict-liability misrepresentation-claiming that Liberty
represented falsely to Weber that it would examine each of the checks drawn on Weber's
account and compare the signatures on the checks with the signatures provided by Weber to
Liberty on the bank's signature cards. The jury found against Weber on all of its claims but
the one asserting strict-liability misrepresentation, finding, as material to that claim,
that:
· Liberty made "a representation of fact ... that it
would compare all checks drawn on [Weber]'s account against the signature card to
determine if such checks were properly authorized prior to payment";
· Liberty's representation was "untrue";
· Liberty made "the representation as a statement based on its personal
knowledge or in circumstances in which it necessarily ought to have known the truth or
untruth of the representation";
· Liberty had "an economic interest in the transaction which was the
subject of such representation";
· Weber believed the "representation to be true and rel[ied] on it to its
monetary damage"; and
· Weber "justifiably rel[ied] on the representation to its monetary
damage."
These findings satisfy the elements of a strict-liability
misrepresentation claim. See Reda v. Sincaban, 145 Wis. 2d
266, 268-269, 426 N.W.2d 100, 102 (Ct. App. 1988) (Elements of a strict-liability
misrepresentation claim are "(1) that the defendant made a representation of fact; (2)
that such representation of fact was untrue; (3) that the defendant made the representation as
a fact based on his own personal knowledge, or in circumstances in which he necessarily
ought to have known the truth or untruth of the statement; (4) that the defendant had an
economic interest in the transaction; and (5) that the plaintiff believed such representation to
be true and relied on it.").
II.
¶4. Although the parties have spent significant efforts debating whether a claim
for strict-liability misrepresentation is per se displaced by the provisions of the
Uniform Commercial Code, and, if not, both whether a bank has a legal duty to disclose its
check-handling procedures, and whether it was a question of fact for the jury to decide if
Liberty voluntarily assumed a duty to disclose its check-handling procedures to Weber, we
do not discuss these intriguing issues because in our view any such claim is trumped by
Weber's failure to comply with the responsibilities imposed on bank customers by Wis. Stat.
§§ 403.406 and 404.406. See State v. Blalock,
150 Wis. 2d 688, 703, 442 N.W.2d 514, 520 (Ct. App. 1989) (cases should be decided on
the "narrowest possible ground").
¶5. The parties agree that this action is governed by the Uniform Commercial
Code as adopted in Wisconsin, specifically those provisions found in Wis. Stat. chs. 403 and
404 that govern the relationship between a bank and its customers. See Wis.
Stat. §§ 403.102(1), 403.102(2), 404.102, and 404.103(1) (1997-98);
Winkie, Inc. v. Heritage Bank of Whitefish Bay, 99 Wis. 2d 616, 622,
299 N.W.2d 829, 833 (1981).2 As
Weber argues, however, certain pre-Code remedies survive enactment of the Code, so long
as those remedies do not conflict with specific Code provisions. See Wis. Stat.
§401.103. Section 401.103 provides:
Unless displaced by the particular provisions of chs. 401 to
411 the principles of law and equity, including the law merchant and the law relative to
capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress,
coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its
provisions.
Weber contends that this provision preserves its
strict-liability misrepresentation claim.
¶6. The checks involved in this case span two versions of the applicable
provisions of Wisconsin's version of the Uniform Commercial Code. The changes were
effective August 1, 1996. See 1995 Wis. Act 449, §§ 100, 101.
Given the jury's findings, however, any distinction here between the provisions is
immaterial. For the sake of consistency, we refer to the current version of the provisions in
the body of this opinion, and will place in footnotes the earlier version. Wisconsin Stat.
§401.103 is the same today as it was before August 1, 1996.
¶7. Wisconsin Stat. § 403.406 (1997-98) provides, with the part material
to our analysis in italics:
(1)A person whose failure to exercise ordinary
care substantially contributes to an alteration of an instrument or to the making of a forged
signature on an instrument is precluded from asserting the alteration or the forgery against a
person who, in good faith, pays the instrument or takes it for value or for
collection.
(2)Under sub. (1), if the person asserting the preclusion fails to exercise
ordinary care in paying or taking the instrument and that failure substantially contributes to
loss, the loss is allocated between the person precluded and the person asserting the
preclusion according to the extent to which the failure of each to exercise ordinary care
contributed to the loss.
(3)Under sub. (1), the burden of proving failure to exercise ordinary care is
on the person asserting the preclusion. Under sub. (2), the burden of proving failure to
exercise ordinary care is on the person precluded.3
In connection with this provision (and its predecessor
quoted in footnote 4), the jury found:
· Weber did not "exercise ordinary care" in
connection with the forged and altered checks and that this failure "substantially
contribute[d] to the alteration or forgery";
· Liberty paid the "checks in `good faith'";
· Liberty exercised "ordinary care in paying" the checks.
¶8. Wisconsin Stat. § 404.406(3) (1997-98)
provides that if a bank makes available to its customer "a statement of account"
that complies with Wis. Stat. §404.406(1) (1997-98) showing the bank's payment of
items from the customer's account, "the customer must exercise reasonable promptness
in examining the statement or the items to determine whether any payment was not
authorized because of an alteration of an item or because a purported signature by or on
behalf of the customer was not authorized." The analogue to this provision in the
pre-August 1996 version was in Wis. Stat. § 404.406(1) (1991-92), which is set out in
this footnote.4
¶9. Wisconsin Stat. § 404.406(4) gives to the bank immunity from
liability for a customer's loss if the customer does not timely examine the checks that the
bank paid, so long as the bank paid the checks in good faith. This section provides, as
material here:
If the bank proves that the customer failed, with respect to an
item, to comply with the duties imposed on the customer by sub. (3), the customer is
precluded from asserting all of the following against the bank:
...
(b)The customer's unauthorized signature or alteration by the same wrongdoer on
any other item paid in good faith by the bank if the payment was made before the bank
received notice from the customer of the unauthorized signature or alteration and after the
customer had been afforded a reasonable period of time, not exceeding 30 days, in which to
examine the item or statement of account and notify the bank.
The analogue to this provision in the pre-August 1996
version was in Wis. Stat. §§404.406(2) & (3) (1991-92), which are set out
in this footnote.5 In connection
with Wis. Stat. § 404.406 (1997-98) (and its predecessor quoted in footnotes 5 and 6),
the jury found:
· Weber did not "exercise reasonable promptness
in examining the corresponding bank statement and canceled checks to determine whether
payment was authorized";
· "Based on the bank statement and items provided," Weber
should have "reasonably discovered the unauthorized payment[s]";
· Weber did not "promptly notify the Bank of the relevant
facts."
· Liberty paid the "checks in `good faith'";
· Liberty exercised "ordinary care in paying" the checks;
¶10. Wisconsin Stat. §§ 403.406 and
404.406 (1997-98) and their predecessors are, essentially, echoes of pre-Code law.
See Winkie, 99 Wis. 2d at 623, 299 N.W.2d at 833
("equitable principles akin to estoppel ... have been incorporated into the Uniform
Commercial Code"); Wussow v. Badger State Bank, 204 Wis. 467,
471-472, 234 N.W. 720, 721-722 (1931) (customer who does not timely examine bank
statement may not hold liable bank that pays forged checks unless the bank is negligent in
making the payment), reh'g denied, 204Wis.467, 236 N.W. 687 (1931). At oral
argument, Weber conceded, as it had to, that the jury's findings were its determination that
Weber did not comply with the obligations imposed by the material provisions of
§§ 403.406 and 404.406 (1997-98) and their predecessors, that Liberty paid the
checks in "good faith," and that there was sufficient evidence presented at the
trial supporting those findings.
¶11. Under the statutes that we have examined in this opinion, and under the
pre-Code law, if a customer does not timely take the reasonable precautions to protect itself,
and the bank has paid the items in good faith, the customer is, in the word of the Code,
"precluded" from holding the bank liable for damages that the customer's
vigilance would have prevented. See Winkie, 99 Wis. 2d at
626, 299 N.W.2d at 835. Stated another way, so long as the bank pays the items in
"good faith," compliance with these duties by the customer is a
"precondition to a customer's lawsuit against a bank." See
Borowski v. Firstar Bank Milwaukee, 217 Wis.2d 565, 569, 579 N.W.2d
247, 249 (Ct. App. 1998) (applying Wis. Stat. §404.406(4) (1991-92)).
¶12. Although framed as a misrepresentation claim, Weber seeks to hold the
bank liable for paying the checks despite the "unauthorized signature or
alteration." Legal analysis of a claim focuses on the essence of the alleged wrong for
which a plaintiff seeks redress and not on either the name or the legal theory applied to that
claim. See Strid v. Converse, 111 Wis. 2d 418, 423, 331
N.W.2d 350, 353 (1983) ("`[A] cause of action is not constituted by labeling the
operative facts with the name of a legal theory. The operative facts themselves, if they show
the invasion of a protected right, constitute the cause of action. What they are called is
immaterial.'") (quoted source omitted). Although a claim for misrepresentation may
"supplement" the provisions of the Uniform Commercial Code, it may not
supplant them. See Wis. Stat. §401.103. Indeed, § 401.103
specifically preserves the pre-Code defense of "estoppel." Thus, irrespective of
the angle at which Weber's attempt to recover against Liberty for strict-liability
misrepresentations is viewed (either by applying the pre-Code law, including the estoppel
principles discussed by Winkie and Wussow to
"supplement" the Code, or by requiring Weber to clear the hurdle erected by
§§ 403.406 and 404.406(4) (1997-98) and their predecessors as a precondition to
application of the pre-Code law), Weber cannot prevail.
By the Court.-Judgment reversed.
Publication in the official reports is recommended.
1 Judgment was only entered against Liberty Bank. Accordingly, all issues that were raised
before the trial court in connection with Kansas Bankers Surety Company are moot. An
amicus curia brief was filed by the Wisconsin Bankers Association.
2 Wisconsin Stat. § 403.102(1) & (2) (1997-98) provide:
Subject matter. (1) This chapter applies to negotiable
instruments. It does not apply to money, to payment orders governed by ch. 410 or to
securities governed by ch. 408.
(2)If there is a conflict between this chapter and ch. 404 or 409, chs. 404
and 409 govern.
These subsections were amended into their present
form by 1995 Wis. Act 449, §9. The predecessor provisions, found in Wis. Stat.
§403.103 (1991-92), were substantially similar.
Wisconsin Stat. § 404.102 (1997-98) provides:
Applicability. (1) The extent that items within this
chapter are also within chs. 403 and 408, they are subject to those chapters. If there is
conflict, this chapter governs ch. 403, but ch. 408 governs this chapter.
(2)The liability of a bank for action or nonaction with respect to an item
handled by it for purposes of presentment, payment or collection is governed by the law of
the place where the bank is located. In the case of action or nonaction by or at a branch or
separate office of a bank, its liability is governed by the law of the place where the branch or
separate office is located.
This section was amended into its present form by 1995 Wis.
Act 449, §12. The predecessor provision, found in Wis. Stat. §403.102
(1991-92), was substantially similar.
Wisconsin Stat. § 404.103(1) (1997-98) provides:
Variation by agreement; measure of damages; action
constituting ordinary care. (1) The effect of the provisions of this chapter may be
varied by agreement, but the parties to the agreement cannot disclaim a bank's responsibility
for its lack of good faith or failure to exercise ordinary care or limit the measure of damages
for the lack or failure. However, the parties may determine by agreement the standards by
which the bank's responsibility is to be measured if those standards are not manifestly
unreasonable.
This subsection was amended into its present form by 1995
Wis. Act 449, §13. The predecessor provision, found in Wis. Stat. §403.102
(1991-92), was substantially similar.
3 Wisconsin Stat. § 403.406 (1991-92) provided:
Any person who by his or her negligence substantially contributes
to a material alteration of the instrument or to the making of an unauthorized signature is
precluded from asserting the alteration or lack of authority against a holder in due course or
against a drawee or other payor who pays the instrument in good faith and in accordance
with the reasonable commercial standards of the drawee's or payor's
business.
4 Wisconsin Stat. § 404.406(1) (1991-92) provided:
When a bank sends to its customer a statement of account
accompanied by items paid in good faith in support of the debit entries or holds the statement
and items pursuant to a request or instructions of its customer or otherwise in a reasonable
manner makes the statement and items available to the customer, the customer must exercise
reasonable care and promptness to examine the statement and items to discover the
customer's unauthorized signature or any alteration on an item and must notify the bank
promptly after discovery thereof.
5 Wisconsin Stat. § 404.406(2) (1991-92) provided:
If the bank establishes that the customer failed with respect to
an item to comply with the duties imposed on the customer by sub. (1) the customer is
precluded from asserting against the bank:
...
(b)An unauthorized signature or alteration by the same wrongdoer on any other
item paid in good faith by the bank after the first item and statement was available to the
customer for a reasonable period not exceeding 14 calendar days and before the bank
receives notification from the customer of any such unauthorized signature or
alteration.
Wisconsin Stat. § 404.406(3) (1991-92)
provided:
The preclusion under sub. (2) does not apply if the customer
establishes lack of ordinary care on the part of the bank in paying the
item.
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