West Case Update

Bank May Be Liable for Conversion for Cashing Check without Endorsement

Description Wisconsin high court held that a financial advisor who cashed a client’s check exceeded his limited powers of attorney, and so was liable for conversion. The bank that processed the check without endorsement by the payee may be liable for conversion for failure to follow reasonable banking procedures.

Topic Negotiable Instruments and Credit

Key Words Check; Endorsement; Conversion; Power of Attorney

C A S E S U M M A R Y

Facts Putnam Mutual Funds had limited powers of attorney, executed by client Schmitz, in favor of his financial advisor with respect to certain investments. Schmitz’s financial advisor at Putnam deposited two checks made out to Schmitz into the account of Georgetown Financial without Schmitz’s knowledge. Firstar Bank cashed the checks without Schmitz’s signature, but with Putnam’s stamp on the back. Schmitz sued Putnam and Firstar for conversion. The district court held for defendants. Schmitz appealed.

Decision
Reversed. The limited powers of attorney gave Putnam no authority to endorse and deposit checks from Schmitz’s accounts that were not listed on the forms he signed. Powers of attorney are strictly construed and interpreted to grant only those powers that are clearly specified. So Putnam converted Schmitz’s funds. Liability on the part of the bank will have to be determined at trial. Whether the bank “acted in good faith or in accordance with reasonable commercial standards” under §403 of the UCC has yet to be tried. In general, accepting a check with the payee’s endorsement missing is not in accordance with reasonable commercial standards of banking.

Citation Schmitz v. Firstar Bank Milwaukee, 658 N.W.2d 442 (Sup. Ct., Wisc., 2003)

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Bank May Be Liable for Conversion for Cashing Check without Endorsement
Description	Wisconsin high court held that a financial advisor who cashed a client’s check exceeded his limited powers of attorney, and so was liable for conversion. The bank that processed the check without endorsement by the payee may be liable for conversion for failure to follow reasonable banking procedures.
Topic	Negotiable Instruments and Credit
Key Words	Check; Endorsement; Conversion; Power of Attorney
C A S E S U M M A R Y
Facts	Putnam Mutual Funds had limited powers of attorney, executed by client Schmitz, in favor of his financial advisor with respect to certain investments. Schmitz’s financial advisor at Putnam deposited two checks made out to Schmitz into the account of Georgetown Financial without Schmitz’s knowledge. Firstar Bank cashed the checks without Schmitz’s signature, but with Putnam’s stamp on the back. Schmitz sued Putnam and Firstar for conversion. The district court held for defendants. Schmitz appealed.
Decision	Reversed. The limited powers of attorney gave Putnam no authority to endorse and deposit checks from Schmitz’s accounts that were not listed on the forms he signed. Powers of attorney are strictly construed and interpreted to grant only those powers that are clearly specified. So Putnam converted Schmitz’s funds. Liability on the part of the bank will have to be determined at trial. Whether the bank “acted in good faith or in accordance with reasonable commercial standards” under §403 of the UCC has yet to be tried. In general, accepting a check with the payee’s endorsement missing is not in accordance with reasonable commercial standards of banking.
Citation	Schmitz v. Firstar Bank Milwaukee, 658 N.W.2d 442 (Sup. Ct., Wisc., 2003)