The debtor obtained a home renovation loan from the creditor and used the funds to hire a contractor to renovate his property. The loan terms stated that the creditor would disburse checks to the debtor and contractor, but the contractor would begin the renovation project with his own funds. The contractor asked the debtor for a deposit, and the debtor agreed on the condition that he would be reimbursed from the loan funds. The creditor issued and mailed the first check to the investment property, and the debtor deposited it into his bank account. The creditor mailed further checks to the investment property, but this time, the contractor collected the checks and deposited them into his bank account with the debtor’s forged signature as an endorsement. The contractor was arrested, convicted, and ordered to make restitution payments. The debtor brought a conversion claim against the bank and brought claims of unjust enrichment and conversion against the contractor. During the trial, the debtor stated that he only wanted prejudgment interest against the bank on the forged checks because he had already received full restitution from the contractor. The court found for the bank in the conversion claim and found in favor of the debtor on his claims against the contractor. The debtor appealed to the Superior Court of Pennsylvania.
In Odedeyi v. Wells Fargo Bank, 319 A.3d 610 (Pa. Super. Ct. 2024), the court held that the bank was liable for conversion because it had allowed the contractor to deposit checks into his account without both payees’ proper endorsement. To support his claim, the debtor quoted 13 Pa. Cons. Stat. § 3420, which stated, “[a]n instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment.” Comment 1 to that section further stated, “[i]f Depositary Bank takes the check for deposit to John's account, Depositary Bank is liable to Jane for conversion of the check if she did not consent to the transaction.” The court stated further that “where a check is paid or cashed on an unauthorized or forged endorsement, the bank is liable for conversion” as further support. Manfredi v. Dauphin Deposit Bank, 697 A.2d 1025, 1028 (Pa. Super. Ct. 1997). The court held that if a check is made out to two joint payees, it can only be properly negotiable by both payees. The court rejected the bank’s argument that it did not commit conversion because it accepted the checks from the contractor, who was entitled to enforce them. The court found that the checks were made payable to two non-alternative payees and thus could not be negotiated unless both payees agreed. The bank accepted the checks without the debtor’s endorsement and deposited the checks for the contractor, who was not entitled to enforce the instrument or receive payment, so the court found the bank liable for conversion. The debtor also argued that he was entitled to prejudgment interest on the checks at issue, and he sought the prejudgment interest from the time when the checks were converted to when he received full payments from the contractor. The court held that prejudgment interest was a right extended to “actions involving damages ascertainable with mathematical precision.” Option One Mortg. Corp. v. Fitzgerald, 687 F.Supp. 2d 520, 529 (M.D. Pa. 2009). Pennsylvania law provided a market value and percentage per annum formula so the prejudgment interest could be determined mathematically, and the court held that the debtor was entitled to it. For these reasons, the Superior Court of Pennsylvania reversed and remanded the case for calculation of interest in accordance with the court’s opinion.
By Nura Elhentaty [email protected]
Edited By Maycee Redfearn [email protected]
Edited By Ashley Boyce [email protected]
Edited By Hayden Mariott [email protected]