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National Bank of AK v. Univentures 1231 (1/24/92), 824 P 2d 1377
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Notice: This is subject to formal
correction before publication in the Pacific
Reporter. Readers are requested to bring
typographical or other formal errors to the
attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska
99501, in order that corrections may be made
prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
NATIONAL BANK OF ALASKA, )
National Banking Association, ) Supreme Court File No.
) S-4087
Appellants, ) Superior Court File No.
) 3AN-88-278 Civil
)
v. ) O P I N I O N
)
UNIVENTURES 1231 and STATE OF )
ALASKA, DEPARTMENT OF )
ADMINISTRATION, )
)
Appellees. ) [No. 3799 - January 24, 1992]
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Anchorage, J. Justin Ripley, Judge.
Appearances: David Floerchinger and
Deirdre D. Ford, Staley, DeLisio, Cook &
Sherry, Inc., Anchorage, for Appellants.
Sally J. Kucko and Rick L. Owen, Groh, Eggers
& Price, Anchorage, for Appellees Univentures
1231. Jeffrey W. Bush, Assistant Attorney
General, and Charles E. Cole, Attorney
General, Juneau, for Appellee State of
Alaska, Department of Administration.
Before: Rabinowitz, Chief Justice,
Burke, Matthews, Compton and Moore, Justices.
MOORE, Justice.
National Bank of Alaska (NBA) brought an action against
the State of Alaska, Univentures 1231 (Univentures), Charles D.
LeViege, and Lee D. Garcia to recover the amount which NBA paid
on a warrant issued by the state. The superior court held that
the warrant is not a negotiable instrument under the Uniform
Commercial Code as enacted in Alaska, and that NBA therefore
could not recover as a holder in due course under the code. NBA
appeals. The sole issue on appeal is whether the superior court
was correct in finding that the state treasury warrant is a non-
negotiable instrument under Article III of the Uniform Commercial
Code. We reverse.
I.
The State of Alaska is a tenant in a large office
building which is owned by Univentures. On November 24, 1987,
the state made a lease payment of $28,143.47 to Univentures with
state treasury warrant No. 21045102. Charles LeViege, the
managing partner of Univentures, assigned the warrant on behalf
of Univentures to Lee Garcia.
As a result of a dispute which arose among the partners
of Univentures, the state was notified on November 25, 1987 that
it should no longer pay Charles LeViege the monthly rent due the
partnership. The state was directed to hold the rent in abeyance
pending the naming of a court-appointed receiver. On November
27, 1987, the state treasury placed a stop-payment order on
warrant No. 21045102.
Garcia presented the warrant to NBA, the state's
clearing bank, on November 30, 1987. NBA paid Garcia $28,143.47
on the warrant but did not debit the state's account because of
the stop-payment order. On January 14, 1988, NBA filed an action
against the State of Alaska, Charles LeViege, and Lee Garcia, to
recover the sum of $28,143.47 which NBA had paid to Lee Garcia in
exchange for the warrant. The state deposited an equivalent sum
with the court and moved to join Univentures as a party. Samuel
and Catherine LeViege answered on behalf of Univentures.
NBA moved for summary judgment claiming that it is a
holder in due course under AS 45.03.302(a). NBA argued that the
warrant is a negotiable instrument and that it paid the warrant
in good faith, without knowledge of facts which would indicate
the instrument may not be payable as its terms provide. As such,
NBA maintained that it took the warrant free from the defenses
presented by Univentures and the state. The state and
Univentures opposed NBA's motion, arguing that NBA is not a
holder in due course because the warrant is not a negotiable
instrument, and because NBA had notice of the stop-payment order
when it paid Garcia on the warrant. Univentures filed a cross-
motion for summary judgment.
The superior court granted Univentures' cross-motion
for summary judgment and denied NBA's motion for summary
judgment. Judge Ripley, in ruling for Univentures, specifically
found that the warrant is not a negotiable instrument and that
NBA therefore is not a holder in due course. Pursuant to the
parties' stipulation, $16,000.00 of the money deposited with the
court was immediately disbursed to Univentures and NBA in equal
amounts. The court ordered that the remaining $12,143.47 be held
by the court pending appeal of the court's determination that the
warrant is not negotiable. This appeal followed.
II.
Article III of the Uniform Commercial Code provides
that the holder in due course of an instrument takes the
instrument free of all but a very limited class of defenses that
the original payor might have against the original payee. AS
45.03.305.1 The code defines a holder in due course as one who
takes a negotiable instrument for value, in good faith, and
"without notice that [the instrument] is overdue or has been
dishonored or of any defense against or claim to it on the part
of any person." AS 45.03.302(a). If a holder of an instrument
is not a holder in due course, the holder takes the instrument
subject to all valid claims to the instrument, as well as subject
to several classes of defenses. AS 45.03.306.2
The superior court held that NBA was not a holder in
due course because the state treasury warrant involved is not a
negotiable instrument to which the Uniform Commercial Code
applies.3 As a result, the superior court concluded that NBA
took the warrant subject to the state's defense that it had
issued a valid stop-payment order pursuant to AS 45.04.403(a).4
NBA argues that the warrant is a negotiable instrument, and that
NBA is therefore a holder in due course. Whether the warrant is
a negotiable instrument is a question of law, which we examine de
novo. See Hicklin v. Orbeck, 565 P.2d 159, 163 n.6 (Alaska 1977)
rev'd on other grounds, 437 U.S. 518 (1978).
Alaska Statute 45.03.104(a) provides that for a writing
to be a negotiable instrument it must:
(1) be signed by the maker or drawer;
(2) contain an unconditional promise or
order to pay a sum certain in money and
no other promise, order, obligation, or
power given by the maker or drawer except
as authorized by this chapter;
(3) be payable on demand or at a
definite time, and
(4) be payable to order or to bearer.
Alaska Statute 45.01.102(a) provides that the Code is to be
"liberally construed and applied to promote the underlying
purposes and policies." The underlying purposes and policies of
the Uniform Commercial Code are:
(1) to simplify, clarify, and modernize
the law governing commercial transactions;
(2) to permit the continued expansion
of commercial practices through custom,
usage, and agreement of the parties;
(3) to make uniform the law among the
various jurisdictions.
AS 45.01.102(b).
Warrant No. 21045102 satisfies all four elements of the
definition of a negotiable instrument. First, the warrant is
signed by the maker, Governor Steve Cowper. Second, the warrant
contains an unconditional promise or order to pay a sum certain
of $28,143.47. A promise or order otherwise unconditional is not
made conditional by the fact that the instrument is limited to
payment out of a particular fund if the instrument is issued by a
government or governmental agency or unit. AS 45.03.105(a)(7).
Third, the warrant is payable at a definite time. Although the
warrant states that it "will be deemed paid unless redeemed
within two years after the date of issue,"AS 45.03.109 provides
that an instrument is payable at a definite time if by its terms
it is payable on or before a stated date. AS 45.03.109(a)(1).
Finally, the warrant clearly indicates that it is payable to the
order of Univentures. An "instrument is payable to order if by
its terms it is payable to the order or assigns of a person
specified in the instrument with reasonable certainty." AS
45.03.110(a). Because the warrant meets the statutory definition
in AS 45.03.104, we hold that the warrant is a negotiable
instrument.5
The purposes for which the Uniform Commercial Code was
enacted support the conclusion that warrants which satisfy the
statutory definition of negotiability must be deemed negotiable.
Univentures claims that state warrants should be deemed non-
negotiable because the state must retain its rights to assert the
defenses of a maker in order to maintain and protect its fiscal
policies, practices, and procedures. This argument is directly
contrary to the Code's policy of promoting commercial
transactions by allowing a party to ascertain the negotiability
of an instrument from its face. 5 R. Anderson, Uniform
Commercial Code, 3-104:4 (1984) ("The whole idea of the
facilitation of easy transfer of notes and instruments requires
that a transferee be able to trust what the instrument says, and
be able to determine the validity of the note and its
negotiability from the language in the note itself."). To carve
out an exception to the statutory definition of negotiability
would jeopardize Article III's purposes of clarifying and
modernizing commercial transactions by allowing reliance on
written instruments. The transferee of an instrument must be
able to rely on the negotiability of the instrument as evidenced
by the instrument's terms, so that the transaction is not stalled
while the transferee verifies its rights on the instrument.6
No Alaska case law addresses the issue of whether a
state treasury warrant constitutes a negotiable instrument.
Prior to the enactment of the Uniform Commercial Code, warrants
issued by states, local governments, and municipalities were
almost universally deemed non-negotiable. See, e.g.,
Negotiability of County, Municipal, School, State, or Town
Warrants, 36 A.L.R. 949, 949 (1925); Hamilton Nat'l Bank v. Pool,
144 S.W.2d 670, 671 (Tex. App. 1940); State v. Liberty Nat'l Bank
& Trust Co., 414 P.2d 281, 283 (Okla. 1966). The drafters of the
Uniform Commercial Code apparently intended to change this body
of law, however, as evidenced by the Official Code Comment to 3-
105. 5 R. Anderson, Uniform Commercial Code, 3-105:1, at 228
(1984)("[Section 3-105(1)(g)] will permit some municipal warrants
to be negotiable if they are in proper form.").7
Those courts which have considered the negotiability of
government warrants have generally found those warrants to be
negotiable so long as they satisfy the Code's requirements. The
Louisiana Court of Appeals held that a warrant issued by a levee
district to pay a construction company was a negotiable
instrument. St. James Bank & Trust Co. v. Board of Comm'rs, 354
So. 2d 233 (La. App. 1978). The construction company in that
case had negotiated the warrant to a bank. After the levee's
Board of Commissioners stopped payment on the warrant, the
warrant was returned to the bank unpaid. The court found that
the warrant was a negotiable instrument because it satisfied the
requirements of 10:3-104 of the Louisiana statutes. That
section is identical to AS 45.03.104. Id. at 234.
Similarly, the Supreme Court of Nebraska held that a
warrant issued by a county sanitary and improvement district was
a negotiable instrument. Sanitary & Improvement Dist. v.
Continental Western, 343 N.W.2d 314 (Neb. 1983). In that case,
the sanitary and improvement district which had issued capital
and improvement warrants sought a judicial declaration of the
invalidity of the warrants. After examining the warrants in
light of 3-104 of the Nebraska Uniform Commercial Code, which
is almost identical to AS 45.03.104, the Supreme Court of
Nebraska held that they were negotiable instruments.
We are mindful of a 1987 attorney general opinion which
concluded that state treasury warrants are not negotiable. While
attorney general opinions are entitled to some deference in
matters of statutory construction, they are not always correct.8
In this instance we are unconvinced by the attorney general's
opinion. It fails to consult the language and policies of the
Uniform Commercial Code, and it relies mainly on cases examining
the negotiability of warrants arising prior to the enactment of
the Uniform Commercial Code.
The decision of the superior court is REVERSED. The
$12,143.47 on deposit with the court is awarded to NBA.9
_______________________________
1. AS 45.03.305 provides:
To the extent that a holder is a holder
in due course the holder takes the instrument
free from
(1) all claims to it on the part of any
person; and
(2) all defenses of any party to the
instrument with whom the holder has not dealt
except
(A) infancy, to the extent that it is a
defense to a simple contract;
(B) such other incapacity, or duress, or
illegality of the transaction as renders the
obligation of the party a nullity;
(C) such misrepresentation as has
induced the party to sign the instrument with
neither knowledge nor reasonable opportunity
to obtain knowledge of its character or its
essential terms;
(D) discharge in solvency proceedings;
and
(E) any other discharge of which the
holder has notice when the holder takes the
instrument.
2. AS 45.03.306 provides:
Unless the person has the rights of a
holder in due course, a person takes the
instrument subject to
(1) all valid claims to it on the part
of any person;
(2) all defenses of a party which would
be available in an action on a simple
contract;
(3) the defenses of want or failure of
consideration, nonperformance of a condition
precedent, nondelivery, or delivery for a
special purpose (AS 45.03.408); and
(4) the defense that the person or a
person through whom the person holds the
instrument acquired it by theft, or that
payment or satisfaction to the holder would
be inconsistent with the terms of a
restrictive endorsement; the claim of a third
person to the instrument is not otherwise
available as a defense to a party liable on
the instrument unless the third person
personally defends the action for the party.
3. Univentures argued in its cross-motion for summary
judgment that even if the warrant is a negotiable instrument, NBA
is not a holder in due course because NBA had notice of the stop-
payment order when it paid Garcia on the warrant. Univentures
claimed that NBA was given notice of the stop-payment order on
November 27, 1987, in its role as the clearing bank for state
treasury warrants. The superior court apparently found that NBA
did not have knowledge of the stop-payment order when it accepted
the warrant, for the final judgment provides that NBA is entitled
to the funds on deposit with the court if this court determines
warrant No. 21045102 is a negotiable instrument. We do not
consider whether NBA had knowledge of the stop-payment order, for
that issue is not a stated point on appeal, and was not briefed
by either party.
4. AS 45.04.403(a) provides:
A customer may, by order to the bank,
stop payment of an item payable for the
customer's account, but the order must be
received at a time and in a manner which
afford the bank a reasonable opportunity to
act on it before an action by the bank with
respect to the item described in AS
45.04.303.
5. AS 45.03.104(b) classifies certain writings which
satisfy the definition of "negotiable instrument" as drafts,
checks, certificates of deposit, and notes. We reject the
state's argument that an instrument must fit within one of these
categories before it can qualify as a negotiable instrument.
Negotiability is determined by the four-pronged test of AS
45.03.104, not by the name affixed to a particular writing. If
it were necessary to categorize the warrant at issue in this
case, it would be a draft. An instrument is a draft if it is an
order. AS 45.03.104(b)(1).
6. If the state truly believes that the non-negotiability
of treasury warrants is essential to maintain and protect its
fiscal policies, the state could make its warrants non-negotiable
simply by printing "non-negotiable"on the face of the warrants.
7. All of the cases cited by Univentures and the state are
distinguishable from the present case for the reason that all
were based upon the "law merchant"which has now been replaced in
Alaska by the Uniform Commercial Code. See Prince v. LeVan, 486
P.2d 959, 962 (Alaska 1971) ("By legislative declaration the code
is the law, and if general principles appear inconsistent, they
must be considered displaced under [this section]. Moreover,
even where inconsistency does not exist, the code must be
regarded as supreme; general principles even when consistent with
the code are merely supplementary.").
8. Carney v. State Board of Fisheries, 785 P.2d 544, 548
(Alaska 1990) ("Opinions of the attorney general, while not
controlling on matters of statutory interpretation, are entitled
to some deference."); Girves v. Kenai Peninsula Borough, 536 P.2d
1221, 1225 (Alaska 1975) ("We hold that the 1962 Attorney
General's opinion is in error insofar as it concludes that the
territorial government of Alaska had no power to accept the right-
of-way granted in 43 U.S.C. 932 (1964).").
9. NBA and Univentures stipulated that if we reverse the
superior court's determination that the warrant is not a
negotiable instrument, Univentures waives all other claims to the
interpled money against NBA and the state, including the claim
that NBA was not a holder in due course of the instrument.
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