Opinion
No. 92-0222.
Decided March 5, 1993.
Watkins, Bates, Carey McHugh and John Carey, for Ohio Citizens Bank of Toledo.
Bayford, Strong, Hershman Thomas and Howard B. Hershman, for Farmers Savings Bank.
Gressley, Kaplin Parker, David P. Strup and Bruce S. Schoenberger, for NationsBank of Virginia, N.A.
Manahan, Pietrykowski, Bamman DeLaney and George C. Ward, for Ford Motor Co.
Shumaker, Loop Kendrick and David Coyle, for Venture Metal Products Co.
Cline, Cook Weisenberger Co., L.P.A., and Jay J. Lowenstein, for Venture Metal Products Co., Kenneth P. Rhoads, and Scat Manufacturing Co.
This declaratory judgment action is before the court on the motion of plaintiff, Ohio Citizens Bank of Toledo ("OCB"), for summary judgment. Defendant NationsBank of Virginia, N.A., f.k.a. Sovrans Bank ("Nations"), has also moved for summary judgment on its counterclaim against OCB. Upon consideration of the pleadings, memoranda, competent evidence, and applicable law, I find that OCB's motion should be granted in part and denied in part and Nations' motion should be denied.
I
On or about November 30, 1990, Ford Motor Company ("Ford") issued a check made payable to City Fire Apparatus, Inc. ("City Fire") for $49,380. This check, drawn on Ford's account with Nations, bears handwritten indorsements of "City Fire Apparatus" and "Scat Manufacturing." Underneath the handwriting is a stamped indorsement that reads "PAY TO THE ORDER OF OHIO CITIZENS BANK, TOLEDO, OH 43603-1688, 041200144 FOR DEPOSIT ONLY VENTURE METAL PRODUCTS CO. 2331098." The check was deposited with OCB on or about December 3, 1990 and credited to the account of Venture. The check was cleared by the Federal Reserve Clearing Bureau around December 4, 1990 and was presented and paid by Nations on or about December 5, 1990.
Around May 23, 1991, Nations received a letter from Ford stating that the check was never received or deposited by the intended recipient, City Fire. Ford included with its notification to Nations a letter from City Fire's counsel about an alleged fraudulent indorsement. Also included were five affidavits executed by the officers of City Fire, each of whom denied indorsing the check or authorizing anyone to do so on his or her behalf. On June 5, 1991, Nations credited Ford's account for the amount of the check and requested reimbursement from OCB for the $49,380 in a letter dated the same day.
OCB responded around July 24, 1991, in a letter stating that it believed the indorsements to be proper. Despite additional correspondence between banks, Nations has not been compensated by OCB. OCB maintains that Nations is not entitled to reimbursement. OCB has filed this declaratory action against all possible parties who may have an interest in this check, praying for a determination that all parties are in the position where they should be as a result of the various transactions.
II
The general rules governing motions for summary judgment filed pursuant to Civ.R. 56 are well established. In Harless v. Willis Day Warehousing Co. (1978), 54 Ohio St.2d 64, 66, 8 O.O.3d 73, 74, 375 N.E.2d 46, 47, the Supreme Court of Ohio stated the requirements that must be met before a motion for summary judgment can be granted:
"The appositeness of rendering a summary judgment hinges upon the tripartite demonstration: (1) that there is no genuine issue as to any material fact; (2) that the moving party is entitled to judgment as a matter of law; and (3) that reasonable minds can come to but one conclusion, and that conclusion is adverse to the party against whom the motion for summary judgment is made, who is entitled to have the evidence construed most strongly in his favor.
"The burden of showing that no genuine issue exists as to any material fact falls upon the moving party in requesting a summary judgment." See, also, Johnson v. New London (1988), 36 Ohio St.3d 60, 61, 521 N.E.2d 793, 794-795.
The Sixth District Court of Appeals has consistently held that motions for summary judgment should be granted with caution in order to protect the nonmoving party's right to trial. As stated by the court in Viock v. Stowe-Woodward Co. (1983), 13 Ohio App.3d 7, 14-15, 13 OBR 8, 15-16, 467 N.E.2d 1378, 1386:
"We recognize that summary judgment, pursuant to Civ.R. 56, is a salutary procedure in the administration of justice. It is also, however, a procedure which should be used cautiously and with the utmost care so that a litigant's right to a trial, wherein the evidentiary portion of the litigant's case is presented and developed, is not usurped in the presence of conflicting facts and inferences. * * * It is settled law that `[t]he inferences to be drawn from the underlying facts contained in the affidavits and other exhibits must be viewed in the light most favorable to the party opposing the motion, * * *' which party in the instant case is appellant. * * * It is imperative to remember that the purpose of summary judgment is not to try issues of fact, but rather to determine whether triable issues of fact exist." (Citations omitted.) See, also, Bowlds v. Smith (1961), 114 Ohio App. 21, 29, 18 O.O.2d 305, 309-310, 180 N.E.2d 184, 189.
III
Plaintiff OCB maintains that it is not liable to any defendant except for a possible breach of warranty action by Nations. Defendants Venture, Rhoads, and Scat Manufacturing are all bankrupt. Defendant City Fire is out of business and has had a default judgment rendered against it. (Journal Entry of May 28, 1992.) Defendant Ford has been dismissed. (Journal Entry of November 30, 1992.) The only defendants remaining are Farmers Savings Bank ("Farmers") and Nations.
Farmers' involvement in this whole matter is due to a security interest it holds in City Fire's accounts receivable. Farmers opposes OCB's motion for summary judgment on the basis that a factual dispute still exists as to the authenticity of the check's indorsement. Although this argument may have relevance with respect to the other parties, whether the indorsements are authentic is of no legal consequence in a dispute between OCB and Farmers. OCB's liability to any party rests upon its duty as a collecting bank to have good title when presenting the check for collection. See G.F.D. Enterprises, Inc. v. Nye (1988), 37 Ohio St.3d 205, 216, 525 N.E.2d 10, 20. OCB is not liable to Farmers as a result of OCB's presentment of the check to Nations because Farmers has no legal interest in the check itself. Farmers may have an action against other parties, but Farmers cannot recover directly from OCB. Accordingly, OCB's motion for summary judgment against Farmers is well taken.
OCB maintains that because Farmers has no counterclaim against OCB, Farmers cannot oppose the motion of OCB for summary judgment. On the contrary, Farmers may oppose any motion for summary judgment against Farmers on the basis that judgment is being sought against it. Civ.R. 56(C). Farmers' lack of a counterclaim against OCB is irrelevant.
IV
OCB admits that, under its duty as a collecting bank, it may be liable to Nations under R.C. 1304.13 (UCC 4-207), breach of warranties. See Soc. Natl. Bank v. Capital Natl. Bank (1972), 30 Ohio App.2d 1, 2-3, 59 O.O.2d 1, 1-2, 281 N.E.2d 563, 564-565. However, OCB argues that Nations cannot enforce a warranty action against OCB because Nations did not assert valid UCC defenses against its customer, Ford. By not raising a defense, Nations has precluded OCB's ability to recover in an indemnity action against Ford, thus precluding Nations' entitlement to reimbursement from OCB.
However, the UCC controls in breach-of-warranty actions, and common-law indemnity principles are irrelevant. First Natl. Bank of Ariz. v. Plymouth-Home Natl. Bank (D.Mass. 1982), 553 F. Supp. 448, 454, affirmed (C.A.1, 1983), 705 F.2d 439. Garnac Grain Co. v. Boatmen's Bank Trust Co. (W.D.Mo. 1988), 694 F. Supp. 1389. As discussed in Garnac, at 1398:
"* * * [U]nder common law indemnity principles an indemnitee cannot recover from the indemnitor if he has a valid defense to the claim which he is seeking indemnity. This is, as a general principle, a valid statement of the law. However, this is not a common law indemnity action, but a U.C.C. warranty action and, as discussed above, the U.C.C. does not require a drawee bank to raise 3-406 defenses as a prerequisite to bringing a warranty claim. Therefore, this argument also fails." (See, also, footnote 14, omitted here.)
Although common-law indemnity does not apply, R.C. 1304.29(E) (UCC 4-406[5]) requires Nations to raise possible defenses against its customer:
"If under this section a payor bank has a valid defense against a claim of a customer upon or resulting from payment of an item and waives or fails upon request to assert the defense, the bank may not assert against any collecting bank or other prior party presenting or transferring the item a claim based upon the unauthorized signature or alteration giving rise to the customer's claim."
However, as explained in Soc. Natl. Bank, supra, 30 Ohio App.2d at 3-4, 59 O.O.2d at 2, 281 N.E.2d at 564-565, this section applies only when the customer is negligent in detecting the forgery of his signature. Generally, a customer is not in a position to detect possible fraudulent indorsements. See, also, Garnac, 694 F. Supp. at 1396-1397; First Natl. Bank of Ariz., 553 F. Supp. at 451-452. When the customer is not negligent in detecting its forgeries or reporting possible forgeries to its bank, there is no defense the bank can assert against its customer. Similarly, in the case sub judice, Ford promptly notified Nations of possible fraudulent indorsements. Ford's behavior did not proximately cause the loss to Nations. Therefore, Nations did not have a valid defense against its customer and R.C. 1304.29(E) (UCC 4-406[5]) does not apply.
The only remaining issue is whether the indorsements are authentic. If the indorsements are authentic, then OCB did not breach R.C. 1304.13 (UCC 4-207) warranties, and the parties are in correct positions. If the indorsements are fraudulent, then OCB breached its warranty of good title and should reimburse Nations.
OCB argues that the indorsements enjoy a presumption of validity. See R.C. 1303.36(A) (UCC 3-307[1]). However, the presumption exists only until evidence to the contrary is presented:
"`Presumption' * * * means that until some evidence is introduced which would support a finding that the signature is forged or unauthorized the plaintiff is not required to prove that it is authentic. * * * His evidence need not be sufficient to require a directed verdict in his favor, but it must be enough to support his denial by permitting a finding in his favor." R.C. 1303.36 (UCC 3-307), Official Comment.
Nations has presented affidavits that sufficiently rebut any presumption of authenticity that the indorsements may have enjoyed. Therefore, OCB is not entitled to summary judgment.
Nations, presented with evidence of a forged indorsement, apparently acted properly under the circumstances:
"`In general, the drawee bank [Nations] is strictly liable to its customer drawer [Ford] for payment of either a forged check or a check containing a forged indorsement. In the case of a forged indorsement, the drawee generally may pass liability back through the collection chain to the party who took from the forger [OCB] and, of course, to the forger himself if available.'" Ed Stinn Chevrolet v. Natl. City Bank (1986), 28 Ohio St.3d 221, 226-227, 28 OBR 305, 310, 503 N.E.2d 524, 530 (quoting Perini Corp. v. First Natl. Bank of Habersham Cty. [C.A.5, 1977], 553 F.2d 398, 403), decision on rehearing (1987), 31 Ohio St.3d 150, 31 OBR 316, 509 N.E.2d 945.
However, the affidavits themselves do not entitle Nations to summary judgment on its counterclaim against OCB. The affidavits in evidence prove only that no affiant indorsed the check or authorized anyone to sign on his or her behalf. The affidavits do not prove or disprove that any other entity had authority independent of the officers of City Fire to indorse the check.
Because the authenticity of the indorsements remains an issue of material fact, neither party is entitled to summary judgment. As a result, this case is continued for trial on the sole issue of whether the indorsements are authentic.
Judgment Entry
It is ORDERED that the motion of Ohio Citizens Bank of Toledo for summary judgment against Farmers Savings Bank be granted.
It is further ORDERED that the motion of Ohio Citizens Bank of Toledo for summary judgment against NationsBank of Virginia, N.A. be denied.
It is further ORDERED that the motion of NationsBank of Virginia, N.A. for summary judgment against Ohio Citizens Bank of Toledo be denied.
It is further ORDERED that this case be continued for trial to May 5, 1993 at 9:00 a.m.
So ordered.