Peters Family Farm, Inc. v. Sav. Bank , 2011 Ohio 665 ( 2011 )

[Cite as Peters Family Farm, Inc. v. Sav. Bank, 2011-Ohio-665.]
IN THE COURT OF APPEALS OF OHIO
FOURTH APPELLATE DISTRICT
PICKAWAY COUNTY
PETERS FAMILY FARM, INC., :
:
Plaintiff-Appellant, : Case No. 10CA2
:
vs. : Released: January 28, 2011
:
THE SAVINGS BANK, : DECISION AND JUDGMENT
: ENTRY
Defendant-Appellee. :
_____________________________________________________________
APPEARANCES:
Jeffrey Easterday and Troy A. Callicoat, Barrett, Easterday, Cunningham &
Eselgroth LLP, Dublin, Ohio, for Plaintiff-Appellant.
David M. Scott, Luper, Neidenthal & Logan, Columbus, Ohio, for
Defendant-Appellee.
_____________________________________________________________
McFarland, J.:
{¶1} Plaintiff-Appellant, Peters Family Farm, Inc., appeals the
decision of the Pickaway County Court of Common Pleas granting summary
judgment in favor of Defendant-Appellee, The Savings Bank. Appellant
argues that the trial court erred in dismissing its claims against Appellee for
conversion, wrongful payment of checks, and negligence. Because
Appellant’s claims present no genuine issues of material fact and Appellee is
entitled to judgment as a matter of law, we overrule Appellant’s assignments
of error and affirm the decision of the court below.
Pickaway App. No. 10CA2 2
I. Facts
{¶2} During the 1970s, Peters Family Farms (“Peters”) began using
Edgar Webb to manage its finances. Some of the services Webb performed
for Peters included preparing and filing tax returns and arranging tax
payments. Webb continued to perform these duties for Peters from the
1970s until his death in 2007.
{¶3} During the probate of Webb's estate, it was discovered that he
had defrauded Peters of a total of approximately $682,000 from 1997 until
the time of his death. Webb embezzled from Peters in the following
manner: he would periodically tell Peters that it owed taxes to the IRS.
Peters would then give Webb signed but otherwise blank corporate checks to
pay the debt. Each of these blank checks was drawn on a business checking
account that Peters held with Huntington National Bank (“Huntington”).
Webb would then fill out the checks and make the checks payable to the
appellee in this case, The Savings Bank (“TSB”). Webb, who was a
customer of TSB and held several accounts there, would then have TSB
deposit the proceeds from Peters’ checks into one of Webb’s accounts.
Webb also used the same fraudulent procedure with another bank, Kingston
National Bank (“ Kingston”), as the payee.
Pickaway App. No. 10CA2 3
{¶4} Upon discovering Webb's fraud, Peters filed a complaint
naming Webb's estate, two businesses that Webb controlled, and TSB and
Kingston as defendants. Peters’ complaint listed three counts relevant to the
current appeal: conversion, wrongful payment of checks, and negligence.
The trial court granted default judgment in favor of Peters as to Webb's
estate and the two businesses he controlled. In October 2009, TSB moved
for summary judgment and Peters filed its memo contra. In December 2009,
the trial court granted TSB's motion for summary judgment and dismissed
all of Peters’ claims against TSB. Peters then dismissed its claims against
Kingston without prejudice and sought Rule 54(B) certification in order to
immediately appeal the trial court's summary judgment decision. The trial
court granted Peters’ Rule 54(B) motion and the current appeal followed.
II. Assignments of Error
First Assignment of Error
THE TRIAL COURT COMMITTED PREJUDICIAL ERROR BY
DISMISSING ON SUMMARY JUDGMENT APPELLANT’S
CONVERSION CLAIM AGAINST APPELLEE THE SAVINGS
BANK.
Second Assignment of Error
THE TRIAL COURT COMMITTED PREJUDICIAL ERROR BY
DISMISSING ON SUMMARY JUDGMENT APPELLANT’S
WRONGFUL PAYMENT OF CHECKS CLAIM AGAINST
APPELLEE THE SAVINGS BANK.
Pickaway App. No. 10CA2 4
Third Assignment of Error
THE TRIAL COURT COMMITTED PREJUDICIAL ERROR BY
DISMISSING ON SUMMARY JUDGMENT APPELLANT’S
NEGLIGENCE CLAIM AGAINST APPELLEE THE SAVINGS
BANK.
III. Standard of Review
{¶5} As each of Peters’ assignments of error involve summary
judgment, we first state the appropriate standard of review. Appellate courts
must conduct a de novo review when reviewing a trial court’s summary
judgment decision. Doe v. Shaffer, 90 Ohio St.3d 388, 390, 2000-Ohio-186,
738 N.E.2d 1243; Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105,
1996-Ohio-336, 671 N.E.2d 241. As such, an appellate court reviews the
trial court’s decision independently and without deference to the trial court’s
determination. Brown v. Scioto Board of Commissioners (1993), 87 Ohio
App.3d 704, 711, 622 N.E.2d 1153.
{¶6} A trial court may grant a motion for summary judgment only
when 1) the moving party demonstrates there is no genuine issue of material
fact; 2) reasonable minds can come to only one conclusion, after the
evidence is construed most strongly in the nonmoving party's favor, and that
conclusion is adverse to the opposing party; 3) and the moving party is
entitled to judgment as a matter of law. Civ.R. 56; see, also, Bostic v.
Pickaway App. No. 10CA2 5
Connor (1988), 37 Ohio St.3d 144, 146; Harless v. Willis Day Warehousing
Co. (1978), 54 Ohio St.2d 64, 66.
{¶7} “[T]he moving party bears the initial burden of demonstrating
that there are no genuine issues of material fact concerning an essential
element of the opponent's case. To accomplish this, the movant must be
able to point to evidentiary materials of the type listed in Civ.R. 56(C) * *
*.” Dresher v. Burt (1996), 75 Ohio St.3d 280, 292, 1996-Ohio-107, 662
N.E.2d 264. These materials include “the pleading, depositions, answers to
interrogatories, written admissions, affidavits, transcripts of evidence in the
pending case, and written stipulations of fact, if any.” Id. at 293; quoting
Civ.R. 56(C). “ * * * [O]nce the movant supports his or her motion with
appropriate evidentiary materials, the nonmoving party ‘may not rest upon
mere allegations or denials of his pleadings, but his response, by affidavit or
as otherwise provided in this rule, must set forth specific facts showing that
there is a genuine issue for trial.’” Foster v. Jackson Cty. Broadcasting, Inc.,
4th Dist. No. 07CA4, 2008-Ohio-70, at ¶11, quoting Civ.R. 56(E).
IV. The Uniform Commercial Code and Common-Law
{¶8} Before directly addressing Peters’ three assignments of error,
we first address a threshold issue, whether Ohio’s Uniform Commercial
Code provides the exclusive remedy when a party asserts causes of action
Pickaway App. No. 10CA2 6
arising from transactions involving negotiable instruments. The parties take
opposing views of the matter, with Peters arguing that in addition to its
claims under the UCC, it also has common-law causes of action against
TSB, and TSB arguing that the UCC excludes all of Peters’ common-law
claims.
{¶9} Webb’s fraudulent transactions all involved checks with
Huntington (with whom Peters held a corporate account) as the drawee-
payor bank and TSB as the payee. Ohio's version of the UCC is codified in
R.C. 1301 et seq., and Chapter 1303 specifically addresses negotiable
instruments, such as the checks involved in the current matter.
{¶10} When common-law causes of action and statutory law are in
conflict, the Supreme Court of Ohio has held the following: “Where the
General Assembly has codified the law on a subject, such statutory
provisions are to govern to the exclusion of the prior non-statutory law
unless there is a clear legislative intention expressed or necessarily implied
that the statutory provisions are merely cumulative.” Bolles v. Toldedo Trust
Co. (1944), 144 Ohio St. 195, 58 N.E.2d 381, paragraph thirteen of the
syllabus, overruled in part on other grounds. R.C. 1301.03 also provides
guidance on the issue. Pursuant to that section:
Pickaway App. No. 10CA2 7
{¶11} “Unless displaced by the particular provisions of Chapters
1301., 1302., 1303., 1304., 1305., 1307., 1308., 1309., and 1310. of the
Revised Code, the principals 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 their provisions.” R.C.
1301.03.
{¶12} R.C. 1301.03 clearly shows that the Legislature’s intent was
not to preclude all common-law causes of action, even when the subject
matter is one normally encountered under Ohio’s UCC statute. Instead, the
common-law plays a supplementary role. But it is also clear from R.C.
1301.03 that when the UCC's provisions clearly apply to an alleged claim,
the statutory provisions displace, and thus exclude, any common-law claims.
The fact that the UCC takes precedence over the common-law in such
instances been widely recognized by Ohio courts.
{¶13} In Olympic Tile Ins. Co. v. Fifth Third Bank of Western Ohio,
2nd Dist. No. 20145, 2004-Ohio-4795, the court stated that “although
comprehensive, the statutory provisions [of the UCC] cannot predict and
address every possible factual dispute regarding negotiable instruments.
Accordingly, we are unwilling to conclude that the UCC supplants all
Pickaway App. No. 10CA2 8
common law causes of action.” Id. at ¶30. But the court cautioned that a
party could not rely on the common-law to avoid the application of the
UCC. “[W]e conclude that the UCC provides the exclusive remedy where
the dispute is governed by its statutory provisions. Common law causes of
action may not be raised to circumvent the UCC's rights, claims, and
defenses where the statute applies.” Id. at ¶31.
{¶14} Similarly, in Natl. City Bank v. Citizens Natl. Bank of
Southwest Ohio, 2nd Dist. No. 20323, 2004-Ohio-6060, the court stated that
“if parties are permitted to plead common law causes of action and thereby
avoid the UCC, it will lose its reliability, uniformity, and certainty. * * *
Thus, if the UCC with its numerous provisions governing rights and
liabilities does not contain a provision that would provide relief to a party,
the party may not avoid the UCC's limitations by raising a common law
claim.” Id. at ¶28. In reaching it’s decision, the court relied to a large extent
on the rationale expressed in Amzee Corp. v. Comerica Bank-Midwest, 10th
Dist. No. 01AP-465, 2002-Ohio-3084, a case particularly relevant to the
matter sub judice, and a case which both parties discuss in their briefs.
{¶15} In Amzee, an employee forged her employer’s checks and then
deposited them at her bank in order to make payments to her personal credit
card account with the bank. The employer asserted five common-law causes
Pickaway App. No. 10CA2 9
of action against the employee’s bank, including, as does Peter’s in the case
sub judice, negligence and conversion. The Amzee court found that allowing
the employer’s common-law claims “would upset the comprehensive loss
allocation schemes provided by the UCC * * *.” Id. at ¶49. Accordingly,
the court held that the employer was precluded from asserting common-law
causes of action as its claims were already covered by the UCC. Id. at ¶52.
See, also, Dice v. White Family Cos., 173 Ohio App.3d 472, 2007-Ohio-
5755, 878 N.E.2d 1105; NCS Healthcare, Inc. v. Fifth Third Bank, 8th Dist.
No. 85198, 2005-Ohio-3125.
{¶16} Accordingly, we find that the UCC is a party’s exclusive
remedy when statutory provisions are applicable to the factual circumstances
of a given case. And only when no statutory provisions apply may a party
use common-law causes of action to supplement the provisions of the UCC.
With this in mind, we now examine Peters’ three causes of action against
TSB.
V. First Assignment of Error
{¶17} In its first assignment of error, Peters argues that the trial
court improperly dismissed its conversion claim against TSB. Ohio's UCC
conversion statute is provided in R.C. 1303.60:
Pickaway App. No. 10CA2 10
{¶18} “The law applicable to conversion of personal property
applies to instruments. An instrument also is converted if it is taken by
transfer, other than a negotiation, from a person not entitled to enforce the
instrument or if a bank makes or obtains payment with respect to the
instrument for a person not entitled to enforce the instrument or receive
payment. An action for conversion of an instrument may not be brought by
the issuer or acceptor of the instrument or a payee or indorsee who did not
receive delivery of the instrument either directly or through delivery to an
agent or a co-payee.” R.C. 1303.60(A)
{¶19} The trial court concluded that under R.C. 1303.60(A), the
issuer of the check cannot maintain a cause of action for conversion because
a check is not property of the drawer, but rather an obligation. We agree
with the trial court's conclusion. Despite Peters’ claims to the contrary,
Ohio's version of the UCC clearly applies to the facts in the case sub judice
and preempts any common-law claim. R.C. 1303.60(A) unambiguously
states that an issuer of an instrument cannot bring an action for conversion of
the instrument. Under R.C. 1303.1(A)(6), an “issuer” includes a drawer of
drafts. Here, it is undisputed that Peters was the drawer of the drafts in
question. And because Ohio's UCC statute does not allow the drawer of a
draft to bring an action in conversion, Peters’ claim against TSB fails as a
Pickaway App. No. 10CA2 11
matter of law. See, also, W. Ohio Colt Racing Assn. v. Fast, 3rd Dist. No.
10-08-15, 2009-Ohio-1303 at ¶18. As such, we overrule Peters’ first
assignment of error.
VI. Second Assignment of Error
{¶20} Peters’ second assignment of error states that the trial court
improperly dismissed its wrongful payment of check claim. In its brief,
Peters states that this claim was based on The Supreme Court of Ohio’s
decision in Master Chemical Corporation v. Inkrott (1990), 55 Ohio St. 3d
23. However, like the trial court, we believe that the ruling in that case does
not apply to the case at hand.
{¶21} In Inkrott, a company brought an action against a bank for
wrongful payment of deposited checks. An employee of the company,
responsible for paying the company’s tax obligations, embezzled funds by
depositing corporate checks into an account he controlled. In ruling against
the bank, the trial court stated the following:
{¶22} “In an action against a bank for wrongful payment of a check
deposited, where the payee-bank presents the defense that it dealt with an
individual knowing him to be a fiduciary, the drawer-depositor, in order to
successfully maintain such action, must show that the bank had actual
knowledge of the fiduciary's breach of the fiduciary obligation, or that the
Pickaway App. No. 10CA2 12
bank had knowledge of such facts that its actions in paying the checks
amounted to bad faith, or that the fiduciary was indebted to the bank and the
funds were applied to that indebtedness. (R.C. 1339.09, construed and
applied.)” Id. at the syllabus.
{¶23} In reaching its decision, the Inkrott court applied R.C.
1339.09. The modern version of R.C. 1339.09 is R.C. 5815.07. That
section reads as follows:
{¶24} “If a check is drawn upon the principal's account by a
fiduciary who is empowered to do so, the bank may pay the check without
being liable to the principal, unless the bank pays the check with actual
knowledge that the fiduciary is committing a breach of the obligation as
fiduciary in drawing the check or with knowledge of such facts that its
action in paying the check amounts to bad faith.”
{¶25} “If such a check is payable to the drawee bank and is
delivered to it in payment of or as security for a personal debt of the
fiduciary to it, the bank is liable to the principal if the fiduciary in fact
commits a breach of the obligation as fiduciary in drawing or delivering the
check.” R.C. 5815.07.
{¶26} As the trial court in the case sub judice noted, the first
paragraph of R.C. 5815.07 pertains to the liability of the drawee-payor bank.
Pickaway App. No. 10CA2 13
In the case sub judice, the drawee-payor bank is Huntington, with which
Peters held a corporate account. The second paragraph of R.C. 5815.07
applies when the drawee-payor bank is also the payee. As such, neither
paragraph applies to the matter at hand. TSB was the payee in Webb’s
fraudulent transactions, but it was Huntington who was always the drawee-
payor. As the trial court noted, the Inkrott decision addressed a
circumstance dealing with a bank and its own customer. In the case sub
judice, Peters was never a customer of TSB. As the trial court stated, “[i]n
short, Inkrott and R.C. 5815.07 are inapposite because TSB was not the
drawee.
{¶27} We further agree with the trial court that the recent Third
District case, W. Ohio Colt Racing Assn. v. Fast, supra, is highly relevant to
the instant matter. In that case, an employee of WOCRA fraudulently
deposited checks drawn on WOCRA’s account to a different bank, a bank
with which the employee, but not WOCRA, held an account. WOCRA
urged the trial court to apply Inkrott, but the court declined. The court did so
because it noted that the bank was the drawee only for the employee, not for
WOCRA. Id. at ¶27. In other words, the employee was a customer of the
bank, WOCRA was not. The same holds true in the instant matter. Webb
was a customer of TSB, but Peters was not. As such, Peters cannot benefit
Pickaway App. No. 10CA2 14
from the protection that the Inkrott decision provides. Accordingly, we find
that the Inkrott decision is not applicable in the case sub judice. As Peters’
second assignment of error is wholly based upon the Inkrott decision, the
assignment of error is overruled.
VII. Third Assignment of Error
{¶28} In its third and final assignment of error, Peters asserts that the
trial court erred in dismissing its negligence claim. Once again, we agree
with the trial court and find that Peters cannot maintain its common-law
negligence claim against TSB because that claim has been supplanted by
Ohio's UCC statute.
{¶29} As the trial court noted, Peters raises only a common-law
negligence claim in its complaint. The availability of common-law
negligence claims, and whether or not such claims are precluded by the
UCC, was specifically addressed in Amzee Corp. v. Comerica Bank-
Midwest, supra. As previously stated, in Amzee, an employee fraudulently
deposited her employer’s checks at her own bank in order to make payments
to her personal credit card account with the bank. The employer filed a
complaint against the employee’s bank for negligence. Though noting that
if the UCC controlled, the employer had no redress, the court still held that
the UCC supplanted the employer’s general, common-law negligence claim:
Pickaway App. No. 10CA2 15
“If parties are permitted to avoid the remedies of the UCC and plead
common law causes of action, the reliability, uniformity and certainty of the
UCC disappears. In many cases, a pleader could rely on a common law
action to avoid the clear mandates of the UCC, virtually eliminating the
objectives for adopting a uniform governing commercial transactions.” Id.
at ¶48. Consistent with the ruling in Amzee, we find that, given the facts and
circumstances of this case, Peters’ common-law claim for negligence has
been supplanted by Ohio’s UCC statute.
{¶30} Peters also claims that even if its common-law negligence
claim is barred, it still has a negligence claim under the UCC because of the
application of R.C. 1303.44. That section, entitled Impostors; fictitious
payees, states, in relevant part, the following:
{¶31} “(B) If a person whose intent determines to whom an
instrument is payable under division (A) or (B) of Section 1303.08 of the
Revised Code does not intend the person identified as payee to have any
interest in the instrument or if the person identified as payee of an instrument
* * * .”
{¶32} “(D) With respect to an instrument to which division (A) or
(B) of this section applies, if a person paying the instrument or taking it for
value or for collection fails to exercise ordinary care in paying or taking the
Pickaway App. No. 10CA2 16
instrument and that failure substantially contributes to loss resulting from
payment of the instrument, the person bearing the loss may recover from the
person failing to exercise ordinary care to the extent the failure to exercise
ordinary care contributed to the loss.”
{¶33} Peters argues that R.C. 1303.44(D) created a duty of care on
the part of TSB when it took the checks Webb presented (with TSB as the
payee) and then allowed Webb to deposit the proceeds of those checks into
one of his accounts. However, we agree with the trial court that Peters is not
entitled to the relief provided by R.C. 1303.44(D) because Peters does not
qualify as a party under R.C. 1303.44(B). For R.C. 1303.44(B) to apply, the
drawer of a check must not intend for the payee to have any interest in it.
Here, Peters was the drawer and TSB was the payee. Further, the record
shows that Peters was fully aware that TSB was the payee of the checks in
question. And TSB’s designation as payee gave it an explicit interest in the
checks.
{¶34} As the trial court stated in its decision, “[Peters] trusted
Webb’s representations that making the checks payable to TSB was
necessary to pay [Peters’] taxes, and further trusted Webb's representations
as to the amounts payable. * * * The problem here was [Peters’] confidence
in Webb, not the identification of TSB as payee. Therefore [Peters’] may
Pickaway App. No. 10CA2 17
not recover from TSB under R.C. 1303.44(D).” See, also, Hobart Mfg. Co.
v. Fidelity & Deposit Co. of Md. (C.A.Ohio 1966), 8 Ohio Misc. 274, 360
F.2d 453. Accordingly, because Peters cannot maintain a claim of
negligence against TSB, either in common-law or under the UCC, we
overrule his third and final assignment of error.
VIII. Conclusion
{¶35} After reviewing the record below, we find that none of Peters’
assignments of error are warranted. The trial court correctly determined that
under the circumstances of this case, Peters is unable to maintain a cause of
action against TSB for conversion, wrongful payment of checks, or
negligence. Thus, because there is no genuine issue of material fact, and
reasonable minds can come to but one conclusion, and TSB is entitled to
judgment as a matter of law, we affirm the trial court’s decision to grant
summary judgment.
JUDGMENT AFFIRMED.
Pickaway App. No. 10CA2 18
JUDGMENT ENTRY
It is ordered that the JUDGMENT BE AFFIRMED and that the
Appellee recover of Appellant costs herein taxed.
The Court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this Court directing
the Pickaway County Common Pleas Court to carry this judgment into
execution.
Any stay previously granted by this Court is hereby terminated as of
the date of this entry.
A certified copy of this entry shall constitute the mandate pursuant to
Rule 27 of the Rules of Appellate Procedure.
Exceptions.
Abele, J. and Sadler, J1.: Concur in Judgment and Opinion.
For the Court,
BY: _________________________
Matthew W. McFarland, Judge
NOTICE TO COUNSEL
Pursuant to Local Rule No. 14, this document constitutes a final
judgment entry and the time period for further appeal commences from
the date of filing with the clerk.
1
Judge Lisa L. Sadler from the Tenth District Court of Appeals sitting on the Fourth District Court of
Appeals by appointment of the Supreme Court of Ohio.