DocketNumber: No. C-940817.
Citation Numbers: 666 N.E.2d 332, 106 Ohio App. 3d 465
Judges: PAINTER, Judge.
Filed Date: 9/27/1995
Status: Precedential
Modified Date: 1/13/2023
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 467 [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 468
While the parties dispute the ramifications of the following acts and authorizations, the record reflects different periods of time during which Ryan had different authority for manipulating the account. Prior to September 1987, Ryan was not listed on either signature cards or corporate resolutions as an authorized signer for the account. However, between May 1987 and September 1987, Ryan signed and cashed twenty-four checks totalling $17,058.81.
Until 1987, PFI had required two signatures of its officers to withdraw money from the account. On September 11, 1987, Savin, as president of PFI, personally reduced the required signatures to one via signature card. A corresponding corporate resolution, also dated September 11, 1987, was signed by Ryan as secretary; however, she was the treasurer, not the secretary, and unauthorized to sign the resolution. Savin stated that he made Ryan the sole authorized signer for the account because he and his wife were away up to six months of the year and he did not believe that Ryan could steal from PFI with the accountant "serving as a watchdog." However, Ryan was authorized both to write the checks and to reconcile the returned checks in the company books. Because she used bogus entries for the reconciliations, the accountant was unable to discover the embezzlement by simply looking at the books.
Another signature card and corporate resolution were submitted to Central Trust March 10, 1988, to change one of the authorized signatures, but Ryan still was listed as an authorized signer. These documents were signed by Savin and PFI secretary Gloria Savin, respectively. Therefore, three distinct periods of time must be examined to determine the scope of Ryan's authority: prior to September 11, 1987, between September 11, 1987, and March 10, 1988, and after March 10, 1988. *Page 469
Central Trust discovered Ryan's embezzlement and promptly reported it in November 1990. The Hamilton County Court of Common Pleas convicted Ryan for the embezzlement in 1991.
In March 1991, Savin sold PFI to Hunting Specialty Products, Inc., but retained the right to continue to prosecute the instant action against Central Trust. After PFI first brought an action against Central Trust in 1991 and voluntarily dismissed the action in 1992, Savin filed this action against Central Trust in June 1993, asserting three claims. Savin claimed that (1) Central Trust breached contractual obligations as payee of the checks that Ryan cashed; (2) Central Trust was negligent in tort for treating the checks as bearer paper rather than as order paper; and (3) Central Trust breached its fiduciary duty to Savin and PFI. The trial court granted summary judgment in favor of Central Trust, and Savin brings this appeal.
Savin quotes the Ohio Supreme Court's decision in MasterChem. Corp. v. Inkrott (1990),
"If the payee bank assumes, without investigation, that the instructions of the presenter are those of the drawer, the payee bank does so at the risk of *Page 470 discovering that no such directions were given by the drawer. The payee bank becomes liable for the misdirected funds."
The court clearly indicated that this stated rule is the common-law rule which has been significantly altered by the Uniform Fiduciaries Act. Id. at 25,
The court stated that the Act was developed "to facilitate commercial transactions, by relieving those who deal with authorized fiduciaries from the duty of ensuring that entrusted funds are properly utilized for the benefit of the principal by the fiduciary." Id. (citing Zions First Natl. Bank v. ClarkClinic Corp. [Utah 1988],
Citing Inkrott, Savin argues that the Uniform Fiduciaries Act only protects Central Trust if (1) Ryan was a fiduciary, (2) Central Trust had adequate documentation of the scope of Ryan's authority, and (3) Central Trust's actions were "commercially justifiable." However, under our reading of Inkrott, Savin must show that Central Trust had actual knowledge of the fiduciary's breach of fiduciary obligations, that the bank had knowledge of sufficient facts that its actions amounted to bad faith, or that the fiduciary was indebted to the bank and the funds were applied to that indebtedness. Id. at 27,
The only one of these three possibilities asserted is that Central Trust had knowledge of sufficient facts that its actions amounted to bad faith. The Act does not define "bad faith," but courts have looked to whether the transaction is "commercially unjustifiable" to determine whether the bank acted in bad faith.Id.,
The Inkrott court stated that the Act shields a bank from liability when the bank knows of the existence of the fiduciary relationship and when the fiduciary in fact possesses the authority to conduct the transaction in question. Id.,
The Uniform Fiduciaries Act section defining "fiduciary" includes agents, officers of corporations or any person acting in a fiduciary capacity. R.C.
Ryan became the bookkeeper of PFI beginning in May 1987. Ryan was first listed at Central Trust as the treasurer of PFI on a signature card dated September 11, 1987, and signed by Savin. The record is unclear when Ryan was elevated from bookkeeper to treasurer, or whether these two titles described the same position. However, Savin explicitly stated that Ryan was authorized to withdraw funds from the account and transact business on the account. Therefore, with respect to the account, Savin repeatedly admitted in the record that Ryan was able to manipulate the account for PFI. In this capacity, Ryan was clearly an agent for PFI; hence, she was a fiduciary. Even without this admission, we can be certain that after the signature card was signed by Savin and submitted September 11, 1987, Ryan served as a fiduciary of PFI with respect to the account.
Conversely, for that period prior to September 11, 1987, we find nothing in the record that indicates that Ryan was a fiduciary of PFI in conjunction with the account. She was not an authorized signer. However, Central Trust asserts that R.C.
Central Trust argues that the savings clause does not apply to the facts of this case. R.C.
Savin argued below that the savings clause must apply to avoid a "farcial" result. In his view, to hold otherwise in the context of this case would mean that only PFI, which no longer had standing, could have advanced the claim in the *Page 472 refiled action to make it "substantially the same," because PFI was the only one to file the claim within the statute of limitations initially. Savin also stated below that Savin "should have been included as a plaintiff in [the January 1991] suit."
Under R.C.
Savin brought this action more than two and one half years after discovering Ryan's embezzlement. Because Ryan was not a fiduciary on the account for PFI prior to September 1987, R.C.
As previously noted, Ryan was a fiduciary of PFI for the period after September 11, 1987. We must determine whether Ryan also possessed the authority to cash the checks.
On September 11, 1987, a validly signed signature card and an improperly executed corporate resolution were submitted to Central Trust. Another valid signature card and valid corporate resolution were submitted to Central Trust March 10, 1988. These documents determined the scope of Ryan's authority with respect to the Central Trust account.
Both the September 11, 1987, and the March 10, 1988, signature cards stated that "[d]epositor hereby authorizes bank to recognize any 1 of the following signatures in the withdrawal of funds from or transactions of other business on this account."
Each card then listed valid signatures: four signatures, including "Margaret D. Ryan," on the September card, and five valid signatures, including "Margaret D. Ryan," on the March card. Both cards were signed by Savin in his capacity as president of PFI.
The September 11, 1987 corporate resolution stated in paragraph two that: *Page 473
"Resolved, further, that all drafts, checks and other instruments or orders drawn against the regular 001009699 account(s) of this corporation in the said depositary shall be signed by 1 of the following: Vice President, Vice President, Controller, President and * * * that the Bank is hereby authorized to accept or pay or apply, * * * any draft, check, instrument or order for the payment of money drawn on such account or accounts which bears the signature or signatures now or hereafter authorized including such as may be to the order of any person whose signature appears thereon * * *."
At the end of the resolution, the names of those authorized included "Margaret D. Ryan" as "Treasurer." This resolution was signed by Ryan as secretary, when she was otherwise clearly listed as treasurer. The record does not adequately indicate why Ryan signed instead of Gloria Savin, the secretary of PFI. However, Ronald Savin repeatedly indicated during his deposition testimony that Ryan was intended to be given authority to conduct transactions with the account as the sole authorized signer.
The March 10, 1988 corporate resolution had the same language as the previous resolution. However, PFI left blank the area in paragraph two that required the listing of who was authorized to sign checks. Instead, a list was given in the next paragraph, authorizing loans, advances, and lines of credit by those listed. This subsequent paragraph did not include a number of signatures required to enter these transactions. This resolution was validly signed by the secretary, Gloria Savin. Central Trust accepted these resolutions to indicate, as PFI intended, that Ryan had actual authority to withdraw funds and transact business with the account. Savin repeatedly admitted in his deposition that Ryan did have that actual authority. The ability of Ryan to make use of the account from May 1987 to November 1990 without complaint by PFI or Savin further substantiates Ryan's actual authority with respect to the account.
The only remaining issue is whether the surrounding facts were so obvious that for Central Trust to remain passive amounted to a deliberate desire to evade knowledge because inquiry would disclose a defect in the transactions. Here, the apparently invalid corporate resolutions bring Central Trust's actions into question. G. Carlton Hill, Jr., an expert in banking practices, stated that standard banking practices require a bank to acquire a valid signature card for those signatures authorized on the account as evidenced by a corporate resolution certified by an officer. The September 11, 1987 resolution was not certified by an officer. Instead, it was signed by Ryan, the embezzler. The March 10, 1988 resolution was signed and certified, but the area designating those authorized on the account was left blank, with the names inadvertently appearing elsewhere. Thus, standard practices were not followed. In Hill's opinion, that failure was "commercially unreasonable." *Page 474
However, to be commercially unjustifiable, the errors in the corporate resolutions ignored by Central Trust would have to lead to the discovery of a defect in the transactions. SeeInkrott, supra. Instead, the errors would have simply been corrected, because as we have already observed, Ryan was an authorized fiduciary on this account. Unlike the bank inInkrott, Central Trust did not transfer money from the account to Ryan's personal account. Central Trust had no knowledge of what purpose an authorized signer of PFI might have for the cash, and fulfilled its obligation by sending monthly bank statements to PFI, fully disclosing the transactions on the account. PFI negligently failed to ensure that those statements were correctly reconciled with the checks because Ryan fulfilled both functions for PFI. Ryan altered the entries to fraudulently reconcile the checks and the accounts payable. The most Central Trust could have done, in light of all of the cash that Ryan was withdrawing, would have been to notify other PFI officers of the suspicious cash withdrawals. Central Trust failed to notify PFI that Ryan was doing what she was authorized to do: withdrawing funds from the account. Ryan's actions did not rise to the level of being "so obvious" that for Central Trust to remain silent amounted to a deliberate desire to evade knowledge because inquiry would disclose a defect in the transactions, when Central Trust did not know where the money was going, as was the case in Inkrott. Therefore, Central Trust's actions, while not optimal, were not commercially unjustifiable under the Uniform Fiduciaries Act.
For these reasons, the first issue advanced by Savin does not render the court's entry of summary judgment erroneous.
Savin argues that Central Trust was not a holder in due course because Central Trust dealt directly with PFI. R.C.
In this case, Ryan, as PFI's treasurer, was the holder in privity with Central Trust. Therefore, PFI could assert personal defenses against Central Trust, but not claims. Central Trust vigorously argues that Savin was asserting a claim, not a defense. We agree. Savin was bringing an action against Central Trust to recover embezzled funds. This is vastly different from Central Trust bringing an action against PFI to recover on a dishonored check. In the latter case, PFI could assert personal defenses. However, in this case, Central Trust, as a holder in due course, took the checks free from all claims asserted by Savin.
Therefore, this issue does not prevent the entry of summary judgment for Central Trust.
We have already stated that Central Trust acted in good faith because any failure did not rise to the level of being "so obvious" that Central Trust could have harbored a deliberate desire to evade knowledge because inquiry would disclose a defect in the transactions.
Central Trust argues that the "bad faith" standard is wholly inapplicable to holders in due course. We agree. The Ohio Supreme Court held simply that a holder in due course acted in good faith where it acted "honestly." Nye, supra. Therefore, commercial reasonableness is the wrong standard for deciding whether Central Trust acted in good faith under the holder-in-due-course doctrine.
Savin next argues that Central Trust had enough facts to constitute notice of PFI's claims. We disagree. As in Nye, the mere arousal of suspicion by the circumstances alone is insufficient notice, or knowledge, of a claim. Id. We cannot find any evidence in the record that would suggest that Central Trust did not act "honestly."
Therefore, this issue fails to invalidate the trial court's entry of summary judgment.
In Nye, the Ohio Supreme Court recognized the difficulty presented by Savin. The court held that while such "a claim sounding in tort has its genesis outside the UCC" once an action is brought, "the UCC will govern the rights and liabilities of the parties in such action." Nye, supra,
Judgment affirmed.
GORMAN, P.J., and MARIANNA BROWN BETTMAN, J., concur. *Page 477