### IN THE COURT OF APPEALS OF TE NNESSEE AT KNOX VILLE A ugus t 11
, 200 4 S es sio n

CITIZ ENS FIR ST BA NK v. A ND REW N. HA LL

Direc t Appeal from the Circ uit Court for Morgan County No. 6314C Hon. Russell S im m ons, Jr., Circuit Judge

No. E2003-02678-COA- R3-CV - F ILED JANUARY 24, 2005

Th e Tria l Co urt e nte re d Jud g me nt f or plaint if f o n lo a n to de fe nd a nt an d s e t of f the a mou nts of

c e rt a in fo rg e d c he c ks on de fe nd a nt’ s a c c ou nts wi th b a nk a g a ins t pl a int if

f’ s r e c ov e ry . We a ff

ir m.

Te nn. R . A pp. P .3 App e al a s o f Rig ht ; J udgm e nt of t he Ci r c uit

Co ur t A ffirm e d.

H ER SCH EL P I CKE N S F RAN KS , P.J
., delivere d the opi nion of the court, in which D. M I CH A EL S WI NEY , J ., and S HAR ON G. LEE , J ., joined.

B ill y P. Sa ms, Oa

k Ri dg e , T e nn e sse e , f

or app e lla nt.

J ames Frank Wilson, W artburg , Tenne ssee, f or appe llee.

OP IN ION

Plaintiff Ba nk brought ac tion to recove r on loan made to defe ndant. Def endant
counter -cla imed, alleg ing that Bank had honore d forg ed che cks on his acc ounts and that he wa s entitled to a set-off ag ainst the loan. The Trial Court, a fter hearing e vidence , enter ed Judgment for pla int if f on th e loa n in fa vo r o f the B a nk , f ou ndin f a vo r o f d e fe nd a nt a s to c e rt a in c he c ks on his

c ou nte r- c la im, bu t rule d in fa vo r o f the B a nk on a $4 ,0 00 .0 0 f

or g e d c he c k dra wn on de fe nd a nt’ s tr us t

a c c ou nt. De fe nd a nt h a s a pp e a le d to thi s Co urt.

Def e n d a n t h a s n o t p r e s e n te d a s e p ar a te s tate me n t o f th e is s u e s , a s r e q u ir e d bythe Rul e s, (R ule 27 Te nn . R. Ap p. P., ) b ut the fi rs t se nte nc e of his arg ume nt s ta te s:-2- Did the trial court err or apply the wrong standard of

revue [si c] in determining that Andre w N. Ha ll has not carried his burden of proof that he g ave notice befor e the one
y ear ?

Th e iss ue is i na

rt fu lly dr a wn , b ut w e fr a me the iss ue fo r re vie w as to wh e the r de fe nd a nt’ s f a ilu re to revie w his bank statements, discove r any irreg ularities and notify

the Bank, precludes his counterclaim ag ainst the Ba nk. The B ank has e ssentially raised this issue in its brief.

Th e B ank in it ially

br ou g ht this a c tio n in Se ssi on s Co urt on a pr omi sso ry

no te executed bythe def

endant, a nd was a war ded Judgment on the note, plus attorne y ’s fe es. De fenda nt appea led the total J udg ment of $12,358.68 to the Circuit Court, where defe n d an t filed a c ounterclaim setting out that he had “ suffe red the loss of $5,313.13 in funds wrong fully paid” to the f

org er. I n his counter- complaint he set forth the chec ks at issue, dated Ma rch 6, 2002 - $140.00, Marc h 8, 2002 - $200.00, April 4, 2002 - $4,000.00, A pril 12, 2002 - $57.26, May 6, 2002 - $320.00, May

15, 2002 - $140.00, May

17, 2002 - $455.87. Def endant averr ed that he lea rned of the forg erie s on or about May

17, 2002 and immediately informed the B ank.

At the conc lusion of t he evidentiary hearing, the Trial C ourt ruled that plainti ff wa s entitled to r ecove r on its note ag ainst the defe ndant, and as to the counter -cla im, said that the parties
ag ree d that the che ck in the amount of $455.87 could not be verifie d as having been cashe d, and wa s taken out of the claim, re ducing the claim to $4,857.26.

The Trial Court continued that the evidence showed that the checks at issue wer e on two acc oun t s , o n e b ei ng a trust ac count and the othe rs on an of fice acc ount, and the evide nce “showe d Andre w Hall first discove red irr eg ularities in the trust acc ount when a c heck on it wa s dishonored. The chec k was pre sented on April 18, 2002 and returned on April 19, 2002. The Court continued that when Andrew Hall was noti fied by the Bank he called the B ank and disc overe d that a $4,000.00 che ck had be en ca shed on the a ccount. The Court c oncluded that Andre w Hall has not

car ried his bur den of proof that he made c laim on that chec k befor e the oney ear statute expired. The Court further

explained, “on di scussion of t he matter with the employ ee, Andrew Hall indicated he fired the employ ee, but r ehire d her w hen she ple aded w ith him. He a lso had an a g ree ment that she would pay

back the $4,000.00, which he claimed she never paid back. Andre w Hall did not enter

a ny te sti mon y

that he ma de a sp e c if

ic re qu e st to the B a nk , eithe r in w ri tin g or ve rb a lly to c ov e r this particula r che ck.” T he Court conc luded he made n o claim to cover this forg ery

until after he was sued by the B ank.

The fa ctual finding s of the Trial Court a re a ffor ded a pr esumption of corr ectne ss, and wi ll n ot b e ov e rtur ne d o n ap pe a l un le ss the e vid e nc e pr e po nd e rate s a g a ins t th e m. See , Tenn. R. App. P. 1 3( d) ; Bogan v. Bogan
, 60 S.W. 3d 72 1, 72 7 (T e nn

. 20 01 ). Ho we ve r, wi th r e sp e c t to le g a l is su e s, the re view is de novo , w ith no de fe re nc e to thec on c lus ion s o f l a w m a de by the low e r c ou rt s. Southern Constructors, Inc. v. Loudon County Bd. of Educ. , 58 S.W .3d 706, 710 (Tenn. 2001)

.

The well-settled rule in forg ery case s as between the customer a nd the bank, is the-3-

bank must bear the loss whe re money has been paid as a re sult of a third party forg ing the draw er’ s signature on a chec k. Kal ey e t al v . U nio n P lan te rs N

at’ l B an k of M e mp his

, 775 S.W .2d 607, 609 (Tenn. Ct. App. 1988).

I f the B ank can show that the depositor fa iled to exercise ordina ry car e with re spect to duties imposed in Tenn. Code Ann. 47-4-406(c), then it will not be li able on the forg erie s. Tenn. Code Ann. 47-4- 406(d).

I nq uirie s a s to the app lic a tion o f the Sta tut e , T .C. A. § 4 7- 3- 40 6 a re hig hly fa c tua l. See, Bank/First Ci tizens Bank v. Citizen’s & Assoc., 825 S.W .3d 259 (Tenn. 2002) . The e vidence does not preponde rate ag ainst the Trial Court’s finding on the $4,000.00 chec k honored by the B ank. The e vidence establishes that it was the B ank’s pr ocedur e whe n notified of a f org ery to have the de po sit or make a n A ff

ida vit of F or g e ry . N o su c h Af

fi da vit wa s c omp le te d a s to thi s c he c k. Whil e de fe nd a nt testif

ie d th a t he tol d a

B a nk e mpl oy e e ov e r the ph on e that th e $4 ,0 00 .0 0 c he c k w a s a forg ery , h i s ac t i o n s support the Trial Judge ’s conc lusion that he did not make a c laim ag ainst the Ba nk for this forg ery

until this suit wa s filed. Hall testified that he became awa re of the $4,000.00

c he c k d ra wn on his trus t a c c ou nt o n Satur da y , a ft e r A pril 4 . H e te sti fi e d that he c he c ke d h is m a il and that he ha d a statement from the Ba nk that a chec k he had written to the J uvenile Court Clerk

“ ha d b ou nc e d” , w hic h w a s in the a moun t of a li tt le ov e r $ 2, 50 0. 00 . H e the n c a lle d th e B a nk to enquire about why the chec k bounced, and the bank e mploy ee w ent over his acc ount and advised that Ang ela Davis had cashe d the $4,000.00 chec k at a drive-in window for a loan. He testified that he tol d th e B a nk

e mpl oy e e that sh e ha d f

or g e d th e c he c k, bu t he the n d e po sit e d mo ne y in the ba nk

so that the Cle rk ’s c he c k wou ld cl e ar, a nd he fi re d his emplo y e e , Ang e la Da vis , but the n c ha ng e d h is mind and “g ave he r anothe r cha nce” . She ag ree d to repa y him the $4,000.00.

The B ank insists that Hall’s neg lige nce pr eclude s any rec overy , i n t hat he hire d a kn ow n th ie f a s a n e mpl oy e e , didn ’t take pr op e r pr e c a uti on s, a nd the n r e hir e d h e r o n th e sa me date he fi re d h e r f

or ste a lin g fr om h im. Al so , he le ft his c he c k b oo ks wh e re dis ho ne st e mpl oy e e s c ou ld

e a sil y a c c e ss the m. H e faile d to c he c k a nd re c on c ile his ba nk state me nts in a

tim e ly ma nn e r, a ndin his le tter of J une 5 to the Ba nk reque sting c opies of the c hecks, he did not ex plain why he nee ded the c he c ks

. Th e Tria l Co urt’ s r e mark s d id n ot a dd re ss the iss ue of ne g lig e nc e a ndpr oximate c a us e direc tly , rathe r, the Trial Court focused on de fenda nt’s conduct in terms of whether timely notice wa s g iven. Since the Court aw arde d a set-of f for the offic e ac count checks, i t is implicit in his ruling that the pla int if

f d id n ot e sta

bli sh de fe nd a nt’ s c on du c t w a s ne g lig e nt andthe pr oximate c a us e of the se los se s.

The B ank ins ists that Hall never m ade a claim for the $4,000.00 forg ery

until a y ear had elapsed, and if a claim had been m ade, the Ba nk would have ta ken an A ffidavit of F org ery and

cre dited Hall’s ac count. As stated e arlier , the evidence d o es n o t preponde rate ag ainst the Trial Cou rt ’s fi nd ing on thi s is su e . I n s um, Hal l, whe n lea rnin g of the fo rg e ry , d id n ot m ake a c la im
ag ainst the Ba nk but deposited m onies to cover the overdraf t and sought to rec over from the for g er. He did not forma lly

make a claim until the counter- claim was f iled in this action.-4- On the B ank’s issue of

whether Hall was e ntitled to credit for the rema ining f org ed

c he c ks , th e e vid e nc e do e s n ot p re po nd e rate a g a ins t th e Tria l Co urt’ s fi nd in gs. Te nn . R. Ap p. P. 13( d )

. H a ll te s ti f

ie d th a t w h e n h e f

ir e d a n d r e h ir e d h is e mp lo y e e , h e d id n o t k n o w th a t s he had

a c c e ss t o h is a c c ou nt o n w hic h th e se c he c ks we re fo rg e d. Ha ll t e sti fi e d w he n h e le arn e d o f the se forg erie s, he closed the office acc ount and opene d another acc ount with the Ba nk in late May , and told the Ba nk employ ee about the forge ries in his office acc ount. Hall t estified that when he we nt to the Ba nk in September of 2002 to rene w his note
, the President of the Ba nk asked him what was g oing on, a nd that he told the President that he couldn’t pay off the note bec ause c hecks f org ed on his acc ount had put him in the hole. Whi le the B ank’s President disputes this testimony , the Court obviouslycre dited Hall’s re counti ng of this conver sation because it commented that “ a delay of three months was not unr ea s o nable” in giving notice to the B ank, which a ppare ntly ref err ed to the September 2002 me eting betwee n the Bank’s Preside nt and Hall, and the Court additionally found “that the rea sons for the transac tion wer e dis cussed, the notice was g iven t o the B ank . . . the B ank was notified a s to the office acc ount.” The e vidence does not preponde rate ag ainst the Trial Court’s finding that the def

endant wa s entitled to the set-off for those c hecks. Te nn. R. App. P. 13(d).

For the fore g oing r easons, we aff irm the J udg ment of the Trial C o u rt and remand, wi th the c os t of the app e a l a sse sse d on e -h a lf to C iti zen s F ir st B a nk

a ndon e -h a lf

to A nd re w N . H a ll.

______________________________ H ER SCH EL P I CKE N S F RAN KS , P

. J.