Court Opinion

ID: 9478783
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:57:57.32563+00
Date Added: 2024-06-11T17:46:36.982224
License: Public Domain

RYAN, Circuit Judge,
dissenting.
I agree that under Tenn.Code Ann. § 47-3-305(2)(c) Turner may establish a “real” defense of fraud in the factum due to the alteration resulting from the “whiting out” of United American Bank in Knoxville as creditor on the guaranty, and the substitution of City and County Bank of Knox County. However, I differ with the majority in its analysis of Turner’s entitlement to assert a defense under Tenn.Code Ann. § 47-3-406. Because I conclude that the district court’s finding that Turner’s negligence in executing the guaranty in blank substantially contributed to the alteration of the guaranty was not clearly erroneous, I would hold that under Tenn.Code Ann. § 47-3-406 Turner should be precluded from asserting the defense of alteration.
Neither Turner nor the majority seriously contend that Turner’s execution of the guaranty in blank was not negligent. The majority’s holding that § 47-3-406 is not *277applicable is based on its observation that it “can find no facts in the record which would lead [it] to believe that Turner was the cause of the fraud.” (Emphasis added.)
The majority takes an inappropriately narrow view of the causation requirement of § 47-3-406. Section 47-3-406 is entitled “Negligence contributing to alteration or unauthorized signature” (emphasis added), and it plainly provides that it applies to “[a]ny person who by his negligence substantially contributes to a material alteration” (emphasis added). Comment 1 to § 47-3-406 states that the section is intended to follow the doctrine that “a drawer who so negligently draws an instrument as to facilitate its material alteration is liable to a drawee who pays the altered instrument in good faith” (emphasis added).
The district court held:
If Mr. Turner had made sure that the guaranty was completed properly, the forger’s job would have been much more difficult. Not only would he have to alter the name of the bank, but he would also have to alter the identity of the debtor and possibly the amount of the guaranty. By executing the continuing guaranty in blank, Mr. Turner made the forger’s job much easier____ This conduct was a proximate cause of the guaranty being misused.
In light of the broad language of causation in § 47-3-406, this finding by the district court is not clearly erroneous.
Although it might appear harsh to hold Turner liable on the fraudulently altered guaranty,
[t]he equitable maxim that where one of two innocent persons must suffer by reason of the fraud of a third person, the party whose act, omission, or negligence enabled the third person to consummate the fraud should bear the loss, is a fundamental theory upon which the Uniform Commercial Code rests.
Brownlow v. Aman, 740 F.2d 1476, 1489 (10th Cir.1984). The loss in this case should fall upon Turner, whose execution of the guaranty in blank substantially contributed to and facilitated its alteration, rather than upon the FDIC, which has a status akin to a holder in due course.
I would affirm the judgment of the district court.1

. I also differ with the majority’s holding with regard to the D’Oench estoppel doctrine. Based on D’Oench and progeny, Turner’s execution of the guaranty in blank lent himself to a transaction likely to misleading banking authorities— indeed the majority acknowledges that such an act "leads to deceptive schemes.” See Federal Deposit Insurance Corp. v. Morrison, 816 F.2d 679 (6th Cir.1987) (per curiam); Federal Deposit Insurance Corp. v. Investors Associates X., Ltd., 775 F.2d 152 (6th Cir.1985). However, the D’Oench doctrine only precludes assertion of "personal” defenses; therefore, because Turner’s defense is a “real” defense, the D’Oench doctrine would not preclude its assertion.