Court Opinion

ID: 2697961
Source: CourtListenerOpinion
Date Created: 2014-08-04 17:16:37.122774+00
Date Added: 2024-06-11T12:24:25.852047
License: Public Domain

[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.