Ambassador Financial Services, Inc. v. Indiana Nat. Bank

• Decision Date: 23 December 1992
• Docket Number: No. 41S04-9212-CV-1026,41S04-9212-CV-1026
• Citation: 19 UCC Rep.Serv.2d 1121,605 N.E.2d 746
• Parties: 19 UCC Rep.Serv.2d 1121 AMBASSADOR FINANCIAL SERVICES, INC., Appellant (Plaintiff Below), v. The INDIANA NATIONAL BANK and First Union National Bank, Appellees (Defendants Below).
• Court: Indiana Supreme Court

Page 746

605 N.E.2d 746

19 UCC Rep.Serv.2d 1121

AMBASSADOR FINANCIAL SERVICES, INC., Appellant (Plaintiff Below), v. The INDIANA NATIONAL BANK and First Union National Bank Appellees (Defendants Below).

No. 41S04-9212-CV-1026.

Supreme Court of Indiana.

Dec. 23, 1992.

Rehearing Denied March 24, 1993.

Catherine C. Kennedy, Indianapolis, for appellant.

R.C. Richmond, III, Indianapolis, for appellees.

SHEPARD, Chief Justice.

This case presents an issue of first impression for this Court: whether the "intended payee" defense is available under Indiana law to relieve a bank from its liability for paying a check over the forged endorsement of a payee. We hold that it is available.

Procedural History

Ambassador Financial Services, Inc. ("Ambassador") filed suit against The Indiana National Bank ("INB") and First Union National Bank (f/k/a First Georgia Bank) ("First Union") over the acceptance and payment of three checks written on Ambassador's INB account. Ambassador alleged that First Union wrongfully paid and INB wrongfully charged Ambassador's account on the checks because the endorsement of one of the two co-payees on each check was forged. Ambassador sought a refund of the total amount of the three checks, statutory damages, attorney's fees, and costs. First Union and INB raised several affirmative defenses in their answers, including claims that Ambassador's own negligence in regard to the checks substantially contributed to the alleged forgeries.

Ambassador moved for summary judgment on its claims, and the banks responded with a joint motion for summary judgment. The banks argued that Ambassador was not entitled to recover because the proceeds from the checks actually reached the person whom Ambassador intended to receive them.

The trial court denied Ambassador's motion for summary judgment and granted the banks' motion. In granting the motion, the court made the following findings:

1) The alleged forger/payee not only was the individual for whom the money was intended, but the Plaintiff herein sent the checks to this individual while he still had the vehicles.

2) All persuasive authority, even examining the facts most favorable for the Plaintiff, direct as a matter of law that the Defendant's [sic] are entitled to Judgment.

3) There exists no Indiana Authority on this point, yet.

(Record at 321).

Ambassador appealed the trial court's grant of summary judgment to the Indiana Court of Appeals. It argued that even if the intended payee defense is recognized under Indiana law, the defense does not apply under the facts of this case. According to Ambassador, the defense does not apply when the co-payee whose signature was forged or missing was an integral part of the transaction and suffered damages as a result of the forgery.

The Court of Appeals rejected Ambassador's argument and affirmed the trial court. Ambassador Fin. Servs. v. Indiana Nat'l Bank (1992), Ind.App., 591 N.E.2d 1061.

The issue presented to this Court on Ambassador's petition to transfer is whether the intended payee defense is available to INB and First Union to relieve them from liability for payment of Ambassador's checks over the forged endorsement of a co-payee. ¹ We grant transfer.

Facts

Ambassador first became involved in the transaction giving rise to this case in September 1986, when Harry Walsh contacted it about financing the purchase of several Mercedes Benz automobiles for prospective investors whom Walsh had found. Walsh represented himself as the half owner of Beltax Corporation ("Beltax"), a company located in Atlanta, Georgia. Robert Cunningham, Frank Mutz, and Donald Dewhurst ("the investors") were to purchase certain automobiles which would be imported from abroad and later leased to Beltax for its limousine business. Each purchase was to be secured by a note on which Beltax would make payment. The investors would own the automobiles but would not pay insurance or make any payments on them. The lease arrangement would yield the investors tax credits and a percentage of the profits realized from the lease.

Ambassador apparently was never completely informed of the details of the sales transaction. From the initial negotiations, Ambassador did understand that Beltax would be making the payments on the car notes for the investors.

As it took steps to establish the financing, Ambassador received information about the automobiles, the manner of importation the investors, and insurance verification for the automobiles. It also received credit applications for each prospective automobile purchaser. Walsh provided Ambassador with tax returns, financial statements, and other information about the investors.

Ambassador then provided INB with the information regarding the investors, so that it might determine their creditworthiness. INB apparently was satisfied with the transactions. INB provided Ambassador with the documents to use in the financing/sales transactions. The agreement between each investor and Ambassador took the form of a retail sales contract. Each investor executed a retail sales contract, security agreement, and truth-in-lending disclosure for the purchase of the automobile.

The record demonstrates that the parties had substantially different understandings about what Ambassador's precise legal position would be in the transaction. The investors understood Ambassador to be the seller of the automobiles. In the retail sales contracts, Ambassador was designated as the "dealer" of the automobiles. On the other hand, Ambassador understood that Walsh was the seller and that it was merely a lender. Each investor executed a note payable to INB for the automobile, and signed the retail sales contract with Ambassador. INB was further involved by virtue of its lending and checking relationship with Ambassador and its role as assignee of Ambassador's retail finance contracts.

This case arose from the circumstances surrounding Ambassador's advance of funds for the automobile purchases. In financing the investors' purchases, Ambassador was required to provide Walsh with $16,000 per car. Walsh told Ambassador that he had to pay for the cars before they were imported. He also assured Ambassador that the investors were aware of the timing of payment, and that they had authorized Ambassador to send payment for the automobiles directly to Walsh. Payment for the automobiles consisted of three checks written on Ambassador's INB account payable jointly to the investor and Walsh. Ambassador claims that it obtained the investors' permission to send the checks to Walsh. That fact is in dispute, however, as the investors claim they never granted Ambassador permission to send the checks to Walsh.

Ambassador intended that Walsh receive the funds from the checks so that he could pay the importer. Ambassador does not claim, and the record does not suggest, that the investors ever were to handle the proceeds from the checks. Ambassador made the checks co-payable to the investors so they could protect their interests in the transaction. Jointly payable checks would allow the investors to "follow the proper progress of the vehicles that they were purchasing, and eventually sign off on the checks and obtain delivery of their vehicles." (Record at 146). Ambassador assumed that each investor would not endorse his check until he was in a safe position in regards to the automobile.

Ambassador sent the three jointly payable checks to Walsh. The checks were written for $16,000 each, to the order of Mutz and Walsh, Cunningham and Walsh, and Dewhurst and Walsh. Ambassador claims that its representative called each of the investors individually to inform them that he was mailing the jointly payable checks to Walsh. According to Ambassador, "We asked them to sign off their check only when they received their cars. They assured [us] that they would only sign off on the checks as their vehicle was ready for delivery." (Record at 146). However, the investors claim that Ambassador never instructed them as to the checks, and that Walsh did not notify them when he received their checks.

None of the co-payees received, endorsed, or negotiated their respective checks. Walsh received the three checks. Without authorization, permission, or knowledge, Walsh apparently forged the co-payee's endorsements and deposited the checks into his account at First Union. The checks to Walsh and Cunningham and Walsh and Mutz were deposited in late September 1986. The check to Walsh and Dewhurst was deposited in December 1986. INB received the checks from the Federal Reserve Bank of Chicago in late September and early December 1986, and it debited Ambassador's account for them.

Each co-payee has identified the endorsement of his check as a forgery. Ambassador discovered the forgeries and notified INB of them. Ambassador demanded that INB credit its account in the amount of the three checks, but INB refused. INB has continued to refuse to reimburse the charges.

The sales transaction was never completed as planned. None of the investors received the certificates of title, bills of sale, or transfer documents for the automobiles. Walsh never delivered the automobiles as the deal required. Moreover, it appears that Beltax's business has dissolved.

INB purchased the investors' contracts from Ambassador after the transaction was funded. Ambassador warranted in its assignment to INB that it had the automobile titles in its possession. Because Ambassador never received the titles, it was in default to INB under their agreement. As a result, Ambassador deemed it necessary to pay off the loans with INB in June 1987.

Discussion

Ambassador argues that the banks are strictly liable for payment of the three checks over the forged endorsement of the co-payees and that no defense is available to relieve appellees of this liability. Ambassador argues that the intended payee defense is unavailable to the banks because the defense applies only to those forged...