Firestone Tire & Rubber Co. v. Central Nat. Bank of Cleveland

• Decision Date: 13 May 1953
• Docket Number: No. 33051,33051
• Citation: 112 N.E.2d 636,159 Ohio St. 423,50 O.O. 364
• Court: Ohio Supreme Court
• Parties: , 50 O.O. 364 FIRESTONE TIRE & RUBBER CO. v. CENTRAL NAT. BANK OF CLEVELAND.

Page 423

159 Ohio St. 423

112 N.E.2d 636, 50 O.O. 364

FIRESTONE TIRE & RUBBER CO. v. CENTRAL NAT. BANK OF CLEVELAND.

No. 33051.

Supreme Court of Ohio.

May 13, 1953.

1. Where the payment of an obligation is made by the obligor's check directly to the orignal payee and such check does not pass through the hands of an intermediary, the payee does not become a bona fide holder thereof in due course.

2. The general rule is that money paid under the mistaken supposition of the existence of a specific fact which would entitle the payee to the money, which money would not have been paid had it been known to the payer that the fact did not exist, may be recovered.

3. Negligence of the payer in failing to discover the facts will not prevent recovery where the payment is actually made under mistake of fact, and the mere failure of the payer to avail himself of means of knowledge will not preclude his recovery unless it appears that he intended to waive inquiry into the facts, was under a legal duty to ascertain them or is by law presumed to have knowledge of them.

4. Money paid to another under the mistaken supposition of the existence of a specific fact which would entitle the other to the money, which money would not have been paid had it been known to the payer that the fact did not exist, may be recovered, provided the payment does not result in such a change in the position of the payee that it would be unjust to require a refund.

5. The test of the right of recovery of money paid under mistake of fact is whether the payee has a right to retain the money and not whether he acquired possession of it honestly or in good faith. If the money belongs to the payer and the payee can show no legal or equitable right to retain it he must refund it.

6. One who originates a purported obligation of a payer to pay him as payee must take proper precautions to learn whether the purported claim or demand which he presents to the payer for payment is genuine, and if the payee, through indifference or negligence, assists, though innocently, in any fraud or mistake which induces a payment on such obligation, he will not be permitted to retain the proceeds of the payment made by the payer whose sole fault was that he did not discover the fraud or mistake before the payment was made, unless such payee in good faith changes his position so that he is in a worse position if he is required to refund it, than if the payer had refused to pay.

7. Where a payee accepting payment under a mistake of fact changes his position or disburses the money in good faith to another before he has received notice from the payer of the mistake, a recovery may not be had against such payee.

8. Where, after a payment under mistake of fact, the payee in good faith changes his position so that he no longer has possession of the money or will be in a worse condition if he is required to refund it than if the payer had refused to pay, to such extent the payee is exonerated from repayment.

9. Notwithstanding the negligence of a payee in accepting payment under a mistake of fact, he is entitled to receive reasonably prompt notice of the mistake from the payer so as to enable the payee to enforce whatever rights he may have against other persons to whom he may be entitled to look for reimbursement, and where the payer is negligent in this respect he may be denied a recovery of his money. However, the right of the payer to recover from the payee will not be defeated by any delay in giving notice of the mistake inducing the payment, unless it be shown that the delay resulted in a change of condition or position on the part of the payee.

This action was brought in the Common Pleas Court of Cuyahoga County by The Firestone Tire & Rubber Company, hereinafter designated Firestone, against the Central National Bank of Cleveland, hereinafter designated bank, for the sum of $25,979.66 paid by the former to the latter under an alleged mistake of fact. The cause was submitted to the trial court on a stipulation of facts.

On or about June 4, 1946, Firestone as purchaser ordered from Stan Wood Products, Inc., of Cleveland, hereinafter designated Stan Wood, a minimum requirement for the year 1946 of 30,000 sleds to be delivered, as directed, to Firestone's stores and warehouses located throughout the United States. Pursuant to such other, Stan Wood was directed by Firestone to ship more than 50,000 sleds to its various stores during the year in question, the sleds to be fabricated at Webberville, Michigan, and from which point the shipments were to be made.

On October 2, 1945, the bank and Stan Wood entered into a loan agreement whereby the former agreed to loan the latter working-capital funds as needed, the borrowing limit being fixed at $10,000. This limit was increased on August 28, 1946, to $20,000 and on November 8, 1946, to $50,000. Loans to Stan Wood under such authorization were to be evidenced by notes of Stan Wood, secured by the pledge of accounts receivable assigned to the bank. This loan agreement was fully executed and consummated prior to any transaction between the bank and Firestone.

On November 5, 1946, Stan Wood borrowed from the bank $10,377.60 and assigned as security therefor its accounts receivable based on invoices Nos. 1867 and 1868 dated November 4, 1946, billing Firestone for 1,100 sleds and 1,250 sleds, respectively, purportedly shipped by Stan Wood to Firestone's warehouse at Minneapolis, Minnesota. Each of these invoices was accompanied by a uniform straight bill of lading purportedly issued by a carrier at Webberville, Michigan, showing purported shipments of the sleds to Firestone.

Firestone's claim in this case involves three Stan Wood invoices, the accounts receivable for which Stan Wood assigned to the bank as security for such loans. On November 5, 1946, Stan Wood submitted to the bank its cognovit note a schedule of assigned accounts and invoices Nos. 1867 and 1868 to Firestone. On November 8, 1946, the bank made another loan to Stan Wood. The same procedure was followed and Stan Wood submitted to the bank invoice No. 1876, purporting to represent a shipment of 2,404 sleds, a schedule of assigned accounts and its cognovit note. Upon the receipt of these papers the bank made a loan to Stan Wood for the amount of the note and returned the invoices, keeping one copy for its files, and bills of lading to Stan Wood which forwarded them to Firestone. Firestone received invoices Nos. 1867 and 1868, accompanied by bills of lading, in Akron on November 8, 1946, and invoice No. 1876, accompanied by bills of lading, on November 12, 1946. Pursuant to such credit arrangement, the bank, between November 4, 1946, and November 9, 1946, advanced to Stan Wood a total sum of $20,993.66 on invoices purporting to cover shipments made to Firestone's warehouses in Minneapolis, Minnesota, and East Cambridge, Massachusetts.

On November 18, 1946, the bank by letter as follows notified Firestone of the assignments to it of the accounts above mentioned:

'This is your notification that the invoices listed below have been assigned to Central National Bank of Cleveland. This is also your notification that any checks in payment of said invoices will be forwarded to Central National Bank of Cleveland, 1612 Euclid Avenue, Cleveland, Ohio.

                "Invoice No.    Invoice Date      Amount
                    1876      11-7-46         $13,270.08
                    1868      11-4-46           6,900.00
                    1867      11-4-46           6,072.00
                    1909      11-14-46         11,481.60
                

'Kindly sign the enclosed copy of this letter and return in attached self-addressed, stamped envelope.'

On November 20, 1946, Firestone replied by letter as follows:

'Your letter of the 18th following our telephone conversation has been referred to our voucher department and two things stand out. First, we will need a note from Stanwood Products Company that we are to pay the listed invoices to you rather than direct to them * * *.'

Under date of November 21, 1946, Stan Wood wrote Firestone as follows:

'This is to authorize you to make payment, for any merchandise shipped to you by the Stan Wood Products, Inc., to the Central National Bank of Cleveland, 1612 Euclid Ave., attention A. G. Randt, time credit department.'

However, before this letter of authorization reached Firestone, its check dated November 21, 1946, and in the sum of $6,831 to cover invoice No. 1868 above mentioned was sent direct to Stan Wood which endorsed and remitted it to the bank where it was credited on Stan Wood's indebtedness. Under date of November 29, 1946, Firestone in reliance upon the genuineness of the purported invoices and bills of lading gave its check to the bank in the sum of $19,148.66 to cover Stan Wood invoices Nos. 1867 and 1876. Of these payments, totalling $25,979.66, the bank, in accordance with its collateral security agreement with Stan Wood applied $20,993.66 in payment on its loans to Stan Wood and deposited the remainder of $4,986 to the deposit account of Stan Wood in the bank, which was withdrawn by Stan Wood by December 7, 1946.

All the loans made by the bank to Stan Wood, based on Stan Wood's invoices to Firestone, were made prior to the receipt by the bank of any payments made by Firestone in reliance upon such invoices and bills of lading.

Subsequently, it was discovered by both Firestone and the bank that Stan Wood invoices Nos. 1867, 1868 and 1876 were false and fraudulent. The bills of lading covering such alleged shipments of sleds covered by those invoices were fictitious, and the signature of the contract carrier appearing on each of such bills of lading was either forged or the purported signature of a person who did not exist.

Firestone did not discover that the sleds represented by these invoices had not been shipped, until the latter part of April 1947, at which time it notified the bank that it had not received the sleds for which payment had been made and this was the first knowledge of...