Gibbs v. Gerberich

• Decision Date: 12 August 1964
• Citation: 203 N.E.2d 851,1 Ohio App.2d 93
• Parties: , 17 A.L.R.3d 928, 30 O.O.2d 113, 2 UCC Rep.Serv. 369 GIBBS et al., Appellees, v. GERBERICH et al., Appellees; Hewit et al., Appellants.
• Court: Ohio Court of Appeals

Page 93

1 Ohio App.2d 93

203 N.E.2d 851, 17 A.L.R.3d 928, 30 O.O.2d 113,

2 UCC Rep.Serv. 369

GIBBS et al., Appellees, v. GERBERICH et al., Appellees; Hewit et al., Appellants.

Court of Appeals of Ohio, Ninth District, Medina County.

Aug. 12, 1964.

Garver & Wilson, Wadsworth, for appellees Everett H. Gibbs and Katherine P. Gibbs.

L. Thomas Skidmore, Medina, for appellees Robert J. Harris and Marian F. Harris.

Rhonemus, Dalbey & Bradford, Rittman, for appellants.

DOYLE, Judge.

This is a suit brought by Everett H. Gibbs and Katherine P. Gibbs against Ruth R. Gerberich and Dwight W. Gerberich, and other defendants whose interests are not herein immediately involved, excepting those of Robert L. Hewit and Beverly Hewit, and Robert J. Harris and Marian F. Harris.

The petition sought an accounting, appointment of a receiver, injunction, and monetary relief. The gravamen, as alleged, was the failure of the Gerberichs (realtors) to account to the Gibbses for the proceeds received from the sale of Gibbs' real property. Other pleadings sought financial relief for the Harrises and the Hewits for money owed to them by the Gerberichs from the sale of their properties.

The defaulting Gerberichs, on several occasions, had commingled in a bank escrow account, moneys received by them from the sale of property of several of their clients, and due to their withdrawals from the escrow account for purposes other than full payment to their creditor clients, were unable to pay the several persons for whom they had sold real property and received payment.

The litigation, as we meet it in the several appeals from the Common Pleas Court judgment, involves the question: How much of the fund in the hands of the receiver, representing the balance remaining in the escrow account, must be allocated to the financially injured parties? (For convenience, the Gerberichs, the Gibbses, the Hewits and the Harrises, will be referred to as single persons.)

A complete statement of the complicated facts is unnecessary. We will attempt, however, to state sufficient of them to show the legal questions involved. In brief, we must determine whether a certain check cleared The First National Bank of Wadsworth, Ohio, and was, or was not paid within the meaning of the provisions of the Uniform Commercial Code adopted by the Ohio Legislature; and, secondly, what mathematical formula must be used in distributing the amount of the balance in the escrow account (now in the account of the receiver) to the several creditors whose money was deposited at various times in the escrow account.

1. The check.

On July 11, 1962, Gerberich wrote a check on the escrow account in The First National Bank of Wadsworth, Ohio, made payable to Hewit, in the amount of $9,579.76 (the entire balance in the account). The check was in the amount that Gerberich owed Hewit from the proceeds of the sale of Hewit's property. Hewit deposited the check in his personal account in the Medina office of the Security Federal Savings and Loan Association, on July 14, 1962. It was received for payment by The First National Bank of Wadsworth, Ohio, on July 19, 1962, and was charged to the escrow account of Gerberich. On the same day, however, a restraining order issued by the Court of Common Pleas to prevent payment from the escrow account was served upon the bank, and the money (or credit) was thereupon restored to the account by the bank.

In the appeal of Hewit, the first assignment of error relates to this check. It is claimed that: 'The check for * * * $9,579.76 was 'paid' by the bank to the Hewits within the meaning of the Uniform Commercial Code of Ohio prior to the receipt of the restraining order and the receiver, therefore, has no right to said funds.'

Section 1304.23, Revised Code, is titled, 'When items subject to notice, stop-order, legal process, or setoff; order in which items may be charged or certified.' The section then, in pertinent parts, provides:

'(A) Any knowledge, notice, or stoporder received by, legal process served upon or setoff exercised by a payor bank, whether or not effective under other rules of law to terminate, suspend, or modify the bank's right or duty to pay an item or to charge its customer's account for the item, comes too late to so terminate, suspend, or modify such right or duty if the knowledge, notice, stop-order or legal process is received or served and a reasonable time for the bank to act thereon expires or the setoff is exercised after the bank has done any of the following:

'(1) accepted or certified the item;

'(2) paid the item in cash;

'(3) settled for the item without reserving a right to revoke the settlement and without having such right under statute, clearing house rule, or agreement;

(4) completed the process of posting the item to the indicated account of the drawer, maker, or other person to be charged therewith or otherwise has evidenced by examination of such indicated account and by action its decision to pay the item; or

'(5) * * *

'(B) * * *.'

(Emphasis ours.)

The Ohio Code further provides, in Section 1304.19, that:

'(A) An item is finally paid by a payor bank when the bank has done any of the following, whichever happens first:

'* * *

'(3) completed the process of posting the item to the indicated account of the drawer, maker, or other person to be charged therewith; * * *.'

(Emphasis ours.)

As we view the statutes in their bearing upon the assignment of error, the question for decision appears to be whether the check was paid prior to the bank's notice of the restraining order of the court, and one of the measuring points for determining whether the check was paid is whether the 'process of posting' was completed.

At no place in the Ohio statutes do we find definitive limits to the 'process of posting,' as the phrases is used in the Code. As a result, we must give the words their ordinary meaning in the areas of business and banking.

In Section 4-109 of the Uniform Commercial Code--'Bank deposits and collections' (not incorporated in the Ohio Code)--the experts, whose combined talents created the Code, gave the following definition:

'The 'process of posting' means the usual procedure followed by a payor bank in determining to pay an item and in recording the payment including one or more of the following or other steps as determined by the bank:

'(a) verification of any signature;

'(b) ascertaining that sufficient funds are available;

'(c) affixing a 'paid' or other stamp;

'(d) entering a charge or entry to a customer's account;

'(e) correcting or reversing an entry or erroneous action with respect to the item.'

It is generally thought, and this court so holds, that the 'process of posting' involves two basic elements: (1) a decision to pay, and (2) a recording of the payment.

The procedures followed by banks, however, in determining to pay, and in recording the payment, vary in some instances. In the trial of the instant case, Mr. Linford Irwin, executive vice-president of The First National Bank of Wadsworth, Ohio, was the only witness called in reference to the question of posting, and its relationship to the bank's notice of the restraining order 'not to pay.' He testified that the check was charged against the escrow account, and from the bank's statement of the account, the check 'had been posted to the account.'

Question: 'And, when you say, 'posted to the account,' what do you mean, Mr. Irwin, would you explain that?'

Answer: 'It shows right here, '957976' had been posted to the account, reducing the balance by that amount.'

Question: 'Which left a balance of what?'

Answer: 'Zero.'

The bank's officer further testified that the posting was done by a 'post-tronic' machine, and that 'on checks that overdraw an account,' the 'checks are posted against the account,' and they are then immediately 'dropped back out and then corrected;' that the overdrawn checks have been posted, but that they are then 'recredited back on the account.'

In further testimony, it was developed that checks were not 'voided or cancelled' until the 'posting run is completed and the day's posting is in balance.'

In brief summary, we find that the check had been charged against the Gerberich escrow account undoubtedly prior to the receipt of the restraining order, but that before any decision to pay was made by the bank, the restraining order was served, and the bank then recredited the account. The check had not been perforated or otherwise cancelled.

Under these circumstances, we conclude that the check had been posted, but that the 'process of posting' had not been completed, as there is no evidence indicating a decision of the bank to pay. The mere debiting of a customer's account does not per se indicate a decision...