# Master Chemical Corp. v. Inkrott

> Ohio Supreme Court · November 14, 1990 · 55 Ohio St. 3d 23

URL: https://www.frixlaw.com/law-library/cases/6762691

## Case

- **Full name:** Master Chemical Corporation, and v. Inkrott Trustcorp Bank, f.k.a. Toledo Trust Company, and
- **Court:** Ohio Supreme Court
- **Decided:** November 14, 1990
- **Citations:** 55 Ohio St. 3d 23; 563 N.E.2d 26; 13 U.C.C. Rep. Serv. 2d (West) 14; 1990 Ohio LEXIS 1439
- **Precedential status:** Published
- **Opinion:** Concurrence by Holmes
- **Judges:** Brown, Bryant, Douglas, Holmes, Moyer, Only, Resnick, Sweeney, Third, Wright
- **Cited by:** 60 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/6762691

## How later opinions describe it (automated extraction)

- holding that part of this inquiry is “whether the fiduciary in fact possessed the authority to conduct the transaction in question”

## Opinion text

Holmes, J.,
concurring in judgment only.
Although I concur in the judgment which imposes liability upon Toledo Trust, I must dissent from the majority’s legal analysis in reaching its result. I believe the proper analysis of the facts in the case sub judice requires an application of the Ohio Uniform Commercial Code and general contract principles.
It is well-settled in Ohio law that the relationship between a bank and its customer, as debtor and creditor, is grounded upon a contractual undertaking. Cincinnati Ins. Co. v. First Natl. Bank (1980), 63 Ohio St. 2d 220 , 17 O.O. 3d 136, 407 N.E. 2d 519 , citing Speroff v. First Central Trust Co. (1948), 149 Ohio St. 415 , 37 O.O. 98 , 79 N.E. 2d 119 . According to this contractual relationship, a bank may charge against its customer’s account only those items which are “properly payable.” R.C. 1304.24(A) (UCC 4-401). 4 If a bank pays an item which is not “properly payable,” the bank is required to credit the customer’s account in the amount of the item. Cincinnati Ins. Co. v. First Natl. Bank, supra. In holding these payor banks liable, courts have reasoned that sound commercial practice requires the loss of paying on a forged or altered item to be placed upon the first taker from the wrongdoer even if that taker exercised the highest degree of care in the transaction. See Whaley, Negligence and Negotiable Instruments (1974), 53 N.C.L. Rev. 1; McDonnell, Bank Liability for Fraudulent Checks: The Clash of the Utilitarian and Paternalist Creeds Under the Uniform Commercial Code (1985), 73 Geo. L.J. 1399 .
As the facts in the instant case indicate, appellant Master Chemical employed Inkrott as a controller. Pursuant to his responsibilities as controller, Inkrott was required to pay Master Chemical’s federal tax liabilities by depositing Master Chemical’s funds in a designated Toledo Trust account. However, on three separate occasions, Inkrott exceeded the scope of his authority as controller and deposited the tax liability checks into his “H.Y. Investment Fund” account at Toledo Trust.
In National Bank of Monticello v. Quinn (1988), 126 Ill. 2d 129 , 533 N.E. 2d 846 , the Illinois Supreme Court was faced with a similar fact situation. In Quinn , a drawer issued a check for the specific purpose of investing in a limited partnership. The general partner upon receiving the check endorsed it outside the scope of his authority and placed it in his own personal account. In holding the depository bank liable for improperly paying the item, the Quinn court reasoned that “* * * when a check is made payable to order rather than to bearer, the drawer has the right to expect that the named payee has endorsed the check and thereby directs further negotiation or, in the alternative, that the funds have *30 been deposited only in the account of the named payee.” Quinn, supra, at 139 , 533 N.E. 2d at 851 .
Similarly, Master Chemical, in the instant case, made its checks payable to the order of Toledo Trust for the specific purpose of paying its tax liability. Accordingly, Master Chemical expected payment from its account to be applied for that purpose only. Unfortunately, Toledo Trust failed to meet Master Chemical’s expectations by negligently permitting Inkrott to deposit the tax liability checks into an account established for Inkrott’s personal benefit. In so doing, Toledo Trust breached its contract with Master Chemical to pay only “properly payable” items. Accordingly, Toledo Trust is liable to credit Master Chemical’s account pursuant to R.C. 1304.24(A).
R.C. 1304.24(A) provides:
“As against its customer, a bank may charge against his account any item which is otherwise properly payable from that account even though the charge creates an overdraft.”

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/6762691. Public record. Not legal advice.