Petition — Park Corp. v. National Savings & Trust Co.

In the Supreme Court of the United States

October Term, 1983

PARK CORPORATION,

Petiti 1

vs.

NATIONAL SAVINGS AND TRUST CO.,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

To the United States Court of Appeals

For the Sixth Circuit

Crarence D. Rocers, Jr.

Counsel of Record

Ricarpo B. TzaMor

Marvin T. Wann

Rocers, Horton 4 Fons

1300 Rockefeller Building

614 Superior Avenue, N. W.

Cleveland, Ohio 44113

(216) 696-7170

Attorneys for Petitioner

THE GATES LEGAL PUBLISHING co. CLEVELAND, OHIO—TEL. (316) 681-5667

QUESTION PRESENTED FOR REVIEW

Did the Court of Appeals err in finding that Uniform

Commercial Code provision 4-213 (ORC. 1304.19) does

not bar restitutionary recovery for banks that pay non-

sufficient fund checks where there is no detrimental reli-

ance on the part of the payee.

as Petitioner in this proceedings, states that:

4 This is its original Designation of Corporate Relation-

hi fi

N The Park Corporation is not owned by any parent cor-

a poration.

a interest in any subsidiaries (excepting only wholly-owned

; subsidiaries).

The Park Corporation does not have any affiliates.

. TABLE OF CONTENTS

Question Presented for Review

Designation of Corporate Relationships

Table of Authorities

Opinions Below

Jurisdiction

Statutory Provisions

Statement of the Case

Substantiality of the Question Presented

Conclusion

Appendix:

Opinion of the Court of Appeals for the Sixth Cir-

cuit Entered on December 19, 1983 Al

Opinion and Order of the United States District

Court Entered on August 6, 1982 Ag

2 — J Hy,

Judgment Entry of the Court of Appeals for the

Sixth Circuit Entered on December 19, 1983. 418

Te pare Cee ae eee ae

TABLE OF AUTHORITIES

Ashford Bank v. Capital Preservation Fund, Inc., 544

F. Supp. 26, 28-29 (D. Mont. 1982) 7

Kirby v. First & Merchants National Bank, 210 Va. 88,

1868 S.E.2d 273 (1969) 7

Statutory Provisions

Uniform Commercial Code Section 3-418 (Ohio Re-

vised Code $1303.54) 2,6

Uniform Commercial Code Section 4-102(1) (oe

Revised Code §1304.02(A) 2,6

Uniform Commercial Code Section 4-213(1) (Ohio

Revised Code §1304.19(A) 2, 5, 6, 7

No.

In the Supreme Court of the United States

October Term, 1983

PARK CORPORATION,

Petitioner,

vs.

NATIONAL SAVINGS AND TRUST CO.

Respondent.

PETITION FOR A WRIT OF CERTIORARI

To the United States Court of Appeals

For the Sixth Circuit

OPINIONS BELOW

The opinion of the District Court for the Northern

District of Ohio, Eastern Division (App. pp. A9 to Als)

was not reported. The opinion of the Court of Appeals

for the Sixth Circuit (App. pp. Al to A8) is recommended

for full text publication but is presently unreported.

The judgments of the Court of Appeals for the Sixth

Circuit were made and entered on December 19, 1983 and

copies thereof are appended to this pctition in the Ap-

pendix. The jurisdiction of this court is invoked under

28 US.C. §1254(1).

The District Court for the Northern District of Ohio

had jurisdiction over this matter under 28 U.S.C. §1332.

STATUTORY PROVISIONS

Uniform Commercial Code Section 3-418 (Ohio Re-

vised Code §1303.54) provides:

Except for recovery of bank payments as provided in

Sections 1304.01 to 1304.34, inclusive, of the Revised

Code, and except for liability for breach of warranty

on presentment under section 1303.53 of the Revised

Code, payment or acceptance of any instrument is final

in favor of a holder in due course, or a person who has

in good faith changed his position in reliance on the

payment.

Uniform Commercial Code Section 4-102(1) (Ohio

Revised Code §1304.02(A)) provides:

(A) To the extent that items within sections

1304.01 to 1304.34, inclusive of the Revised Code are

also within the scope of sections 1303.01 to 1308.36,

‘ inclusive, and sections 1308.01 to 1308.36, inclusive, of

the Revised Code, they are subject to the provisions

of those sections. In the event of conflict the pro-

visions of Sections 1304.01 to 1304.34, inclusive, of

the Revised Code govern those of sections 1303.01 to

1303.78, inclusive, of the Revised Code, but the pro-

visions of sections 1308.01 to 1308.36, inclusive, of the

Revised Code governs those of sections 1304.01 to

1304.34, inclusive, of the Revised Code.

Uniform Commercial Code Section 4-213(1) (Ohio

Revised Code §1304.19(A) provides:

(A) An item is finally paid by a payor bank

ee Se ay at Gon EO He

ever happens first:

(1) paid for the item in cash;

(2) settled for the item without reserving a

right to revoke the settlement and without hav-

ing such right under statute, clearing house rule,

a or agreement; or

a (3) completed the process of posting the

. item to the indicated account of the drawer, maker,

or other person to be charged therewith; or

(4) made a provisional settlement for the

item and failed to revoke the settlement in the

time and manner permitted by statute, clearing

house rule, or agreement.

Upon a final payment under divisions (A) (2),

(3), or (4) of this section, the payor bank shall be

accountable for the amount of the item.

STATEMENT OF THE CASE

On or about December 19, 1979 Garland Carribean

Corporation (hereinafter, Garland), entered into a contract

with Jones and Laughlin Steel Corporation (hereinafter,

J&L), for the purchase of certain mining equipment. Gar-

* land assigned the contract to Park which, on December

a 27, 1979, purch.sed the equipment from J&L. Thereafter,

eS ae, Se a eee

4

1980 Garland delivered the contract and one of the checks

to Park. On the same date Park delivered the check to

its bank, Central National (hereinafter CNB), with in-

structions to present it to National Savings “for collection.”

CNB complied with Park’s instructions and on January

18, 1980 mailed the check to National Savings with in-

structions to hold it for collection and give immediate

advice of payment by “wire.” On January 22, 1980 Gar-

land telephoned one Suzanne Dembrowski, an officer of

National Savings, advised her of the two checks that had

been drawn by DAI and requested a determination as to

whether DAI maintained sufficient funds in its account

to cover them. Dembrowski responded in the negative.

Subsequently, Dembrowski instructed a “platform officer,”

who had authority over incoming checks submitted through

honor and return them, if such presentment occurred. On

the same date Park’s check was received by National Sav-

ings’ Account Servicing Department.

When National Savings received Park’s check, Caroline

Corely, a National Savings employee, normally in charge

of processing items for collection, was required to work

cover the check. Holland assumed that Corely had done

so. In any event, neither of them made such a determina-

tion and a wire advice was given CNB providing that

Park’s check was paid in the amount of $75,000.00 less a

$5.00 processing fee. At that time DAI had an actual

checking account balance of $263.75. When National Sav-

ings learned of the payment, it requested that Park return

the money. When Park refused, National Savings filed a

suit in the United States District Court for the Northern

District of Ohio seeking restitution of the money received

by Park.

This matter was heard by the district court on cross-

motions for Summary Judgment. On August 6, 1982 the

district court filed a memorandum of opinion which granted

Park’s Motion For Summary Judgment and denied Na-

tional Savings’ Motion For Summary Judgment (App. pp.

AS to Ale). It was the finding of the district court

that the general rule bars restitutionary recovery for banks

that pay non-sufficient fund checks.

National Savings appealed the decision of the district

court to the United States Court of Appeals for the Sixth

Circuit. On December 19, 1983, the Court of Appeals filed

an opinion which reversed the decision of the district court

(App. pp. Al to A8). The focus of the Court of Ap-

peals opinion was U. CC. Section 4213(1) (Code

1804. 10 (A)). It was the position of Park throughout the

lower court proceedings that UC. C. Section 4-213(1) bars

restitutionary recovery for banks that pay NSF checks,

even if the payee is not a holder in due course, nor a per-

son who has changed his position in reliance upon the

drawee’s action. Even though Park’s position on U. CC.

Section 4-213(1) is supported by case law, the Court of

Appeals rejected Park’s argument on this issue.

l

os

3

SUBSTANTIALITY OF THE QUESTION

PRESENTED

The decision below should be reviewed because it er-

roneously interprets the Uniform Commercial Code as

adopted in Ohio. There is a conflict between two provi-

sions of the U.C.C., Section 3-418 and Section 4-213. Sec-

tion 3-418 of the Code (O. R. C. §1303.54), which applies to

all transactions involving negotiable instruments states

that “payment or acceptance of any instrument is final in

favor of a holder in due course, or a person who has in good

faith changed his position in reliance on the payment.”

Section 4-213(1) (ORC. §1304.19(A)) states that

aln item is finally paid by a payor bank when the bank

has done any of the following, whichever happens first:

(a) paid the item in cash. . .”

It has been the contention of Park throughout the

lower court proceedings that “finally paid” as used in

U.C.C. Section 4-213(A) has the same meaning as the

“payment is final language in Section 3-418.” It should

be noted that the last sentence of U.C.C. Section 4

213(A) states that “upon a final payment under subpare-

graphs (b), (c) or (d) the payor bank shall be account-

able for the amount of the item.”

It is the position of Park that the latter sentence

should be read as an Article Four Final-Payment doctrine

by interpreting “the payor bank shall be accountable for

the amount of the item” as meaning that it cannot recover

payment thereafter. Moreover, because Section 4-213

does not have the restrictive provisions which limit cov-

erage to those who detrimentally rely, it is Park’s position

that Section 4-213 makes a bank strictly liable as soon as

it pays on @ non-sufficient fund check. Furthermore,

—

wie

UCC. 1 enn Se f

between Articles 3 and 4, the provisions of Article 4 are

to govern.

Based upon the language of U.C.C. Section 4-213, it

must be concluded that National Savings is barred from

recovering the $75,000.00 it paid to Park on a non-sufficient

fund check. Park’s position has been supported by sev-

eral courts. See, ¢.g., Ashford Bank v. Capital Preserva-

tion Fund, Inc., 544 F. Supp. 26, 28-29 (D. Mont. 1962);

Kirby v. First & Merchants National Bank, 210 Va. 88, 168

S.E.2d 273, 275 (1969).

The question presented by this case is of great and

recurring significance in the adoption and administration

of the Uniform Commercial Code. The important nature

of this issue has already been recognized by several state

and federal courts. The serious questions of public policy

involved here and the effect of the decision below, if un-

reversed, upon commercial transactions make this case a

peculiarly appropriate one for the exercise of this Court’s

discretionary jurisdiction.

CONCLUSION

For the reasons set forth above, it is respectfully sub-

mitted that this petition for a Writ of Certiorari should

be granted.

4

> Ss

W

.

Al

.

OPINION OF THE COURT OF APPEALS

FOR THE SIXTH CIRCUIT

(Decided and Filed December 19, 1983)

No. 82-3565

UNITED STATES COURT OF APPEALS

For tue Stern Cracurr

NATIONAL SAVINGS AND TRUST co.

Plaintiff-Appellant,

V.

PARK CORPORATION,

Defendant- Appellee.

On Arr. from the United States District Court for

the Northern District of Ohio.

on

~~, 6. ee” «€

A2

$75,000 drawn on its account with the plaintiff, National

Savings and Trust Company. On January 16, Garland

called National Savings to determine if DAI had sufficient

funds in its account to cover this check. The bank said

DAI did not. That same day, Garland endorsed the check

over to Park Corporation. Park Corporation then sent the

check to National Savings “for collection.”

On January 22, Garland once again called the bank to

determine if DAI had sufficient funds in its account to

cover the check. Once again, the bank said DAI did not.“

Moreover, on this occasion, the banking employee who re-

ceived the inquiry went to the bank’s “platform officer”

and notified him not to accept any DAI checks drawn on

insufficient funds. Unfortunately for the bank, the plat-

form officer only saw checks arriving through normal

banking channels and not those coming in “for collection.”

DAI’s check arrived at the bank that same day. How-

ever, the employee who normally processed “for collec-

tion” checks was scheduled to work in another depart-

ment that day. Prior to her departure, she did manage

to open the incoming mail, including the DAI check. Her

supervisor then volunteered to help out by taking the

DAI check to the wire room for payment. Neither em-

ployee followed the bank’s standard procedure and checked

DAI’s account to ensure that it held sufficient funds to

cover the check. Each assumed that the other had done

so. As a result, the check was paid even though DAI

had only $263.75 in its account.

On January 28, 1980, after discovering its mistake, Na-

tional Savings asked Park Corporation to return the $75,000.

Park refused and National Savings subsequently brought

1. There is no evidence Park was ever aware of Garland

conversations with the

bank.

1

8 9 . ax 4 ;

N. We N 9 4 .

e oe r wae tee 9 nen

2 A3

this lawsuit. On motion for summary judgment by the

defendant, the court found for Park on the grounds that

National Savings had made an improvident extension of

credit and that the [3] bank was in a better position to

know the true facts and to guard against mistakes. We

disagree.

The basic law of restitution in Ohio, the state whose

law controls, is summarized in Firestone Rubber & Tire

Co. v. Central Nat'l Bank of Cleveland, 159 Ohio St. 423,

112 N.E.2d 636 (1953). The Firestone case held that money

paid to another by mistake is recoverable unless the other

person has changed his position in reliance on the payment.

This rule applies even if the mistake was the result of

negligence.

Park Corporation attempts to circumvent the holding in

Firestone by arguing that banks are not protected by

normal restitutionary principles when they pay an insuf-

ficient funds (NSF) check. There is some support for

this position. See, e. g., Spokane 4 Eastern Trust Co. v.

Huff, 63 Wash. 225, 115 P. 80 (1911); 7 Zollman, The Law

of Banks and Banking § 5062 (1936). Nonetheless, this

rule has not been universally applied, see, e.g., Manu-

facturers Trust Co. v. Diamond, 186 N.YS.2d 917, 919

, and Park has not cited, nor have we

2 the Uniform Commercial Code in Ohio and the particular

| provisions applicable to the facts of the present case.

Park Corporation next argues that Firestone does not

control because National Savings’ payment was not a mis-

take but rather a knowing extension of credit. Park relies

heavily on the New Jersey case of Demos v. Lyons, 151

A4

NJ. Super. 489, 376 A.2d 1352 (Law Div. 1977). The

factual circumstances of Demos, however, are quite dis-

tinct from the present case. In Demos, the bank actually

examined the customer’s account, realized the customer hed

insufficient funds to cover the check, yet paid the check

anyway. The bank did not want to embarrass its cus-

tomer and it hoped that he had made a late deposit to

cover the check which would appear on the next day’s

balance sheet. No such deposit was ever made. In our

[4] case, National Savings never intended to make good

on an NSF check. The platform officer had been notified

not to pay out on DAI’s check. The “for collection” em-

ployees were operating under standing orders to check

balences before paying a check and never to pay on an

NSF check. Despite all these precautions, the check

was paid. At no time, however, did the employees making

the payment decision know that DAI’s account had in-

sufficient funds to cover the check.

Park’s next contention is that the Uniform Commer-

U.C.C., section 3-418 and section 4-213. Section 3-418 of

the Code (O.R.C. § 1303.54), which applies to all transac-

tions involving negotiable instruments, states that “pay-

ment or acceptance of any instrument is final in favor of

a holder in due course, or a person who has in good faith

changed his position in reliance on the payment.” B-

cause a holder in due course is simply a special type of

detrimental relier, this section is basically a codification

A5

ficial Comment 3 to this section makes clear that if there

is no detrimental reliance by the payee, then recovery of

payment is permitted.

Park Corporation argues that another provision of the

U.C.C., section 4-213, establishes a special non-recovery

rule for banks which mistakenly pay on a bad check. Sec-

tion 4-213(1) (O.R.C. § 1304.19(A)) states that “[a]n

item is finally paid by a payor bank when the bank has

done any of the following, which ever happens first: (a)

paid the item in cash... .” Park contends that “finally

paid” as used in this section has the same meaning as the

“payment is final” language in section 3-418, namely

restitutionary recovery is no [5] longer possible. More-

over, because section 4-213 does not have the restrictive

provisions which limit coverage to holders in due course

or those who detrimentally rely, Park argues that section

4-213 makes a bank strictly liable as soon as it pays on

an NSF check.* Furthermore, U.C.C. § 4-102 provides that,

in case of conflict between Articles 3 and 4, the provisions

of Article 4 are to govern. Thus, Park argues, National

Savings is barred from recovering the $75,000.

At first glance, Park’s argument has a certain appeal.

That is not surprising because it is based in large part on

the work of White & Summers, whose treatise, Uniform

Commercial Code (2d ed. 1980), is generally considered

the leading authority on commercial transactions. Id. at

613-617. Several courts have also reached the same con-

clusion. See, e.g., Ashford Bank v. Capital Preservation

Fund, Inc., 544 F. Supp. 26, 28-29 (D. Mont. 1982); Kirby

v. First & Merchants Nat’! Bank, 210 Va. 88, 168 S. E. ad 273,

a “good faith” re-

that payors acting fraudu-

A6

275 n.4 (1969). Confer Bartlett v. Bank of Carroll, 218

Va. 240, 237 S.E.2d 115, 119 (1977).

Nonetheless, opinion on the matter is by no means

uniform. Other writers, see H. Bailey, Brady on Bank

Checks § 1420 at 14-32 (5th ed. Supp. 1983); B. Clark,

The Law of Check Deposit § 5.3[3] (2d ed. 1981), and other

courts, see Demos v. Lyons, 151 N.J. Super. 489, 376 A.2d .

1352 (Law Div. 1977); Blake v. Woodford Bank & Trust

Co., 555 S.W.2d 589, 601-02 (Ky. App. 1977), have argued

that banks retain their restitutionary rights with respect

to mistaken payment of NSF checks. Our own analysis

of the Code convinces us that the latter group is correct

and that section 4-213 does not expand the final payment

doctrine to bar recovery by payor banks from payees who

have not detrimentally relied. In our analysis, we rely

heavily on the official Comments to sections 3-418 and

4-213. While these comments to the Code [6] are not

part of enacted law, they are a very helpful guide to con-

struing the meaning of Code provisions. See In re Augustin

Bros. Co., 460 F.2d 376, 380 (8th Cir. 1972).

An examination of the comments to section 3-418 makes

clear both that this section was intended to apply to “the

payment of overdrafts, or any other payment made in

error as to the state of the drawer’s account,” Comment 2,

and that restitutionary recovery was to be denied only

when the payee had relied on the payment. “If no value

has been given for the instrument, the holder loses nothing

by the recovery of the payment. . . and it is not entitled

to profit at the expense of the drawee... .” Comment 3.

be only mention of section 4-213 occurs in Comment

5, where the Code drafters point out that the provisions of

section 3-418 do not apply until payment is final as defined

in section 4-213. This comment suggests a method for re-

A7

solving the apparent conflict between section 3-418 and

4-213. As the court in Demos v. Lyons put it, section 4-213

“is oriented toward time of payment, not legal effect of

payment.” 376 A.2d at 1356. The purpose of section 4-213

is to determine when settlement for an item or other ac-

tion with respect to it constitutes final payment.” Com-

ment 1, § 4-213 (emphasis added). Section 4-213 deter-

mines when the final payment rule of section 3-418 comes

into effect, not what that rule is supposed to mean. Fur-

ther support for this position comes from the remaining

comments to section 4-213. Comment 1 states “final pay-

ment is important” because it helps determine “priorities

between items and notices, stop orders, legal process and

setoffs, [because it] is the ‘end of the line’ in the collection

process, [and because it] is the point at which many pro-

visional settlements become final.” The remaining com-

ments discuss such arcane banking matters as posting, pro-

visional settlements, and midnight deadlines. At no point

does any comment to section 4-213 mention the effect this

section is [7] supposed to have on the restitutionary rights

of banks. Thus, it seems evident that the drafters of the

Code never intended for section 4-213 to supercede section

3-418, and we can see no reason to adopt a position con-

trary to that intent.

As further support for our decision, we feel obliged

to note that White & Summers, the authorities most relied

on for the contrary proposition, now appear to have

changed their minds. Professor White, in a note written

for a colleague’s textbook, has recanted and now supports

the view that section 4-213 makes no substantive change

in the law of restitution as applied to banks. See D. Ep-

stein & J. Martin, Basic Uniform Commercial Code 514 (2d

ed. 1983). Presumably the next edition of his treatise will

reflect this change in thinking.

‘ a . 8 25 * 2

4 — — 18 nm -* *

F 1 at as * a> in i e 3

A8

Park Corporation next contends that, even if section

3-418 controls, it is both a holder in due course and one

who has changed its position in reliance on National

Savings’ payment and therefore should be allowed to re-

tain the $75,000. We find no support in the record for

either proposition. On the holder in due course issue,

Park does not qualify because it did not give value for the

check. It was still in possession of the machinery it had

contracted to sell to DAI. Although it had promised to

deliver the equipment to DAI, such an executory promise

does not constitute value. UC. C. § 3-303, Comment 3.

Park Corporation is, of course, no longer required to carry

out its promise because DAI has breached its agreement

to pay.

As for detrimental reliance, Park contends that it paid

$37,500 as a commission to Garland Corporation on the

after National Savings had informed Park that it had

paid the DAI check by mistake and that it wanted Park

to return the money. Section 3-418 only makes pay-

ment by the bank final in favor of someone who has “in

good faith changed his position in reliance on the pay-

ment.” Once aware of the insufficiency in funds, [8] Park

could not have “in good faith” paid Garland $37,500 in

reliance on that check. Park also alleges it paid rent for

storing the equipment and painted the equipment in re-

liance on the payment. There is no evidence to support

these allegations.

Accordingly, the decision of the district court is re-

Ag

OPINION AND ORDER OF THE UNITED

STATES DISTRICT COURT

(Filed August 6, 1982)

Case No. C81-502

IN THE UNITED STATES DISTRICT COURT

For THe Nortuern District or Omo

Eastern Division

. NATIONAL SAVINGS AND TRUST co.

: Plain

V.

PARK CORPORATION,

Defendant.

;

|

MEMORANDUM OF OPINION

; On March 24, 1981 plaintiff, National Savings and 2

f Trust Company (hereinafter, National Savings), filed the

. above-captioned case alleging that it was entitled to restitu-

. tion of $74,737.25 erroneously paid to the defendant, Park

4 Corporation (hereinafter, Park). Jurisdiction is invoked i

5 under 28 U.S.C. § 1332. The case is currently before this 1

court on cross-motions for summary judgment. For the

reasons which follow Park’s motion is granted and Na-

tional Savings’ motion is denied. Fed. R. Civ. P. 80.

On or about December 19, 1979 Garland Carribean

Corporation (hereinafter, Garland), entered into a con-

tract with Jones and Laughlin Steel Corporation (herein-

after, J & L), for the purchase of certain mining equip-

ment. Garland assigned the contract to Park which, on

December 27, 1979, purchased the equipment from J & L.

Thereafter, Park sought to resell the equipment through |

Al⁰

the efforts of Garland. Accordingly, on January 8, 1980

Garland on behalf of Park, entered into a contract with

DAI International Investment Corporation (hereinafter,

DAI), providing for the sale of the equipment for $3,750,000.

DAI agreed to pay for the equipment by making a con-

temporaneous downpayment of $150,000 with the balance

due by January 31, 1980. DAI made the downpayment

by drawing two checks on its account at National Savings

in the amount of $75,000 each. On January 16, 1980 Gar-

land delivered the contract and one of the checks to Park.

On the same date Park delivered the check to its bank,

Central National (hereinafter CNB), with instructions to

present it to National Savings “for collection.” CNB com-

plied with Park’s instructions and on [2] January 18, 1980

mailed the check to National Savings with instructions to

hold it for collection and give immediate advice of pay-

ment by “wire.” On January 22, 1980 Garland telephoned

one Suzanne Dembrowski, an officer of National Savings,

advised her of the two checks that had been drawn by

a. The person working collections would open

the mailings and separate those collections for “wire”

from those which were not for “wire.”

b. Those items for which wire advice of payment

was requested would be tagged with a slip of paper,

“to be wired.”

c. Ali items would be checked against the draw-

er’s account balance to see if there were sufficient

funds available for payment of the item.

d. If sufficient funds were available, then a

“hold” would be put against the account in the amount

of the item; if sufficient funds were not available, then

the item would be set aside for review on the follow-

“to be wired.” Aware that Corley was about to leave

for work in another department, Holland asked Corely

whether she (Holland) could help by completing the stan-

dard procedure with regard to Park’s check. Corely re-

sponded in the affirmative. Corely assumed that Holland

would ascertain whether there were sufficient funds in

DAI’s account to cover the check. Holland assumed that

Corely had done so. In any event, neither of them made

such a determination and a wire advice was given CNB

providing that Park’s check was paid in the amount of

$75,000 less a $5.00 processing fee. At that time DAI

had an actual checking account balance of $263.75. When

National Savings learned of the payment, it requested that

Park return the money. When Park refused, National

Savings filed this action.

National Savings claims that it is entitled to the money

Rubber & Tire Co. v. Central National Bank, 159 Ohio

St. 423, 112 N.E.2d 636 (1953). In Firestone, the Ohio Su-

known to the payer that the fact did not exist,

be recovered.

Syllabus 2 of the Opinion (Emphasis added). It is un-

questioned that when money is paid by mistake which re-

Al3

position in reliance on it. The rule is appropriate in such

circumstances because the payee has no right to the money

in the first instance. The facts in this case, however, are

distinguishable from those before the Ohio Supreme Court

in Firestone. In that case, Firestone agreed to purchase

sleds from the Stan Wood Company. In exchange for an

extension of credit, the Stan Wood Company assigned the

contract to Central National [4] Bank. The Stan Wood

Company fraudulently reproduced purchase invoices for

sleds it had not manufactured and delivered them to the

bank which billed Firestone. Firestone paid the bank

until it (Firestone) discovered the fraud. Thereafter,

Firestone sought to recover the money. The Ohio Supreme

Court permitted recovery because the bank was not entitled

to the payments, The court reasoned that since the Stan

Wood Company was not entitled to the money because of

fraud, its assignee bank also was not entitled.

In the present case National Savings admits that a

valid contract for the sale of equipment existed between

DAI and Park. Therefore, Park was entitled to thé money

paid pursuant to the contract. Since Park was so entitled,

the Ohio Supreme Court’s decision in Firestone is not con-

trolling and the only question presented to this court is

whether it is equitable to permit Park to retain the money.

For the reasons which follow the court holds that the

question must be resolved in the affirmative.

In Demos v. Lyons, 151 NJ. Super. 489, 376 A.2d 1352

(1977), a bank filed an action against an attorney repre-

senting sellers of certain real estate and a business located

thereon alleging that the attorney was unjustly enriched

when the bank paid a $25,000 check drawn by its customer

on an account which contained insufficient funds. The

evidence established that: (1) when the check was pre-

sented to the bank its records disclosed that its customer

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had insufficient funds in his account to cover it; (2) “[iJt

was too late in the day to learn from the bank’s computer

whether [its customer] had made a deposit to his account

that morning to cover the check, and the bank was unable

to reach him by telephone to determine whether he had

done so,” 376 A.2d at 1385 and (3) “[s]o as not to embarrass

their customer in this important transaction, the bank

officers decided to pay the check.” Id. Subsequently,

the bank determined that its customer did not make a

deposit to cover the check. The court held as follows:

From its own evidence in the case at bar, the bank

here paid with full knowledge that, according to its

bookkeeper, the buyers’ account would thereby be sub-

‘stantially overdrawn. It thus assumed the risk of the

buyers’ credit. If computer corroboration of the ac-

count balance was necessary, then by its established

procedures the bank either prematurely shut down the

computer for the day or prematurely chose to pay.

In either event, it assumed the risk that Demos did

not cover the check and it thereby waived any claim

of a mistaken belief that he had.

[5] Restatement, Restitution, § 11(1) at 42

(1937), provides in part, “A person is not entitled to

rescind a transaction with another if * * * he * in-

tended to assume the risk of a mistake for which other-

wise he would be entitled to rescission and consequent

restitution.” The court in George J. Meyer Mfg. Co.

v. Howard Brass & Copper Co., 246 Wis. 558, 18 N.W.

2d 468, 474 (Sup.Ct.1945), held that restitution is de-

nied a payor who assumed the risk of mistake. See

also, Rabbit Ear Cattle Company v. Frieze, 80 N.M.

203, 453 P.2d 373, 374 (Sup.Ct.1969). The bands

“mistake” was an improvident extension of eredit to

its customers. This is not a mistake of fact warrant-

ing restitution.

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Whether the bank is considered to have paid de-

spite learning from its bookkeeper the insufficiency of

the buyers’ account from its computer, it assumed the

risk that the account was insufficient and thereby

waived any claim for restitution based on mistake.

376 A.2d at 135, [sic] 1358 (Emphasis added).

In this case Dembrowski had “full knowledge” that

DAs account would be substantially overdrawn if Na-

tional Savings accepted the check. Demos v. Lyons, supra,

at 1357. She transmitted this information to the wrong

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ficient to enable it to recover from him. Banks can-

not always guard against fraud, but can guard against

mistakes. It is therefore the general rule, sustained

by almost universal authority, that a payment in the

ordinary course of business of a check by a bank on

which it is drawn under the mistaken belief that the

drawer has funds in the bank subject to such check

is not such a payment under a mistake of fact as will

permit the bank to recover the money so paid from

the recipient of such payment.

(Citations omitted) (Emphasis added).

Le] Fed. R. Civ. P. 56 (e) provides that summary judg-

ment is proper when there is no genuine issue of material

fact and the moving party is entitled to judgment as a

matter of law. Since National Savings has failed to demon-

strate any genuine issue of material fact and the court

finds that the equities in the case weigh in favor of Park,

Park’s motion for summary judgment is granted and that

of National Savings is denied. See: Smith v. Hudson, 600

F.2d 60 (6th Cir.), cert. denied, 444 U.S. 986, 100 S. Ct. 495

(1979); Bryant v. Commonwealth of Kentucky, 490 F.2d

1273 (6th Cir. 1974); Daily Press Inc. v. United Press Int’'l.,

412 F.2d 126 (6th Cir.), cert. denied, 396 U.S. 990, 90 S. Ct.

480 (1969).

TT IS SO ORDERED.

/s/ Jom M. Manos

United States District Judge

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Case No. C81-502

IN THE UNITED STATES DISTRICT COURT

For THe NortHern Distaict or Omo

Eastern DIvision

NATIONAL SAVINGS AND TRUST CO.,

Plaintiff,

v.

PARK CORPORATION,

Defendant.

ORDER

Pursuant to the Memorandum of Opinion issued in the

above-captioned case this date, the plaintiff's motion for

summary judgment is denied and the defendant’s motion

for summary judgment is granted.

IT IS SO ORDERED.

/s/ Jom M. Manos

United States District Judge

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JUDGMENT ENTRY OF THE COURT OF

APPEALS FOR THE SIXTH CIRCUIT

(Filed December 19, 1983)

No. 82-3565

UNITED STATES COURT OF APPEALS

For THe Srxtu Cucurr

NATIONAL SAVINGS AND TRUST COMPANY,

Plaintiff-Appellant,

V.

PARK CORPORATION,

Defendant-Appellee.

Before: Kerr and Marti, Circuit Judges; and Spes,

District Judge.

JUDGMENT

ON APPEAL from the United States District Court

for the Northern District of Ohio.

THIS CAUSE came on to be heard on the record from

the said District Court and was argued by counsel.

ON CONSIDERATION WHEREOF, It is now here

ordered and adjudged by this court that the judgment of

the said District Court in this case be and the same is

hereby reversed.

It is further ordered that Plaintiff-Appellant recover

from Defendant-Appellee the costs on appeal, as itemized

sal a . * 1 8 _ — 8 . *

he PIR Se e ee ee, ee. ee A .

. below, and that execution therefor issued out of said Dis-

7 trict Court, if necessary.

ENTERED BY ORDER OF THE COURT

/s/ Jom P. Human