The Bank/First Citizens Bank v. Citizens And Associates

82 S.W.3d 259 (2002)

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Nature of the Case

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Facts

At trial, Wilburn testified that he was President of Wilcore, Inc., and that Wilcore is a partner in P, and that the checks in question were written by him. Wilburn learned that Gray had opened an office for Allied. Wilburn and the other partner and principal Mathis Bush went to the office and observed the operation, finding Allied's name on the door and with Gray as the Branch Manager. They decided to purchase a franchise, and Wilburn testified he wrote a check for $25,000.00 payable to Allied. Gray volunteered to 'overnight' it for him to Texas because she had a package going out anyway. Someone on Gray's behalf picked up the check from his office. In total Wilburn eventually wrote 3 checks over a few months for $50,000. The checks were not forwarded to Allied's office but deposited by Gray in her personal account in the names of herself and her husband. D delivered them to the First Tennessee Bank, and First Tennessee paid over the money and debited the same from P's account. The Trial Court applied UCC 3-406. Under 3-406 a person whose failure to exercise ordinary care substantially contributes to an alteration of an instrument or the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or collection. If the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion according to the extent to which the failure of each to exercise ordinary care contributed to the loss. The burden of proving failure to exercise ordinary care is on the person asserting the preclusion. The court applied the facts to the statute and found that P was 80% at fault and D was 20% at fault. It found that P failed to exercise ordinary care by engaging in negligent or careless business practices. It found that D failed to exercise ordinary care in accepting the checks and allowing them to be deposited in Gray's personal account and these acts substantially contributed to the losses suffered by P. P appealed. P insists that it was not negligence and that even if it was, the negligence did not substantially contribute to the forgery, nor did D take the items in good faith.