Tennessee Law Limits Damages for Payment on Forged Endorsement
On January 16, 2008, Frost Brown Todd scored a significant victory for banks in Tennessee in a case of first impression before the Tennessee Court of Appeals.
Frost Brown Todd represented AmSouth Bank (now Regions Bank) (“AmSouth”), in a matter brought asserting claims of Saturn & Mazer Title Services, Inc. (“Saturn & Mazer”). Saturn & Mazer handled a series of real estate closings which involved Patricia Cardin (“Cardin”), a now disbarred attorney. Saturn & Mazer entrusted Cardin with mortgage payoff checks drawn from its escrow accounts at AmSouth. Ms. Cardin misappropriated the proceeds of the checks, forging the name of the payee and depositing the funds into accounts that she controlled at other banking institutions. As a result, mortgages held by the payees were never satisfied or released.
Saturn & Mazer’s out-of-pocket expenses related to Cardin’s actions were only $4,507.30. The issuer of the title policies for each mortgage, Ticor Title Insurance Company of Florida (“Ticor”), suffered significant damages as a result of meeting its obligations under its insurance policies. After Ticor paid a total of $331,741.19 to the payees, it was reimbursed almost $200,000 from funds recovered from Cardin. Thus, Ticor was left with net out of pocket losses of approximately $135,000.
Pursuant to an agency agreement with Saturn & Mazer, Ticor had a contractual claim for the $135,000 in losses against Saturn & Mazer. Subsequently, in an effort to offset its losses, Saturn & Mazer assigned all of its claims against AmSouth to Ticor. However, in exchange for the assignment, Ticor released its claims against Saturn & Mazer.
After being assigned all of Saturn & Mazer’s claims against AmSouth, Ticor filed suit against AmSouth. Ticor sought reimbursement of the $135,000 it had not recovered and asserted claims against AmSouth on behalf of Saturn & Mazer pursuant to Tenn. Code Ann. § 47-4-401 et seq., Tennessee’s version of U.C.C. section 4-401. That section provides that: (1) only properly payable instruments may be charged against a customer’s account and (2) that an instrument containing a forged drawer’s signature or forged endorsement is not properly payable.
Frost Brown Todd filed a summary judgment motion on behalf of AmSouth seeking to limit recovery to the $4,507.30 of actual losses suffered by Saturn & Mazer. The trial court denied the motion and instead awarded Ticor the face value of two of the checks, or approximately $131,000.
AmSouth appealed, and the Court of Appeals unanimously overturned the lower court opinion providing future guidance to all banks for cases brought pursuant to the Uniform Commercial Code. In sum, this opinion establishes Tennessee precedent that a bank customer who suffers a loss as a result of a forged endorsement may only recover its actual losses, and not necessarily the face value of the instrument.
