Farmers Bank v. Chicago Title Insurance

ADKINS, Judge. In this case we study negligence and the economic damages rule, negotiable instruments and the loss allocation rules of the Uniform Commercial Code regarding drawers, drawees, and depositary banks. We decide that it is necessary to address the novel question of whether a drawer can sue a depositary bank in negligence, because the Uniform Commercial Code’s ¹⁶³ loss allocation rules are largely inapplicable. We decide that it can, under the particular circumstances of this case.

FACTS AND LEGAL PROCEEDINGS In November 1997, Mark Shannahan, a customer of Farmers Bank of Maryland (“Farmers”), refinanced his Annapolis home (“the property”) through Armada Mortgage Corporation (“Armada”). First Equity Title Corporation (“First Equity”), an agent of Chicago Title Insurance Company, 1 conducted Shannahan’s settlement. A later title examination revealed the existence of two liens on the property that had to be satisfied in order to give Armada first priority after refinancing. One such lien, the subject of this litigation, was an Indemnity Deed of Trust (“IDOT”) granted by Shannahan for the benefit of Farmers.

Before settlement, First Equity received from Armada two payoff statements which had been completed by a loan assistant for Farmers. One payoff statement indicated the existence of a loan dated November 21, 1996, in the original “high credit” amount of $50,000.00, with a balance as of October 28, 1997, of $45,104.47. On this first payoff statement, the loan assistant made a circled notation of “2nd DOT” above the high credit amount. The second payoff statement indicated the existence of a line of credit loan dated March 25, 1970, in the original “high credit” amount of $40,000.00, with a balance as of October 23, 1997, of $40,760.83 (“line of credit debt”).

On this second payoff statement, the loan assistant made a circled notation of “3rd DOT” above the high credit amount. When comparing the title examination with the payoff statements, First Equity initiated an inquiry with the title examiner to determine the existence of the “3rd DOT”. The title examiner reported that a review of the Land Records of Anne Arundel County did not reveal the existence of a third deed of trust. This report caused First Equity to mistakenly believe ¹⁶⁴ that the balance of the debt secured by the IDOT was only $45,575.70.

Neither the title examiner nor First Equity correctly read the language in the IDOT providing that the $40,000.00 line of credit Shannahan maintained at Farmers was also secured by the lien of the IDOT. First Equity believed that line of credit debt to be unsecured. Accordingly, on December 1, 1997, First Equity issued a check in the amount of $45,575.70 (“Check 1”) and mailed it directly to Farmers along with a copy of the first payoff statement and instructions to pay off the “2nd DOT”. The letter accompanying Check 1 stated that “[t]he enclosed check is to pay this account in full.” It did not request that the IDOT be released.

It also did not mention the $40,760.83 line of credit. Following settlement, First Equity delivered two checks to Shannahan: (1) a check made payable to Shannahan in the amount of $87,464.11 (representing Shannahan’s “cash-out” from the refinancing)(“cash-out check”); and (2) a check made payable to Farmers in the amount of $40,760.83 (representing the outstanding balance of the line of credit)(“Check 2”). First Equity gave Check 2 to Shannahan along with a letter instructing Farmers to pay off, and then close out, the line of credit. This letter, unfortunately, was never delivered to Farmers.

On December 3, 1997, Shannahan took the cash-out check and Check 2 to the West Street branch of Farmers. Upon arrival at the bank, Shannahan deposited the cash-out check into his personal account at Farmers. In addition, Shannahan indorsed Check 2 and directed the bank to deposit that check into his personal account as well. Shannahan did not give Farmers First Equity’s instructions that Check 2 be used to pay off, and then close out, the line of credit.

After the teller discussed the deposit of Check 2 into Shannahan’s account with the bank manager, who in turn allegedly discussed the situation with a loan officer, Shannahan was allowed to deposit Check 2, made out to Farmers, into his personal account. Then Farmers placed its indorse ¹⁶⁵ ment on the back of Check 2, and the funds were subsequently withdrawn from First Equity’s checking account at Allfirst Bank (“Allfirst”). Check 2 was deposited into Shannahan’s account before Farmers negotiated Check 1. Around July 1998, Farmers initiated foreclosure proceedings with respect to the IDOT, because the line of credit balance was in default. 2 At this time, First Equity learned that Farmers still had a lien on the property because, according to Farmers, Shannahan had not paid off the line of credit, which was secured by the IDOT.

First Equity then notified Allfirst about Check 2 and requested that Allfirst recredit its account. Allfirst refused to do so. First Equity subsequently filed a declaratory judgment action against Farmers and Allfirst in the Circuit Court for Anne Arundel County. Both banks filed a Counter-Complaint for Interpleader against First Equity.

After a bench trial, the circuit court ruled in favor of First Equity and ordered Farmers to release the lien of its IDOT from the property. Farmers filed a timely appeal. The circuit court also ruled that Allfirst was not liable for debiting funds from First Equity’s checking account when it processed Check 2. First Equity filed a cross-appeal on this issue.

Appellant Farmers asks us to decide I. Whether the lower court erred in finding that Farmers negligently failed to apply the proceeds of a check issued by First Equity and made payable to Farmers to an outstanding balance on a line of credit, absent a finding of a duty owed by Farmers to First Equity[.] II. Whether the lower court erred in failing to consider whether First Equity’s contributory negligence barred the relief it obtained. Appellee/cross-appellant First Equity asks us to decide: ¹⁶⁶ III. Whether the lower court erred in finding that Allfirst Bank did not violate Md.Code (1975, 2002 RepLVol.), section 4-401 of the Commercial Law Article (“UCC”) when it debited Check 2 from First Equity’s account.

Appellant Farmers and cross-appellee Allfirst filed separate briefs, but make no claims against each other. Both are represented by the same counsel. CIRCUIT COURT’S DECISION After a trial on the merits, the circuit court made the following findings and conclusions: Although Shannahan was in possession of [Check 2,] the instrument was payable to [Farmers] and not to bearer. Therefore, Shannahan was not a holder of the instrument and thus was unable to properly negotiate the check to the credit of his personal account.

MD Code Ann., Com. Law I § 3-205(d) provides: “Anomalous indorsement” means an indorsement made by a person who is not the holder of the instrument. An anomalous indorsement does not affect the manner in which the instrument may be negotiated.” ... [T]he court will disregard Shannahan’s placement of his signature as an indorsement and view [check 2] as if Shannahan had not attempted to negotiate it. As such, [Farmers] placed its own indorsement on the back of [Check 2] as it negotiated it to Allfirst Bank.

Allfirst correctly dispersed the funds to [Farmers] who then permitted these funds, intended for [Farmers], to be directed to Shannahan’s account. Thus, [Farmers] did accept the check from First Equity in the amount of $40,760.83 and then extended a payment to Shannahan in the same amount. The court concludes that [Farmers] negligently failed to apply the funds to Shannahan’s outstanding balance of $40,760.83 on the line of credit also referred to in the payoff statement from Farmers as the 3rd DOT. The court finds that the delivery by First Equity of [Check 1] to [Farmers] by mail combined with the delivery by Shannahan of [Check ¹⁶⁷ 2] constitutes a pay-off in full of the Farmers IDOT and [Farmers] is required to release the IDOT in accordance with the provisions of Section 7-106 of the Real Property Article of the Code.

(Emphasis added.) We shall sustain the trial court’s ruling that Farmers was negligent in its handling of Check 2. We hold that the court erred, however, in failing to consider the contributory negligence of First Equity, and in resting its decision on Md.Code (1974, 2003 Repl.Vol.), section 7-106 of the Real Property Article (“RP”)(authorizing cause of action against lienholder for its failure to release lien whenever full payment is made and a release is requested in writing). 3 Finally, we affirm the trial court in its holding that First Equity could not recover against Allfirst because the latter did not violate UCC section 4-401 when it charged Check 2 against First Equity’s account. This is so because no signature on Check 2 was forged, and no indorsement was missing. We explain our reasoning in the sections that follow.

DISCUSSION I. First Equity’s Claim Against Farmers in Negligence Farmers contends that First Equity cannot recover against it in negligence because Farmers had no duty to First Equity. There are four elements in a cause of action for negligence: a duty owed to the plaintiff, a breach of that duty, harm caused by that breach, and damages. See Jacques v. First Nat’l Bank, 307 Md. 527, 531 , 515 A.2d 756 (1986). First Equity candidly acknowledges that it “has not been able to locate any decision by [either Maryland appellate court] determining whether a drawer of a check has a general cause of action for negligence against a depositary bank.” We are thus required to examine the novel and thorny question of whether ¹⁶⁸ a depositary bank can be liable in negligence to its non-customer drawer. 4 Although we sustained a negligence action by a drawer against a bank in Bank of So.

Md. v. Robertson’s Crab House, Inc., 39 Md.App. 707, 715-16 , 389 A.2d 388 (1978), that case does not resolve this issue because the drawer was a customer of the depositary bank. In Robertson’s, the bank accepted a check from the drawer plaintiff payable to the bank, and deposited the proceeds into the presenter’s personal account. The presenter was an employee of the drawer. We concluded that the bank had a duty of ordinary care to the drawer because it was the bank’s customer.

See id. at 713 , 389 A.2d 388 . There was no discussion of whether this duty extended to non-customer drawers. There is a split of authority in other states on the issue of whether a depositary bank may be liable in negligence to a non-customer drawer for failure to exercise ordinary care in ¹⁶⁹ handling checks. Cases holding that the depositary bank may be liable include: Wymore State Bank v. Johnson Int’l Co., 873 F.2d 1082, 1087 (8th Cir.1989)(holding that a non-customer drawer has standing to sue depositary bank in negligence); Progressive Casualty Ins.

Co. v. PNC Bank, N.A., 73 F.Supp.2d 485, 489 (E.D.Pa.l999)(refusing to grant a defendant bank’s motion to dismiss non-customer drawer’s negligence suit); Sun ‘n Sand, Inc. v. United Cal. Bank, 21 Cal.3d 671 , 148 Cal.Rptr. 329 , 582 P.2d 920, 936-37 (1978), abrogated in part by statute on other grounds as recognized in Lee Newman, M.D., Inc. v. Wells Fargo Bank, 87 Cal.App.4th 73 , 104 Cal.Rptr.2d 310 (2001)(drawer’s loss was reasonably foreseeable); Kaiser-Georgetown Community Health Plan, Inc. v. Bankers Trust Co. of Albany, N.A., 110 Misc.2d 320, 321-22 , 442 N.Y.S.2d 48 (N.Y.Sup.Ct.1981)(granting summary judgment to non-customer drawer against depositary bank); Allis Chalmers Leasing Servs. Corp. v. Byron Ctr. State Bank, 129 Mich.App. 602 , 341 N.W.2d 837, 839 (1983)(per curiam)(affirming grant of summary judgment to non-customer drawer against depositary bank).

Cf. Murray v. Bank of Amer., N.A., 354 S.C. 337 , 580 S.E.2d 194, 198 (Ct.App.2003)(finding bank has general duty of care to non-customer). For cases denying recovery by non-customer drawer against a depositary bank, see, e.g., Bank Polska Kasa Opieki, S.A. v. Pamrapo Savings Bank, S.L.A., 909 F.Supp. 948 (D.N.J.1995); Great Lakes Higher Educ. Corp. v. Austin Bank of Chicago, 837 F.Supp. 892 (N.D.Ill.1993); Ramsey v. Hancock, 79 P.3d 423 (Utah Ct.App.2003). 5 In the widely cited 1978 case, Sun ‘n Sand, 6 the California Supreme Court addressed a drawer’s claim of negligence ¹⁷⁰ against a depositary bank for allowing a check payable to the bank to be deposited in the personal account of the presenter, who was the drawer’s employee.

The court described the balancing of policy considerations that is required to decide whether a duty should be imposed: The most important of these ... include “the foreseeability of harm to the plaintiff, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct, the policy of preventing future harm, the extent of the burden to the defendant and consequences to the community of imposing a duty to exercise care with resulting liability for breach, and the availability, cost, and prevalence of insurance for the risk involved.” Sun ‘n Sand, 148 Cal.Rptr. 329 , 582 P.2d at 936 (citations omitted). In doing that balancing, the court emphasized that foreseeability was the foundation for finding liability, and lack of foreseeability would set limits thereon: Our conclusion that [the bank] should have appreciated the indicia of misappropriation is, of course, nothing other than a determination that [the drawer’s] loss was reasonably foreseeable. We are not persuaded that commerce will be so impeded by a duty of inquiry in this context that we should depart from the fundamental principle that actors are liable for reasonably foreseeable losses occasioned by their conduct. The duty is narrowly circumscribed: it is activated only when checks, not insignificant in amount, are drawn payable to the order of a bank and are presented to the payee bank by a third party seeking to negotiate the checks for his own benefit.

Moreover, the bank’s obligation is minimal. We hold simply that the bank may not ignore the danger signals inherent in such an attempted negotiation. There must be objective indicia from which the bank could reasonably conclude that the party presenting the ¹⁷¹ check is authorized to transact in the manner proposed. In the absence of such indicia the bank pays at its peril.

Id. 148 Cal.Rptr. 329 , 582 P.2d at 937 . 7 The opinion of the Seventh Circuit in Travelers Cas. and Sur. Co. of Am. v. Wells Fargo Bank, N.A., 374 F.3d 521, 528 (7th Cir.2004), echoed themes from Sun ‘n Sand in holding that a depositary bank owes a duty to a drawer who is not its customer. Treating Charles Schwab, a brokerage firm, as a bank, Judge Posner, writing for the court, first considered the potential benefit to the community that would result if the duty were imposed: The common law of Illinois as of other states requires a bank, if someone tries to deposit a check made out to it in his own account, to exercise due care to make sure that the drawer (the third party) intended the depositor to receive the drawer’s money.... The danger is great in such a case that the depositor merely found, stole, or forged the check.

The risk of his getting away with such fraud is reduced if the bank has a duty to check with the drawer or take other steps to make reasonably sure that the deposit is authorized. Id. at 525-26 (citations omitted and emphasis added). Judge Posner next emphasized the ease with which the bank’s duty could be fulfilled: [The bank] should have tried to find out from [the drawer] whether the check had been authorized. Although [the drawer’s] check listed no address or phone number, only a P.O. box number in Milwaukee, it would have taken no more than a minute to look up [the drawer’s] phone number and place a call....

Alternatively, it could have warned [the drawee] of the unusual deposit; the warning doubtless would have impelled [the drawee] to check the matter with its customer, in order to avoid liability. [The bank] did ¹⁷² nothing and there is no evidence that, had it made a reasonable effort, the effort would have been fruitless. [The bank] violated its duty of care to [the drawer]. Id. at 527. Cautiously limiting a bank’s duty, Judge Posner recognized that a minimal effort by the bank to obtain information might be sufficient even if unsuccessful: If having [called the drawer,] [the bank] had found itself entangled in an endless automated phone menu or otherwise unable to get through to a responsible employee of the company in a reasonable amount of time and get a prompt answer to its query, its duty of care might have been satisfied. Id.

While we find persuasive the reasoning in Sun ‘n Sand and Travelers, we must carefully scrutinize whether the action can pass muster under Maryland negligence law. To do so we must examine two important Maryland cases: Jacques, 307 Md. 527 , 515 A.2d 756 , and Walpert, Smullian & Blumenthal, P.A. v. Katz, 361 Md. 645 , 762 A.2d 582 (2000)(“Walpert ”). Jacques , a leading case on the subject of tort duty, is cited by both First Equity and Farmers. The issue presented in Jacques was “whether a bank that has agreed to process an application for a loan owes to its customer a duty of reasonable care in the processing and determination of that application.” Id. at 528 , 515 A.2d 756 .

The Court of Appeals concluded that such duty existed. See id. Although our issue here is quite different, the Jacques Court’s analysis of duty and the “economic loss rule” in the banking context is instructive. Judge McAuliffe, writing for the Court of Appeals, explained that “[t]he duty element in a negligence action is ‘an obligation to which the law will give effect and recognition to conform to a particular standard of conduct toward another.’ ” Id. at 532 , 515 A.2d 756 (citation omitted).

It is “ ‘an expression of the sum total of those considerations of policy which lead the law to say that the plaintiff is entitled to protection.’ ” Id. at 533 , 515 A.2d 756 (citation omitted). The ¹⁷³ Court additionally explained why a plaintiff with a claim for economic loss must meet a higher burden: In determining whether a tort duty should be recognized in a particular context, two major considerations are: the nature of the harm likely to result from a failure to exercise due care, and the relationship that exists between the parties. Where the failure to exercise due care creates a risk of economic loss only, courts have generally required an intimate nexus between the parties as a condition to the imposition of tort liability. This intimate nexus is satisfied by contractual privity or its equivalent.

By contrast, where the risk created is one of personal injury, no such direct relationship need be shown, and the principal determinant of duty becomes foreseeability. Id. at 534 , 515 A.2d 756 (citations and footnote omitted, emphasis added). To illustrate the perimeters of negligence liability when only economic loss is involved, the Jacques Court examined two early leading cases from New York: Glanzer v. Shepard, 233 N.Y. 236 , 135 N.E. 275 (1922), and Ultramares Corp. v. Touche, 255 N.Y. 170 , 174 N.E. 441 (1931). In Glanzer , the New York Court of Appeals held that “a public weigher of beans was liable to the buyer of the beans for negligence in the weighing, notwithstanding that the weigher had been engaged and paid only by the seller.” Jacques, 307 Md. at 535 , 515 A.2d 756 .

This was because the “buyer, although having no contract with the weigher, was the known and intended beneficiary of the contract between the seller and the weigher, and therefore a beneficiary of the duty owed by the weigher.” Id. On the other hand, in Ultramares, the New York court held that a “public accountant who carelessly prepared and certified a balance sheet for a corporation could not be held liable in negligence to a factor who made loans to the corporation in reliance on the balance sheet.” Jacques, 807 Md. at 536, 515 A.2d 756 . The New York court distinguished Glanzer from Ultramares “on the basis that there was no ‘contractual relation, or even one approaching it, at the root of any duty ¹⁷⁴ that was owing from the defendants ... to the indeterminant class of persons who ... might deal with the [corporation] in reliance on the audit.’ ” Id. (quoting Ultramares, 174 N.E. at 446 )(emphasis added).

We view this distinction as meaningful in this case because, when Farmers deposited Check 2’s proceeds into Shannahan’s account, it knew who the drawer was, knew that the drawer owed it no money, and accepted the check from that drawer. Thus, in concluding that Farmers had a duty to First Equity, we would not be creating a duty to an “indeterminant class of persons.” Imposing a duty is also justified by the public nature of a bank. The Jacques Court explained that a “duty might arise from the public nature of defendant’s calling[.]” Jacques, 307 Md. at 533 , 515 A.2d 756 . The Court explained the public character of a bank: The banking business is affected with the public interest.

Traditionally banks and their officers have been held to a high degree of integrity and responsiveness to their public calling... .[T]he requirements imposed by the Maryland Legislature upon state banks illustrate this State’s policy concerning the banking industry. Unlike most other corporations, in Maryland a state bank may not be chartered until there has been an investigation by a state official and a determination that “[t]he character, responsibility, and general fitness of the incorporators and directors named in the articles command confidence and warrant belief that the business of the proposed commercial bank will be honestly and efficiently ... and [that] [a]Howing the proposed commercial bank to engage in business ... [w]ill promote public convenience and advantage.” ... The recognition of a tort duty of reasonable care under [these] circumstances ... is thus consistent with the policy of this State ... and reasonable in light of the nature of the banking industry and its relation to public welfare. Id. at 542-43 , 515 A.2d 756 (citations omitted).

Like the brokerage firm in Jacques , Farmers qualifies as an institution “invested with enormous public trust” and “affected ¹⁷⁵ with the public interest.” See id. We concede, though, a significant difference between this case and Jacques . There, the Court found that there was a contract between the bank and the plaintiffs who applied for the loan, whereas here there is none. 8 The Jacques Court left for future decisions the question of what circumstances might qualify as a “[contract] equivalent.” Fourteen years later, Chief Judge Bell, writing for the Court of Appeals in Walpert, 361 Md. 645 , 762 A.2d 582 , provided a partial answer to this question. Walpert involved the issue of whether a certified public accounting firm that prepared an audited financial statement for its corporate client had a duty of ordinary care to a person who loaned money to that client in reliance on the defendant’s work.

Chief Judge Bell undertook an extensive analysis of “the nature of the relationship required to establish a duty of care ... in which economic damages only were incurred.” Id. at 666 , 762 A.2d 582 . Although the Court did not abandon the terms “intimate nexus,” and “[contract] equivalent,” it distanced itself from these concepts. In doing so, the Court clarified the privity issues discussed in Jacques . Reviewing Jacques and the cases it relied on, the Court focused on foreseeability rather than privity or its equivalent: [T]he rationale underlying the requirement of privity or its equivalent as a condition of liability for negligent conduct ... resulting in economic damages emerges: to avoid “liability in an indeterminate amount for an indeterminate time to an indeterminate class.” Stated differently, the reason for the [privity] requirement is to limit the defendant’s ¹⁷⁶ risk exposure to an actually foreseeable extent, thus permitting a defendant to control the risk to which the defendant is exposed.

It was that concern that was being addressed by the Jacques Court when it juxtaposed Glanzer and Ultramares and stressed doubly that the Jacqueses were not strangers to the loan transaction and that the Bank promised the Jacqueses to process their loan application and to lock in a certain rate of interest for a period of time. Walpert, 361 Md. at 671 , 762 A.2d 582 (citations and footnote omitted; emphasis added). Further signaling that “contractual privity or its equivalent” is not essential to the imposition of duty, the Court explained: While the Ultramares court was clear in its statement of its position on the unfairness of imposing on the defendants an indeterminate liability, to an indeterminate class- of people, for an indeterminate class of people, for an indeterminate period of time, by contrasting the facts in that case with those in Glanzer , in which the third party was the “end and aim” of the transaction, there may have been created a false impression that its holding requires a contractual privity or that of a third party beneficiary. Certainly, Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536 , 493 N.Y.S.2d 435 , 483 N.E.2d 110 (1985) and other subsequent [New York] cases make clear that Ultramares does not require strict privity or third party beneficiary status as a condition to third party suits against accountants.

Id. at 674 n. 12, 762 A.2d 582 . (citations omitted and emphasis added). The Walpert Court directed us to adjust our lens for viewing Ultramares and Glanzer , from focusing on the relationship between the plaintiff and defendant, to assessing the reasonable expectations of the defendant: Ultramares, in distinguishing Glanzer , gave greater emphasis to the contractual analysis by which the Glanzer court indicated, albeit with circuitousness, the case could be ex ¹⁷⁷ plained. That explanation of the distinction between the cases was also the focus of Jacques .

Thus, our reference in Jacques to “the contractual relation” in discussing Ultra-mares may suggest that, in order to find a duty, there must be the presence or absence of a contractual relationship. As we have seen, however, the relationship between the plaintiffs and the defendant in Glanzer was such that the defendant knew both the purpose for which its work product was to be used — to set the amount of payment due — and if not the identity of the final user, the specific class of persons who could and would rely on that work product. That knowledge needs to be contrasted with that possessed by the defendant in Ultramares, who knew only generally that the information it provided would be relied upon by others. Id. at 685, 762 A.2d 582 (emphasis added).

Yet the Court of Appeals declined to fully abandon the “privity equivalent” or “near privity requirement” of Ultramares. Relying heavily on Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536 , 493 N.Y.S.2d 435 , 483 N.E.2d 110 (1984), it cautioned: Elucidating Ultramares, the Court of Appeals of New York reiterated the privity equivalent or near privity requirement in [Credit Alliance Corp.], in the process, clarifying the test of elements a plaintiff must establish: (1) the accountants must have been aware that the financial reports were to be used for a particular purpose or purposes; (2) in the furtherance of which a known party or parties was intended to rely; and (3) there must have been some conduct on the part of the accountants linking to that party or parties, which evinces the accountants’ understanding of that party or parties’ reliance. Walpert, 361 Md. at 675-76 , 762 A.2d 582 (footnote omitted). In sum, what we distill from Walpert’s interpretation of Jacques and the New York cases is that the nexus requirement may not be as close as the word “intimate” would suggest, and to determine whether it is met, we must focus on ¹⁷⁸ the defendant’s knowledge.

Applying this lesson, we conclude that Farmers had a sufficient nexus to First Equity to justify imposition of a tort duty to handle Check 2 with ordinary care. Several factors support this conclusion. First, Farmers received a sizable check payable to Farmers from an entity that was not indebted to it, with no direction as to its purpose. This does not occur in the normal day-to-day banking transaction.

Farmers had the option of declining to accept Check 2 without instruction from the drawer as to why it was the payee. So, unlike the Ultramares accountant, who did not even know who relied on its audit work, Farmers made a conscious decision to accept First Equity’s check for collection. In doing so, Farmers pleased its customer, Shannahan, and also earned more profit because interest would continue to accrue on the loan. Second, the drawer of the check was a title company, i.e., a company in the business of performing title searches, holding settlements involving real property, and issuing title policies that insure against title defects, including the priority of a lender’s lien on real property.

Shannahan had outstanding loans to Farmers secured by real property. Further, Farmers had received a “payoff request” from Armada, the new lender (to whom First Equity would issue a lender’s title policy). Farmers had replied to that request identifying its two secured loans and stating the amount due. 9 These factors, taken together, suggest that Farmers knew, or should have known, that there was a risk that First Equity was expecting the proceeds of the check to pay off Shannahan’s indebtedness to Farmers secured by the IDOT, thus clearing the title, rather than to place the proceeds in his account. Farmers’ knowledge and conduct fall squarely within the fundamental negligence principle quoted in Hartford Fire Ins.

Co. v. Md. Nat’l Bank, N.A., 341 Md. 408, 424 , 671 A.2d 22 (1996)(“Hartford ”), that “actors are liable for reasonably fore ¹⁷⁹ seeable losses occasioned by their conduct.” (Citation omitted). The Court Of Appeals’ Decision In Hartford In making our decision that Farmers could be liable in negligence, it is appropriate that we consider the history of Maryland’s treatment of a bank’s responsibilities and a drawer’s remedies other than negligence, when loss is incurred as the result of a forged signature or similar event. Maryland has recognized for over 75 years that a depositary bank has a duty to inquire as to the right of a customer to use a check for his own benefit when the check was payable to someone else, such as his employer. See Nat’l Union Bank of Md. v. Miller Rubber Co. of N.Y., 148 Md. 449 , 129 A. 688 (1925)(holding depositary bank liable to payee in conversion when it credited check proceeds payable to a manufacturer to the personal account of a distributing agent for that manufacturer).

This duty rests in part on the depositary bank’s position as the one best able to detect forgery. See Hartford, 341 Md. at 429 , 671 A.2d 22 . (“Since the party who takes from the forger is generally in the best position to prevent a forged indorsement, the depositary bank is ultimately liable in most cases”). See also 6 Anderson on the Uniform Commercial Code § 3-404:5(b) (2004).

Although the plaintiff in National Union was the payee, the “right to sue a depositary bank in conversion was extended to drawers in certain circumstances[.]” Hartford, 341 Md. at 425 , 671 A.2d 22 (citing John Hancock v. Fid.-Balto. Bank, 212 Md. 506 , 129 A.2d 815 (1957) and Fid.-Balto. Bank v. John Hancock, 217 Md. 367 , 142 A.2d 796 (1958))(“We ... are unable to discover any difference in principle between a payee and a drawer of a check under such