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COAST-TO-COAST STORES v. CITIZENS BANK

December 30, 1987

Coast-To-Coast Stores, Inc., Plaintiff
v.
The Citizens Bank, Womack-Bowers, Inc., Defendants



The opinion of the court was delivered by: ROY

 Elsijane T. Roy, United States District Judge.

 Before the Court are the motions for summary judgment filed by both parties. From the pleadings filed herein, it appears that the facts are undisputed. The parties disagree, however, as to the result of the legal principles involved.

 The defendants do not dispute the facts as set out in plaintiff's Statement of Material Facts as to Which There is no General Issue. In late 1983, Coast-to-Coast Stores, Inc. ("Coast") was a creditor of Womack with a security interest in inventory and equipment of Womack. The Citizens Bank ("Bank") was also a secured creditor of Womack, but its security interest was subordinate and inferior to that of Coast.

 In early 1984, Travelers Indemnity Company submitted a check for $ 32,688.45 as reimbursement for inventory water damage loss suffered by Womack, with the check payable to Womack, Coast and Bank pursuant to applicable loss payable clauses. On April 19, 1968 Coast wrote Bank, requesting that it endorse the insurance settlement check to Coast pursuant to the subordination of security interest agreement. On May 4, 1984 Bank's counsel wrote Coast with regard to the insurance settlement check, ". . . propos[ing] that Coast waive endorsement of the check and that the check be deposited in an escrow account for the benefit of the parties concerned at The Citizens Bank in Batesville, Arkansas.

 On May 30, 1984 Coast wrote Bank agreeing to the establishment of an interest-bearing escrow account, with ". . . the proceeds to be distributed only upon signed instructions from the three parties."

 On June 6, 1984 counsel for the Bank responded to Coast's letter of May 30, 1984 and accepted its terms.

 On June 18, 1984 Bank again wrote Coast, indicating that the funds had been placed in an interest bearing account in accordance with Coast's letter instructions of May 30, 1984, and Bank enclosed a signature card for the account.

 On August 16, 1985 Coast recovered a judgment in the U.S. District Court, Eastern District of Arkansas, against Womack for $ 53,114.11 with costs. The judgment has not been paid.

 On December 19, 1985 Coast notified the Bank that the withdrawal violated the terms of the account and made demand for the proceeds of the account. Following affirmance of the District Court's judgment in favor of Coast against Womack, Coast again demanded the proceeds of the account on June 8, 1987. The bank has made no payment on the account to Coast.

 It is the position of the Bank that plaintiff's complaint must be dismissed pursuant to Arkansas Statutes Annotated 85-4-406. The plaintiff contends that the Bank has conceded in its answer in this case that it has no interest in the account superior to that of Coast, and accordingly, as among the three parties involved in the escrow account, Coast is clearly entitled to those proceeds.

 The Code section relied upon by the Bank governs a bank customer's duty to discover and report unauthorized signatures on its account, and provides, in pertinent part:

 
Without regard to care or lack of care of either the customer or the bank a customer who does not within one year from the time the statement and items are made available to the customer . . . discover and report his unauthorized signature . . . is precluded from asserting ...

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