Authority is the engine of effective business lending. Without it, businesses are powerless to act. They cannot borrow, offer collateral, or even sign loan documents. So how do inanimate, formless businesses borrow money? They do so through people—people who have authority granted to them. But what if a person who lacks authority signs loan documents for a business? Is the loan ineffective? Not if the business ratifies the person’s acts—that is, the business accepts the benefit of the loan and acts as though the loan was authorized.
Is, however, ratification effective against later creditors that take liens on the same collateral pledged under the ratified loan? Yes, according to recent holdings by the Fifth District Court of Appeals and the Ohio Supreme Court. It is those holdings that protect Ohio’s lenders from junior lienholders who seek to usurp a lender’s senior lien position.
In United Bank v. Expressway Auto Parts, Ltd., Sutton Bank lent $630,000 to Expressway Auto Parts and took a security interest in that company’s inventory. A man named Michael Moyer signed the loan documents for Expressway. Over the next several years, United Bank—a division of Park National Bank—lent over $500,000 to Expressway and took a security interest in the same inventory. Eventually, United Bank sued Sutton Bank asking the trial court to invalidate Sutton Bank’s lien by arguing that Mr. Moyer lacked the authority to bind Expressway to the Sutton loan. But in the end, the trial court, appellate court, and the Ohio Supreme Court disagreed.
At the trial level, Sutton Bank successfully argued that its loan to Expressway was valid because even if Mr. Moyer lacked authority, Expressway repeatedly ratified his acts. For example, Expressway regularly identified the loan on its tax returns and made every monthly loan payment for eight years. Thus, not only did the trial court find that Expressway ratified the loan, it found that ratification was effective against United Bank as well.
Dissatisfied, United Bank appealed the trial court’s judgment to the Fifth District Court of Appeals. There, too, the court found in favor of Sutton Bank by holding:
We find Expressway ratified the Sutton Bank Loan. … Expressway reported the $630,000 loan from Sutton Bank as a liability of the business on its federal tax returns, beginning in the 2006 tax year. Expressway made the monthly loan payments of $5,415.66 to Sutton Bank throughout the eight years of the loan. There is no evidence Expressway ever questioned the validity of the Sutton Bank Loan as a business indebtedness. Moyer granted the security interest in Expressway's equipment and inventory in December, 2006. Although Sutton Bank did not file the financing statement until May 7, 2007, Expressway's ratification relates back to December, 2006. United Bank did not file its financing statement with the Secretary of State until November, 2007. Accordingly, we find the trial court did not err in granting summary judgment in favor of Sutton Bank.
Finally, United Bank appealed the Fifth District’s decision to the Ohio Supreme Court. After reviewing the lower courts’ decisions and the parties’ briefs, the Supreme Court declined to consider United Bank’s appeal. That action left the decision of the Fifth District in place, effectively preventing junior lienholders from hurdling senior lienholders who obtained a security interest through ratification.
In the end, we recommend that all lenders take sufficient steps to ensure each person who signs a loan document has the necessary authority to do so. This may not always prevent claims from opportunistic third parties, but ratification can provide a safeguard in the right circumstances. Even so, lenders should consider using experienced legal counsel when questions of authority and agency arise.
Stultz & Stephan was proud to represent Sutton Bank in the Expressway matter at the trial, appellate, and supreme court levels.
 Perry v. Maxwell, 175 Ohio St. 369, 370, 195 N.E.2d 103 (1963).
 United Bank, Division of the Park National Bank v. Expressway Auto Parts, Ltd., 5th Dist. Richland No. 15CA51, 2015-Ohio-4554 (discretionary appeal not allowed by 145 Ohio St.3d 1423, 2016-Ohio-1173, 47 N.E.3d 167).
 United Bank, 2015-Ohio-4554 at ¶ 29.