Alliance Nat. Bank & Trust Co. v. State Sur. Co.

• Decision Date: 18 July 1986
• Docket Number: No. 85-113,85-113
• Citation: 223 Neb. 403,390 N.W.2d 487
• Parties: ALLIANCE NATIONAL BANK & TRUST COMPANY, a National Banking Association, Appellee, v. STATE SURETY COMPANY, a Corporation, Appellant.
• Court: Nebraska Supreme Court

Page 487

390 N.W.2d 487

223 Neb. 403

ALLIANCE NATIONAL BANK & TRUST COMPANY, a National Banking Association, Appellee, v. STATE SURETY COMPANY, a Corporation, Appellant.

No. 85-113.

Supreme Court of Nebraska.

July 18, 1986.

Syllabus by the Court

1. Judgments: Appeal and Error. In a bench trial of a law action, factual findings by a trial court have the effect of a verdict and will not be set aside unless clearly erroneous.

2. Judgments: Appeal and Error. In reviewing a judgment awarded in a bench trial, the Supreme Court does not reweigh evidence but considers the judgment in a light most favorable to the successful party and resolves evidentiary conflicts in favor of the successful party, who is entitled to every reasonable inference deducible from the evidence.

3. Fraud. To recover on a claim for fraud, a plaintiff must show (1) that a representation was made; (2) that the representation was false; (3) that, when made, the representation was known to be false, or made recklessly without knowledge of its truth and as a positive assertion; (4) that it was made with the intention that the plaintiff should rely upon it; (5) that the plaintiff reasonably did so rely; and (6) that he or she suffered damage as a result.

4. Rules of Evidence: Hearsay: Words and Phrases. As defined in Neb.Evid.R. 801(3) (Neb.Rev.Stat. § 27-801(3) (Reissue 1985)), hearsay is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.

5. Rules of Evidence: Hearsay: Words and Phrases. A verbal act, which is an operative fact resulting in legal consequences, is not hearsay within the meaning of Neb.Evid.R. 801(3) (Neb.Rev.Stat. § 27-801(3) (Reissue 1985)) and, therefore, is not inadmissible hearsay prohibited by Neb.Evid.R. 802 (Neb.Rev.Stat. § 27-802 (Reissue 1985)).

6. Rules of Evidence: Testimony: Hearsay. Where testimony is offered to establish existence of a statement rather than to prove truth of that statement, the hearsay rule does not apply.

7. Fraud: Proof. Fraud is not proved by the mere failure to keep a promise.

8. Fraud. A promise, made by a promisor who has the intent not to perform such promise when made, may constitute fraud.

9. Fraud: Proof. In a law action fraud must be proved by a preponderance of evidence.

10. Fraud: Proof: Circumstantial Evidence. Fraud may be proved by circumstantial evidence.

11. Fraud: Damages. In a law action for fraud, one injured as the result of fraud is entitled to recover such damages as will compensate for the loss or injury actually caused by the fraud and place the defrauded party in the same position as would have existed had there been no fraud.

12. Rules of Evidence: Trial: Appeal and Error. To constitute reversible error contemplated in Neb.Evid.R. 103(1) (Neb.Rev.Stat. § 27-103(1)(Reissue 1985)) admission or exclusion of evidence must unfairly prejudice a substantial right of a litigant complaining about such evidence admitted or excluded.

13. Trial: Presumptions: Evidence: Appeal and Error. In a bench trial, that is, all factual determinations made by a judge and not by a jury, the Supreme Court applies the principle or "presumption" that the trial court will consider only relevant and otherwise admissible evidence so that an erroneous admission of evidence during a bench trial will not result in a reversal, if there is relevant and admissible evidence to sustain the trial court's judgment.

Morris L. Woodruff of Muffly, Oglesby & Brown, Lincoln, for appellant.

Robert M. Zuber of Zuber & Ginsburg, Omaha, and Mark L. Andersen, for appellee.

KRIVOSHA, C.J., and BOSLAUGH, WHITE, HASTINGS, CAPORALE, SHANAHAN, and GRANT, JJ.

SHANAHAN, Justice.

State Surety Company appeals the $20,000 judgment in favor of Alliance National Bank & Trust Company awarded by the district court for Box Butte County in a bench trial. Alliance National had sued on State Surety's bond indemnifying against "false and fraudulent representations or deceitful practices" of Fred Arntt, the principal of a motor vehicle dealer's bond issued by State Surety.

In a bench trial of a law action, factual findings by a trial court have the effect of a verdict and will not be set aside unless clearly erroneous. See, Buckingham v. Wray, 219 Neb. 807, 366 N.W.2d 753 (1985); Havelock Bank v. Woods, 219 Neb. 57, 361 N.W.2d 197 (1985). In reviewing a judgment awarded in a bench trial, the Supreme Court does not reweigh evidence but considers the judgment in a light most favorable to the successful party and resolves evidentiary conflicts in favor of the successful party, who is entitled to every reasonable inference deducible from the evidence. See, H & L Equip. v. Schardt, 217 Neb. 653, 349 N.W.2d 924 (1984); Havelock Bank v. Woods, supra.

State Surety issued a motor vehicle dealer's bond for Fred Arntt, a used-car dealer doing business as a proprietorship, "Arntt's Auto Sales," in Alliance. That bond had a face amount of $20,000 and indemnified against Arntt's false and fraudulent representations or deceitful practices.

From September 1980 until November 1981, Alliance National provided financing to Arntt in the sales of his used-car inventory. Arntt gave Alliance National his separate promissory note, due "after date," for every inventoried car, as well as a blanket security agreement and financing statement covering Arntt's entire inventory. As a part of the floor plan arrangement with the bank, Arntt delivered to Alliance National all certificates of title for inventoried vehicles, certificates which designated Arntt as the owner. For each of Arntt's promissory notes, "collateral" consisted of the certificate of title for the vehicle described in a particular note. Each certificate of title was attached to Arntt's corresponding note but was later returned to Arntt for completion of an inventoried vehicle's sale. As reflected by 36 transactions occurring between August 1980 and September 29, 1981, Alliance National returned certificates to Arntt, who later paid the bank all indebtedness regarding every vehicle for which the bank had returned the certificate of title to Arntt. In sales of inventoried vehicles before October 1981, the time for Arntt's payment to the bank varied from a minimum of 4 days to a maximum of 102 days. The bank conducted periodic inspections of Arntt's inventory to assure that no vehicle had been sold "out of trust"--a failure to pay the indebtedness on a vehicle sold--and learned that Arntt had sold vehicles covered by the security agreement. After Arntt failed to pay the bank in 1982, Alliance National seized all Arntt's remaining inventory and later filed suit against State Surety for Arntt's alleged fraud.

In its amended petition Alliance National, generally, alleged that Arntt had made misrepresentations to obtain return of the certificates of title and additional credit from the bank, causing damage to the bank in the amount of $20,000.

Richard Bilstein, Alliance National's loan officer in charge of Arntt's account, testified that when each certificate of title was returned regarding a prospective sale, Arntt agreed to pay all indebtedness on each vehicle for which the certificate was returned, that is, "[i]n every instance, there was definitely a procedure set up as to when the bank would receive [its] money." Over State Surety's objection (hearsay), Bilstein also testified about Arntt's statements made to him as a loan officer for the bank, representations concerning four inventoried vehicles for which the bank was never paid, namely:

1. A 1978 Ford van; balance on note--$5,737. Statement: On October 19, 1981, Arntt said the van was involved in a sale at North Platte and that certificate of title was needed to "close the deal" regarding the North Platte sale. Fact: The van had been sold on October 14, and Arntt received sale proceeds of $4,775 and a Chevrolet Blazer trade-in. The Blazer trade-in was later sold on October 26 for $2,500.

2. A 1979 Chevrolet Luv; balance on note--$4,500. Statement: On October 19, 1981, in conjunction with the sale of the 1978 Ford van, Arntt stated that when the van and Chevrolet Luv were sold, the bank would be paid. Fact: On October 26, 1981, Arntt sold the Chevrolet Luv for $5,000.

3. A 1980 Pontiac; balance on note--$6,000. Statement: On November 10, 1981, Arntt said that "there was a lien filed with GMAC on the title and, as soon as that was released, [Alliance National] would receive" the certificate of title for the Pontiac. Alliance National advanced $6,000 to Arntt on November 10, relying on promised delivery of the Pontiac's title as soon as GMAC released its lien. Arntt sold the Pontiac on November 18 and received a check for the purchase price. On November 23 Arntt deposited proceeds from sale of the Pontiac, $6,350, in the checking account of Arntt's Auto Sales. Fact: There was no GMAC lien noted on the Pontiac title.

4. A 1978 Chevrolet pickup; balance on note--$4,200. Statement: On November 24, 1981, Arntt said he needed the certificate of title for the pickup to complete a sale with a North Platte dealer and to receive proceeds from the sale of that pickup. Fact: The pickup had already been sold and Arntt received sale proceeds of $5,400 on November 12, 1981.

With receipt of the proceeds from the Pontiac sale, Arntt had received $24,025 from the sales of the four inventoried vehicles mentioned but never applied those sale proceeds as a payment of either principal or interest on any of his promissory notes pertaining to the vehicles sold. From October 19 to October 28, the highest balance in the checking account for Arntt's Auto Sales was $23,865.57. Between November 12, 1981, and the end of that year, the highest balance in the checking account of Arntt's Auto Sales was $7,951.44. Arntt used sale proceeds from the four vehicles mentioned above for "business ventures other than the used car business." In January...