Asc Corporation v. First National Bank of Elwood

• Citation: 161 N.E.2d 179
• Decision Date: 25 September 1959
• Docket Number: No. 1,No. 19045,19045,1
• Parties: A. S. C. CORPORATION, Appellant, v. FIRST NATIONAL BANK OF ELWOOD, Walter F. Busch, and Cecil L. Slavens, Appellee. *
• Court: Indiana Appellate Court

Page 179

161 N.E.2d 179

A. S. C. CORPORATION, Appellant, v. FIRST NATIONAL BANK OF ELWOOD, Walter F. Busch, and Cecil L.

Slavens, Appellee. ^*

No. 19045.

Appellate Court of Indiana, Division No. 1.

Sept. 25, 1959.

Jeremiah L. Cadick, Floyd W. Burns, James M. Nicholson, Indianapolis, John E. Scott, Anderson, Cadick & Burns, Indianapolis, O'Neill, Scott & Schrenker, Anderson, of counsel, for appellant.

Hugh E. Reynolds, Indianapolis, Robert L. Austin, Anderson, for appellee, First National Bank of Elwood. Lee B. Fidler, Anderson, for appellee, Walter F. Busch. Locke, Reynolds, Boyd & Weisell, Indianapolis, of counsel.

MYERS, Presiding Justice.

This is an action in tort brought by appellant, a finance company, to recover damages allegedly caused by a fraudulent conspiracy between the appellees, consisting of a bank, the bank's president and an automobile dealer.

The complaint was in one paragraph. Because of the nature of the case, we deem it necessary to make a summary of the allegations. It was alleged that the appellant, the plaintiff below, was a corporation which conducted a finance business consisting of loaning money to retail automobile dealers and others, securing such loans with trust receipts on new and used automobiles intended for resale, chattel mortgages and conditional sales contracts. Appellees, defendants below, were The First National Bank of Elwood, hereinafter called the Bank, Walter F. Busch, its president, general manager and chief executive officer, hereinafter called Busch, and Cecil L. Slavens, an individual engaged in the retail automobile business in the vicinity of Elwood under the name of 'Slavens Motor Sales,' hereinafter called Slavens. It was alleged that Slavens was a customer of the Bank and had an account there in his business name. On or about May 1, 1953, Slavens applied to appellant for credit to finance the purchase of new and used automobiles. Such credit was extended by appellant to Slavens, the security taken being trust receipts, chattel mortgages and conditional sales contracts.

The complaint goes on to state that appellant extended credit to Slavens from May 1, 1953, to October 31, 1953, on which latter date Slavens discontinued his floor plan arrangement and shortly thereafter paid appellant all sums owing it according to that arrangement.

The following facts were further alleged: Prior to January 25, 1954, Slavens was in failing financial condition and indebted to the Bank. In order that Slavens could continue in business and pay off the Bank, appellees, with intent to cheat, defraud and deceive appellant, and with the intent to conceal the failing financial condition of Slavens, put into operation a scheme or plan for the unlawful manipulation and handling of Slavens' banking credit and financial transactions, with the fraudulent design of inducing appellant to extend credit to Slavens. This scheme was carried out in the following manner: Slavens double-financed new and used cars, meaning that he pledged the same cars to other finance companies, unknown to the appellant. He sold fraudulent conditional sales contracts to appellant, of which the appellees had knowledge. The Bank certified checks drawn on his account to other finance companies when he had insufficient funds in his account, the purpose of which was to cover up fraudulent dealings with other finance companies. The Bank and its president, Busch, had permitted Slavens, over a period of time, to draw checks against his account when he had insufficient funds or no funds at all therein. The Bank paid the checks, holding them until funds were later deposited in the account to cover them, all of which was alleged to be in violation of state and national banking laws, which was for the purpose of concealing from the payees of those checks, including appellant, the facts that Slavens was in failing financial condition. It was further alleged that such fraudulent concealment created a false appearance of normal business operations on the part of Slavens.

Appellant further alleged that if it had known Slavens' true financial condition, and appellees' scheme and method of doing business, it would not have extended credit to Slavens. However, not knowing such, appellant did business with Slavens between the dates of December 29, 1953, and February 6, 1954, and extended credit in the manner herein set forth until Slavens was declared insolvent and adjudicated a bankrupt in federal court. Appellant alleged that its damages were in the total amount of $62,939.61, and asked for judgment in that amount against appellees.

The Bank and Slavens each demurred to this complaint on the ground that it did not allege facts sufficient to state a cause of action. These demurrers were overruled by the trial court. Busch and the Bank filed answers in general denial in one paragraph. Slavens elected to stand on his demurrer and refused to plead further.

The cause was submitted to the court for trial without a jury. The court found in favor of appellees Bank and Busch as against appellant, and in favor of appellant as against appellee Slavens. Judgment was entered in favor of the Bank and Busch and against Slavens, with damages assessed at $61,485.24, together with interest and court costs. Appellant filed its motion for a new trial, based solely upon the ground that the decision of the court was contrary to law. The court overruled the motion and this appeal followed.

The single assignment of error is that the court erred in overruling appellant's motion for a new trial.

At the trial evidence was submitted by appellant only. This consisted of interrogatories propounded to the Bank by appellant, an adverse party examination of Busch taken by appellant, the deposition of Slavens taken by appellant, a stipulation of facts, and oral testimony. Appellees rested their case without introducing any evidence at all.

The stipulation of facts reveals that appellant was engaged in the finance business, and in the course of its business extended credit to Slavens by means of trust receipt financing, chattel mortgages, and the purchase of conditional sales contracts. It stipulated that from December 28, 1953, to February 6, 1954, appellant had loaned money to Slavens in various specified transactions, the net sum of which approximated $62,000. It was further stipulated that this amount was never repaid, that the security for these loans never existed, and that Slavens was finally adjudicated a bankrupt in the United States District Court.

The rest of the evidence showed that, beginning in May, 1953, appellant started to make loans to Slavens, supposedly secured in the manner previously set forth. In August, 1953, appellant questioned some cars which it had floor planned. As a result, Slavens drew a check in the amount of $20,129.21, payable to appellant, and delivered the same to appellant. This was in full payment of all floor planning obligations then outstanding between Slavens and appellant. At that time Slavens' account with the Bank was overdrawn by $29,045.16, and he further owed the Bank the approximate sum of $34,000 for loans previously made. Appellant was without knowledge of these facts. It presented the check to the Bank for payment and it was honored immediately.

It was shown that this particular check was placed into what the Bank termed a 'mis-sorts' account. The Bank normally charged checks against this account on which signatures were irregular, or on which payment had been stopped, or for which there were insufficient funds to make payment. It was shown that once these checks were charged to some account, the books of the Bank would not balance, so this account was maintained as a bookkeeping convenience. In conventional banking practice, such items would only be carried for short periods of time. It was proved, however, that this check, pursuant to specific instructions by Busch, was placed in that account and retained there until on or about December 30, 1953, and never charged to Slavens' account during that period of time.

It was further shown that during the months of September, October, November and December, 1953, the overdraft in Slavens' account was less than $23,000 only once, and that at one time it reached a high of almost $66,000. At the same time, Slavens' loan indebtedness to the Bank increased by the end of the year to $57,000. Nevertheless, pursuant to Busch's instructions, the Bank continued to honor Slavens' checks during this period, including those payable to appellant.

Busch, as president of the Bank, knew of these overdrafts and was furnished a daily tape on them. There was evidence that he talked every day with Slavens about them. This evidence consisted of testimony of other employees of the Bank, including the head bookkeeper. In his examination, Busch was asked why the Bank paid the $20,129.21 check in August when Slavens was overdrawn. Busch stated that he did not know why it was done, but he further stated that he knew the check was held in the 'mis-sorts' account until December, 1953.

On October 29, 1953, it appeared that Universal C. I. T. Corporation, another finance company, advanced to Slavens the sum of $29,799.74 on automobiles which he subsequently pledged to appellant. Busch was present when the transaction took place and credited this amount to Slavens' account, which reduced his overdrafts at that time from approximately $65,000 to $34,000. Busch knew that Slavens was dealing with Universal C. I. T. Corporation, and told him to put the money received from its loans into his account at the Bank to reduce his overdrafts. Busch made the statement that, with regard to the Slavens' checks which the Bank honored and cashed, if he had returned them to the payees as being drawn against insufficient funds, Slavens' credit standing would have been jeopardized.

On January 21, 1954, a representative of Universal C. I. T. Corporation called at Slavens' place of business and...