Delta Chemical and Petroleum, Inc. v. Citizens Bank of Byhalia

Decision Date27 March 2001
Docket NumberNo. 1998-CA-010135-COA.,1998-CA-010135-COA.
PartiesDELTA CHEMICAL AND PETROLEUM, INC., and Elaine Chemical, Inc., Appellants, v. CITIZENS BANK OF BYHALIA, MISISSIPPI, William T. Dawson and Joyce M. Dawson, Jointly and Severally, Appellees.
CourtMississippi Court of Appeals

Barrett Jerome Clisby, Oxford, Andrew T. Dulaney, Tunica, Attorneys for Appellants.

S. Duke Goza, Robert K. Upchurch, Tupelo, Dion Jeffery Shanley, Ridgeland, David W. Upchurch, Tupelo, Attorneys for Appellees.



THOMAS, J., for the Court:

¶ 1. The Motion for Rehearing is denied, and the opinion will be withdrawn and this opinion substituted. Delta Chemical and Petroleum, Inc. and Elaine Chemical, Inc. appeal the judgment of the Circuit Court of Marshall County raising the following assignment as error:


¶ 2. Finding error, we reverse and remand in part and affirm in part.

¶ 3. This case involves the apparent misuse of trust by a corporate president, Richard Sands, who was also a partial owner of the two Appellant corporations, Delta Chemical and Petroleum, Inc., and Elaine Chemical, Inc. Sands, through the misappropriation and fraudulent endorsement of several chemical rebate checks made payable to the respective corporations, diverted said assets totaling approximately $800,000 into similarly named non-corporate sole proprietor accounts, Delta Chemical and Petroleum (Not Inc.) and Elaine Chemical (Not Inc.). The two accounts were opened by Sands and maintained at the Citizens Bank of Byhalia, Mississippi. In their complaint, Delta, Inc. and Elaine, Inc. assert three theories of liability against Citizens Bank of Byhalia, William T. Dawson and his wife, Joyce Dawson. William Dawson was an executive vice-president, president and a member of the board of directors for Citizens Bank at the time the activity took place. Joyce Dawson was an employee of Sands and his bookkeeper for his various other companies.

¶ 4. Delta, Inc. and Elaine, Inc. first allege that Citizens Bank and William Dawson are, jointly and severally, negligent in failing to exercise ordinary or reasonable care with regard to the deposit of checks belonging to both Delta, Inc. and Elaine, Inc. into "sham" accounts of different but similar names at Citizens Bank. In their second theory of liability, Delta, Inc. and Elaine, Inc. allege that Citizens Bank, William Dawson, and Joyce Dawson, jointly and severally, did convert funds belonging to Delta, Inc. and Elaine, Inc. in absence of good faith or reasonable business standards, by allowing deposit and collecting on said checks based on the improper endorsements. The third theory of liability alleges that Citizens Bank, through its employees and officers, together with William Dawson and Joyce Dawson, jointly and severally, intentionally, maliciously, wilfully, and wantonly, by both material false representation and fraudulent concealment entered into a conspiracy with Sands to defraud Delta, Inc. and Elaine, Inc., respectively.

¶ 5. The trial court entertained a motion for a directed verdict made at the close of the plaintiff's case and granted said motion. Without any detailed findings or any elaboration as to the trial court's conclusion, the trial court simply concluded that having had an opportunity to hear the testimony and view the exhibits, that the plaintiffs, Delta, Inc. and Elaine, Inc., case should fail as a matter of law. Under what basis the trial court made this conclusion, we do not know.


¶ 6. In February of 1990, Richard Sands and William T. Latimer, III entered into a partnership. Together, they formed Delta Chemical and Petroleum, Inc. in an effort to increase their own respective operations both regionally and financially. The newly formed partnership was actually incorporated in the State of Mississippi on January 8, 1990. Both men had been in the agricultural chemical and supply business for a great number of years. Latimer had been in the farm and chemical supply business since the late 1960's and was designated vice-president of Delta, Inc. Sands had also been in the farm and chemical supply business for a number of years and was designated president and chief executive officer of Delta, Inc. Ownership of the newly created corporation was vested between the two men and their respective businesses. Chickasaw Chemical, in which Latimer was also a part owner, obtained part-ownership in Delta, Inc. while Sands owned the remaining interest. Sands also owned and operated, among other businesses, two chemical supply businesses known as D & H Chemical and Delta Chemical & Supply. At the creation of Delta, Inc., the assets of Delta Chemical & Supply were sold, its debts assumed by Delta, Inc. and the two merged.

¶ 7. In 1992, Latimer also became a partner and part owner in Elaine, Inc., an Arkansas corporation located in Elaine, Arkansas, with Sands as a partner and part owner as well. Elaine, Inc. was also in the farm and chemical supply business servicing portions of Arkansas. Elaine, Inc. has ceased to exist and is no longer a corporate entity within Arkansas.

¶ 8. Delta, Inc. and Elaine, Inc. both operated as suppliers to area farmers, which partly entailed selling chemicals, fertilizer, seed, and other farm supplies. Sometimes, the two corporations would, in turn, purchase crops produced by the various farmers. The methods of payment were generally made in cash upon purchase or net thirty, and in some cases credit was extended through the fall, at which time the crops were harvested and accounts would then be settled. As a large supplier of farming chemicals, Delta, Inc. and Elaine, Inc. participated in various rebate programs with the chemical manufacturers to encourage sales of their products. The rebate program operates much like an incentive program and is common in the industry. Several chemical manufactures including DuPont, Ciba, Geigy, Baylant, Griffin, Mobay, and FNC offered such programs. The rebate program rewards the suppliers, Delta, Inc. and Elaine, Inc., with rebates based on the quantity of the manufacturer's chemicals that have been sold during the previous months. Supplies of chemicals are ordered from the manufactures and stored in the supplier's warehouse until such time as they are needed by the farmers. Payments for the chemicals were received from the farmers in one of the three previously listed methods and the proceeds are then forwarded to the respective manufactures as payments on the chemicals. Rebate checks were usually remitted between October and February.

¶ 9. Everything appeared to run smoothly at the two corporations until 1992, when DuPont Chemical notified Latimer that they suspected that false invoices were being manufactured at Delta, Inc. in order to get additional rebates. Latimer began an investigation into the allegations and discovered that Sands was responsible. To prevent any additional problems, a computerized inventory system was installed at Delta, Inc. to monitor inventory and sales on a daily basis. Delta, Inc. reimbursed DuPont for the fraudulent invoices and rebates, but their business relationship remained soured. Elaine, Inc., however, did continue its business relationship with DuPont Chemical.

¶ 10. Additional problems, and the source of the current dispute now before this Court, surfaced during an annual audit required by First Systems Bank of Colorado. First Systems Bank had lent Sands and Latimer the necessary funds to create Delta, Inc. During this audit, it was discovered that Delta, Inc. had an abnormally high inventory. This discovery resulted in further investigations, in which Latimer learned that Sands had opened two sole proprietorship accounts with Citizens Bank of Byhalia under the names of Delta Chemical and Petroleum Company (Not Inc.) and Elaine Chemical Company (Not Inc.). Approximately $800,000 in rebate checks were diverted from Delta, Inc. and Elaine, Inc. by Sands through the fraudulent endorsements and subsequent depositing into the two similarly named account at Citizens.

¶ 11. As part of the agreement between Delta, Inc. and First Systems Bank, the only approved depositary bank for Delta, Inc. was Northwest Bank in Tunica, Mississippi. Per this agreement, Delta, Inc. argues that any deposits or banking activity with a bank other than Northwest Bank was prohibited. Delta, Inc. argues that Sands was aware of this and that he had neither implied nor express authority to open a separate account with an unauthorized bank, Citizens. Likewise, with respect to Elaine, Inc., Latimer testified that Elaine, Inc.'s only approved bank account was with First National Bank in Helena, Arkansas. Elaine, Inc. also asserts that Sands neither had implied nor expressed authority to open a separate account with Citizens. Latimer further maintains that Sands withheld the existence of the two fraudulent accounts opened at Citizens.

¶ 12. Delta, Inc. and Elaine, Inc. submit that Sands's fraudulent activities were further facilitated through assistance from two of his lifelong friends and mutual business partners, William and Joyce Dawson. William Dawson was executive vice-president, president, and a member of the board of directors for Citizens Bank. Joyce is William's spouse and part-time bookkeeper for some of Sands's businesses. Sands had developed an extensive banking history with Citizens through the businesses he previously owned and some that he continued to operate: Delta Chemical and Supply, D & H Chemical, Byhalia Oil Company, and others.

¶ 13. In October and November of 1991, Sands went to Citizens Bank and opened the two accounts, Delta Chemical and Petroleum Company (Not Inc.) and Elaine Chemical Company (Not Inc.). No inquiry by Citizens Bank was made as to Sands's authority to open the two accounts as they were both opened as sole proprietorships and...

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