J.J. Schaefer Livestock Hauling, Inc. v. Gretna State Bank, s. 86-353

• Decision Date: 26 August 1988
• Docket Number: 86-354 and 87-113,Nos. 86-353,s. 86-353
• Citation: 428 N.W.2d 185,229 Neb. 580
• Court: Nebraska Supreme Court
• Parties: , 7 UCC Rep.Serv.2d 143 J.J. SCHAEFER LIVESTOCK HAULING, INC., Appellee, v. GRETNA STATE BANK, A Nebraska Banking Corporation, Defendant and third-party Plaintiff, Appellant, Parks & Parks Auction Sales Managers, Inc., A Nebraska Corporation, et al., third-party Defendants, Appellees. v. The WAGGONERS TRUCKING, Appellee, v. GRETNA STATE BANK, A Nebraska Banking Corporation, Defendant and third-party Plaintiff, Appellant, Parks & Parks Auction Sales Managers, Inc., A Nebraska Corporation, et al., third-party Defendants, Appellees. GRETNA STATE BANK, A Nebraska Banking Corporation, Appellant, v. PARKS & PARKS AUCTION SALES MANAGERS, INC., A Nebraska Corporation, et al., Appellees.

Page 185

428 N.W.2d 185

229 Neb. 580, 7 UCC Rep.Serv.2d 143

J.J. SCHAEFER LIVESTOCK HAULING, INC., Appellee, v. GRETNA STATE BANK, A Nebraska Banking Corporation, Defendant and third-party Plaintiff, Appellant, Parks & Parks Auction Sales Managers, Inc., A Nebraska Corporation, et al., third-party Defendants, Appellees. v. The WAGGONERS TRUCKING, Appellee, v. GRETNA STATE BANK, A Nebraska Banking Corporation, Defendant and third-party Plaintiff, Appellant, Parks & Parks Auction Sales Managers, Inc., A Nebraska Corporation, et al., third-party Defendants, Appellees.

GRETNA STATE BANK, A Nebraska Banking Corporation, Appellant, v. PARKS & PARKS AUCTION SALES MANAGERS, INC., A Nebraska Corporation, et al., Appellees.

Nos. 86-353, 86-354 and 87-113.

Supreme Court of Nebraska.

Aug. 26, 1988.

Syllabus by the Court

1. Reformation: Equity: Appeal and Error. An action for reformation is equitable in nature. In such a case this court tries factual questions de novo on the record and reaches a conclusion independent of the findings of the trial court, provided, where the credible evidence is in conflict on a material issue of fact, this court considers, and may give weight to, the fact that the trial judge heard and observed the witnesses and accepted one version of the facts rather than another.

2. Appeal and Error. The general standard of review is that dismissal by a district judge will not be reversed on appeal if it was done in the exercise of sound discretion.

3. Trial: Appeal and Error. A judicial abuse of discretion does not denote or imply improper motive, bad faith, or intentional wrong by a judge, but requires the reasons or rulings of a trial judge to be clearly untenable, unfairly depriving a litigant of a substantial right and denying a just result in matters submitted for disposition through a judicial system.

4. Reformation: Evidence: Appeal and Error. On an appeal of an action for reformation, our de novo review of the record should search for the alleged fraud and/or mutual mistake, which must be shown by clear, convincing, and satisfactory evidence.

5. Evidence: Words and Phrases. Clear and convincing evidence means and is that amount of evidence which produces in the trier of fact a firm belief or conviction about the existence of the fact to be proved.

6. Summary Judgment: Appeal and Error. Upon reviewing the granting of a motion for summary judgment, we are obligated to view the evidence in the light most favorable to the party against whom the motion is directed and to give that party the benefit of all reasonable inferences which may be drawn therefrom.

7. Summary Judgment. Summary judgment is to be granted only when the pleadings, depositions, admissions, stipulations, and affidavits in the record disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law.

8. Summary Judgment: Proof. The burden is on the party moving for summary judgment to show that no issues of material fact exist, and unless the party can conclusively do so, the motion must be overruled.

9. Summary Judgment. On consideration of a motion for summary judgment, the court is to examine the evidence, not to decide any issue of fact, but to discover if any real issue of fact exists.

10. Negotiable Instruments. As a general rule, a surrender by the holder of negotiable notes to the maker cancels the obligations.

11. Reformation: Proof: Fraud. Reformation may be decreed where there has been a mutual mistake or where there has been a unilateral mistake caused by the fraud or inequitable conduct of the other party. The mistake must be proven by clear and convincing evidence.

12. Reformation: Words and Phrases. A mutual mistake is one common to both parties in reference to the instrument 13. Subrogation: Words and Phrases. Subrogation is defined as the substitution of one person in the place of another with reference to a lawful claim, demand, or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities.

to be reformed, each party laboring under the same misconception about the instrument.

14. Subrogation: Liability. The doctrine of subrogation includes every instance in which one person pays a debt for which another is primarily liable, and which in equity and good conscience should have been discharged by the latter, so long as the payment was made under compulsion or for the protection of some interest of the one making the payment and in discharge of an existing liability.

15. Subrogation: Liability. As a general rule, where one having an interest in property pays off an encumbrance on the property in order to protect his or her interest, such person is not entitled to be subrogated to the rights and remedies of the person paid if the debt is not one for which the payor is primarily liable.

16. Decedents' Estates: Notice: Claims. Mere notice to a representative of an estate regarding a possible demand or claim against an estate does not constitute presenting or filing a claim under Neb.Rev.Stat. § 30-2486 (Reissue 1985).

Debra R. Nickels and E. Terry Sibbernsen, of Welsh, Sibbernsen & Roach, Omaha, for appellant.

James F. Fenlon and William G. Stockdale, of Harris, Feldman Law Offices, Omaha, for appellees Parks & Parks Auction and Patricia Parks.

HASTINGS, C.J., and SHANAHAN, and FAHRNBRUCH, JJ., and RILEY and OTTE, District Judges.

HASTINGS, Chief Justice.

This appeal involves three consolidated civil actions from the district court for Sarpy County for amounts allegedly due on promissory notes. The court found against Gretna State Bank on the issues of reformation, equitable subrogation, discharge of the notes, and a timely filing of a claim against an estate. The bank appeals in each case.

The first two actions, cases Nos. 86-353 and 86-354, were originally filed by plaintiffs, J.J. Schaefer Livestock Hauling, Inc., and The Waggoners Trucking (hereinafter consignors), against Gretna State Bank (hereinafter bank). The plaintiffs were auction consignors who retained an auctioneer, Parks & Parks Auction Sales Managers, Inc. (hereinafter P & P), to sell certain items, vehicles, at auction. P & P maintained several accounts at the bank, including a general operating account into which it deposited proceeds of approximately $700,000 on September 17, 1984, from the auction. Any consignors were then usually paid about 15 days after the deposits were made.

P & P was in the habit of using proceeds of a recent auction to pay off consignors of an earlier auction. Patricia Parks had discussed with her husband, Charles (Charlie) Parks, president of P & P, that this was wrong, and he agreed that P & P was in jeopardy. This condition continued until his death.

Pursuant to longstanding practice, the bank would set off debts owed to it by P & P against the account. A debt of $165,000 was evidenced by two promissory notes and personally guaranteed by Charlie Parks and his wife, Patricia, also an officer of the corporation. An amount of $115,000 was loaned to Charlie on August 6, 1984, and earlier guaranteed by him on July 13, 1978. An amount of $50,000 was guaranteed by Patricia on May 1, 1978. Her name was then Penny A. Hancock. Each promissory note provided as follows: "SET-OFF--Lender may at any time before or after default exercise its right to set-off all or any portion of the indebtedness evidenced hereby against any liability or indebtedness of the Lender to the Borrower ... without prior notice to the Borrower."

An understanding or verbal agreement existed between the bank's president, Ronald Suhr, and P & P as to how the accounts would be handled. It was with this authority that the setoff was taken. Moneys were deposited by P & P into its operating account, and then the bank would transfer these funds into an investment account to earn interest for a couple of weeks until the funds needed to be returned to the operating account to cover checks P & P had written. If the bank took a setoff and there were insufficient funds in the operating account to cover checks, a new loan or loan advances would be made to P & P.

On September 19, 1984, the bank took a setoff against the account in the amount of $167,131.36. The promissory notes, although not yet due, were marked "PAID" and returned to P & P. The bank also transferred $300,000 from the general operating account to the investment (money market) account.

No other indebtedness existed between the bank and P & P after September 19, 1984. However, a different corporation, in which Charlie Parks had an ownership interest, Nepco, Inc., still owed the bank.

Charlie Parks had died earlier that day, at approximately 1:30 a.m. The bank's president and cashier, Suhr, was notified of Charlie's death by a call from Mrs. Parks on the morning of the 19th, at approximately 10 a.m. He testified that the payments on the notes were done prior to the phone call, before he was aware of Charlie's death. The money was taken out right away that morning by Stephen Ingram, vice president and the second of two officers of the bank. Ingram testified that he transferred the funds before he heard about Charlie's death.

The funds in Charlie's estate were insufficient to pay the consignors the amounts owed from the auction. The consignors sued the bank for conversion of P & P's funds, alleging the funds were held in trust for them, free and clear of any bank right of setoff. Summary judgment was granted for the consignors on the issue of liability. Ultimately, a settlement agreement was reached, with the bank paying the consignors the sum of $198,417.04.

The third-party action is essentially a claim for indemnity, wherein the bank sought to recover these amounts and filed petitions against third-party defendants, P & P and its individual guarantors,...