Kuhns v. Live Stock Nat. Bank
| Decision Date | 26 January 1940 |
| Docket Number | 30715. |
| Citation | 289 N.W. 893,137 Neb. 459 |
| Parties | KUHNS v. LIVE STOCK NAT. BANK. |
| Court | Nebraska Supreme Court |
Syllabus by the Court.
1. The payment of a check by the drawee bank is not a negotiation and does not make the bank a holder in due course.
2. A resolution of the board of directors of a corporation authorizing a bank to honor instruments, even if drawn to the individual order of certain officers named therein, does not as a matter of law, relieve the bank from making inquiry if an officer of the corporation offers to pay his individual notes to said bank with a check on the corporation account therein, for if it is an unauthorized use of the funds of the corporation the bank may be held liable therefor.
Appeal from District Court, Douglas County; Leslie, Judge.
Action at law by Barton H. Kuhns, as trustee in bankruptcy of the Central Bridge & Construction Company, against the Live Stock National Bank of Omaha to recover the amount of funds of the Central Bridge & Construction Company, which Elmer G. Risk, its president, transferred to the bank in payment of his personal notes. From a judgment in favor of the defendant, the plaintiff appeals.
Judgment reversed, and cause remanded for further proceedings.
Young & Williams, of Omaha, for appellant.
Dorsey & Baldrige and Crofoot, Fraser, Connolly & Stryker, all of Omaha, for appellee.
Heard before SIMMONS, C. J., and ROSE, EBERLY, PAINE, CARTER, MESSMORE, and JOHNSEN, JJ.
This is an action at law, in which Barton H. Kuhns, plaintiff-appellant, as trustee in bankruptcy of Central Bridge & Construction Company, a bankrupt corporation, seeks to recover from the Live Stock National Bank of Omaha the sum of $15,000, being the amount of funds of the said construction company which Elmer G. Risk, its president, transferred to said bank in payment of his personal notes. Both sides moving for a directed verdict, the trial court dismissed the jury, and rendered judgment for the defendant bank, from which the trustee appeals.
Plaintiff trustee filed a petition in the district court for Douglas county on February 26, 1938, alleging that the Central Bridge & Construction Company, a Nebraska corporation, was adjudicated a bankrupt on March 9, 1937, in the United States district court for the district of Nebraska, Lincoln division; that on April 16, 1937, the plaintiff, Barton H. Kuhns was duly elected and qualified as trustee of said bankrupt estate; that on the date of the adjudication in bankruptcy of the Central Bridge & Construction Company Elmer G. Risk was, and for many years had been, president and a member of the board of directors of said corporation, and M. E. Carman had been secretary and a member of the board of directors.
Plaintiff further alleged that on January 12, 1937, the Central Bridge & Construction Company deposited with the defendant bank $19,215.39 of its own funds, which defendant bank placed to the credit of the Central Bridge & Construction Company in its open checking account; that the next day, January 13, 1937, Elmer G. Risk and M. E. Carman did wrongfully and unlawfully, and without the authority of the Central Bridge & Construction Company or its board of directors, withdraw and divert from the corpo rate funds so deposited the sum of $15,000, which on said day the said Elmer G. Risk turned over to the defendant bank in payment of a personal debt which he owed the said bank, which debt had not yet become due.
Plaintiff further alleged that the bank, knowing said funds to be the property of said corporation and said debt to be the personal debt of said Risk, participated in and benefited by said wrongful and unlawful diversion of corporate funds by receiving the same in payment of Risk's personal debt to the bank, this diversion of funds being made by means of a check dated January 12, 1937, and signed by M. E. Carman, secretary of the Central Bridge & Construction Company, upon its checking account in said bank for the sum of $15,000, payable to the order of E. G. Risk, and by him indorsed to the order of the Live Stock National Bank, which received said check and retained the proceeds thereof out of said corporate funds of the Central Bridge & Construction Company.
It is further alleged in said petition that said diversion and misappropriation of corporate funds was in fraud of the rights of the then existing creditors of the Central Bridge & Construction Company, the said company being insolvent at that time and owing debts which exceeded the value of its assets by more than $100,000; that plaintiff trustee has demanded payment of said sum, of which the bankrupt and its estate were so unlawfully deprived, and said payment was refused, and no part of said sum has been paid, for which reason the plaintiff trustee asks judgment against the defendant bank in the sum of $15,000 with interest at 6 per cent. from January 13, 1937.
The defendant bank filed its amended answer on January 18, 1939, admitting that the Central Bridge & Construction Company was adjudged bankrupt, and that the plaintiff is trustee of its estate; that Elmer G. Risk was president and M. E. Carman secretary of said corporation, and that it deposited $19,215.39 of its own funds in said bank on January 12, 1937.
For further answer, said defendant bank alleges that the Central Bridge & Construction Company, located at Wahoo, Nebraska, opened a checking account in said bank on July 28, 1932, its signature card authorizing checks on its corporate funds to be drawn on the signatures of the following officers: E. G. Risk, president, W. G. Johnson, vice-president, and M. E. Carman, secretary; that on January 8, 1935, the board of directors of said depositor corporation adopted a resolution, which is set out in full as exhibit A, attached to the amended answer, which duly authorized the three officers of said corporation hereinbefore named, or either of them, to borrow money and execute promissory notes of said corporation and pledge its personal property as security for the payment of said notes, to discount bills of exchange, sign and deliver checks and drafts of the corporation upon said bank, and, quoting from the last paragraph of exhibit A, " said Live Stock National Bank is authorized to honor and pay checks or drafts so signed or drawn by them, or either of them, including drafts or checks to their own order, and said bank shall not be responsible or liable in any event for application of funds paid or withdrawn thereon."
Defendant further alleges that said signature cards and resolution, as set out herein, remained in full force and effect on and after January 12, 1937, when the check for $15,000, payable to the order of E. G. Risk, was drawn and signed by M. E. Carman, secretary, and said bank received the same by mail on January 13, 1937, indorsed on the back, " Pay to the order of Live Stock National Bank, E. G. Risk," inclosed in a letter written on the letterhead of the Central Bridge & Construction Company, of Wahoo, Nebraska, dated January 12, 1937, and, as set out in paragraph 4 of the answer, reading as follows:
Omaha, Nebraska.
Attention: Alvin E. Johnson, Pres.
Gentlemen:
I am herewith enclosing check for $15,000.00 in payment of my two notes of $7,500.00 each.
You may credit the unearned discount to my account.
Said bank further alleges that it was without knowledge or notice of any fact or circumstance with respect to the financial arrangements or obligation between the depositor corporation and E. G. Risk, or anything from which to deduce, know, or surmise that Risk was not entitled to the amount of said check from said corporation, and said bank was bound by its contract to act as it did with regard to said check and the proceeds thereof; that said bank mailed its monthly statement to the Central Bridge & Construction Company at its office in Wahoo, Nebraska, on February 1, 1937, which account showed a balance of $4,433.96 after payment of the check of $15,000 on January 13, 1937, and that at no time thereafter did the corporation, or any of its officers or agents, protest the payment of said check of $15,000, and therefore the plaintiff, as its trustee in bankruptcy, is estopped to claim that said $15,000 check was not a proper and authorized debit against said corporation's checking account, as defendant bank had no notice that said depositor corporation was insolvent, or in financial difficulty, or of anything relating to its internal affairs at the time said check was presented for payment and charged against the account, nor at any time until after bankruptcy proceedings were instituted, and therefore the defendant bank prays that the petition be dismissed.
To this amended answer plaintiff trustee filed a reply, admitting that the signature cards and resolutions were duly signed as set out in exhibit A, attached to the amended answer, and alleges that the resolutions were in language prepared and selected by the defendant bank, and denies that there was any contract between the defendant bank and the construction company for the use by Risk, or by the defendant bank, of the corporate funds in payment of Risk's personal debts to the defendant bank.
It is further denied in said reply that the defendant bank suffered any damage or detriment by reason of any failure of the bankrupt to complain or protest the payment of the $15,000 check. Plaintiff alleges that the bank made no inquiry from any responsible source as to Risk's authority to use said check in payment of his personal debt to said bank, and if it had made...
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Kuhns v. Live Stock Nat. Bank
...137 Neb. 459289 N.W. 893KUHNSv.LIVE STOCK NAT. BANK.No. 30715.Supreme Court of Nebraska.Jan. 26, Syllabus by the Court. 1. The payment of a check by the drawee bank is not a negotiation, and does not make the bank a holder in due course. 2. A resolution of the board of directors of a corpor......