McConnico v. Third Nat. Bank in Nashville

• Decision Date: 16 July 1973
• Citation: 13 UCCRep.Serv. 641,499 S.W.2d 874
• Parties: 13 UCC Rep.Serv. 641 K. T. McCONNICO, Jr., Trustee, Appellee, v. THIRD NATIONAL BANK IN NASHVILLE, Appellant.
• Court: Tennessee Supreme Court

Page 874

499 S.W.2d 874

13 UCC Rep.Serv. 641

K. T. McCONNICO, Jr., Trustee, Appellee, v. THIRD NATIONAL BANK IN NASHVILLE, Appellant.

Supreme Court of Tennessee.

July 16, 1973.

Seymour Samuels, Jr., Farris, Warfield & Samuels, Nashville, for appellee.

D. L. Lansden, William P. Johnston, Waller, Lansden, Dortch & Davis, Nashville, for appellant.

OPINION

HUMPHREYS, Justice.

This is a suit by the trustee in bankruptcy of W. T. Hardison & Company against the defendant bank which cashed or received for deposit ten (10) checks drawn by W. T. Hardison & Company or payable to that Company. The complainant contends that Tom Hardison, Jr., also referred to as W. T. Hardison and W. T. Hardison, IV, misappropriated the funds of W. T. Hardison & Company by converting the checks in question or their proceeds to his own use, and that the defendant bank participated in said conversion by cashing or receiving the checks for deposit in Hardison's personal account and then permitting him to withdraw the proceeds so deposited. The transactions complained of occurred over a period of three years from February 24, 1967 to August 15, 1969.

Nine of the ten checks upon which the complainant based his claim were checks issued by W. T. Hardison & Company drawn on its account at the First American Bank and signed by W. T. Hardison as president of that Company. The other check involved was issued by Merrill Lynch, Pierce, Fenner & Smith, payable to the order of W. T. Hardison and Company.

The transactions involving the checks can be divided into four separate caegories.

(1) A check in the amount of $15,000.00 of W. T. Hardison and Company payable to Cash and deposited by Tom Hardison, Jr., in his personal checking account in the defendant bank.

(2) Two checks of W. T. Hardison and Company payable to Cash and negotiated for cash at the defendant bank by B & B Liquor Store, a transferee of Tom Hardison, Jr.

(3) A check issued by Merrill Lynch, Pierce, Fenner & Smith to W. T. Hardison & Company endorsed for the company by W. T. Hardison and deposited in his personal checking account at the defendant bank.

(4) Checks issued by W. T. Hardison and Company payable to the order of Clear Creek Coal Company, signed by W. T. Hardison and endorsed by him in the name of Clear Creek Coal Company, not delivered to Clear Creek Coal Company but deposited by Hardison in his personal checking account in the defendant bank.

The case came to be heard before the Chancellor on the pleading, depositions and oral testimony of witnesses, stipulations of the parties, documentary evidence, briefs, and arguments of counsel resulting in a judgment for the plaintiff in the full amount of the ten checks and interest totaling $116,333.73. The Court of Appeals sustained the Chancellor as to the checks payable to the Clear Creek Coal Company, but reversed and remanded as to the two checks cashed for B & B Liquor Store, the $15,000.00 check payable to Cash and deposited by Hardison in his personal account with the defendant bank, and the check of Merrill Lynch, Pierce, Fenner and Smith payable to W. T. Hardison and Company, endorsed by Hardison and deposited by him in his personal account with the defendant.

Since this case involves the application of various sections of the Uniform Commercial Code, enacted in this State in 1963, which have not been fully considered by this Court and, therefore in need of judicial clarification, this Court granted the writs of certiorari sought by both parties.

The facts in this case are not in dispute; however, the parties do not agree on the inferences and conclusions to be drawn from those facts and the conduct of the parties. In view of the stipulations however, it will be unnecessary to enter into a lengthy discussion of testimony, there being no material determinative facts seriously in dispute, and those stipulations accurately representing the controversy. Those stipulations are as follows:

(1) That the complainant is the duly appointed Trustee in Bankruptcy for W. T. Hardison & Company, a Tennessee corporation with principal office in Nashville, which filed its petition in bankruptcy on the 27th day of October, 1969; that creditors' claims totaling $1,221,401.25 have been filed against the bankrupt in the bankruptcy proceeding, of which the claim of First American National Bank is in the approximate amount of $870,891.87, and assets in the possession of the Trustee total $177,619.97. The Trustee has excepted to the claim of First American National Bank.

(2) The status of the Third National Bank in Nashville is as a national bank.

(3) That William Thomas Hardison, IV, is sometimes referred to as W. T. Hardison, IV, W. T. Hardison, Jr., Tom Hardison, Jr., and that during the years 1967, 1968 and 1969, he maintained a personal checking account with the defendant in the name of Tom Hardison, Jr., being Account No. 39--07--906--6.

(4) That during the time in question W. T. Hardison & Company did not maintain a bank account with the defendant, but

(5) That during the time in question the First American National Bank was the depository of funds of W. T. Hardison & Company.

(6) That during the time in question Tom Hardison, Jr. was the sole stockholder of W. T. Hardison & Company, and its chief executive officer.

(7) That the resolution attached as Exhibit 1 was on file with the First American National Bank of Nashville during the years 1967, 1968 and 1969. That resolution specifically authorized W. T. Hardison, IV, the President:

'To withdraw funds from any account of this corporation in said bank by checks, drafts, or orders payable to any individual, firm or corporation, including one or more of the parties signing or countersigning such checks, drafts or orders, with authority to cash or receive for deposit such instrument, payable to one or more of the signers, and said bank shall be fully protected in paying such, including overdrafts, against any of such accounts; . . ..'

(8) That the checks, Exhibit 2 to the stipulation, were drawn on the account of W. T. Hardison & Co. at First American National Bank of Nashville and executed by W. T. Hardison as President of W. T. Hardison & Co., payable to Clear Creek Coal Company of Monterey, Tennessee, and such checks were not delivered to said Coal Company but were endorsed by Tom Hardison, Jr., with the words 'Clear Creek Coal Co.' and deposited to the account of Tom Hardison, Jr. in the Third National Bank, and

(9) That each of these checks, payable to Clear Creek Coal Company, had written thereon, 'For Deposit Only 39--07--906--6' and was paid by the First American National Bank to the Third National Bank and all proceeds were withdrawn from Third National Bank by Tom Hardison, Jr.

(10) That the check dated May 22, 1968, in the amount of $15,000.00 drawn on the account of W. T. Hardison at the First American National Bank, signed by W. T. Hardison, payable to Cash and endorsed, 'W. T. Hardison & Co. by W. T. Hardison,' was deposited in the account of Tom Hardison, Jr., at the Third National Bank in Nashville from which the proceeds were withdrawn by Tom Hardison, Jr. The said check was charged to W. T. Hardison on the books of W. T. Hardison & Co.

(11) That check dated February 24, 1967, payable to Cash, in the amount of $2,750.00, drawn on the account of W. T. Hardison & Co. at the First American National Bank by W. T. Hardison, bears the endorsement of W. T. Hardison and B & B Liquor Store, and this check was negotiated for cash by transfer from B & B Liquor Store to Third National Bank which paid cash to B & B Liquor Store in the face amount of the check. The said check was charged to W. T. Hardison on the books of W. T. Hardison & Co.

(12) That check dated March 24, 1967, payable to Cash in the amount of $3,500.00 drawn on the account of W. T. Hardison & Co. at the First American National Bank by W. T. Hardison, bears no endorsement other than a typewritten endorsement, 'B & B Liquor Store,' and that said check was negotiated for cash by transfer from B & B Liquor Store in the face amount of the check. The said check was charged to W. T. Hardison on the books of W. T. Hardison & Co.

(13) That the First American National Bank of Nashville was the bank upon which each check payable to Clear Creek Coal Company was drawn and upon which the two checks bearing the endorsement of B & B Liquor Store and the checks referred to in paragraph 10 hereof were drawn, and the defendant, Third National Bank, endorsed each of the aforesaid checks, prior endorsements guaranteed, transmitted them through the clearing house to the drawee bank for payment and received payment therefor.

(14) On June 4, 1968, W. T. Hardison & Company issued its check No. 5053 drawn on the First American National Bank, payable to the order of Merrill Lynch, Pierce, Fenner & Smith for $10,135.15, which was charged on the books of W. T. Hardison & Company to W. T. Hardison, IV (Tom Hardison, Jr.), personally, and was delivered by Tom Hardison, Jr. to Merrill Lynch, Pierce, Fenner & Smith for Tom Hardison, Jr.'s personal debt; this check was deposited by Merrill Lynch, Pierce, Fenner & Smith in its bank account and was paid by the drawee bank. On June 25, 1968, Merrill Lynch, Pierce, Fenner & Smith issued its check No. 18485 payable to the order of W. T. Hardison & Company in the amount of $10,135.15, drawn on Third National Bank in Nashville, payable to W. T. Hardison & Company as a refund of the $10,135.15 check it had received from W. T. Hardison & Company on June 4, 1968, and the said check No. 18485 of Merrill Lynch, Pierce, Fenner & Smith, payable to the order of W. T. Hardison & Company, was endorsed by W. T. Hardison & Company by W. T. Hardison, and had written thereon, 'For Deposit to 39--07--906--6,' and was deposited in the Third National Bank in his personal account which was credited with the amount of the check of June 26, 1968. On June 26, 1968, his said personal account in the...