Morganfield Nat. Bank v. Damien Elder & Sons

Decision Date03 September 1992
Docket NumberNo. 91-SC-516-DG,91-SC-516-DG
Citation836 S.W.2d 893
CourtUnited States State Supreme Court — District of Kentucky
PartiesMORGANFIELD NATIONAL BANK, Appellant, v. DAMIEN ELDER & SONS, A Partnership; Damien Elder; Jerry Elder; Robert J. (Bobby) Elder; and Tommy Elder, Appellees.

Ridley M. Sandidge, Jr., Holbrook, Wible, Sullivan & Mountjoy, Owensboro, for appellant.

Phillip G. Abshier, Bamberger & Abshier, Owensboro, for appellees.

REYNOLDS, Justice.

This is an action filed by Damien Elder & Sons, a partnership consisting of Damien Elder (father); Jerry Elder (a son); Robert J. (Bobby) Elder (a son); and Tommy Elder (a son), seeking a judgment against Morganfield National Bank for damages which may have occurred from the setoff of two partners' personal bank indebtednesses from the partnership's checking account.

The parties and trial court assumed, for purposes of the original summary judgment, and thus, it is also assumed for purposes of this appeal, that Damien Elder & Sons was a partnership at the time of the setoffs.

Damien Elder, a long-time farmer, associated himself with three of his sons in a farming operation utilizing the name Damien Elder & Sons. An account styled Damien Elder & Sons was opened with the bank in 1976 and used in the transaction of farm business. The four, as individuals, also have been involved in personal business transactions with the bank. The initial bank account card for the business has never been produced. The first account was closed on at least one occasion (1985) for reasons not involved with this litigation. It was thereafter reopened February 2, 1987.

On January 2, 1981, the business account was changed to a Negotiable Order of Withdrawal (N.O.W.) Account. However, the same account number was retained. The N.O.W. Account Agreement was established (or reestablished) and the name of the account was designated "Damien Elder & Sons." That portion of the N.O.W. Account Agreement pertaining to signatures lists Damien Elder, Karen Elder and Denny Hardesty as the signatories. This account agreement/signature card has not been signed by Damien Elder's three sons. Their signatures were cut from a prior signature card by the bank and affixed at the bottom of the front side of the N.O.W. Account Agreement.

Both Jerry and Bobby Elder had been granted personal loans by the bank for which their individual notes had been executed. Interest on Jerry Elder's personal note was past due and Damien Elder, on Friday, May 15, 1987, met with the bank's vice president, Jerry Ruark, relative to the matter. Discussion between the two involving interest rates, note indebtedness reduction, and possible bankruptcy by the sons resulted in no resolution of the problems. The Damien Elder & Sons account, on May 18, 1987, contained $46,628.68, and the bank exercised a setoff against the Elder & Sons account by crediting $32,329.05 to pay the past due Jerry Elder individual account. In addition, the bank exercised a setoff against the Elder & Sons account, now containing $14,299.63, and credited that sum to reduce the amount owed on the Bobby Elder individual note. The bank thereafter dishonored 29 checks drawn on the partnership account for the reason of insufficient funds.

The Elders, individually and in their partnership name, filed this action against the bank alleging wrongful setoff, conversion, breach of contract, wrongful dishonor of checks, bad faith, outrage and reckless conduct. The trial court granted the bank's motion for summary judgment. The Court of Appeals reversed and we affirm the Court of Appeals.

The bank maintains that all partners consented to the bank's right to set off the debts of the individual partners as against the partnership account and the partners were bound by the terms of the account agreement although three of the parties had not signed the agreement.

The N.O.W. Account Agreement/signature card constitutes the agreement or contract which must be construed as a whole and whereby effect is to be given to all parties and every word in it, if possible. Thus, the legal interpretation of the agreement should be made in such a way as to make the promises mutually binding on all parties unless such a construction is wholly negated by the language used. City of Louisa v. Newland, Ky., 705 S.W.2d 916 (1986).

The basic printed agreement (with informational blanks) consists of a two-sided printed form. The account agreement herein in its "as is" state is discussed as follows: The account agreement herein shows date opened 1/2/81; initial deposit of $ blank ; by J. Ruark. The section of the agreement utilized to designate the "TYPE OF ACCOUNT" remains blank. The name of the account is designated as Damien Elder & Sons. There appears thereafter as signatories the named persons of Damien Elder, Karen Elder and Denny Hardesty, with a notation that the number of signatures required for withdrawal is one. Below this section and set out in a black border is the following statement: "The above signed agree to the conditions printed on the backside of this card, and authorize this institution to recognize the signatures of the above to transact business in this account." The signatures of Jerry Elder, Bobby Elder and Tommy Elder, which had been cut from some other signature bearing instrument, had been attached by a bank employee at the bottom of the front side of the account agreement.

The appellant stresses the language of two paragraphs (nonsequential) on the reverse side of the account agreement which state:

"We", "our" and "us" mean and refer to the financial institution named on the reverse side, its successors and assigns. "You" and "your" mean and refer to all Depositors jointly and unless specifically indicated to the contrary hereon or by separate written agreement, each Depositor severally.

. . . . .

AGREEMENT CONCERNING SET-OFF RIGHTS OF FINANCIAL

INSTITUTIONS

You hereby acknowledge that we have the right to charge or set-off against any of your deposits with us any debts or obligations owing by you to us whether direct or indirect, secured or unsecured, absolute or contingent, joint or several, due or to become due, whether as maker, endorser, guarantor or otherwise, now existing or hereafter contracted or acquired by us and wherever payable, and the interest thereon and expense, if any, which may be incurred by us in connection therewith, and this Agreement shall be construed to be your consent to make such a charge of set-off against your account(s) if consent be required by any present or future statute or law.

The construction as well as the meaning and legal effect of a written instrument, however compiled, is a matter of law for the court. Equitable Life Assurance Society of the United States v. Wells, 101 F.2d 608 (6th Cir.1939). The account agreement clearly designates the name of the account to be Damien Elder & Sons and with no further designation or explanation appearing anywhere upon the instrument, it is to be construed that "Damien Elder & Sons" is the sole depositor of this account. Nothing appears on the account card which designates the names of the partners. It is not contended that Karen Elder or Denny Hardesty are either the depositors or partners although their names (signatures) appear in the portion of the card reserved for ...

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