Southern Elec. Supply Co. v. Raleigh County Nat. Bank.

Decision Date11 July 1984
Docket NumberNo. 15974,15974
Citation320 S.E.2d 515,173 W.Va. 780
CourtWest Virginia Supreme Court

Eugene D. Pecora, Beckley, P. Rodney Jackson, DiTrapano & Jackson, Charleston, for appellant.

David T. Kennedy, Thornhill, Kennedy & Vaughan, Beckley, for appellee.


William Gibson is president and sole stockholder of Gibson Electric Company, an electrical contracting firm, and president and majority stockholder (seventy-five percent) of Southern Electrical Supply Company, a dealer in electrical materials. (The other twenty-five percent of Southern Electrical stock is owned by its vice-president Alden Fitzpatrick.)

In 1980, Gibson Electric contracted with Willis and Paul to do electrical work, including furnishing labor and supplies, for building a coal preparation plant in Kentucky. The Raleigh County Bank made three ninety-day loans to Gibson Electric on February 2, February 25 and April 15, 1980 for $31,218.75 $5,206.25 and $5,160.11. By June, the first two notes were delinquent.

On June 17, 1980, the bank received a wire transfer that stated: "Raleigh Cnty Natl Bk Beckley W.VA/AC Southern Electric Supply (Gibson Electric) AC 005 826 0". It was from Willis and Paul for $27,568.78. The account number belonged to Southern Electrical, so the bank made up a deposit slip and mailed it to Southern.

Later that day, however, a bank officer ordered the deposit slip voided and deposited the money in Gibson Electric's account instead, and then used the newly deposited money to offset Gibson Electric's delinquent notes. The next day when Mr. Gibson was in the bank, a bank officer informed him about what was done.

Southern Electrical sued the bank for conversion of funds 1 without its consent or authority by taking money designated for and deposited in its account and transferring it to Gibson Electric's. The bank excused its behavior by claiming that Gibson Electric and Southern Electrical were both, in reality, alter egos of William Gibson, and should be viewed as one entity; that the funds deposited in Southern's account were payment for work done by Gibson Electric; and that Gibson asked Willis and Paul to make its check to Southern to avoid Gibson Electric's liability on its notes to the bank.

Southern responded that the money was due it for supplies on the Kentucky job, but in any event, a bank cannot alter deposit slips or wire transfers made by depositors. Southern pled that the bank had not specifically pleaded fraud as required by our rules of civil procedure, and was barred from later raising the matter at trial to prove its alter ego theory. Finally, Southern insisted that the court had no legal reason to disregard its corporate structure. 2

After discovery, both sides moved for partial summary judgment about the bank's liability. The Circuit Court of Raleigh County granted summary judgment to the bank on October 6, 1982, finding as fact that the deposited money had been paid to William Gibson for work done by Gibson Electric in Kentucky, and that it was not owed to Southern. The court determined that Gibson Electric owed money to Southern (although the basis of the debt was not established), 3 so Gibson had instructed Willis and Paul to deposit the money in Southern's account and not Gibson's. That deposit was made without regard to the effect it would have on creditors of either of the companies. The trial judge's opinion continued:

"It is not a small matter that the wire transfer was made in the name of "Southern" and that it showed the account number of "Southern", while at the same time "Gibson" was indicated on the transfer in parenthesis. This demonstrates that Mr. Gibson had both Companies in mind at the time he sent the wire transfer to Raleigh County National Bank."

The court concluded that William Gibson made a wrongful transfer of the funds belonging to Gibson Electric when he had that money deposited in the Southern Electrical account, and that that transfer was for the apparent purpose of frustrating the bank's exercise of its right of setoff from the Gibson Electric account.

Southern appealed because of the trial court's failure to grant it summary judgment as a matter of law. We agree, and reverse.


Summary judgment is appropriate when there are no genuine issues of material fact in dispute and the matter can be decided by application of rules of law. Clendenin Lumber and Supply Co. v. Carpenter, W.Va., 305 S.E.2d 332 (1983); Aetna Casualty & Surety Co. v. Federal Insurance Co., 148 W.Va. 160, 133 S.E.2d 770 (1963).

The relevant facts as recited above are undisputed. 4 The only issue is whether the bank had authority to deposit money wired to "Southern Electric Supply" (Gibson Electric) using Southern's account number, in Southern's account, with an appropriate deposit slip mailed to Southern; and then without leave or let from anyone, to cancel the deposit and reroute the funds to Gibson Electric's account, against which it could, and did, exercise setoff rights. This single legal issue case is appropriate for summary judgment. 5


Southern's primary argument is that a bank has a contractual obligation to follow its depositor's instruction and if it withdraws money from a customer's account without that customer's specific directions, it may be contractually or tortiously liable. Smith v. American Bank & Trust Co., 639 S.W.2d 169 (Mo.App.1982); Taylor v. Equitable Trust Co., 269 Md. 149, 304 A.2d 838 (1973); General Apparel Sales Corp. v. Chase Manhattan Bank, 321 F.Supp. 891 (S.D.N.Y.1970); Reliance Insurance Co. v. North Carolina National Bank, 39 N.C.App.

                420, 250 S.E.2d 699, 704 (1979);  10 Am.Jur.2d Banks §§ 338, 494 (1963 and Supp.).  The bank countered that while that is ordinarily true, a depositor will not be permitted to avoid a bank's setoff rights by putting a deposit in another account.  [173 W.Va. 783]   Arnold v. San Ramon Valley Bank, 184 Cal. 632, 194 P. 1012 (1921);  Fory v. American National Bank, 136 La. 298, 67 So. 10 (1914);  Citizens' Trust & Guaranty Co. v. Farmers' Bank, 166 Ky. 234, 179 S.W. 29 (1915);  Traders' National Bank v. Amsden, 195 N.Y.S. 291 (S.Ct.1922), aff'd., 208 A.D. 828, 203 N.Y.S. 956 (1924);  Aidala v. Savoy Trust Co., 128 N.Y.S. 619 (S.Ct.1911);  Wilson v. Bulletin Publishing Co., 192 Iowa 860, 185 N.W. 893 (1921)

We find the bank's cases distinguishable or representative of different rules. In Arnold v. San Ramon Valley Bank, supra, a man transferred his funds into an account in his wife's name to avoid his creditors. The bank was fully aware of the arrangement and honored the man's checks on his wife's account in the same manner as it had done when it had been in his name. This use of his wife's name was a matter of convenience and the account was really a general account between him and the bank. Therefore, the court had no trouble finding that the bank had a right to set off that man's indebtedness from his wife's account. Here, however, Southern's account was not created by closing another account and transferring funds from it to the new account to avoid creditors. There is no claim that the bank knowledgeably participated in some such arrangement. Southern and Gibson Electric had separate, legitimate accounts, and the bank had never treated Gibson Electric as the true depositor in Southern's account.

In Fory v. American National Bank, supra, plaintiff was president of a corporation that was indebted to defendant bank, and he and the bank had an agreement that $4,000 of certain insurance funds credited to his corporate account would be used to pay off past-due corporate debts. Without knowledge of the bank's president, with whom that agreement was made, plaintiff withdrew those corporate insurance proceeds and deposited them to his personal credit. The bank ultimately set the corporate debt off against his personal account. It was critical to the Fory decision that the specific funds in the corporate account had been pledged to payment of the debt to the bank by binding agreement. The bank and Fory knew the source of the funds already deposited in the corporate account. After making the deposit in accord with the agreement that $4,000 of it was to be paid to the bank, Fory fraudulently withdrew it. The bank was permitted to capture the funds from his personal account. Raleigh County National Bank cannot show that money was deposited in Southern's or Gibson Electric's accounts and then fraudulently withdrawn, or that it had a binding agreement with Gibson about that money.

Citizens' Trust & Guaranty Co. v. Farmers' Bank, supra, is also inapposite because there was a specific writing between depositor-debtor and its bank that allocated to the bank for debt payment specific deposits in the debtor's account. There were deposits by a contractor into a subcontractor's account and the subcontractor owed the bank which took them for payment on the subcontractor's debt. It did not unilaterally transfer them to the subcontractor in order to exercise its setoff rights.

In Traders' National Bank v. Amsden, supra, the court determined the decedent-husband had fraudulently deposited money in his wife's name to avoid his indebtedness to the bank, and granted the bank a lien on the...

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