Vic Gerard Golf Cars v. CITIZEN'S NAT. BANK, Civ. A. No. B-77-74.

• Decision Date: 16 November 1981
• Docket Number: Civ. A. No. B-77-74.
• Court: U.S. District Court — District of Connecticut
• Parties: VIC GERARD GOLF CARS, INC., Plaintiff, v. CITIZEN'S NATIONAL BANK OF FAIRFIELD, James J. Entwisle, Jr., Jack DePalo, The Longest Drive, Inc., Defendants.

528 F. Supp. 237

VIC GERARD GOLF CARS, INC., Plaintiff, v. CITIZEN'S NATIONAL BANK OF FAIRFIELD, James J. Entwisle, Jr., Jack DePalo, The Longest Drive, Inc., Defendants.

Civ. A. No. B-77-74.

United States District Court, D. Connecticut.

November 16, 1981.

Neil P. Coughlan, Robert N. Greco, Peter Mear, Maurice T. FitzMaurice, Reid & Riege, Hartford, Conn., for plaintiff.

Augustus R. Southworth III, Gager, Henry & Narkis, Waterbury, Conn., for defendants Citizen's National Bank of Fairfield and James J. Entwisle, Jr.

MEMORANDUM OF DECISION

ZAMPANO, District Judge.

In this diversity action, Vic Gerard Golf Cars, Inc. ("Vic Gerard") seeks recovery from the Citizen's National Bank ("Citizen's National") on the ground that the bank's set-off of funds held in an account of defendant The Longest Drive, Inc. ("Longest Drive") was improper because those funds belonged to Vic Gerard. Also named as defendants are James Entwisle, an Assistant Vice President of the bank, and Jack DePalo, the President of The Longest Drive, Inc.¹

In its three-count complaint, Vic Gerard alleges that 1) Citizen's National wrongly set off funds that were being held in a special deposit; 2) Citizen's National fraudulently misrepresented to Vic Gerard that monies due Vic Gerard from Mr. DePalo would be paid and that Vic Gerard relied upon this representation; and 3) Mr. James Entwisle individually committed a fraud upon Vic Gerard.²

In response, Citizen's National and Mr. Entwisle deny the material allegations of the plaintiff's complaint, contend that the bank had the legal right to set off the funds in question, and affirmatively argue the defense of estoppel based on Vic Gerard's alleged breach of a "restrictive endorsement." In addition, Citizen's National and Mr. Entwisle counterclaim for damages against Vic Gerard for losses they might incur as a result of this lawsuit.

The issues were tried before the Court without a jury and, comprehensive briefs now having been filed, the case is ripe for decision.

I

For a long time prior to December 1975, Mr. Jack DePalo and his corporation, The Longest Drive, Inc., were brokers for the sale of golf carts to various country clubs. The corporation maintained a general commercial checking account at Citizen's National, a small bank located in Fairfield, Connecticut. At various times the Longest Drive borrowed sums of money from the bank and, by 1976, was in default of obligations totalling almost $100,000, of which approximately $21,000 was unsecured.

Despite the fact that officials of the bank regarded Mr. DePalo as a "devious person," a "hustler," and an "unreliable businessman," he was a frequent visitor at the bank, used the bank's phone and secretarial services at times to conduct his business and continued to induce the bank to finance some of his golf cart transactions.

On December 11, 1975, the Garrison Country Club, ("Garrison"), located in Garrison, New York, entered into an agreement with Longest Drive for the purchase of 45 Johns-Manville Club Cars at a price of $1,500 per cart plus 15 four-bag attachments at $110 per unit. Garrison's parent corporation, NRC Realty Corporation ("NRC"), informed Mr. DePalo that it needed to finance $45,000 of the total purchase price of $74,256. Mr. DePalo, in turn, advised NRC that he would attempt to arrange the financing at Citizen's National.

At the time Mr. DePalo proposed the Garrison deal to Citizen's National, the bank and Mr. DePalo were engaged in litigation resulting from another golf cart financing transaction that had gone awry. Nevertheless, Citizen's National through Mr. Entwisle agreed to become part of the DePalo-Garrison contract. The three main inducements for the bank to become involved were: 1) NRC was a reputable, responsible company; 2) Mr. DePalo promised Mr. Entwisle that his $12,000 profit from the sale would be turned over to the bank to reduce his large indebtedness; and 3) the bank determined it would "structure" the deal and control the "flow of money" in order to insure that Mr. DePalo would not manipulate the funds for his personal use. On January 19, 1976, the Discount Committee of Citizen's National authorized Mr. Entwisle to negotiate the financing for the carts.

Mr. Entwisle sent a commitment letter to Garrison/NRC on January 30, 1976, setting forth the terms of the proposed loan. Under the terms of that letter, Citizen's National agreed to finance the sale of the 45 Johns-Manville Club Cars at the rate of $1,000 per cart for a period of 36 months at 11% interest. Citizen's National would also have a security interest in the carts. In addition, Mr. Entwisle inserted the following paragraph:

It is our understanding that the funds necessary in excess of the $45,000 loan provided by Citizen's, will be forwarded from Garrison Golf Club to Citizen's for the account of the Longest Drive, and that the Longest Drive shall issue a certified check drawn on its account at Citizen's for the total amount of $74,256.00 to Johns-Manville to complete the purchase of the 45 club cars.

On February 10, 1976, Garrison paid Mr. DePalo the sum of $5,000 as a deposit on the purchase of the golf carts. The funds were deposited into the Longest Drive checking account at Citizen's Bank and were eventually withdrawn by Mr. DePalo for his personal use.

Because Johns-Manville refused to recognize Mr. DePalo as a distributor of its carts and indicated it would not sell any carts to him, Mr. DePalo contacted Vic Gerard, an authorized distributor of Johns-Manville golf carts. There is no evidence that Mr. DePalo and Vic Gerard had any business relationship prior to this time. In March 1976, Vic Gerard agreed to deliver the 45 carts and 15 attachments to Garrison for the sum of $62,341.23, and required a $3,000 down payment. Mr. DePalo issued his personal check in that amount, but the check was dishonored. Thereupon Vic Gerard insisted that all payments be made by certified check.

On March 12, 1976, NRC signed the Loan and Security Agreement pursuant to which it borrowed $45,000 from Citizen's National. These funds were deposited in the Longest Drive account. After some initial confusion as to the proper payee of the check, Citizen's National issued a cashier's check for $41,341.23 to Vic Gerard on April 2, 1976, and turned the check over to Mr. DePalo. On the reverse side of the check, the following was inserted by Citizen's National:

By endorsing or obtaining the proceeds of the within check, the payee, in addition to the warranties by operation of law, further warrants to the Citizen's National Bank that (1) the payee has sold and delivered to N.R.C. Realty Corp. the following Jons (sic) Manville Club cars.

The serial numbers of the 45 golf carts were listed below this language.

Also on April 2, 1976, Mr. DePalo went to Vic Gerard's office in New Jersey and delivered the $41,341.23 check. Because the check was for "more than required" at that time, Vic Gerard gave Mr. DePalo back a check for $3,000, leaving a balance due of $24,000. Vic Gerard promised to deliver the carts when the $24,000 was paid.

On April 7, 1976, Mrs. Roberta Kanevsky, secretary and bookkeeper at Vic Gerard's, received a telephone call from Mr. DePalo who informed her that the $24,000 check from NRC had been deposited, and that he would have a certified check in that amount for Vic Gerard's driver when the carts were delivered to Garrison the following day. That evening 24 carts were delivered to Garrison. Mrs. Kanevsky also instructed Vic Gerard's driver to deliver 20 more carts the next day. Before removing them from the truck, however, he was to obtain the $24,000 certified check from Mr. DePalo.

On the morning of April 8th, the driver arrived at Garrison with the carts but Mr. DePalo did not have the certified check for him. Mr. DePalo called Mrs. Kanevsky and explained that Citizen's National was unable to certify the check because the funds were still "uncollected," i.e. NRC's check had not yet "cleared," and thus the funds had not yet been transferred to Citizen's National from Bankers Trust. He further suggested that Mrs. Kanevsky talk to Mr. Entwisle about the problem.

Mrs. Kanevsky thereupon called Mr. Entwisle who verified that NRC's check had been deposited into the account of Longest Drive but that it was still uncollected. According to Mrs. Kanevsky, Mr. Entwisle then stated that "at the end of ten working days I can issue a certified check," and that it was "all right for Vic Gerard's driver to leave the cars" at Garrison. Mrs. Kanevsky called Mr. DePalo and informed him that the bank would issue the check on April 19. She also instructed the driver to leave the carts.

At trial Mr. Entwisle admitted that on April 8th he received a "credit call" from Mrs. Kanevsky who inquired about the status of the funds in the Longest Drive account and also asked whether a check could be drawn against those funds. Mr. Entwisle explained that the $24,000 check was still uncollected and that it would take about ten days for the funds to be cleared. However, he strenuously denies ever assuring Mrs. Kanevsky that he would issue a certified check to Vic Gerard after the funds were transferred from Bankers Trust.

From April 8 to April 15, 1976, Mr. Entwisle repeatedly requested Mr. DePalo to pay the $12,000 as initially agreed. Finally, on April 15, Mr. Entwisle informed Mr. DePalo that he was going to "set off" the funds in the Longest Drive account. Hearing this, Mr. DePalo "became hostile" and "loud" and left the bank "in a huff." That same day, Mr. Entwisle caused a set-off ticket in the amount of $21,090.65 to be processed against the funds in the Longest Drive account. Subsequently, the balance remaining in the account was withdrawn by Mr. DePalo.

Although Vic Gerard paid Johns-Manville in full for the carts, Vic Gerard has not received the balance of the purchase price of $24,000 from Mr. DePalo, Longest Drive, or Citizen's National. This suit was...