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Bellflower Ag Serv. v. First Nat'l Bk & Tr.

OPINION FILED JANUARY 17, 1985.

BELLFLOWER AG SERVICE, INC., PLAINTIFF-APPELLANT,

v.

FIRST NATIONAL BANK & TRUST COMPANY IN GIBSON CITY, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Ford County; the Hon. William M. Roberts, Judge, presiding.

JUSTICE MILLS DELIVERED THE OPINION OF THE COURT:

Rehearing denied February 22, 1985.

Alan Schultze took his employer for $133,525.11 by conversion of company checks.

The court below found his endorsement of the checks was authorized.

We cannot agree that the evidence supports this finding.

We reverse and remand.

Bellflower Ag Service, Inc., commenced this action against First National Bank & Trust Company in Gibson City (bank) for the alleged conversion of certain bank checks belonging to the corporation. The complaint charged that the bank had paid checks written to the order of Bellflower Ag Service, Inc., to Alan Schultze on unauthorized endorsements. The checks totaled $133,525.11. Following a bench trial, the court entered judgment for the defendant bank, finding that the endorsements in issue were authorized and effective.

On appeal, plaintiff challenges the sufficiency of the evidence supporting the judgment, and the admissibility of certain documents allowed in evidence at trial. Due to our disposition of the first issue, we do not address the evidentiary question.

FACTS

The facts of the case are largely undisputed. Bellflower Ag Service, Inc., is a corporation engaged in retail sales of farm chemicals and fertilizers. Gene Jannusch, his wife Martha, and Alan Schultze were the sole shareholders of the corporation and also served as the company's board of directors and executive officers. Schultze was employed as the operating manager of the corporation's plant. Jannusch and Schultze had originally purchased the company together, but they incorporated soon thereafter.

Gene Jannusch testified that the corporation had accounts with the National Bank of Bloomington and with the Corn Belt Bank in Bloomington. He stated that he, his wife, and Schultze were all authorized to sign checks on those accounts, and all three were authorized to endorse checks for deposit in the accounts. Jannusch said that the corporation never had an account at the defendant bank and never had any prior contact with that bank.

In the summer of 1982, Jannusch discovered irregularities in the corporation's invoices. When confronted with the irregularities, Schultze admitted that he had appropriated corporate funds for his private use. According to Jannusch, Schultze said that he deposited checks written to the order of the corporation in his personal account. From the personal account, Schultze paid both business expenses and personal expenses.

On cross-examination, Jannusch testified that although Schultze was authorized to write checks on corporate accounts, and to collect accounts receivable, his authority to endorse checks was limited to deposits in the corporate accounts. He specifically stated that Schultze had no authority to endorse checks for deposit in accounts at the defendant bank. Jannusch testified that he had never indicated that Schultze possessed such authority.

Joel Martins, a CPA, testified that he was engaged by the plaintiff to determine the extent of the shortages. The accounting firm found that over $133,000 had been diverted from the corporate accounts to Schultze's private account at the defendant bank.

Robert Knapp, who served as executive vice-president, trust officer and chief executive officer of the defendant bank in 1982, verified that the plaintiff did not have an account with the bank. With reference to a particular check for $44,613.57 which was written to the order of the plaintiff, Knapp admitted that the bank deposited the amount in Schultze's personal account on Schultze's endorsement. Knapp testified that the bank did nothing to verify the endorsement, but accepted it "as he knew he was associated with [plaintiff]." He stated that the bank had no corporate resolution to establish Schultze's authority to endorse checks written to the corporation, but that bank records indicated Schultze was in partnership with Jannusch. These records were never produced at trial.

Alan Schultze appeared but declined to testify on the advice of his attorney.

Defendant called Claudia Chase, and Gene Jannusch as an adverse witness. Chase, the installment loan officer at the bank, testified that Schultze had applied for a loan at the bank in 1981. She laid the foundation for the admission of Schultze's loan file. The file included a handwritten note which indicated that Schultze was a 15% shareholder of the plaintiff corporation and that he was a salaried employee. Jannusch, testifying as an adverse witness, presented his accounting of the corporate obligations which Schultze had personally paid. Those payments amounted to $28,052.81.

On April 6, 1984, the circuit court entered judgment for the defendant. He found that Schultze had possessed apparent and actual authority to endorse checks written to the order of the plaintiff in a manner which permitted their deposit in Schultze's personal account. The court characterized the issue as one not involving unauthorized endorsements, but rather an unauthorized use of funds subsequent to lawful negotiation of the checks. The trial judge found that the defendant bank was absolved of liability under section 9 of "An Act concerning liability for participation in breaches of fiduciary obligations" (Uniform ...


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