*1 phrase is an integral part of a sentence construction. The properly demurrer was which plaintiff’s right limits op- of an sustained. buy.
tion “any” word refers to We affirm the decree of Chancery offer in which building subdivision or the Court. proposed. a small house is The defendants’ construction of the DYER, FONES, J.,C. CHATTIN and covenant is plain clear and unambiguous, JJ., LEECH, Special Justice, concur. instrument, on the face of the and is a “fair and meaning” reasonable within the
requirements Broyles, of Hamilton v. su
pra, 415 S.W.2d 356. We bound to
accept the defendants’ view under the rule Advertising Sherman,
of Southern Co. v.
43 Tenn.App.
See also 20 Am.Jur.2d, Con- Restrictions,
ditions and Section 187. plaintiff contends, thirdly, that even
if the court must construe the covenant
strictly, it can still look to extrinsic facts
to determine par- the true intention of the However,
ties. when the meaning of the
covenant is reasonable and unambiguous,
there is no need to seek further clarifica-
tion language. outside
“The surrounding circumstances are tak-
en into consideration in determining the
intention in cases, some where it is nec-
essary to do reason of the uncer-
tainty or ambiguity in the language giv-
ing rise to the restriction.” 20 Am.Jur.
2d, Covenants, Conditions and Restric-
tions, Section 186. plaintiff’s final contention is
that the trial court erred in sustaining dismiss,
defendants’ motion citing cases
which hold that the generally courts disfa
vor plaintiff’s demurrers. The cause of
action rests on his construction of the cov
enant, opinion our is an untenable
«75 *3 Samuels, Farris, Jr., Seymour Warfield Samuels, Nashville, appellee. & Lansden, Johnstоn, P. D. L. William Lansden, Davis, Waller, Nash- Dortch & ville, appellant. Company
OPINION & company by endorsed for the W. T. Hardison and per- in his HUMPHREYS, Justice. sonal checking account at bank. This bankrupt- suit the trustee in cy of W. T. Hardison Company against & (4)Checks issued T.W. the defendant bank which cashed or and Company payable to the order of Clear deposit ceived for ten checks drawn Creek Company, signed by W. T. Hardison Hardison and endorsed him Company. complainant con- name of Clear Creek Coal tends that Tom Hardison, Jr., referred also delivered to Clear Creek Coal but to as W. T. Hardison and W. T. deposited by Hardison in his *4 IV, misappropriated funds of W. T. checking account in the defendant bank. Company by Hardison converting & The cause came to be heard before the checks proceeds their to his pleading, depositions Chancellor on the and use, own and that par- the defendant bank testimony witnesses, oral stipulations of of ticipated in said by cashing conversion parties, evidence, documentary briefs, receiving the deposit for checks in Hardi- arguments and resulting of counsel in a personal son’s account and permitting then judgment plaintiff for in the full him to proceeds withdraw the deposited. amount of the ten and checks interest total- The complained transactions of occurred $116,333.73. ing Appeals Court of period over a years February three of from sustained the Chancellor to the checks
24, August to payable Company, to the Clear Creek Coal but reversed and remanded as the two to Nine upon of ten checks which the Store, Liquor checks B B cashed for & complainant based his claim were checks is- $15,000.00 payable depos- and check Cash by sued W. T. Hardison & by personal ited Hardison in his account drawn on its account at the First Ameri- bank, with the defendant and the of can Bank signed by T. W. Hardison Pierce, Lynch, Merrill Fenner and Smith president Company. of The other payable T. W. Hardison check involved by issued Merrill by deposited by endorsed Hardison and Lynch, Pierce, Smith, Fenner payable & him his account with the de- the order of Compa- T. Hardison аnd W. fendant. ny. application case Since this involves the involving can checks sections of the Uniform Com- various
be divided separate caegories. into four Code, mercial enacted in this State fully by which have not been considered (1) A check in $15,000.00 the amount of and, judi- therefore in need Court of W. T. and Company payable Hardison clarification, granted cial this Court to Cash and by Tom by parties. sought writs certiorari both Jr., in his checking account in the defendant bank. dispute; are not in facts in this case however, parties agree not on the do (2) checks Two W. T. Hardison be drawn and conclusions to inferences Company payable negotiated Cash facts and the conduct of from those for cash B B& stipulations how- parties. view Liquor Store, a transferee of Tom Hardi- ever, unnecessary to into it enter will be son, Jr. testimony, there lengthy discussion of facts seri- (3) Lynch, being A check material determinative issued Merrill no Pierce, stipulations dispute, Fenner and those ously & Smith to T. Hardison W. representing- curately cоntroversy. individual, corporation, including firm or stipulations parties signing Those as follows: one or more checks, countersigning such drafts or or- complainant duly ap- That the is the ders, authority to cash or receive pointed Bankruptcy T. Trustee in W. instrument, deposit payable such corpo- Company, a Hardison Tennessee signers, one or more of the and said Nashville, principal ration with office fully protected in paying bank shall be bankruptcy petition which filed overdrafts, such, including against ” October, 1969; that credi- day 27th accounts; such . . . . totaling $1,221,401.25 tors’ claims bankrupt checks, been filed (8) That Exhibit 2 bankruptcy proceeding, stipulation, of which the claim were drawn on the account of is in the of First American National Bank T. & Co. at First American approximate $870,891.87,and as- amount National Bank of Nashville and executed possession total sets in the Trustee Hardison as President T. of W. $177,619.97. excepted Co., The Trustee has Hardison & to Clear Creek Tennessee, National Company Monterey, of First American claim Coal such said Bank. checks were delivered to but were endorsed Tom *5 of the Third National (2) status Hardison, Jr., words “Clear Creek a national bank. Bank in Nashville deposited to the account Coal Co.” Hardison, Hardison, IV, Tom in the Third National Thomas (3) That William Jr. Bank, and T. Hardi- is sometimes referred to as W. son, Hardison, IV, Jr., Hardi- Tom checks, (9) payable That each of these 1967, son, during years Jr., and that Company, had written to Clear Creek Coal 1969, personal 1968 and he maintained thereon, Deposit Only “For 39-07-906-6” checking defendant in the account with the paid by Na- a'nd the First American was Hardison, being Jr., Account name of Tom Bank the Third National Bank tional No. 39-07-906-6. from proceeds all were withdrawn by Hardison, Third Bank Tom National
(4) during question the time in That W. Jr. Company did not maintain T. Hardison & 22, 1968, May dated (10) That the check defendant, but a bank account with $15,000.00 on the drawn the amount of at the First T. Hardison account W. during question the time in (5) That Bank, by T. signed National W. American Bank was the de- First American National endorsed, T, Hardison, payable Cash and & pository of funds of Hardison W. T. Hardi- by W. T. Hardison & Co. “W. Company. of Tom deposited in the account son,” was (6) during time That Hardison, National Bank the Third Jr., at Hardison, stockholder was the sole Tom Jr. proceeds were from which in Nashville Company, and its T. Hardison & of W. Hardison, The said by Tom withdrawn Jr. officer. chief executive on T. Hardison charged to W. check was & Co. T. Hardison the books W. attached Ex- (7) That resolution American hibit 1 was on file with the First 24, February dated check That (11) during the National Bank of Nashville Cash, the amount payable to 1967, 1967, years That resolution T. account W. on the $2,750.00, drawn Hardison, specifically T. authorized W. Na- American at the First Hardison & Co. IV, the President: Hardison, bears by T. Bank W. tional B & Hardison T. of W. any endorsement from account “To withdraw funds negoti- Store, check was and this Liquor B said Li-BB & from drafts, by transfer checks, for cash payable orders ated
«79 quor Store to Third National Bank which drawn on Third National Bank in Nash- paid ville, cash to B B Liquor & in the payable Store Compa- to W. Hardison T. & face ny amount check. The said check $10,135.15 as a refund of the check it charged T. on the W. had received from W. T. Hardison & books of T. & W. Hardison Co. 1968, 4, and the said June Pierce, check No. Lynch, 18485 of Merrill 24, 1967, That check (12) dated March Smith, payable Fenner & to the order of W. payable to $3,500.00 Cash the amount of T. Hardison & was endorsed drawn account of W. T. Hardison T. Companyby W. Hardison & T. Har- W. & Co. American First National dison, thereon, and had Depos- written “For Bank W. T. bears no Hardison, endorse- 39-07-906-6,” it to and was in the typewritten ment other than a endorse- Third personal National Bank in his ac- ment, “B B Liquor Store,” & and that said count which was credited with the amount negotiated check for cash transfer 26, of the check of 1968. On June June Liquor from B B& Store face 26, 1968, his said account in the amount of the check. The said check was Third National Bank charged with a charged to W. T. Hardison on the books payable to the order of Merrill T. Hardison & Co. Lynch, Pierce, Fenner & Smith $12,263.30, amount of representing a check That the (13) First American National Pierce, had delivered Lynch, to Merrill Bank of upon Nashville was the bank Smith, Fenner & drawn on his which each check to Clear Creek count at the Third Bank National upon was drawn and obligation of Tom Jr. bearing two checks the endorsement of B B Liquor Store and the checks re- August On Tom Hardi- *6 paragraph ferred to in 10 hereof were son, Jr., personal issued a check on his drawn, defendant, and the Third National Bank, count at Third payable National Bank, endorsed each of the aforesaid Bank, the $10,000.00, order of said for checks, prior guaranteed, endorsements purchased with which he from the Third through clearing transmitted them Office, National Bank’s Melrose house payment to the bank for drawee Road, Nashville, Franklin Tennessee, One payment received therefor. Express Hundred (100) American Travel- Cheques ers for each. $100 On W. T. Hardison June Company & issued its check No. important point to note this at on the First drawn American National there claim of fraud dishonesty is no Bank, payable to the order of Merrill part defendant bank in the Pierce, Lynch, Fenner for & Smith herein transactions involved. The trustee $10,135.15, charged which on the books merely contends that the defendant bank is Company T. T. W. Hardison & W. said checks liable on because it cashed or Hardison, Hardison, person- (Tom Jr.), IV deposit for received them to Hardison’s Hardison, ally, by and was delivered Tom personal permitted account and him to Pierce, Lynch, to Merrill Fenner & Jr. proceeds personal withdraw the his use Hardison, personal Smith for Tom Jr.’s accepted contrary banking practices. debt; deposited by this check was Merrill Further, liability negli- from its stems Pierce, Lynch, in its Fenner & Smith bank gent investigate the transactions failure paid by account and was bank. drawee ordinary question which were out of Pierce, 25, 1968, Lynch, On Merrill June in such a manner so as to and conducted Fenner & issued its check No. 18485 Smith bank on notice of such put the defendant payable to the order of T. Hardison & W. Company $10,135.15, irregularities. in the amount of officer, controlled and dominat- nancial defendant bank asserts the follow- merged liability: corporation ed that it into his denying
ing defenses individuality and became a mere instru- (1) At the of each transaction time ment of will so that his acts his were any fraud, knowledge of had no defendant сorporation and were autho- acts of funds other misappropriation by con- rized the said with the Hardison; wrongdoing by sent its shareholders. defendant (2) Those checks which complicated nature of the view of the accepted deposits cashed or involved, category each faith, va- good in reliance on the ceived in dis- previously designated will be checks signature le- lidity and the of the maker’s separately. cussed endorsements, and gal effectiveness of a check The first transaction involved due holder in course insists that it was the $15,000.00 on the ac- value; which was drawn good faith and for Company at count of Hardison W. T. defendant, the en- (3) That as Bank, payable National First American by payee’s dorsements Tom cash and payable name on the to Clear Creek checks Jr., personal account at the defend- his endorse- were effective subsequently paid ap- ant bank. Hardison ments, signed since those checks were $11,000.00 proximately loan Hardison on behalf of T. Hardison & twо checks no Company, intending payee that the on his account into drawn checks; interest in such deposited. company check had been complainant insists that the effect of (4) That received defendant discharge Har- transaction was Pierce, Lynch, Fenner & of Merrill personal debt to dison’s Smith, which was to the order check, and the bank was Hardison & and endorsed knowledge the time of charged with this Company (with Tom Hardison for his deposit payment. and subsequent deposit his authority to do and for so) that it was a holder defendant bank insists personal account with the defendant as of the check. due course course, any knowl- holder in due without *7 fraud, edge misappropriation or bad of is a who in holder A holder due course ; faith value, good in the instrument takes is faith, that it overdue notice and without Hardison, That the acts Tom Jr. any defense dishonored or of or has been checks, in said were the connection with part any it to on against or claim acts of T. Hardison & since 47-3-302(1). To the ex- person. T.C.A. authority § scope his within the he acted course, a in due holder tent that a holder is transferring signing, endorsing and said in all free from the instrument he takes checks; part any person and to it on the claims (6) That all of the said checks drawn on instrument any party to the all defenses the W. T. Hardison & account except dealt has not the holder with whom See, American National Bank First T.C. “real defenses.” the enumerated paid by the bank to which defend- drawee A. 47-3-305. § guaranteed prior ant endorsements instant important in the concept is That payment such final is in favor of defend- claim asserted adverse because case course; in ant as a holder due been held It has complainant. by the fiduciary a knows
(7) That Tom who Jr., the sole a transferee of a proceeds misapplying Compa payee stockholder of is to the extent of liable ny, President, fi- be held may chief executive and
«81 person porate to benefit funds loss whose into Hardison’s applied. proceeds been is should have count. It cleаr that the U.C.C. defines Bank, “good Maley faith” as “honesty v. East Side 361 F.2d in fact in If hank conduct (7th 1966). Cir. or transaction concerned.” See as a the instant case took the T.C.A. 47-3-302(1)(b), instrument 47-1-201(19). §§ course, in A holder it took the instrument holder need due not due exercise care in- cluding now claim of the free from the asserted the observance of reasonable com- proceeds on bankruptcy trustee mercial standard in addition “honesty fact” in good behalf the creditor and shareholders. to be legislative faith. The history 3-302(1) (b) indicates that the § required Analyzing the elements language “including observance the rea- status, for holder in due one finds course sonable commercial of any standards busi- a that the defendant bank indeed hold ness in may which the holder be engaged” er in due Those course of the instrument. was deleted in the 1956 Recommendations elements are follows: as and text. The comments to that section make it clear “that the doctrine of an — The 3-303(1) 1. Value U.C.C. § objective good standard of . faith. 47-3-303(1) provide holder that a is not incorporated intended to be in Arti- takes extent instrument for value cle 3.” Am.Law.Inst. Uniform Commer- acquires security that he in or interest cial Code, Recommendations, p. 102. by legal lien other than instrument This means that unless the conduct process. security interests of collect- dishonesty amounts faith, and bad 47-4-208, ing forth banks set in T.C.A. § fact, lost, due course holder status Had as- 209. the claim of the trustee been insofar as test is involved. the in- prior serted to final in- settlement of the case, stant showing there is no of such strument the First American National conduct dishonesty as would evidence Bank, the defendant bank would have had consequently such bad faith under the stat- establish value T.C. accordance with ute as to sacrifice holder in due course sta- 208(1) apparent A. (a). § 47-4— tus. defendant bank could have done it stipulated that Hardison withdrew — Notice claim. negli- While Also, question. funds the instant gence “good has no reflection faith” case, there settlement of the final requirement of a holder’s status holder paid by the item when it was Ameri- First course, except in due outrageous as to such can National Bank. bank receives When may provide conduct as relevant evidence item a final settlement for an described honesty, go issue of it does 4-213(2), 47-4-211(3), T.C.A. §§ 47-3-302(1) notice requirement of as de- for the gave credit which it its customer 47-1-201(25). fined 47-3-304 and 47-4-213(3). item becomes final. T.C.A. § *8 complainant Here contends that the de- the relationship replaces A the debtor-creditor knowing that fendant bank took the agency relationship, the is ac- and per- fiduciary negotiating a it for was his countable to customer for the amount the in sonal benefit violation of T.C.A. 47- of the Under 213(3). item. T.C.A. § 47-4— Act, and the Fiduciaries 3-305(2) Uniform facts, the these there can be no doubt that complainant further T.C.A. 35-206. defi- gave defendant bank value within the the had no- contends that defendant bank in nition a holder due course. deposited in tice because the funds Hardi- used, personal account were son’s same — complainant Faith Good day, pay personal a debt to defend- argues that bank failed to ant. Those contеntions are not well ordinary in this care transaction exercise by allowing the unlawful diversion of cor- founded for number reasons.
882
First, 47-3-304(2) corporate T.C.A. states: check at a window teller’s proceeded then Loan Discount & purchaser of a claim “The has notice Department pay personal on his loan the instrument when has with a These were two check. fiduciary negotiat- has knowledge that a separate accomplished at dif- transactions payment the instrument of or as ed times, places, ferent and with different security for his debt or own parties different inside bank. These or transaction his own benefit other- banking were normal duty.” in breach of wise imparted knowledge no breach of knowledge not received duty. Actual was Both the Uniform Fiduciaries Act filed. until this lawsuit Without provide Uniform Commercial Code that knowledge, either at the time tual knowledge person negotiating the in payment at the time of deposit or strument a fiduciary is or not in does debt, corporate funds give and of purchaser itsеlf notice aof debt, discharge the the de- being used to See, claim or defense. 47-3- §§ as neither had notice fendant bank 35-206, 304(4) (e), 35-210. T.C.A. 35- nor was its quired by 47-3-304(2) T.C.A. § requires 210 bank which receives a to dis- outrageous points that it conduct so deposit pays or a check have actual knowl as to defeat the de- honesty faith so or bad edge fiduciary is committing a a holder in due fendant bank’s status obligation of his fiduciary breach course. knowledge with such as to amount facts to bad faith. The doctrine of constructive dispositive reasoning above While notice was negotiable abolished in notice, ele- an even more issue pre-Code struments act. clearly Our cases appears mentary face solution point. establish that Hamilton National corporate on file with resolution Swafford, 545, Bank v. 213 Tenn. 376 S. Bank. First American National Hight (1963); McCulloch, W.2d 470 v. 150 117, (1923). Tenn. S.W. negotia- apparent that Hardison’s to the defendant bank
tion of the check knowledge act of W. T. Actual was defined in authorized our pre-Code Company. Tom cаse of Corinth Bank Trust Hardison & Jr. Bank, president of Security Co. v. National 148 Tenn. was sole stockholder controlled, company. dominated He S.W. follows: managed affairs. rights cannot defeated “The holder’s resolution, with the First American on file of the de- proof of actual notice without Bank, Hardison the broad gave National part, evi- bad faith his fect title or payable to sign checks general authority to Though he by circumstances. denced corporation, in- individual, firm or “any taking negligent have been may signing parties cluding one more precautions omitted which a paper, .... checks such taken, never- prudent man would deposit authority receive cash or full theless, fide, he has acted mala unless to one more instrument such ” doctrine, according to settled title his . . . signers. added). prevail.” (emphasis will *9 corpora- such dealt with has This Court previous on two problems banking practices, tion resolution checks normal In Shuttle See Litchfield on another bank occasions. a bank drawn deposited Bаnk, 134 Valley National v. Cumberland bank when the drawee to delivered Knox- (1915); 1006 183 S.W. depositor’s account Tenn. entries on and paid National East Tennessee Co. v. deposit. In Water ville the source reveal not do (1910). 447 Bank, 131 S.W. Tenn. 123 deposited the case, instant 883 Litchfield, In general manager therefore, of a results, theory that under no company had broad general powers includ- could the defendant bank be held liable on ing authority to draw checks on the this first transaction. company account in company name. category The second involves two checks general manager payable
The drew checks signed by Hardison T. Hardison on W. & company suppliers, to forged signa- their cash, Company, payable negotiated by tures, deposited and in them his Liquor B B Hardison to & Store which account. In Knoxville an Water negotiated turn the checks defendant agent very authority with limited fraudu- bank The for cash. record reveals B lently prin- endorsed checks to his regular B Liquor was a customer Store cipal deposited private and in his them bank, of the defendant that the fre- owner case, In count. the former this Court held quently cashed checks for his customers the defendant bank not liable because them, and in turn these general powers general the broad charged checks were on books of W. manager from which the could bank Company against T. Hardison & Tom manager concluded that the was authorized The checks were received Jr. latter, do such. In the the defendant Liquor B bank from & B store in bank was held agent liable because the had paid by the usual business and course of very authority, limited and the facts were presented the First American Bank when put such as on bank notice. by the defendant bank. There no claim case, authority instant Hardison’s was sim- any that the defendant bank received bene- ilar to that of manager’s Litchfield; fit from these checks. not limited as in Compa- Knoxville Water ny. Commercial Under Uniform Code, clearly ones transactions are these complainant in the instant value, the bank received checks for where attempts importance case dismiss faith, good and without notice of corporate resolution because it was on Therefore, the defend claims defenses. file with First American Bank and the qualifies ant bank a holder due defendant bank did not of its exis know The bank these checks received course. clear, however, tence until this suit. It is in under routine circumstances as bearer agent that where an has the actual authori paid struments from a known customer ty act, perform dealing the one good value amount. Value face authority him need not know of that at the only no question, clearly being faith princi of the transaction bind the time deserving of discussion. tice is pal authority actually if that Ten existed. Broadway nessee Products Co. v. National previously, knowledge As stated Bank, 361; Tenn.App. 405, 158 S.W.2d fiduciary does person that a or was Co., Bagley v. Union Buffalo Mills purchaser of a give not in itself notice Further, Tenn.App. (1928). had the ; 47-3- 35-206 claim defense. T.C.A. § put facts been such so as to Therefore, there 304(4) (e). notice, inquiry reasonаble duty, has discussed been breach part their would have revealed that such as a status previously, the defendant bank’s corporate property by use of Hardison was rights subsequent holder due course authorized resolution. recission, a subject to thereunder are not expected bank could not be legal reme trust, any other constructive go capital, survey further and assets dy. §47-3-207(2). Hardison and liabilities T. Com pany single if company to determine was sol category third capital impaired. Lynch, being $10,135.15 vent or Merrill issued *10 Pierce, Smith, payable and contends that since Fenner to W. defendant Hardison Company by T. Har- authorized withdraw Hardison & endorsed to was himself, had deposited personal payable dison in check- funds to he no fraud- and his ing- endorsing in checks in account at the defendant bank. es- ulent intent these sence, merely payee the transaction three the name of the as was involved manner, company accomplishing, a in that Hardison first an unusual checks. drew Second, company cheсk, do. charged to himself on the which he was authorized to books, payable Lynch, per- to for a defendant that the endorse- Merrill the contends obligation. deposit- pass That title to the sonal check was ments were sufficient to paid by by payee ed and defendant a in due course the to its account holder be- Hardison, drawer, Subsequently, the intended the First American Bank. cause the Lynch payee refunded in the the Merrill that amount to have no interest in check. See, (b). of a check to T. Hardi- The Court 47-3-405(1) form T.C.A. Company exchange per- son in for a Appeals held that the endorsements Hardison, Tom in the effective outright forgeries sonal check of not to were Jr. defendant, orig- $12,236.30representing pass amount of that there title to obligation personal inal and an additional an in- nothing in the record that evidenced slightly in obligation agents prepared of Hardison excess the checks tent who $2,000.00. Company The refund check issued said Coal should not that Lynch payable them, Merrill T. Hardison in the defend- to W. have an interest that cashing Company Hardison said negligent was endorsed ant bank 39-07-906-6,” Deposit checks, Company “For his dam- that Coal Complainant to recover the transac- aged account. seeks and sustained a loss $10,135.15. tions, receiving collecting that that a bank upon forged or unauthorized en-
a check for the payee is liable dorsement Again, we can find no evidence is a payee bona proceeds, where acted dishonestly the bank or with no drawer, of the the bank not fide creditor 47-3-304(2) tice claim defined in § liability on the to the drawer relieved deposit T.C.A. The received the payee theory that it was not intended any the regular course business without instrument, and that an interest knowledge misappropriation by actual Trustee, standing in the of a shoes Hardison, misappro if indeed there was a bankrupt corporation, can recover be- priation. knowledge actual Without creditors. half of of a show notice claim or defense “dishonesty” handling without Appeals agree with the Court We faith, or no as would evidence bad outright for- were endorsements these tice, the defendant bank was a due course provides that geries. T.C.A. 39-1701 check, holder of this liable making or al- fraudulent “[F]orgery Bankruptcy. Trustee prejudice of writing teration checks in category The last involves six president rights.” The another’s aggregate $68,048.45 amount of drawn T. Hardi- Company testified that W. & Com- the account of W. T. Hardison customer of had been son & pay- pany signed by Jr., prior years five company for some his able to the Clear Creek Coal into went the time by Hardison in the name of endorsed balance the current bankruptcy and that Company, and Clear Creek Coal $34,000.00”. $33,000.00 “about due was his account bankrupt Further, the records of bank. cred- that the checks flect the bank- the indebtedness ited checks, As to the defendant bank these Under these First, Company. the Coal primary rupt asserts two defenses. *11 facts, pattern Creek Coal was consistent it is clear that the Clear conduct over showing fourteen months. sоme Company damaged sustain Absent and did cashing contrary, only these unauthorized inference to be loss pro- true in view drawn is that he intended to use the particularly checks. is This payee cred- ceeds and intended the of the fact that the indebtedness was himself As Company books. interest It follows then ited the Hardison no therein. such, pass fall endorsements that the endorsement was effective to the unauthorized statutory forgery. title to the defendant. our definition within Having passed established that title However, say that not to is bank, its status a holder endorsements could not the unauthorized question. due course then into comes pass title as inferred have been effective good again Value and faith being Appeals. the Court of 47-3- § question, only notice of claim or defense specifically provides that “an 405(1) (b) will be discussed. See T.C.A. 47-3-302. by any person in the name of endorsement previously As stated in the discussion payee person if a a named effective notice, negligence goes to the notice signing or оn behalf of a maker or quirement 47-3-302(1) of T.C.A. as de- payee intends the to have no inter drawer 47-1-201(25). fined 47-3-304 and T.C. Paragraph est in the 3c of instrument.” provides 47-3-304(1)(a) A. as follows: that section Code Comment to Official example: as an states purchaser “1. The has notice a claim or defense if (1) (b) restates “3. Subsection original substance Subsection (a) incomplete, the instrument is so stated is not whether the 9(3). test bears such forgery visible evidence of ‘fictitious,’ payee named whether but alteration, or is so irregular otherwise signer that he have no intends shall to call question validity, into terms interest in the instrument. The follow- ownership or ambiguity to create an as to ” ing application situations illustrate the party pay; . . . . (Em- . . subsection. phasis added) c. pay- The drawer makes the check case, In the instant there were six P, existing person able to he whom checks of W. T. Hardison & knows, intending money to receive the signed by president, P himself have no inter- shall the Clear Creek Coal est in the check.” purported with the endorsement of that company and following restrictive en- Further, it is clear that the is to be statute Deposit Only dorsement: “For 39-07- applied to forged signa- unauthorized or instrument, 906-6.” From the face of the provides: “Nothing tures as subsection (2) it could be determined that the Clear Creek in this section shall affect the criminal or Company, designated payee, was de- liability person endorsing.” civil positing checks in the account of precisely The situation then is the situa- president of the drawer paragraph tion mentioned in 3c of the Of- who signed had himself the checks as ficial Code Comments to T.C.A. 47-3- drawer. Such transactions ir- highly only possi- 405. The element which could regular question and call into their validi- bly inbe doubt intent of the ty. drawer. Additional factual circumstances bear- presumed, While intent cannot be the cir- ing on the notice the instant cumstantial evidence establishes the neces- deposition case are the of Mr. Warren sary signed intent. Hardison and endorsed Gray, one of the defendant bank’s execu- payee name of the six checks which tive officers who stated to his This account. were unusual and should have caused fur-
886 any bankrupt corporation, shoes of the inquiry, the fact that the defendant ther against the any time is available cor defense which failed to communicate bank poration against un- is available the trustee. regarding these with the Coal 67.32, p. Collier, transactions, Bankruptcy (14th Ed.) Manual and the Teller’s usual § Collier, 502; Bankruptcy Ed.) provides: (14th 4A of defendant bank which the 70.04, p. The defendant bank reasons corporations be payable to cannot “Checks his corporate that officer or trans deposited.” Pre- while cashed. must be These corporation may be to the checks must ferees liable sumably this means that such bankruptcy payee, trustee in deposited of the conversion in the account assets, corporate liability does that rule of not the account of the drawer. apply have when the acts of officer been ratified all of the shareholders facially these latter transac While , corporation. by the share- Ratification may appear previous tions same an offi holders an unauthorized act of ones, Merrill particularly the check from cer that act an authorized act makes Company, en Lynch to Hardison & corporation, corporation then and the loses his dorsed Hardison and against the officer. right of action account, simply that not the action, corporation having right no here case. In that instance and the others bankruptcy it that the trustee in follows cited, simply tofore did not Lew, right. has 184 F. no such Field v. knowledge have actual or notice from Supp. the instant In (E.D.N.Y.1960). fiduciary face of the instrument that a case, Hardison, as sole stockholder negotiating the his own instruments for Company, ratified his T. Hardison and duty. benefit and in violation of his As corpo actions; neither the own therefore out, previously pointed had right has a of action ration nor the trustee further, they bank checked would have dis president of either covered that Hardison was authоrized to as a corporation the defendant bank do In what he did. the case of the checks transferee. however, payable Company, to the Coal defendant bank received notice from the issue,
face Dispositive that the transac this how instruments ever, tions highly irregular thereby calling elementary principle cor validity. into A poration ratify their Had the bank a criminal act. cannot further, they certainly then checked may ratify only would unauthorized have discovered Hardison was not au are within acts of its officer which thorized scope corporate powers to endorse checks in the name of and which results, Company. previously Clear It there might Creek been authorized. fore, However, that the defendant had it ratify notice of it an act which cannot irregularity power legally on the face of do. 19 instruments not have the does to the Clear C.J.S., Corporations, pp. Creek Coal 486-487. precludes that such notice them from hold is clear that it is not within status, prej er in due powеr forge course their breach an endorsement duty and, therefore, rights, resulted serious detriment udice of another’s corporation’s creditors, and that the sub they those cannot be unauthorized acts liable to Bankruptcy the Trustee in on ject of ratification.
these instruments.
Last, cannot be since the defendant bank conclusion, ratifica- liability defendant bank asserts relieved of on either the theories, two additional it as- defenses tion or in due course Court holder by the recovery finds are without merit but deserve discus serts that there can be no First, sion. that the defendant bank trustee there no evidence states corpora- the Trustee in Bankruptcy involved rendered stands problem invoking corpo- inherent occurred tion when insolvent is, course, proof of that ac- Bank- 67d(2)(d) The Federal ration was insolvent. tual 107(d) provides fraudulent us Act, intent. Collier ruptcy 67d, 11 U.S.C.A. § awith workable solution as to the estab- provides pertinent part: lishment of that actual intent. every Every ob- transfer made *13 finding Even under of 67d(2)(d) one ligation by a within incurred dеbtor requisite predicated may be intent ini- year petition a prior filing of to which, upon the concurrence facts by title proceeding under this tiating intent, while direct evidence of actual to (a) is as or him fraudulent against lead to the irresistible conclusion existing at the time of such creditors conduct was motivated transferor’s in- if made or obligation, transfer or by Rarely such intent. will a fraudulent by a curred without fair consideration his intent transferror disclose fraudulent thereby ren- is be debtor who or will capable proof. a mode of direct Un- insolvent, his ac- regard to dered without less severely the clause re- is to have intent; existing (b) tual or to then as scope, stricted it would seem to cover persons to other who creditors as cases where the that the trustee shows during become creditors the continuance transferror acted under circumstances transaction, or of a or if made business which forbid reasonable conclusion fair by consideration incurred without other than that the transfer fraudu- is to en- engaged debtor is or about who lent as to his creditors. transaction, gage in for such business or in his property remaining which the Circumstances from which courts capital, unreasonably hands is an small willing been to infer fraud include con- intent; regard actual or. without to his pretenses by cealment facts and false future credi- (c) existing as to then transferor, by him of reservation tors, if made or incurred without fair rights property, in the transferred his consideration a debtor who intends absconding secreting pro- with or incur debts or believes he will incur ceeds immediately of the transfer after mature; beyond ability pay they his as receipt their . existing or then and future (d) Since under (d) clause discussion creditors, if made or incurred with quires hinder, delay, an actual intent to distinguished intent as intent tual from defraud, application me- cannot be law, hinder, presumed delay, or de- Judge Hough said: aptly chanical. As existing either or future creditors. fraud (Emphasis added). productive that intent The elements They . can never defined. opinion our that the facts facts, vаry any judge do provisions the instant case within jury, rule dealing with facts some only That 67d(2)(d). clause thumb, always the human will miss provision 67d(2) of subdivision § Testimony can never be tested touch. But requires actual intent. fraudulent weighed by machine. further, conveyance is made if hinder, de delay or that actual intent to But, courts, guided by common commer- existing creditors, fraud future practices, knowledge cial awake duty trustee under no “to show fraud, yet ingenuity faithful during the intent, forge transaction was consummated requisite of actual can instrument clause into an effective precipitated (d) bankrupt’s insolvency or Collier, 67.37, Bank- 4 Collier, Bankruptcy fraud fact. insolvency.” 4 67.37, ruptcy Ed.) pp. (14th 536-44. pp. 531-532. 888 only right facts lead that it is not instant case to the is thus clear
irresistible duty institute conclusion that Hardison’s trustee to but also See, bizarre conduct 4 the intent present motivated and maintain the action. utilize Bankruptcy 67.48(2), assets his Collier, (14th Ed.) § corpora- benefit and thereby p. defraud the to sue rights 679 of creditors fact, tion’s creditors. there can be no capacity in their оwn under 67.§ other realistic conclusion. question involves second Having thus established that there was a Is by the recovery measure of trustee. transfer, fraudulent credi to that which the defrauded limited authority pre- that it trustee’s arises in doctrine tor could recover? viously stated herein that Clear Creek Coal Bay, 284 Moore v. S.Ct. U.S. Company’s rights prejudiced clearly quantum (1931), L.Ed. calls *14 forging question. of the six checks set aside recovery. a trustee cannot While Further, the that while evidence shows the trans he show that a unless can transfer Company’s Clear Creek Coal account was against under as fer was fraudulent 67d § bankrupt corporation’s credited on the under claim having provable a creditor a checks, with books the amount those six of Act, rights not to the the he is confined corporation adjudication
the at the date of if had which that creditor would bankruptcy company of the coal owed the had bankruptcy not ensued. “Where facts, $33,000.00 $34,000.00. of or Those qualifies can show the transfer trustee that suggest a cоurse, continuing business 67d is under one that fraudulent § as lationship subsequent payments and some provable claim having a against a creditor corporation company. the coal from to the Act, duty to the under under the court is It is unfortunate the records of the that obligation in toto set aside the transfer or record, part are not a of the of amount without reference to the proceed, nonetheless, the basis but we 4 Col creditor.” claim the defrauded of stipulated of the Accordingly, facts. 67.49,p. lier, Bankruptcy 698. Ed.) (14th § following questions Can arise: trustee maintain this suit or is the cause of action distribution, prop- settled that As it is to Clear Creek Coal as for by is held erty recovered the trustee rights prejudiced? were the trustee If all Heffron v. of creditors. benefit action, can maintain the can he recover the 1940). In Duggins, F.2d Cir. (9th 115 519 represented full amount by the checks or Bankruptcy of of the his discussion 70e only company. the amount coal owed to the problems Act, points three to the Collier And, is the for the benefit оf that recovery an- that alluded to herein. He states creditor with the of action or cause alone necessari- questions “are not to these swers of the entire estate for the benefit all may They only to germane ly 7Oe. creditors ? and 70c.” fully applied under 67d also §§ 70.- Collier, Bankruptcy Ed.) (14th 4 questions The answer to these to distribu- p. 1103. In reference 95(1), again Act it Bankruptcy comes from' the tion, it is stated therein: that transfers self. Section 67d declares in cases where that It is settled provable as to with fraudulent creditors power transfer to avoid a trustee has the trus against claims are null and void right by obligation reason Further, trans property title tee. to the creditor, be avoided it can particular one fraudulently is vested ferred as creditors creditor that acting for the trustee (4), the trustee 70a virtue of § all, regardless resulting benefit to with duty interpreted is 47a(l) imposing “§ respect- creditors status of other proceedings the trustee institute trus- voidability. action Collier, ing aside set fraudulent transfers.” estate, even the benеfit tee for 67.49, p. Bankruptcy (14th 690. It Ed.), § negotiated. time checks by the avoid- all benefit though creditors contends, earnestly how- Petitioner now not have could some of them ance which ever, question was Collier, the one check in own behalf. secured in their more p. 70.95(2), Ed.) Bankruptcy (14th prior date bank- year than one ruptcy of T. Hardison therefore, considered results, having and, therefore, isit fraudulent with parties, assignments of error of both the Federal provisions 67d(2) (d) of Appeals judgment that the Court Act, providing Bankruptcy section three cat- recovery the first for disallowing follows: recovery allowing checks egories of every ob- Every made “(2) transfer involving the category fourth one ligation incurred a debtor within Creek of the Clear forged endorsement petition ini- year filing affirmed, prior to that the trustee Company is action, this title tiating proceeding under right maintain the has the him fraudulent. involved may the entire amount recover existing and future credi- involving as to then (d) the fraudulent tors, in- with actual company, if made incurred forged endorsement of the coal pre- distinguished tent from intent of all recovery benefit law, hinder, delay, or de- provable under the sumed having claims creditors *15 existing or future creditors.” fraud either The is remanded for such other act. cause added). may (emphasis and be and further orders decrees necessary proper conformity or alone, petitioner’s contention Standing opinion. this But, it not. appears to be valid. solvency insol- First, the issue of DYER, J.,C. and Mc- CHATTIN vency and T. Hardison of W. CANLESS, JJ., Special and WILSON, petitioner until raised never Justice, concur. this It was first men- case reached Court. particular- Appeals, by the Court of tioned OPINION ON PETITION TO REHEAR dissenting which conclud- ly opinion in the appellant Third National Bank be- recover the trustee could not ed that petition Nashville has filed a to rehear Bankruptcy required Act cause Federal seeking to have modify this Court its judg- showing that fraudulent an affirmative ment deny recovery check, to on one precipitated or occurred either transfers issued to Clear Creеk Coal en- corporation was insolvent. We while the dorsed in the name company of that appeared as it thought point important T. to his trustee, duty of the affirmative to account, upon theory that the transfer and, complicated nature of the because did not occur one year filing within of the business conducted his which Hardison petition of the in bankruptcy. The check this lack records before was received the defendant Court, say impossible to whether it was 27, 1968, bank on in the amount of June insolvency precipitated these transactions $12,263.30. petition bankruptcy indicates, opinion original As our not. filed on October 1969. however, conveyance actual made with hinder, credi- delay, or defraud intent to agreed Petitioner with this Court’s tors, conclusion only realistic as was opinion that 67d(2)(d) of the Federal § regard case, may this be set without aside Bankruptcy disposed Act petitioner’s of the insolvency. showing of to that contention that the Bankruptcy Trustee in had no standing recog- proof рetitioner to sue without has failed to of in What solvency however, nize, may T. sue W. Hardison and trustee set governing aside transfers are fraudulent the state law the transaction. applicable creditors either under state Id.
law, in this case the Uniform Fraudulent Our resort to 67d of the Federal Bank- Conveyances Act, under the federal was, ruptcy original opinion Act in our adaptation Act, of that Uniform the Fed- then, merely prompted interpretative as an eral Bankruptcy Act, 67. Jurisdiction law, applicable devise of our state the Uni- proceed applicable state under law con- Conveyance form Act, Fraudulent upon ferred the trustee under 70e the- Section 67d 64-301—64-321. §§ Bankruptcy Federal Act. As Collier Bankruptcy Federal Act sub- condenses the states: Convey- stance of the Uniform Fraudulent 70e(l) wholly ap-
“Since possible relates to the ances Act and retained wherever plicable Collier, respect state or federal law with language both its substance. 67.29, voidability obliga- Bankruptcy, p. transfer оr n. 6. Section tion, such control 67d(2) exactly law will as to whether (d) corresponds almost right valid claim applicable statute, avoidance still our 67- state T.C.A. § bankruptcy subsists the time of creditor rights whose the trustee assumes identical, provisions being Those almost Thus where the creditor’s assert. we used Collier’s informative treatise remedy is running barred our state statute. Bankruptcy to construe prior Statute of bankrupt- Limitations resulting was both construction cy, the trustee is likewise barred. Sec- workable to the establishment solution tion 70e(l) provides no conditions or intent, proposi- actual fraudulent time limits within statute, particular tion that under this merely incorporates deemed voidable. It duty trustee under no show applicable or federal law in state precipitated con- transaction either or was regard. Consequently, the four-month *16 bankrupt’s during summated the insolven- one-year and limitations established in §§ cy. in might note here as did We also we inapplicable and 67 in are a suit un- original opinion our at the page 26 that der prеsent 70e. 67d and Sections 70e § pp. discussion at 25-26 with reference independent different and methods suit, whether the could maintain trustee the whereby may the trustee move to invali- recovery, the measure of and its distribu- date a transfer deemed fraudulent. And fully applicable tion un- proceeding is
the
present
fact that
incorporates
67d
der 70e as well as 67d.
§
§
much of the
Convey-
Uniform Fraudulent
prevent
ances Act does not
the trustee
Returning to the statute of limitations
from invoking
adaptation
a state
question, it
that
is clear
our state statutes
Act,
Uniform
where that better suits his
dispositive
petitioner’s
are
the
of
conten
purpose.”
Collier,
4A
Bankruptcy,
tion,
70.-
in
year
in that
the one
limitation
71, pp. 799-802.
is
67d(2)
Bankruptcy Act
Federal
present
not
in the
Fraudulent
Uniform
apparent
is
pleadings
from the
in this Conveyances
As
in
v.
Act.
stated
Davis
has,
case that the
times,
trustee
at all
pur-
(D.C.
Willey,
45 Am.B.R.
must demonstrate that asserting he is the is that of “It well established the effect right aof bankrupt creditor of the is to clothe the trus- (§ 70e) this section particular whom the transfer was right tee in fraudu- with no or additional new lent. at Id. 787. The premises possessed by the of over fraudulent transfer must be creditor, simply puts determined but him in payment forged is not latter, subject to the on a endorsement shoes of the acceptance, though an that even but and disabilities same limitations faith an of good made in it exercise the creditor have beset would the instru- his own be- dominion control over prosecution the action on rights are to ment ; inconsistent with rights parties and the half liability for con- determined, provision owner, and results by any not Act, applica- hut version.” Bankruptcy lam, or the principles the common ble always hold true in That result would right the state in mhich lams light of 47-3-405 if customer T.C.A. § words, In may action arise. other was, fact, As the the bank involved. merely the trus- Bankruptcy permits Act Text of the Official Comments to rights the credi- tee to assert point out: 47-4—406 pendency of tor could аssert but for the . proceedings, . bankruptcy “Nothing in this section intended added). (emphasis that a cus- holding affect any decision period, applying the correct limitation something has tomer who notice our enactments of look first to state we must exer- wrong with endorsement Code, the Uniform Commercial T.C.A. § investigate and cise reasonable care only applica- seq. possible et 47-1-101 notify the bank. It should be noted in T.C.A. appears limitation therein ble imposters relating under rules inapplicable in 4 406but section 47§ signatures payee (Sec- name of Compa- this case as the Clear Creek Coal 3-405) forged tion certain endorsements ny, the the trustee is right creditor whose paid on which the bank has the item asserting, the defini- does not fall within good may faith be effective treated as See, tion of a customer. 47-4- T.C.A. § notwithstanding discovery no- such construed, 104. Even if it be so could tice.” (emphasis added). applicable therein, under limitation case, years. facts of this would three forged While we treated the endorse- case, ments effective instant The Uniform Commercial Code does paid while items however, provide 47-3-419 T.C.A. § apparent faith, good they still liable that: unique under these facts due to notice *17 apparent face An on the of the instruments. “(1) instrument converted when conclude, therefore, light We must that in paid forged it is (c) en- of T.C.A. 47-3-419 the instruments were dorsement.” and, appropriate converted absent limi- held, case, We in this that even while the Code, tation in the Uniform Commercial forged pass endorsements were effective apply period general our limitation of three title under 47-3-405(1) (b), years per- pertains to the conversion they was liable thereon See, property. sonal T.C.A. 28-305. could not qualify holder in due course status as of the irregular notice nature of apparent It being that the action was appeared the transactions on the face of timely filed, petition to rehear is ac- the instruments. cordingly denied. Comments to Text Official read T.C.A. 47-3-419 as follows: DYER, J., Mc- C. CHATTIN and CANLESS, adopts JJ-, Special “Subsection (l)(c) WILSON, new. the prevailing Justice, view of decisions that concur.