I. CORPORATE TRANSACTIONS WITH A BANK
All Nebraska Banks deal extensively with corporate transactions including loans, checks, letters of credit and others. In many cases, officers or employees of the bank are very closely acquainted with the corporation’s officers and the transactions are considered almost in the light of a transaction with an individual. This article attempts to raise some red flags and provides some solutions to common, everyday operational problems.
A. Who is the “Customer”? The Nebraska Supreme Court has held that a depository bank’s liability, pursuant to U.C.C. § 4-402, under certain circumstances, may extend to a corporate officer as a “customer” who has signed a check drawn on the bank when the bank dishonors the check signed by the corporate officer on behalf of the corporation. In Parrett v. Platte Valley State Bank, 236 Neb. 139 (1990), P & P Machinery, Inc. (P&P) maintained a checking account at the Platte Valley Bank (Bank). Robert Parrett (Parrett) was the principal shareholder, president and chief executive officer of the corporation, personally participated in the business relationship between P&P and the bank, and personally guaranteed all obligations owed by P&P to the bank. Parrett was also authorized to sign checks drawn on P&P’s account at the bank. On March 1, 1984, Parrett executed a check on behalf of P&P for the purchase of farm machinery and equipment. Subsequently, the bank dishonored the check and returned the check without payment, even though P&P had sufficient funds in its account when the check was presented for payment. As a result of the dishonored check, Parrett was charged with felony theft and following dismissal of the damages, Parrett sued the bank for damages caused by the bank’s wrongful dishonor of the corporate check.
Under U.C.C. § 4-402, “A payor bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item”. Customer is defined under U.C.C. § 4-104(1)(e) as “any person having an account with a bank or for whom a bank has agreed to collect items.”
The bank attempted to avoid liability for wrongful dishonor by maintaining that the corporation, rather than Parrett, was its customer.
In imposing liability upon the bank, the Court found that Parrett was a “customer” of the bank within the meaning of U.C.C. § 4-402. The Court cited Parrett’s business relationship with the bank, including his personal guaranty for P&P’s obligations to the bank in determining that the bank could have foreseen that dishonoring the corporation’s check would reflect directly on Parrett and held that the business relationship between bank and P&P created a special duty owed by the bank to Parrett as principal shareholder of P&P.
While the Court indicated that a corporate officer would not have a valid action against a depository bank in every case in which a corporation check was drawn and later dishonored, depository banks should exercise extreme caution to “know their customer” in instances involving closely-held corporations and guarantees by their officers and principal shareholder.
B. What is the Bank’s Liability for Corporate Deposits?
Developing case law and the sophistication of our customers is bringing into sharper focus some concepts that have been a vague part of our law for some time, such as: (a) a check payable to a corporation may not be cashed by a bank that is not the official depository of that corporation; (b) a check payable to a corporation may not be used in a split deposit with part of the proceeds deposited into corporate accounts and part deposited to personal accounts or taken as cash without specific authorization; (c) a check payable to a corporation cannot be deposited into a personal or individual account without specific authority and authorization. With few exceptions, if the initiator of the transaction is in default or cannot be found, the bank can be held legally liable (See, Beymar Trucking Corp. v. American Trust Company, 8 U.C.C. Reporting Service 73 (NY)).
C. What Documentation Should the Bank Insist Upon?
The solution to the above problems lies in proper documentation from your corporate customers and an awareness on the part of your employees as to legal-type transactions. We are aware of the many family farm corporations and many small corporate business entities, and of our often very close acquaintances and friendships. The proper protection for your bank can only be obtained in each case by appropriate resolution of the corporation giving authority for the transaction. These resolutions should be evidenced in your files by a certificate of the secretary of the corporation as to the validity and content of the resolution. YOU MAY NOT RELY ON SIGNATURE CARDS ALONE.
A copy of a typical Certificate of a Corporate Resolution authorizing bank deposit transactions and an example of a Certificate of a Corporate Resolution for borrowing transactions follow this article. These examples are in no way intended to be exclusive and are presented as examples only. You may wish to expand or restrict and, in any event, consult the attorney for your bank before bringing into use. D. Is Foreign Corporation/Limited Liability Company authorized to maintain bank account in Nebraska?
Pursuant to the Nebraska Model Business Corporation Act (Neb.Rev.Stat. Section 21-2,203) and the Nebraska Uniform Limited Liability Company Act (Neb.Rev.Stat. Section 21-157), a foreign corporation and a foreign limited liability company are able to maintain bank accounts in Nebraska without first having obtained a certificate of authority from the Nebraska Secretary of State.
SAMPLE Certificate of Corporate Resolution for Banking Deposit Transactions
I, _____________________________________________do hereby certify that I am Secretary of a corporation organized under the laws of the State of _________________________and that the following is a true copy of a resolution adopted at a meeting of the Board of Directors of said Corporation duly held on the ______ day of _______________, 20______ at which a quorum was present and that said resolution is in full force and effect:
BE IT RESOLVED AS FOLLOWS:
1. That hereinafter called Bank is hereby designated as a depository for funds of this corporation and that the officers an employees of this corporation and each of them hereby are authorized to open an account or accounts for the corporation with the Bank with agreements as shall be required by the Bank; to endorse in the name of the corporation and to cash, negotiate or deposit in any such amount money, checks, drafts, and other instruments for payment of money, which endorsements may be by stamp without designation of the person endorsing.
2. That checks, drafts or other withdrawal orders issued against the funds of this corporation on deposit with the Bank may be signed by any ________of the following who now hold offices or positions indicated opposite their respective names:
Names and Titles Names and Titles
________________________________President ___________________________Secretary
___________________________ Vice President ___________________________Treasurer
Such persons are authorized to deal generally with the Bank with respect to such account, and the Bank is hereby authorized to pay and charge to the account of this corporation checks, drafts, or withdrawal orders so signed, whether or not payable or endorsed to the person signing and whether or not applied for the benefit of person signing by deposit or Bank loan credit or by cash payment.
3. That all transactions, if any, in respect to any deposits and withdrawals, by or in behalf of this corporation with the Bank prior to the adoption of this resolution are ratified and approved.
4. That all transactions, if any, in respect to any deposits, withdrawals and other deposit transactions by or in behalf of this corporation with the Bank prior to the adoption of this resolution are ratified and approved.
I do further certify that the foregoing resolution is under the authority of the Articles and By-Laws of the corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of this corporation this _______ day of ________________, 20_______.
(SEAL)
Certified correct by one Director other than Secretary
Secretary
Name of Bank
SAMPLE Certificate of Corporate Resolution for Banking Transactions
I, ___________________________________________________________do hereby certify that I am Secretary of a corporation organized under the laws of the State of ________________________and that the following is a true copy of a resolution adopted at a meeting of the Board of Directors of said Corporation duly held on the _________ day of _______________, 20______ at which a quorum was present and that said resolution is in full force and effect:
That is authorized to borrow money in any amount (not to exceed $___________) for the general operation, both short and long term, for said corporation and that any __________of the following who now hold offices or positions indicted opposite their respective names:
_________________________________ President ______________________________Secretary
____________________________ Vice President ______________________________Treasurer
are authorized. to borrow money and obtain credit for this corporation and by way of accommodation; to make agreements in respect thereto; to make and deliver notes or other evidence of indebtedness therefore; to mortgage, pledge, assign, and grant security interests in any assets of the corporation including after-acquired property as security for current and future obligations to the Bank, re receipt for collateral returned upon payment or substitution, to sell and discount to the Bank instruments, chattel paper, documents, and other rights with full power to endorse and guarantee; and to deal generally with the Bank with respect to the foregoing.
That this resolution be certified to the Bank together with specimen signatures of the persons named herein and said certification shall continue in force until express written notice of revision or modification has been received by the Bank. That all transactions, if any, in respect to any deposits, withdrawals, discounts and borrowings by or in behalf of this corporation with the Bank prior to the adoption of this resolution are ratified and approved.