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D & G Equipment Co. v. First National Bank of Greencastle

June 13, 1985


On Appeal from the United States District Court for the Middle District of Pennsylvania (D.C. No. 82-0573).

Garth, Sloviter, Circuit Judges and Barry, District Judge.*fn*

Author: Garth


GARTH, Circuit Judge:

D&G Equipment Company appeals from a final judgment of the district court holding that the First National Bank of Greencastle ("First National") was not liable as a converter of corporate funds, even though the bank allowed Roger Georgion, a former corporate office of D&G, to deposit and disburse checks payable to D&G through a personal account opened in Georgion's name, trading as D&G Equipment Co. The district court concluded that Georgion retained apparent authority to act for D&G even after notice of his removal as an officer had been conveyed to the bank by D&G. We reverse.


D&G Equipment, a Maryland corporation, was formed by a group of ten investors in 1977. D&G engaged in the business of leasing aerial cranes for use in the construction industry. At the time of D&G's formation, Roger Georgion (Georgion) was elected as president of the corporation and charged with responsibility for its operation.*fn1 For a number of years, D&G maintained a corporate checking account with the First National Bank of Greencastle. Georgion, as president and chief operating officer of D&G, was an authorized signatory on the account.

In late 1981, the shareholders of D&G grew dissatisfied with Georgion's management of the corporation. On December 12, 1981, the D&G Board of Directors met and voted to remove Georgion from his position as president and chief operating officer. At the same meeting, Henry Donaldson, then vice president of D&G, was named chief operating officer in Georgion's stead. The Directors also agreed that Donaldson would assume the powers of corporate president until a vote for a successor to Georgion was taken. In addition, the Board elected Edward Quinn to the position of assistant treasurer. Both Donaldson and Quinn were then designated as authorized signatories on all bank accounts for the corporation.

On December 13, 1981, Donaldson telephoned First National and spoke to Richard Myers, a vice president. He informed Myers that Georgion had been removed from his positions with D&G and requested that the bank temporarily freeze D&G's account. The following day, Donaldson met with Myers and give him an original notarized corporate resolution stating Georgion had been removed. Donaldson also gave Myers a new signature card that indicated only Donaldson and Quinn were authorized signatories on the D&G account. The bank accepted delivery of both the corporate resolution and the new signature card.

On December 24, 1981, Georgion opened a new account with First National. The account was designated "Roger L. Georgion, T/A D&G Equipment Co., Inc." and was used by Georgion to deposit checks in his possession payable to D&G. The bank did not notify any D&G shareholders or directors, including Donaldson or Quinn, of the opening of the account. Rather, the bank relied upon the representations of Georgion and his counsel that Georgion's removal was accordingly authorized to conduct the affairs of the company, notwithstanding any writing to the contrary.

Approximately $31,000.00 in D&G funds was deposited and Approximately $29,500.00 was disbursed through Georgion's "trading as" account between December 24, 1981, and January 7, 1982. The payments made by Georgion covered D&G's rent, taxes and insurance, with the bulk of the funds - over $22,000.00 - Applied to past due and current insurance premium charges. On January 7, 1982, Donaldson discovered the existence of Georgion's "trading as" account and advised the bank to discontinue processing any D&G funds through the account. The bank thereafter obtained from Georgion a voluntary indemnity agreement, stating Georgion agreed to hold the bank harmless for any actual losses sustained by virtue of opening the account. Transactions through the "trading as" account were suspended shortly thereafter and the account was closed.

D&G commenced this diversity action in the Middle District of Pennsylvania to seek recovery of the disbursed funds. D&G's amended complaint alleged that First National: 1) breached its fiduciary duty to D&G; 2) wrongfully paid Georgion funds belonging to D&G; 3) converted funds belonging to D&G; 4) breached its contract of deposit with D&G; and 5) was negligent in its handling of D&G funds. First National answered denying liability and filed a third party complaint alleging Georgion was liable for any alleged improper disbursement of D&G funds.

After a bench trial, the district court entered judgment in favor of First National and dismissed the third party complaint against Georgion. The court found that Georgion had Apparent authority to act on behalf of D&G and that therefore the bank was not liable under any theory of conversion. The court further found that First National had not failed to use ordinary care in permitting the deposit and disbursement of D&G's funds by Georgion. Without deciding whether the intended creditors of D&G were paid, the court found, on the basis of Georgion's testimony, that the monies were used for the benefit of D&G.

We reverse the district court's holding that Georgion retained Apparent authority to act for D&G and that First National was therefore not liable as a converter of corporate funds. We remand to the district court for a determination of the compensatory damages recoverable by D&G and direct that the district ...

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