First American National Bank v. Christian Life Insurance Company

420 S.W.2d 912 (1967)

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Nature of the Case

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Facts

On January 19, 1964, Church of Mena adopted a resolution authorizing a $90,000 bond issue for the construction of a new church. Mena hired Institutional Finance as its fiscal agent to market the bonds. The church treasurer in the presence of the pastor and a trustee of the church affixed her signature to a blank sheet of paper and delivered it to Joe B. Springfield, executive vice-president of Institutional Finance, for use as a facsimile signature upon the bonds. Springfield requested a printing company to print the bonds, numbered from 1 to 188 and totaled $94,000. The bonds bore the facsimile signatures of Springfield and Mrs. Montgomery, with no provision for an authenticating manual signature. Institutional Finance sold $45,000 of the bonds to members of the church but had trouble in finding buyers for all the rest of the issue. On July 3, 1964, Hayes, President of institutional personally borrowed $25,000 from First American National Bank and pledged as collateral, along with other securities, $27,000 (later increased to $28,800) of the Mena church bonds. Bank, without doubt, was a good faith purchaser for value. Hayes then fraudulently ordered the printer to print $25,000 of numbered bonds that included duplicates of some of those pledged to the bank. Later in the month Hayes, in order to complete a sale to Christian (P) had printed additional bonds in certain larger denominations requested by that insurance company. Hayes was discovered when duplicate interest coupons were presented to the Mena bank for payment. The paying agent refused to honor the coupons until their validity had been established. Christian (P) brought suit for a declaratory judgment with respect to the validity of certain duplicate bearer bonds issued by the First Methodist Church of Mena. Parties to the suit include the rival owners of the duplicate bonds, the church and its trustees, the Union Bank of Mena, which acted as paying agent for the bonds, the estate of Hayes, the receiver for Institutional Finance, and the corporate surety upon Institutional Finance's qualifying bond as a securities dealer. The chancellor apparently viewed the case as being primarily a contest between First American National Bank (D) which holds $28,800 of the bonds, and Christian (P) and Charles R. Richards, who purchased respectively $20,000 and $5,000 of bonds that are duplicates of some of those held by D. The chancellor found that D's bonds are void and that the duplicates held by Ps are valid. D appealed.