DENNIS WALKER v. JOHN PROBANDT AND JOHN RAYNOR
COURT OF APPEALS OF NEBRASKAÂ 902 NW 2D 468 (2017).
A&G Precision Parts, LLC (Parts), was a limited liability company formed by Dennis Walker, John Raynor, John Probandt, John Brazier, and Walton Glass. In addition to A&G Precision, the five members also formed a second LLC called A&G Precision Parts Finance, LLC (Finance).
In 2002, Finance, Walker, Raynor, and Brazier obtained a loan from Five Points Bank of Grand Island, Nebraska. However, neither Parts nor Finance made payments as required, and the bank demanded full payment.
In 2008, the parties refinanced the Five Points Bank Loan with First State Bank (FSB). In this agreement, Walker, Raynor, Brazier, and Mark Herz signed a promissory note for $1.5 million in which they would assume liability for repayment of the loans. The LLCs defaulted on the loan again, and FSB sought to recover.
In 2011, the LLCs, Walker, FSB, and Five Points Bank executed a settlement agreement whereby Walker agreed to pay FSB $1.05 million and FSB agreed to settle the claims against Walker and assigned the note to an entity of Walkerâ€™s choosing. Walker assigned the FSB note from FSB to Skyline Acquisition, LLC. Because of the settlement agreement, Walker and Skyline became plaintiffs seeking recovery from the parties that had not settled: Raynor and Probandt. The district court ruled in Walkerâ€™s favor and entered judgment against Raynor for $2.3 million. The district court did not award damages against Probandt, however
Walker and the LLCs appealed, asserting that Probandt should be liable to pay for damages. Raynor also appealed the ruling, arguing, inter alia, that the district court was wrong to enter judgment in favor of Skyline because of lack of consideration.
CHIEF JUDGE MOORE, JUDGES INBODY & RIEDMANNâ€‚Raynor argues that Skyline does not qualify as a holder in due course of the FSB note and that therefore, Skylineâ€™s enforcement of the note against him is subject to the personal defenses that existed between the original parties to the instrument.
Neb. U.C.C. Â§ 3-302 provides that a holder in due course means the holder takes an instrument (1) for value, (2) in good faith, (3) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (4) without notice that the instrument contains an unauthorized signature or has been altered, (5) without notice of any claim to the instrument described in Neb. U.C.C. Â§ 3-306, and (6) without notice that any party has a defense or claim in recoupment described in Neb. U.C.C. Â§ 3-305(a).
Here, Skyline does not meet all of the requirements to qualify as a holder in due course. Despite the language of the assignment, it does not appear that Skyline paid value for the note; rather, as evidenced by the language of the settlement agreement, the consideration was paid by Walker, and upon such payment, FSB agreed to assign the note to Skyline. In addition, in taking the note, Skyline had notice that the instrument was overdue, because Walker and his wife are the only members of Skyline and they both signed the release which recognized the default of the note. Therefore, although Skyline is the present holder of the note, it is not a holder in due course.
Raynor argues that because Skyline does not qualify as a holder in due course, it is subject to any defenses he could have asserted against FSB, and we agree. Unless one has the rights of a holder in due course, he is subject to all the defenses of any party which would be available in an action on a simple contract.
Furthermore, in a breach of contract case, the ultimate objective of a damages award is to put the injured party in the same position he would have occupied if the contract had been performed, that is, to make the injured party whole. As a general rule, a party may not have double recovery for a single injury, or be made â€œmore than wholeâ€ by compensation which exceeds the actual damages sustained.
Where several claims are asserted against several parties for redress of the same injury, only one satisfaction can be had. Thus, where the plaintiff has received satisfaction from a settlement with one defendant for injury and damages alleged in the action, any damages for which a remaining defendant would be potentially liable must be reduced pro tanto.
Accordingly, in the present case, because Skyline is not a holder in due course, it is subject to any defense Raynor could assert against FSB in a simple contract case. In such a case, Raynor would have a defense against FSB that any amount for which he is liable on the note must be reduced pro tanto by the amounts FSB already received in settling the claims for nonpayment of the note from Walker, Brazier, Herz, and/or Hansen. FSB is not allowed double recovery from multiple defendants for the same claim as to the note, and therefore, Raynor is liable only for the amount remaining on the note after subtraction of the amounts FSB received from the settling defendants. Therefore, we reverse the award of damages entered in favor of Skyline against Raynor and remand the cause for recalculation of the remaining balance due on the note.
Why do you think the UCC requires a party to take an instrument for value to be considered a holder in due course? Which stakeholders does this rule support?
ETHICAL DECISION MAKING
Do you think Walker and company would have reached that specific settlement and continued the suit against Probandt and Raynor if they were keeping the WH process of ethical decision making in mind?