Opinion ID: 2074942
Heading Depth: 1
Heading Rank: 16

Heading: value to preclude a constructive trust

Text: Gottsch contends that FNB's receipt of $29,364.97, paid by Phyllis Churchill and applied to satisfy the indebtedness of her overline loan, does not constitute value in a bona fide transaction which precludes a constructive trust. To support this contention, Gottsch relies on Meier v. Geldis, 148 Neb. 561, 28 N.W.2d 140 (1947), which involved an attempt by Augusta and Beulah Meier to have George Geldis declared trustee for Meiers' benefit concerning certain funds in Geldis' possession. One John Owens had induced Meiers to make various loans to third parties. However, Owens deposited Meiers' checks, which represented the loan proceeds, in his checking account. Owens then drew checks on his account, which contained the funds traceable to the Meier loans, and delivered the checks to Geldis, who applied the checks to Owens' antecedent debt to Geldis. In Meier, this court stated: Where property, as here, has been acquired by fraud, equity, at the suit of the injured parties, will impress a constructive trust upon such property in their favor and, in the event of a prior transfer by the wrongdoer, will trace the property, if possible, through whatever mutations and impress a trust thereon in the hands of a third person, unless he be a bona fide purchaser for value and without notice.... By his conduct in obtaining these funds Owens became a trustee thereof ex maleficio and the question arises whether the antecedent indebtedness of the defendant is such a consideration as to make him a bona fide purchaser for value. The record shows he had no notice either as to the source or nature of the funds with which he was paid. Id. at 565, 28 N.W.2d at 142. This court determined that Geldis was not a bona fide purchaser for value because of the principle that an antecedent debt is not such consideration as to have the consequence of cutting off the trust against the funds applied to the satisfaction of the debt, although the creditor acts in good faith and without notice but has not changed his position. Id. at 566, 28 N.W.2d at 143. Thus, Meiers obtained a constructive trust over the traceable funds in Geldis' possession. Gottsch urges this court to apply the Meier principle regarding antecedent debt and determine that FNB is not a bona fide purchaser for value. However, Meier v. Geldis, supra , was decided before Nebraska adopted the Uniform Commercial Code, which became effective in 1965. In Meier, Geldis became a holder of the checks. `Holder' means a person who is in possession of a document of title or an instrument or an investment security drawn, issued or indorsed to him or to his order or to bearer or in blank. Neb.U.C.C. § 1-201(20) (Reissue 1980). Under the U.C.C., a holder may cut off a constructive trust if the holder is not a bona fide purchaser for value, but, rather, a holder in due course. A holder in due course is a holder who takes an instrument for value, in good faith, and without notice that the instrument is overdue or has been dishonored or of any defense or claim against or claim to the instrument on the part of any person. Neb.U.C.C. § 3-302 (Reissue 1980). Furthermore, a holder takes the instrument for value ... when he takes the instrument in payment of or as security for an antecedent claim against any person whether or not the claim is due.... Neb.U.C.C. § 3-303 (Reissue 1980). If Meier v. Geldis had been decided after Nebraska adoption of the U.C.C., Geldis clearly would have been a holder in due course, since he gave value, acted in good faith, and did not have notice of the Meiers' claim. In Gottsch's case, the Bank of Stapleton became a holder when it received payment on the overline account from Phyllis Churchill on March 3 and October 27 of 1980. Accordingly, when the Bank of Stapleton negotiated an instrument to FNB for payment on the overline account, FNB became a holder entitled to protection from Gottsch's claim to proceeds from the sale of Churchills' South Dakota cattle provided that FNB qualifies as a holder in due course. FNB clearly received value, since Phyllis Churchill's checks of March 3 and October 27 were payments for an antecedent claim, namely, the balance due on her overline account with FNB. See § 3-303.