Here, the bankruptcy debtor was employed by the First Heritage National Bank.

Prior to debtor’s employment at First Heritage, he was employed at an affiliated bank as a loan officer, supervised employees, approved customer checks and generally managed the day-to-day business of the bank.

The debtor-employee borrowed money from First Heritage on several occasions.  Although all of the loans were initially approved by the Board of Directors, the debtor continued to borrow from the bank on a “line of credit” without obtaining any further approval.

As a consequence, Ohio Casualty Insurance Company, who issued the bond for this employee’s actions, paid out more than $26,000.00 on the bond to the bank for the unauthorized loans.

Ohio Casualty filed a complaint with the Bankruptcy Court for those monies and First Heritage filed a complaint for additional money owed to it on the debtor’s loans.

The Court ruled in favor of both the bank and the bonding company based upon the fact that the debtor had taken additional advances on the line of credit without further approval by the bank.

In addition, the Court found that the debtor’s actions were tantamount to embezzlement.

The debtor cannot, therefore, discharge his debts to the bank or the bond company. First Heritage Nat’l Bank and Ohio Casualty Insurance Company v. Larry Fagan (Bkrtcy. N.D. Okl., Case Nos. 90-02708-C; 90-0363-C; and 90-0366-C).

Author: Charles R. Harroun, Attorney at Law