CSX TRANSPORTATION, INC. v. FIRST NATIONAL BANK OF GRAYSON
Annotate this Case
Download PDF
RENDERED:
November 19, 1999; 10:00 a.m.
TO BE PUBLISHED
MODIFIED: February 11, 2000; 2:00 p.m.
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1998-CA-000694-MR
CSX TRANSPORTATION, INC.
APPELLANT
APPEAL FROM BOYD CIRCUIT COURT
HONORABLE KELLEY ASBURY, JUDGE
ACTION NO. 96-CI-00455
v.
FIRST NATIONAL BANK OF GRAYSON
APPELLEE
OPINION
AFFIRMING IN PART AND REVERSING IN PART
* * * * * * * * * *
BEFORE:
GUDGEL, Chief Judge; BUCKINGHAM, and KNOX, Judges.
BUCKINGHAM, JUDGE.
CSX Transportation, Inc., (“CSXT”) appeals
from a judgment of the Boyd Circuit Court in favor of First
National Bank of Grayson (“FNB”) in the principal sum of
$192,562.92, which includes an amount of $52,166.35 for attorney
fees.
The issues in the case involve whether Custom
Transportation, Inc., (“CTI”) was CSXT’s agent for purposes of
receiving a notice of assignment of accounts receivable and
whether the award of attorney fees was proper.
Agreeing with
CSXT on the attorney fees issue but disagreeing on the agency
issue, we affirm in part and reverse in part.
CSXT and Bailey Trucking, Inc., contracted with each
other for a number of years for Bailey Trucking to transport
items for CSXT.
In 1995, CSXT decided to obtain bids from
various companies and to have the successful bidder manage CSXT’s
motor carrier operations.
CTI was the successful bidder, and
CSXT entered into a contract with CTI in January 1996 whereby CTI
would manage CSXT’s trucking operations.
That contract contained
a provision defining CTI’s status in this manner:
Independent Contractor Status. The only
relationship created by this Agreement shall
be that of CTI being an independent
contractor to CSXT. No agent, employee or
servant of CTI shall be or shall be deemed to
be the employee, agent or servant of CSXT.
None of the benefits provided by CSXT to its
employees, shall be available from CSXT to
the employees, agents or servants of CTI.
The contract also specified how CTI was to manage the trucking
operations, directed that CSXT was to provide CTI with office
space at CSXT’s facilities in Jacksonville, Florida, and stated
that CSXT retained sole responsibility for paying all carriers
directly.
CTI in turn entered into a motor carriage contract
with Bailey Trucking.
This contract contained a provision which
noted that CSXT would pay Bailey Trucking within thirty days of
its receipt of a complete and accurate billing.
Before the CSXT/CTI contract, Bailey Trucking had a
banking arrangement with National City Bank (“NCB”) whereby
Bailey Trucking was granted a revolving line of credit loan with
a maximum credit limit of $175,000.
This loan was secured by an
assignment of Bailey Trucking’s accounts receivable from CSXT.
The loan agreement had a maturity date of December 31, 1995.
-2-
During the latter part of 1995, NCB became dissatisfied
with the performance of Bailey Trucking’s loan.
NCB made a
decision not to renew the note based on the lack of payment
history, concern about Bailey Trucking’s business, and the fact
that the haulage contract with CSXT was not yet in place for
1996.
In January 1996, FNB loaned money to members of the
Bailey family, secured by an interest in the accounts receivable
of Bailey Trucking.
A notice of assignment dated February 16,
1996, giving notice that Bailey Trucking had assigned amounts due
under the CTI/Bailey contract to FNB, was sent by FNB to CTI.
The notice was received by Marshall Beene, the individual at CTI
who administered and approved the contracts and invoices for
services pursuant to haulage contracts with carriers such as
Bailey Trucking.
FNB did not send notice of its security
interest in Bailey Trucking’s accounts receivable to CSXT.
At
the time Bailey Trucking pledged its accounts receivables to
secure the FNB loans, amounts were still owed to NCB.
The two
banks understood, however, that the security interest of NCB in
the accounts receivable owed by CSXT to Bailey Trucking would
take precedence over FNB’s security interest.
On February 19, 1996, without the knowledge of NCB or
FNB, one of the owner/operators of Bailey Trucking faxed a letter
to CSXT directing that all payments to Bailey Trucking be made to
a bank account in the name of Flossie Bailey at a bank other than
NCB or FNB.
When the banks became aware that CSXT was making
payments to the Flossie Bailey account rather than in accordance
-3-
with the assignments, the banks again notified Beene of the
assignments and requested an explanation.
Although CSXT
eventually began escrowing payments to Bailey Trucking, it paid
more than $421,000 directly to Bailey Trucking after it received
notice from NCB and FNB in the letters sent by the banks.
NCB subsequently filed a complaint in the Boyd Circuit
Court against Bailey Trucking, its owners, and CSXT.
As to CSXT,
NCB’s complaint alleged that CSXT was liable to NCB as a result
of its failure to pay money owed to Bailey Trucking to NCB
pursuant to the assignment of accounts receivable.
FNB’s
intervening complaint made a similar allegation against CSXT.
Pursuant to CSXT’s motion and an order of the court, money held
by CSXT in an escrow account was paid to NCB and to FNB.
The
amount paid to NCB was sufficient to pay Bailey Trucking’s
indebtedness to NCB.
The remaining amount which was paid to FNB
was not sufficient to cover Bailey Trucking’s indebtedness at
that bank.
At the trial, FNB sought to recover from CSXT the
remaining balance owed on Bailey Trucking’s indebtedness at that
bank.
CSXT denied liability on the ground that it did not
receive notice of the assignment of accounts receivable.
At the
conclusion of all evidence, the trial court granted FNB’s motion
for a directed verdict against CSXT, holding that Marshall Beene
was an agent of CTI, CTI was an agent of CSXT, and notice given
to Beene was notice to CSXT of the assignment of accounts
receivable.
Judgment was then entered in favor of FNB for
-4-
$192,562.92, which includes $52,166.35 for attorney fees.
This
appeal by CSXT followed.
Kentucky Revised Statute (KRS) 355.9-318(3), the
applicable statutory provision in this case, provides in relevant
part that “[t]he account debtor is authorized to pay the assignor
until the account debtor receives notification that the amount
due or to become due has been assigned and that payment is to be
made to the assignee.”
It follows, therefore, that once the
account debtor (CSXT) receives notification that the accounts
receivable have been assigned to the assignee (NCB and FNB), then
the account debtor is obligated to pay the assignee rather than
the assignor (Bailey Trucking).
In the case sub judice, FNB sent
notification to CTI that it had been assigned the accounts
receivable of Bailey Trucking and that CSXT, as the account
debtor, should make future payments to FNB.
The main issue in
this case is whether notification to CTI was sufficient to
constitute notice to CSXT of the assignment of the accounts
receivable so as to obligate CSXT to pay the account debt
directly to FNB.
The resolution of this issue lies with the
determination of whether CTI was an agent of CSXT.
The trial court granted FNB’s motion for a directed
verdict and determined that CTI was CSXT’s agent.
“Agency is a
legal conclusion to be reached only after analyzing the relevant
facts . . . .”
1995).
Thomas v. Hodge, 897 F.Supp. 980, 982 (W.D. Ky.
“Where the facts are in dispute and the evidence is
contradictory or conflicting, the question of agency, like other
questions of fact, is to be determined by a jury.
-5-
However, where
the facts are undisputed, the question becomes one of law for the
court.”
Wolford v. Scott Nickels Bus Co., Ky., 257 S.W.2d 594,
595 (1953).
As the facts surrounding the relationship between
CSXT and CTI are undisputed, the trial court properly made the
determination of the issue of agency rather than to submit the
question to the jury.
“Agency is the fiduciary relation which results from
the manifestation of consent by one person to another that the
other shall act on his behalf and subject to his control, and
consent by the other so to act.”
S.W.2d 317, 319 (1962).
McAlister v. Whitford, Ky., 365
CSXT argues that CTI was not its agent
because, according to its contract with CTI, CTI was an
independent contractor of CSXT.
However, “in determining whether
one is an agent or servant or an independent contractor,
substance prevails over form, and . . . the main dispositive
criterion is whether it is understood that the alleged principal
or master has the right to control the details of the work.”
United Engineers and Constructors, Inc. v. Branham, Ky., 550
S.W.2d 540, 543 (1977).
“Under Kentucky law, the right to
control is considered the most critical element in determining
whether an agency relationship exists.”
Grant v. Bill Walker
Pontiac-GMC, Inc., 523 F.2d 1301, 1305 (6th Cir. 1975).
We conclude it was clear from the evidence that CSXT
controlled CTI.
Although CSXT purported in its contract with CTI
to decline control over the manner in which CTI performed
services under the contract, the record indicates CSXT’s
extensive control.
CSXT trained Beene for the exclusive purpose
-6-
of taking over CTI so that CTI could manage CSXT’s trucking
operations.
Furthermore, CSXT controlled the contract process
between CTI and the carriers.
CSXT insisted on certain language
being placed into the motor carrier contract between CTI and
Bailey Trucking.
Another example which demonstrates CSXT’s
supervision and control over CTI was the series of three letters
sent by CTI to Bailey Trucking at the direction of CSXT and its
legal department which drastically altered Bailey Trucking’s
status with CSXT/CTI.
Throughout the entire process, CSXT
controlled CTI’s ability to contract, its operational conduct,
and the details of whether or not Bailey Trucking would provide
services through CTI.
CTI’s attempt to mask the agency
relationship with an independent contractor label fails as a
result of the ongoing control exerted by CSXT over CTI in the
management of CSXT’s trucking operations.
Having determined that an agency relationship exists,
we must determine the nature of the agency and whether Beene’s
receiving notice of assignment of accounts receivable was within
the scope of the agency.
agent’s authority.
This depends upon the extent of the
The parties agree that there was no actual
authority pursuant to an express agency.
That, however, does not
preclude a finding of actual authority under an implied agency if
such can be deduced from the surrounding facts of the case.
CSXT specifically sent CTI out to locate and contract
with carriers such as Bailey Trucking.
CSXT knew that CTI would
contract with carriers and would include terms in the motor
carriage contracts which purported to bind CSXT.
-7-
Beene testified
that CSXT had stipulations that it wanted included in CTI’s motor
carriage contracts.
One of the provisions contained in CTI’s
contract with Bailey Trucking states that
16.
NOTICE. All notices shall be in writing and
extended first class U.S. mail or by overnight
express carrier. Until otherwise advised, all
notices shall be sent to the parties at the
following address:
To Carrier:
To CTI:
Ms. Jane West
E.G. Bailey Trucking,
Inc., H.C. 60, Box 220
Greenup, KY 41144
Attn: Marshall Beene
Customized Transportation, Inc.
10407 Centurion Parkway, No
Jacksonville, FL 32256
Given CTI’s authority to contract on behalf of CSXT and
CSXT’s control of the language utilized in the contract, it is
obvious that CTI was an agent for the purposes of binding CSXT in
the contract with Bailey Trucking.
Moreover, the language of
CTI’s contract with Bailey Trucking emphasizes this construction.
Specifically, CTI’s contract with Bailey Trucking states that CTI
undertook the contract “on behalf of itself and its affiliated
companies, consisting of CSX Corporation and its subsidiary
companies, including CSX Transportation” and that “CTI is acting
on behalf of its affiliate CSXT.”
Beene confirmed this at trial
by testifying that CTI’s contract with Bailey Trucking often
stated “CTI/CSXT” “so [the carrier] would understand who the
contract was with.”
The foregoing establishes that CTI was contracting on
behalf of itself and CSXT, intending to bind and benefit both CTI
and CSXT in an agreement with Bailey Trucking.
Because CSXT held
CTI out and intended for CTI to act as manager of CSXT’s trucking
operations, to be authorized to manage the day-to-day operations,
-8-
to contract with carriers, and to accept and filter
communications from carriers with regard to accounts receivable,
CTI was clearly a general agent for CSXT.
As general agent, CTI
had the authority to accept a notice of assignment concerning
CSXT’s accounts receivable, and FNB’s notice to Beene at CTI
constituted notice to CSXT which triggered CSXT’s duty to remit
payments to FNB.
An agency relationship between CSXT and CTI based on
the theory of apparent authority is likewise evident.
“An
apparent or ostensible agent is one whom the principal, either
intentionally or by want of ordinary care, induces third persons
to believe to be his agent, although he has not, either expressly
or by implication, conferred authority upon him.”
Middleton v.
Frances, 257 Ky. 42, 44, 77 S.W.2d 425 (1934). CTI had been given
general authority to act and manage a trucking operation on
behalf of CSXT without any apparent limitation.
Beene testified
that he had met with Willis Kelly from FNB with regard to Bailey
Trucking.
Beene admitted that he neither told Kelly nor notified
anyone at FNB that he was not the proper person to contact
concerning CSXT’s accounts with Bailey Trucking.
In fact, Beene
testified that he sent a note to FNB which purported to account
for the amounts which were due and owing to Bailey Trucking and
listed the approximate dates when those payments would be made.
Further, Beene’s note to FNB regarding Bailey Trucking’s accounts
receivable specifically stated that if FNB had any questions, it
should call him.
Because FNB had contacted Beene, who engaged in
the discussion of Bailey Trucking’s accounts receivable without
-9-
any disclaimer, FNB was justified in relying on Beene’s apparent
authority to handle letters and notices regarding those accounts.
CSXT attempts to find a safe harbor by arguing that
apparent authority may be created only by the representation or
conduct of the principal, not of the agent.
Enzweiler v.
People’s Deposit Bank of Burlington, Ky. App., 742 S.W.2d 569,
570 (1987).
CSXT argues that it was never in contact with FNB
and, therefore, could never have given FNB any indication that
CTI had authority to act on CSXT’s behalf.
Unlike the facts in
Enzweiler, the undisputed facts herein show that CSXT made
representations through its words and conduct that CTI, and
therefore, Beene, was its agent.
Furthermore, CSXT attempts to minimize CTI’s authority
regarding CSXT’s indebtedness by arguing that only CSXT could
make the payments to Bailey Trucking and other carriers.
In
short, CSXT tries to limit the ability of Beene to receive notice
by citing his inability to have actually directed payment of the
funds.
While Beene and CTI did not have the ability to pay the
accounts, they received, reviewed, approved, and forwarded all
statements and invoices from carriers to CSXT.
CSXT clearly
allowed Beene to act on its behalf with regard to bills from its
carriers and to appear to be the contact regarding these
accounts.
CTI, and therefore Beene, was an agent of CSXT for all
purposes regarding CSXT’s accounts receivable.
Finally, CSXT is prevented from denying CTI’s agency
relationship through estoppel.
“A party may be estopped to
insist upon a claim or take a position which is inconsistent with
-10-
an admission or denial of a fact which he has previously made or
with a course of conduct in reliance upon which the other party
changed his position to his detriment or prejudice.”
Combs, 311 Ky. 149, 152, 223 S.W.2d 379 (1949).
Hicks v.
CSXT allowed CTI
and Beene to hold themselves out as having authority to act on
CSXT’s behalf.
In short, we conclude that the trial court did
not err when it granted a directed verdict in favor of FNB on the
ground that CTI was an agent of CSXT and that notice of the
assignment of Bailey Trucking’s accounts receivable given to
Beene constituted notice to CSXT.
CSXT also contends that the trial court erred in
granting FNB’s recovery of attorney fees as damages from CSXT.
“As a general rule, in the absence of contractual or statutory
liability, attorney’s fees are not recoverable as an item of
damages.”
Lyon v. Whitsell, Ky., 245 S.W.2d 926 (1951).
FNB
states that the notes given to it by Bailey Trucking specifically
provide for reasonable attorney fees in the collection of FNB’s
collateral.
KRS 411.195 states that
[a]ny provisions in a writing which create a
debt, or create a lien on real property,
requiring the debtor, obligor, lienor or
mortgagor to pay reasonable attorney fees
incurred by the creditor, obligee or
lienholder in the event of default, shall be
enforceable, provided, however, such fees
shall only be allowed to the extent actually
paid or agreed to be paid, and shall not be
allowed to a salaried employee of such
creditor, obligor or lienholder.
This statute, however, applies only to the parties to the
writing.
Farmers Bank & Trust Co. v. Brazell, Ky. App., 902
S.W.2d 830, 833 (1995).
-11-
FNB characterizes this situation as a wrongful payment
of collateral and contends that its attorney fees were part of
the recovery of the collateral and were not separate damages.
FNB cites no authority to support its position, and this court
has held to the contrary.
S.W.2d 753, 756 (1985).
See Ranier v. Gilford, Ky. App., 688
As there was neither contractual nor
statutory authority for an award of attorney fees, we conclude
that the trial court erred in this regard.
The judgment of the Boyd Circuit Court is affirmed in
part and is reversed in part due to the attorney fees of FNB not
being recoverable.
ALL CONCUR.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEE:
Janet Smith Holbrook
Ashland, KY
James H. Moore, III
Ashland, KY
-12-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.