## Facts

- Galyen Petroleum Company supplied fuel to Norman J. Hixson, who maintained a checking account at Commercial Bank of Bassett and owed the bank over $7,000 on promissory notes.
- The promissory notes granted the bank a “security interest” and “right of set-off” against Hixson’s deposit balances and allowed the bank, “at any time, without notice,” to apply deposits to the notes “whether due or not.”
- Hixson issued three checks payable to Galyen drawn on Commercial Bank: $3,763.25 (Oct. 1, 1975), $2,740.88 (Oct. 15, 1975), and $378.94 (Nov. 1, 1975).
- Each check was initially returned through normal banking channels for insufficient funds.
- On Nov. 12 and 13, 1975, Galyen personally presented the checks at the bank during banking hours; the bank refused payment and returned all three checks.
- The account reflected a credit balance of $3,048.46 at the close of business on Nov. 10, 1975; no activity on Nov. 11; and deposits of $209.27, $92.90, and $443.17 on Nov. 12.
- After Galyen’s presentment on Nov. 12, the bank made internal transfers from the account to Hixson’s note account in amounts of $1,006.75 and $2,700, leaving $87.05; the credited notes were not yet due and Hixson did not object.
- Galyen alleged the bank wrongfully refused payment when funds were available to pay at least part of the checks and unlawfully made the setoff.

## Issues

1. Whether a drawee bank may, under an express note provision, set off a depositor’s checking account to pay unmatured promissory notes, despite outstanding checks presented by a payee for payment.
2. Whether any genuine dispute of material fact about the bank’s handling of the account and setoff timing precluded summary judgment.

## Decision

- The Nebraska Supreme Court affirmed summary judgment for Commercial Bank.
- The court held the bank lawfully exercised its contractual setoff right against Hixson’s deposit account even though the notes were not yet due.
- The court held the bank owed no duty to Galyen, a noncustomer payee, to honor the checks before applying the setoff.
- The court found no genuine issue of material fact; the bank was entitled to judgment as a matter of law.

## Legal Principles

- An express agreement in promissory notes may authorize a bank to apply a depositor’s funds to the depositor’s debt “at any time” and “whether due or not,” including unmatured obligations, without notice.
- A drawee bank’s duty to honor checks runs to its depositor; absent a special agreement, the bank is not directly liable to a check payee for dishonor.
- When account records and loan documents establish the material facts and the bank’s authority to set off deposits is clear, summary judgment is proper.

## Conclusion

The court upheld the bank’s refusal to pay the payee-presented checks because the depositor had contractually granted the bank priority to apply deposit balances to unmatured notes, and the payee lacked a direct right to compel payment or recover from the drawee bank absent a special undertaking.


Galyen Petroleum Co. v. Hixson, 331 N.W.2d 1 (Neb. 1983)