Appliance Buyers Credit Corp. v. Prospect Nat. Bank of Peoria

• Decision Date: 24 May 1983
• Docket Number: No. 82-1808,82-1808
• Citation: 708 F.2d 290
• Parties: 36 UCC Rep.Serv. 231 APPLIANCE BUYERS CREDIT CORPORATION, Plaintiff-Appellant, v. PROSPECT NATIONAL BANK OF PEORIA, Defendant and Third Party Plaintiff-Appellee, and Federal Reserve Bank of Chicago, Third Party Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 290

708 F.2d 290

36 UCC Rep.Serv. 231

APPLIANCE BUYERS CREDIT CORPORATION, Plaintiff-Appellant, v. PROSPECT NATIONAL BANK OF PEORIA, Defendant and Third Party

Plaintiff-Appellee,

and

Federal Reserve Bank of Chicago, Third Party Defendant-Appellee.

No. 82-1808.

United States Court of Appeals,

Seventh Circuit.

Argued Dec. 1, 1982.

Decided May 24, 1983.

Robert D. Jackson, Westervelt, Johnson, Nicoll & Keller, Peoria, Ill., for plaintiff-appellant.

Charles G. Roth, Kavanagh, Scully, Sudow, White & Frederick, Peoria, Ill., for defendant and third party plaintiff-appellee.

Before CUDAHY, COFFEY, and TIMBERS, ^* Circuit Judges.

COFFEY, Circuit Judge.

This is an appeal from the district court's dismissal of the plaintiff's claim under section 4-212 of the Uniform Commercial Code on the grounds that the plaintiff failed to establish its damages. Affirmed.

The Appliance Buyers Credit Corporation, a Delaware corporation with its principal place of business in Michigan, is a finance company that provides wholesale "floor-plan financing" to appliance dealers. ¹ The corporation makes monthly inspections of participating dealers' inventory to determine whether the dealers are current in their finance payments to Appliance Buyers. During one of Appliance Buyers' monthly inspections of the Nevius Appliance & Furniture inventory it was determined that Nevius had failed to report the sale of certain merchandise to Appliance Buyers and owed $65,736.78. Immediately following the inspection on October 17, 1979 Nevius gave a check to the Appliance Buyers Credit Corporation representative in the amount of $55,736.78 and delivered a $10,000 check to the corporation the next day, October 18, 1979; both checks were drawn on the Corn Belt Bank of Bloomington, Illinois. Appliance Buyers Credit Corporation deposited these two checks on October 18, 1979 with the Prospect National Bank, and Prospect National credited Appliance Buyers' account with a provisional credit. Prospect National processed these two checks through the Chicago Federal Reserve Bank who in turn forwarded the checks to the drawee bank, the Corn Belt Bank of Bloomington. On October 22, 1979, the Corn Belt Bank dishonored the checks due to insufficient funds (NSF) and notified the Federal Reserve Bank of the dishonor by telephone that day. On the day following, October 23, 1979, the Federal Reserve Bank of Chicago notified Prospect National Bank of the dishonor, by telephone, and returned the dishonored checks to the Prospect National Bank by mail. Prospect National, upon receipt of the NSF checks on October 29, 1979, immediately revoked the provisional credit given to the Appliance Buyers' account and notified Appliance Buyers of the dishonor that same day (October 29th). Appliance Buyers received the dishonored checks through the regular mail on the day following, October 30, 1979, and on the next day, October 31, Nevius Appliance & Furniture filed a voluntary petition for bankruptcy. Appliance Buyers then brought suit to recover the $65,736.78.

The district court dismissed the plaintiff's claim under section 4-202 ² of the Uniform Commercial Code (Ill.Rev.Stat. ch. 26 Sec. 4-202) initially finding that Prospect National Bank was negligent in failing to notify the Appliance Buyers Credit Corporation of the dishonor of Nevius' checks by the October 24th midnight deadline, the day it received a telephone notification of the checks' dishonor. 505 F.Supp. 163. However, notwithstanding the fact that Prospect National was negligent in notifying Appliance Buyers of the dishonor, in its order the district court also found that Appliance Buyers failed to establish its damages and therefore was not entitled to recover:

"Because the plaintiff has not demonstrated that it had a reasonable chance to collect all or part of the amount of the checks, the amount plaintiff was actually damaged, if any, as a result of the bank's failure to exercise ordinary care in notification is pure speculation. The court will not indulge in such speculation. [Appliance Buyers] has not produced any evidence that if it had known of the dishonor on October 24, 1979, it might have had a reasonable chance to collect any part of the money represented by the checks that it can't recover in the bankruptcy proceeding. Because the court is unable to determine what an appropriate award of damages would be in this case, if any, none can be awarded." (Footnote and citations omitted).

The district court denied the Appliance Buyers Credit Corporation's motion to modify the above quoted court order regarding the corporation's failure to prove its damages:

"The court is not convinced, however, that Sec. 4-212 gives a depositor a complete and automatic windfall if the bank is late in notification of dishonor of deposited and provisionally-credited items, when it is not proved that such lateness made any financial difference to the depositor, or, if so, within reasonable limits, how much difference it made. The court is not willing to adjudicate such an inconsistency of consequences between two sections of the Uniform Commercial Code dealing with the same subject, especially in a case where plaintiff took large checks it had substantial reason to suspect might 'bounce,' and now seeks thereby to saddle its bank with liability thereon after its debtor's bankruptcy."

The plaintiff (Appliance Buyers Credit Corp.) appealed.

Appliance Buyers does not "seek review ... of the trial court's dismissal of [its] section 4-202 claim," recognizing that "the trier of fact's weighing of the evidence is not an appropriate subject for appellate review in this case." Because there is no challenge to the district court's application of section 4-202, the question in this case is one of first impression: is a bank strictly liable as the plaintiff contends for the face value of a check under section 4-212 of the Uniform Commercial Code if, after failing to give the depositor timely notice of the check's dishonor, the bank charges back the depositor's account?

Appliance Buyers Credit Corp. asserts that section 4-212 makes a bank liable for the face value of a check when the bank breaches its duty to give a depositor timely notice of the check's dishonor, as under section 4-212 timely notice of dishonor is a pre-condition to the bank's right to charge-back. While it is clear that the drafters of section 4-212 of the Uniform Commercial Code intended to condition a bank's right to charge-back upon the giving of timely notice of dishonor, section 4-212 fails to set forth language holding a bank "accountable" for the face value of a dishonored check if and when the bank fails to give timely notice of dishonor.

Ill.Rev.Stat. ch. 26 Sec. 4-212 provides:

"(1) If a collecting bank has made provisional settlement with its customer for an item and itself fails by reason of dishonor, suspension of payments by a bank or otherwise to receive a settlement for the item which is or becomes final, the bank may revoke the settlement given by it, charge back the amount of any credit given for the item to its customer's account or obtain refund from its customer whether or not it is able to return the items if by its midnight deadline or within a longer reasonable time after it learns the facts it returns the item or sends notification of the facts. These rights to revoke, charge back and obtain refund terminate if and when a settlement for the item received by the bank is or becomes final (subsection (3) of section 4-211 and subsections (2) and (3) of section 4-213)."

A reading of section 4-212 reveals that while the section conditions a bank's right to "charge-back" on a timely notice of dishonor, it is silent on the measure of damages a depositor can recover, if any, when the bank breaches its duty of giving a timely notice of dishonor and still charges back the provisionally credited check. In its brief, Appliance Buyers contends that the bank should be held strictly liable for the face value of the dishonored check and for any other damages arising out of the bank's improper charge-back. The plaintiff has failed to supply the court and we have been unable to find any legal support either in the Uniform Commercial Code or case law for Appliance Buyers' unique contention that banks should be held strictly liable for the face value of dishonored checks under section 4-212. For example, certain sections of the Uniform Commercial Code such as 4-302(a), 4-213(1)(d) and 4-213(3) do impose liability on a bank for the face value of items in given situations, but we have found no similar obligation under section 4-212. The specific language of sections 4-302(a), 4-213(1)(d) and 4-213(3) holds the bank "accountable for the amount of" the item in question. Cases construing these sections hold that the term "accountable" is "the operative term ... which imposes liability for the face amount of a check ...." Colorado National Bank v. First National Bank & Trust Co., 459 F.Supp. 1366, 1372 (W.D.Mich.1978). Section 4-212 does not contain the "operative term" holding a bank "accountable" for the face value of a check if the bank improperly charges back the amount of a provisional credit against the depositor's account. It is obvious that if the drafters of the Uniform Commercial Code had intended to make a bank liable for the face value of a check under section 4-212, they would have held the bank "accountable" in specific language for the face amount of the check as they have under other Code sections. Because section 4-212 does not contain any language holding a bank "accountable" for the face value of a dishonored check, nor has our independent research uncovered any case law holding a bank "accountable" under section 4-212, we hold that the drafters of section 4-212 did not intend to impose absolute liability on a bank if the bank charged back a dishonored check against the depositor's account after failing to give the depositor timely notice of...