Bass v. SouthTrust Bank of Baldwin County

Decision Date13 January 1989
Citation538 So.2d 794
PartiesRobert O. BASS v. SOUTHTRUST BANK OF BALDWIN COUNTY. 87-706.
CourtAlabama Supreme Court

John W. Parker, Mobile, for appellant.

D. Charles Holtz of Wilkins, Druhan, Ollinger & Holtz, Mobile, for appellee.

MADDOX, Justice.

The central question presented by this appeal is whether summary judgment was The dispute involved is whether SouthTrust Bank, which had made a business loan to the debtor and other partners, properly took money from a deposit made by the debtor and applied it to pay the balance due on the note. Two basic questions are presented:

appropriate. In determining that question, we must apply the "substantial evidence" rule. Ala.Code 1975 § 12-21-12.

1) Did the debtor present substantial evidence to show that the bank was equitably estopped to make the set off?

2) Was the deposit of the debtor a "special" deposit and, therefore, not subject to set off?

FACTS

Plaintiff-appellant, Robert O. Bass, filed a complaint against SouthTrust Bank in which he claimed that the bank's taking of over $100,000 out of his checking account and applying it to a note he had executed was illegal. In separate counts, he claimed that the bank was equitably estopped; was guilty of fraud, breach of fiduciary duty, conversion, and breach of a covenant of good faith; and that the bank violated his constitutional rights of due process by failing to give advance notice that it was making the set off.

The bank answered the complaint and filed a motion for summary judgment, supported by evidence it claimed showed that it was entitled to a judgment as a matter of law. There is no substantial dispute between the parties on the basic facts; the main question is whether, as already stated, the doctrine of equitable estoppel should apply, and whether the deposit made by the debtor was a "special" deposit.

On October 15, 1982, Bass and several other persons borrowed $200,000 from SouthTrust to finance a restaurant in Mobile called Bob's Sea Ranch. The restaurant failed and, from time to time, SouthTrust agreed to refinance the balance of the loan. The outstanding indebtedness was reduced to the point that on October 29, 1985, the principal balance was $108,621.95, when Bass, Bobby J. Gilbert, and Billy G. Nippert executed the note that is the subject of this controversy. The bank, at that time, had in its files continuing personal guaranties of Virgil E. Morris, Gene Mills, and Louis Griffith. The aforenamed individuals and one or two others are or were members of a partnership behind the restaurant venture. The terms of the note evidencing the contract between Bass and the other two makers and SouthTrust show that the makers were jointly and severally liable.

Paragraph 2.B. of the note states:

"You promise to pay to us or our order the principal sum of One Hundred Eight Thousand Six Hundred Twenty-One & 95/100--Dollars ($108,621.95 ) together with interest on the unpaid balance of said sum at the rate of 11.49% per annum until maturity. You agree to pay said sum, the interest thereon, and credit life insurance premiums, if any, in 11 monthly payments of $2,230.18 each and 1 final payment of the unpaid balance of the principal sum, all accrued but unpaid interest thereon, and all other sums, if any, then due under this Note. The first payment is due on December 15, 1985, and another payment is due on the same day of each month thereafter under November 15, 1986, at which time the final payment will be due. We will apply your payments first to accrued interest, ... and then to the principal sum." (Emphasis indicates typed matter; remainder in printed form.)

Payments were received by the bank as follows:

                10/29/85  "  Note executed--$108,621.95
                11/27/85  "  $890.91 received
                12/15/85  "  FIRST INSTALLMENT DUE
                12/17/85  "  $1,339.27 received (k $890.91 = receipt of First installment)
                1/15/86   "  SECOND INSTALLMENT DUE
                1/16/86   "  $2,230.18 received (= Second installment)
                1/24/86   "  $380.91 received
                2/15/86   "  THIRD INSTALLMENT DUE
                2/20/86   "  $1,849.27 received (k $380.91 = Third installment)
                3/4/86    "  $380.91 received
                3/15/86   "  FOURTH INSTALLMENT DUE
                4/4/86    "  $1,305.47 received
                4/15/86   "  FIFTH INSTALLMENT DUE
                5/1/86    "  $543.72 received (k $380.91 k $1,305.47 = Fourth installment)
                5/15/86   "  SIXTH INSTALLMENT DUE
                5/16/86   "  $761.82 received
                5/20/86   "  $1,090.91 received
                5/29/86   "  $543.72 received (k $761.82 k $1,090.91 = Fifth installment and
                               $166.19 toward Sixth installment)
                6/15/86   "  SEVENTH INSTALLMENT DUE
                6/26/86   "  $1,090.91 received
                7/2/86    "  $973.00 received (k $166.19 k $1,090.91 = Sixth installment)
                7/15/86   "  EIGHTH INSTALLMENT DUE
                8/15/86   "  NINTH INSTALLMENT DUE
                9/5/86    "  $4,095.35 received (= Seventh installment and $1,865.09 toward
                               Eighth installment)
                9/15/86   "  TENTH INSTALLMENT DUE
                10/15/86  "  ELEVENTH INSTALLMENT DUE
                11/15/86  "  TWELFTH (BALLOON) PAYMENT DUE
                12/24/86  "  Loan charged off by bank
                1/2/87    "  $2,595.19 received (k $1,865.09 = Eighth and Ninth installments)
                

After the loan was charged off on the bank's books on December 24, 1986, the bank received two checks from persons other than Bass that would have equalled the balance of the eighth, and all of the ninth installments, if additional interest resulting from late payments was ignored. The bank argues that if one calculates the additional interest that accrued during the times when payments were substantially late, the per diem amount generally being around $32.00, and with payments being applied first to interest as specified in paragraph 2.B of the note, the total amount received prior to the charge-off was the amount necessary to cover only the first six installments and part of the seventh. There is no evidence that there was any effort made by Bass or any of the other obligors to have the balance of the note renewed.

Bass does not dispute the basic facts, but in an affidavit filed in opposition to the bank's motion for summary judgment, stated inter alia:

"Pursuant to this course of dealings by the defendant, SouthTrust Bank, the defendant as late as the latter part of December, 1986, accepted a payment of interest on the indebtedness due from the co-maker, namely Bobby J. Gilbert and represented through its officers and agents that the defendant, SouthTrust Bank, would work with myself and the other [sic] with whom they had been working for the past four years, all of whom comprise the initial partnership in continuing to reduce the principal and interest owed. These facts were made known to myself and based on these facts I believed and relied on the fact that the obligation was being serviced and that the defendant, SouthTrust Bank, would continue to work with myself and other [sic] in causing the reduction of the principal and interest owed."

When Bass, on January 5, 1987, made a $206,057.16 deposit to his personal account at SouthTrust, the deposit was noted on a computer printout, and a bank official noted it and determined that the deposit was made by Bass and that the bank had just previously charged off a loan made to him.

After discovering that the depositor and the obligor were one and the same, the bank made a decision to set off the Bass account for the balance of principal and The note contained these provisions:

interest due on the note, to-wit: $102,841.14. Bass was then notified by mail.

"6. Set-Off; Waiver of Exemptions. You hereby agree that if you are in default under this Note, we may set-off your indebtedness under this Note against any account which you have with us at that time ...." * * * *

"9. Waiver of Demand and Presentment. You agree that you will do everything you have agreed to do under this Note without requiring that we ask you to do it and without requiring that we first present this Note to " * * * *

"14. Our Rights are Cumulative; Waivers; Extensions. You agree that our rights under this Note, under any other agreements we may have with you, and under applicable law are cumulative, and that we will not by any act, delay, omission, or otherwise be deemed to have waived any of our rights or remedies under this Note or under any other agreement or under applicable law unless the waiver is in writing and signed by us. We may accept late payments and partial payments and may delay in enforcing our rights without losing any of our rights. We may take any additional collateral for or release any collateral for or fail to perfect our security interest in any collateral for this Note, and we may grant extensions, renewals or indulgences to you or to any other party obligated to pay this Note, all without releasing or in any way affecting your obligation on this Note." (Emphasis added except as to headings).

SUMMARY OF ARGUMENT

The bank summarizes its argument as follows:

"This is a summary judgment case decided under the new 'substantial evidence rule,' although the result would be the same under the 'scintilla rule' because there is not even a scintilla of evidence favoring Bass' position. Bass' affidavit is vague and ambiguous, and as such does not set forth 'specific facts' as required by Rule 56(e) of the Alabama Rules of Civil Procedure. There is no basis for estoppel to be applied against SouthTrust, especially because of the existence of paragraph 14 of the Note, which says that no waiver is effective unless it is in writing. Bass has stated no facts which would support his claim that his deposit was 'special' so as to preclude set-off. Even if it might otherwise be deemed to have been 'special,' SouthTrust cannot be deemed to have had notice of same. The mere size of the deposit, standing alone, is not notice that it might be 'special.' There is no evidence that the relationship between SouthTrust and Bass was anything other than a normal banking, i.e., creditor-debtor, relationship. The indebtedness was due on November 15, 1986, and unpaid until the set-off on January 8,...

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