Central Bank of Alabama, N.A. v. Peoples Nat. Bank of Huntsville

• Decision Date: 28 May 1981
• Citation: 31 UCC Rep. 1428,401 So.2d 14
• Parties: , 31 UCC Rep.Serv. 1428 CENTRAL BANK OF ALABAMA, N. A. v. PEOPLES NATIONAL BANK OF HUNTSVILLE. 79-432.
• Court: Alabama Supreme Court

Page 14

401 So.2d 14

22 A.L.R.4th 1, 31 UCC Rep.Serv. 1428

CENTRAL BANK OF ALABAMA, N. A. v. PEOPLES NATIONAL BANK OF HUNTSVILLE.

79-432.

Supreme Court of Alabama.

May 28, 1981.

Rehearing Denied July 2, 1981.

John M. Heacock, Jr. of Lanier, Shaver & Herring, Huntsville, for appellant.

Paul L. Millirons of Stephens, Millirons, Harrison & Walker, Huntsville, for appellee.

EMBRY, Justice.

This appeal is from a judgment in favor of plaintiff Peoples National Bank of Huntsville and against defendant Central Bank of Alabama, N. A. in an action asserting that Central was liable to Peoples in the amount of $82,000 on account of the payment to Beth B. White of that amount when a worthless check drawn upon her account at Central was accepted by Peoples.

Peoples originally asserted two theories of recovery. By stipulation the parties agreed that the sole issue for determination by the trial court was the "midnight deadline" theory. Simply stated, that theory makes the depository or payor bank liable to pay the forwarding bank the amount of a check if, after presentment and receipt, the check is not returned by the midnight deadline. Midnight deadline is defined in Code 1975, § 7-4-104:

(h) 'midnight deadline' with respect to a bank is midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later;

No contention is made by either of the parties that any of the transactions pertinent to this case took place on any day other than a "banking day."

The parties in brief and in oral argument treat what they regard to be three issues. In fact, resolution of this case under the midnight deadline theory is determinative of this appeal and no other issue need be discussed or resolved.

Peoples contends that under the midnight deadline theory Central was correctly found liable because Central failed to comply with Code 1975, § 7-4-302:

... (I)f an item is presented on and received by a payor bank the bank is accountable for the amount of:

(a) A demand item other than a documentary draft whether properly payable or not if the bank, is any case where it is not also the depositary bank, retains the item beyond midnight of the banking day of receipt without settling for it or, regardless of whether it is also the depositary, does not pay or return the item or send notice of dishonor until after its midnight deadline ...."

On the other hand, Central says the trial court's judgment is erroneous because, under the facts of this case, Central complied with the provisions of Code 1975, § 7-4-301:

(1) Where an authorized settlement for a demand item (other than a documentary draft) received by a payor bank otherwise than for immediate payment over the counter has been made before midnight of the banking day or receipt the payor bank may revoke the settlement and recover any payment if before it has made final payment (subsection (1) of § 7-4-213) and before its midnight deadline it:

(a) Returns the item; or

(b) Sends written notice of dishonor or nonpayment if the item is held for protest or is otherwise unavailable for return.

(4) An item is returned:

(a) As to an item received through a clearing house, when it is delivered to the presenting or last collecting bank or the clearing house or is sent or delivered in accordance with its rules; or

(b) In all other cases, when it is sent or delivered to the bank's customer or transferor or pursuant to his instructions.

The following is a summary of the pertinent facts included in the trial court's findings of fact made after a nonjury trial. They are amply supported by the evidence. On 18 September 1978, Mrs. Beth B. White presented the check, the subject of this litigation, to the Dunnavant's Mall Branch of Peoples National Bank of Huntsville. She was the maker of the check which was drawn on her account at the Florence branch of Central Bank. Peoples paid her the proceeds of the check and then forwarded it with a cash letter to the Federal Reserve Bank in Birmingham, which is a clearing house for the litigant banks. According to standard procedure, the Federal Reserve Bank made a provisional credit to Peoples' account and simultaneously debited the account of Central at Florence. Both actions occurred on 20 September 1978. The check arrived at Central Bank's designated place of presentment at the Decatur Data Processing Center on 20 September 1978. This is also known as Central Computer Center, Inc. On that same date, when the check was received by that center it was stamped "processed" and debited against Mrs. White's account. That center performed the basic bookkeeping and data processing functions for the various branches of Central, including that at Florence, as well as substantially all the accounting functions of the Florence branch. However, the Florence branch did check for forgeries and make the final decision whether an item should be returned or not. On 21 September 1978, the check was delivered to the Florence branch of Central where it was determined that the endorsement of the payee, her son, was a forgery and the credit balance in Mrs. White's account was conditional and based upon "uncollected funds."

Uncollected funds are funds posted in an account based upon checks payable by, but not collected from, various other banks upon which the deposited checks were drawn. On 22 September 1978, a courier of Central took the check in question to Peoples in Huntsville. The check was returned to Central at Florence by the same courier on that same day. On 23 September 1978, Central at Florence deposited the check with the courier service for the Birmingham Federal Reserve. It was received by the latter on 25 September 1978. To return the subject check through the Birmingham Federal Reserve, acting as a clearing house, all required is that the check with a cash letter be deposited in the Federal Reserve courier service depository. Such could have been accomplished on the 22nd of September after the return of the courier from Huntsville. The check was returned by the Federal Reserve directly to Peoples after debiting Peoples reserve account in the amount of $82,000. Regulation "J," CFR 210.12, is controlling in cases where items are forwarded through the Federal Reserve System. Among other things, it provides that a paying bank shall have the right to recover payment or remittance if it "... takes such other action to recover such payment or remittance within such time and by such means as provided by applicable state law ...." The applicable state law is Code 1975, § 7-4-301.

As we can see from these facts, there was an attempt to make a direct return of the check and also an attempt to return it through a clearing house; ¹ each after midnight of 21 September 1978.

The pivotal determination to be made in this case is the time when the midnight deadline began to run on Central. The trial court did not reach the issue of when Central's midnight deadline began to run. Central contends the deadline did not begin to run until the check arrived at its Florence branch on 21 September 1978. Central says that because the trial court failed to decide the issue of when Central's midnight deadline began to run, whether upon arrival of the check at the computer center or at the Florence branch, that in the event of a reversal of the trial court upon the first two issues, as stated by it, this case should be remanded for an initial determination of the third issue by the trial court. The trial court stated those issues as follows:

1. Did the defendant abort its return of the subject item prior to effective delivery of the same on September 22, 1978?

2. Is Code of Alabama 1975 § 7-4-106 applicable to presenting banks as well as to payor bank? An answer to this question is determinative as to whether or not a delivery to The Madison Street Branch of the plaintiff was an effective return to the presenting bank.

3. Is a computer center, which is the designated place of presentment, and which performs all the basic bookkeeping functions for a bank or a branch thereof a 'separate bank' under § 7-4-106, supra. An answer to this question is determinative as to whether the time for the midnight deadline began to run on September 20, 1978 or September 21, 1978.

It appears that a determination of any one of the stated issues favorable to the plaintiff would be determinative of this cause.

We cannot agree, because the trial court, though assigning erroneous reasons, arrived at the correct result in this case; therefore, its judgment is due to be affirmed. City of Montgomery v. Couturier, 373 So.2d 625 (Ala.1979); International Resorts, Inc. v. Lambert, 350 So.2d 391 (Ala.1977); City of Birmingham, a Municipal Corp. v. Community Fire District, a Public Corp., 336 So.2d 502 (Ala.1976). We have no difficulty in making the determination about the beginning of the running of the midnight deadline. Peoples relies heavily, and rightfully so, on the case of Farmers and Merchants Bank of Long Beach v. Bank of America National Trust and Savings Association, 98 Cal.Rptr. 381, 20 Cal.App.3d 939 (1971). Appellant contends that its Florence branch was a separate bank as defined by Code 1975, § 7-4-106:

§ 7-4-106. Separate office of a bank.

A branch or separate office of a bank is a separate bank for the purpose of computing the time within which and determining the place at or to which action may be taken or notices or orders shall be given under this article and under article 3.

That being true, Central says, then of necessity, its midnight deadline did not begin to run until the check arrived at its Florence branch. We agree that the Florence branch is a separate bank for purposes of § 7-4-106. However, we cannot agree that the midnight deadline did not begin to run until the...