Chute v. Bank One of Akron, N.A.

• Decision Date: 15 June 1983
• Citation: 10 Ohio App.3d 122,460 N.E.2d 720
• Court: Ohio Court of Appeals
• Parties: , 10 O.B.R. 147, 38 UCC Rep.Serv. 949 CHUTE, d.b.a. Golden Years Antique & Coin Shop, Appellee, v. BANK ONE OF AKRON, N.A., f.k.a. the Firestone Bank, Appellant et al.

Page 122

10 Ohio App.3d 122

460 N.E.2d 720, 10 O.B.R. 147, 38 UCC Rep.Serv. 949

CHUTE, d.b.a. Golden Years Antique & Coin Shop, Appellee, v. BANK ONE OF AKRON, N.A., f.k.a. the Firestone Bank, Appellant et al.

Court of Appeals of Ohio, Ninth District, Summit County.

June 15, 1983.

Syllabus by the Court

1. A check which creates an overdraft, but is otherwise properly payable, is still properly payable. (R.C. 1304.24[A].)

2. Where a bank customer brings an action against the bank for payment contrary to a binding stop payment order, the customer, pursuant to R.C. 1304.26(C), has the burden of proving "the fact and amount of loss." In establishing the existence or absence of actual loss the customer must show some loss other than the mere debiting of the customer's account.

Thomas R. Pitts, Akron, for appellee.

Ronald N. Towne and Sheryl S. Kantz, Akron, for appellant.

MAHONEY, Judge.

This appeal is taken from an order enjoining the Firestone Bank, n.k.a. Bank One of Akron ("bank"), from freezing the accounts of plaintiff-appellee, David Chute, and awarding Chute $28 in damages. We reverse.

Facts

This suit was brought in the trial court as an action for fraud by David Chute, d.b.a. Golden Years Antique & Coin Shop ("Chute"), against James Everhart and Sidney Perry. The bank was also named as a defendant wherein Chute requested an injunction preventing the bank from charging Chute's accounts to recover the amount the bank had improperly paid out over a stop payment order on a check and to recover damages which resulted from the bank's improper payment.

The alleged fraud occurred during a transaction involving the sale of metal rods. Everhart and Perry presented Chute with a bundle of rods which were marked "gold dental rods." Chute tested the rods to determine whether they were, in fact, gold rods. Everhart and Perry subsequently presented him with additional rods. On September 17, 1980, Everhart and Perry returned to Chute's place of business with the final bundle of rods. The trial court found that as a result of the transaction, Chute received approximately three pounds of metal rods which had been tested as being gold and Everhart and Perry received a check for $4,000 drawn on Chute's account with the bank.

Everhart and Perry made several attempts to cash Chute's check on September 17, but were refused as the checking account had insufficient funds. On the following day they took the check to the Main Street branch of the bank where the teller cashed the check.

The record indicates that Chute placed an oral stop payment order on his checking account on the afternoon of September 17. The trial court found that the bank had made an improper payment over a valid stop payment order. The trial court ordered that the bank be enjoined from further freezing Chute's accounts and awarded him $28 in damages. The trial court rendered judgment in favor of Everhart and Perry on the issue of fraud. No appeal has been taken from that determination.

Discussion--Third Assignment of Error

"The finding of the trial court that the oral stop payment order was a valid stop payment order is contrary to the manifest weight of the evidence."

The bank asserts that the stop payment order was invalid on two grounds: first, the item was not properly payable because there were insufficient funds in the checking account; and second, the order was not made so as to give the bank a reasonable time within which to act.

The record indicates that at the time the check for $4,000 was drawn the balance in Chute's account was $287.65. The check, when drawn, created an overdraft. A check which creates an overdraft, but is otherwise properly payable, is still properly payable. R.C. 1304.24 states, in part, that:

"(A) As against its customer, a bank may charge against his account any item which is otherwise properly payable from that account even though the charge creates an overdraft."

The check was not rendered invalid by virtue of the fact that it created an overdraft. A bank may pay a check even though it creates an overdraft and charge the customer's account. White & Summers, Uniform Commercial Code (1980) 657, 661, Section 17-3. The payment of an overdraft by a bank is in the nature of a loan to the customer premised upon the condition of repayment.

The bank further alleges that the stop payment order was not placed on the account so as to give the bank a reasonable opportunity to act. The record indicates that the check was issued on September 17, 1980. Chute placed an oral stop payment order on his account at approximately 1:15 p.m. on September 17 by telephone to the Springfield branch of the bank located on Canton Road. The order identified the maker, the amount of the check, the check number and the account number. The check was cashed at the Main Street branch of the bank on September 18, 1980.

The trial court found that the bank had a reasonable opportunity within which to honor the stop payment order. Bank personnel testified that a stop payment order can be placed on an account by direction to the computer within a short time after the order is initially received. Once the order has been placed on the computer, the information is immediately available to all other branches of the bank. The record further indicates that the teller who cashed the check on September 18 did not check the computer to determine the status of Chute's account.

Based upon the record before us, we find there was substantial credible evidence to support the trial court's finding that a valid stop payment order had been placed on Chute's account prior to the time the check was cashed. Accordingly, the third assignment of error is not well-taken.

Discussion--First and Second Assignments of Error

"1. The trial court erred as a matter of law in not subrogating Bank One to the rights of defendants, James Everhart and Sidney Perry, as against the plaintiff-appellee.

"2. The plaintiff-appellee failed to meet its [sic ] burden of proof as to the causation, fact and amount of loss occasioned by the payment over the stop order; said finding of the court to the contrary being erroneous as a matter of law and against the manifest weight of the evidence."

The resolution of these assignments of error is controlled by the interaction of R.C. 1304.24, 1304.26 and 1304.30. The pertinent part of R.C. 1304.24 is set forth above. R.C. 1304.26 provides, in part:

"(A) A customer may by order to his bank stop payment of any item payable for his account but the order must be received at such time and in such manner as to afford the bank a reasonable opportunity to act on it prior to any action by the bank with respect to the item described in section 1303.23 of the Revised Code.

" * * *

"(C) The burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a binding stop payment order is on the customer."

R.C. 1304.30 provides, in part:

"If a payor bank has paid an item over the stop payment order of the drawer or maker or otherwise under circumstances giving a basis for objection by the drawer or maker, to prevent unjust enrichment and only to the extent necessary to prevent loss to the bank by reason of its payment of the item, the payor bank shall be subrogated to the rights:

" * * *

"(B) of the payee or any other holder of the item against the drawer or maker either on the item or under the transaction out of which the item arose; and

"(C) of the drawer or maker against the payee or any other holder of the item with respect to the transaction out of which the item arose."

We believe that these sections were intended to operate as a credit and subrogation process as reasoned by the Massachusetts Supreme Court in Siegel v. New England Merchants...