Community Bank v. U.S. Nat. Bank of Oregon

• Jurisdiction: Oregon
• Decision Date: 21 October 1976
• Citation: Community Bank v. U.S. Nat. Bank of Oregon, 555 P.2d 435, 276 Or. 471 (Or. 1976)
• Parties: , 20 UCC Rep.Serv. 589 The COMMUNITY BANK, an Oregon Corporation, Respondent, v. UNITED STATES NATIONAL BANK OF OREGON, a National Banking Association, Appellant.
• Court: Oregon Supreme Court

Page 435

555 P.2d 435

276 Or. 471, 20 UCC Rep.Serv. 589

The COMMUNITY BANK, an Oregon Corporation, Respondent, v. UNITED STATES NATIONAL BANK OF OREGON, a National Banking Association, Appellant.

Supreme Court of Oregon.

Argued and Submitted July 6, 1976.

Decided Oct. 21, 1976.

Richard M. Botteri, Portland, argued the cause for appellant. On the briefs were Charles F. Hinkle and Gregory R. Mowe, of Davies, Biggs, Strayer, Stoel & Boley, Portland.

Ferris F. Boothe, of Black, Kendall, Tremaine, Boothe & Higgins, Portland, argued the cause and filed the brief for respondent.

Before DENECKE, C.J., and O'CONNELL, HOLMAN, TONGUE, HOWELL and BRYSON, JJ.

DENECKE, Chief, Justice.

This is an action for damages for wrongful failure to pay six checks totaling $93,560. The trial court, sitting without a jury, entered judgment for plaintiff. We reverse and remand for further proceedings.

The checks in question were drawn on defendant United States National Bank (U.S.) and were received by plaintiff Community Bank as deposits from its customers. Community, in the normal course of its operations, delivered the checks, together with others drawn on U.S., to the head office of U.S. in Portland on December 17, 1973. During the night of December 17, these checks were processed by U.S. through its central computer. On the morning of December 18, they were delivered to the branch account service center of U.S. for filing to U.S.'s customers' individual accounts. That same day, before the checks had been filed, U.S. received and honored orders to stop payment on them. Community was duly notified, and this litigation followed. The issue is whether U.S., under the relevant provisions of Oregon's version of the Uniform Commercial Code, was entitled to honor the stop payment orders, or whether it had already become liable to Community to make payment on the checks.

The parties disagree about the controlling statute. Community contends that the case is governed by ORS 74.3030(1). It provides that a stop order received by a payor bank (U.S. in this case) 'comes too late' to affect the bank's 'right or duty to pay an item or to charge its customer's account for the item' if it is received after the bank has done any one of several things, including:

'(d) Completed the process of posting the item to indicated account of the drawer, maker or other person to be charged therewith or otherwise has evidenced by examination of such indicated account and by action its decision to pay the item.'

U.S. contends that the governing statute is ORS 74.2130(1). It provides that a payor bank 'shall be accountable' for an item upon 'final payment.' It also provides that an item is finally paid when the payor bank has done any one of several things, including:

'(c) Completed the process of posting the item to the indicated account of the drawer, maker or other person to be charged therewith.'

For purposes of this case it is not necessary to decide which statute governs the rights of the parties. The only question is whether U.S., when it received and decided to honor its customers' stop payment orders, had 'completed the process of posting' the checks. Community has not contended that U.S. had evidenced, in any manner other than the completion of the posting process, a decision to pay these checks. Regardless of whether under other circumstances the time when a payor bank becomes 'accountable' for a check under ORS 74.2130(1) may differ from the time when a stop payment order 'comes too late' under ORS 74.3030(1), for present purposes the issue is the same under either statute. Both the identity of language in the two provisions and the Official Comments to UCC 4--303 (ORS 74.3030) indicate that the phrase 'completed the process of posting' means the same thing in both statutes. ¹

Oregon's version of the Uniform Commercial Code, which was enacted in 1961, contains no definition of the phrase 'process of posting.' In 1962, UCC 4--109 was added to the Official Text of the Code, but has not been adopted in Oregon. UCC 4--109 provides:

'The 'process of posting' means the usual procedure followed by a payor bank in determining to pay an item and in recording the payment including one or more of the following or other steps as determined by the bank:

'(a) verification of any signature;

(b) ascertaining that sufficient funds are available;

(c) affixing a 'paid' or other stamp;

(d) entering a charge or entry to a customer's account;

(e) correcting or reversing an entry or erroneous action with respect to the item.'

The Official Comments to this section give no express reason for the addition of this definition to the Code. However, the Permanent Editorial Board did discuss the background of the adoption of UCC 4--109:

'In California the practice is fairly common for payor banks to charge or 'post' items to customers accounts first and then to verify signatures and determine whether there are sufficient funds later. If it is determined not to pay an item, either due to a defective signature or because of insufficient funds or for some other reason, reversing entries are made in the customer's account. Because of such practices, California bankers have been fearful that the 'completed the process of posting' test in subparagraph (c) would result in premature final payment of items. * * *.

'* * * If the original charge to a customer's account is provisional, subject to later verification of signatures, checking of balances and other tests, the process of posting is not completed until these tests have been made. * * *. In its present form subparagraph (c) is adequate to cover satisfactorily the 'post first-verify later' practice without prematurely paying items, but to remove all doubt on this score the Editorial Board has already approved, as a part of the Official Text, Section 4--109.' Permanent Editorial Board for the Uniform Commercial Code, Report No. 2, 80--81 (1965).

These comments indicate that the addition of UCC 4--109 was not intended by the Board to make a substantive change in the Code's provisions which refer to the completion of the process of posting. Rather, the Board was of the opinion that the 'process of posting' language was itself broad enough to include whatever procedures a particular bank had adopted for its internal accounting purposes, without necessarily committing the bank to final payment of a check once a deduction from a customer's account had been made during the bookkeeping process.

Because we have found no indication that UCC 4--109 was intended to change the meaning of the Uniform Commercial Code as adopted by our legislature, but only to remove possible doubts, we may look to that section for guidance in determining the meaning of the phrase 'process of posting' although the definition has not been made a part of our statutes. ² Under that section, whether U.S. had completed the process of posting the checks involved in this case depends upon the 'usual procedure followed by (U.S.) in determining to pay an item and in recording the payment * * *' and whether the appropriate steps in that procedure had been completed. We summarize, then, the evidence concerning the usual procedures of U.S.

Each night U.S. runs through its central computer all checks which are drawn on its various Portland area branches. The central computer run results in the checks being charged to the individual customers' accounts, and produces a number of reports or printouts. These reports include a balance printout for each branch, summarizing the total activity and the resulting balance in each affected checking account at that branch. The computer run also produces a report showing which accounts are overdrawn, and another report listing those accounts which require examination or special handling because of prior stop payment orders or for other reasons which have been included in the computer's programming. However, the computer does not reject any check from the processing because of potential overdraft or the possibility of a stop payment order. All checks are deducted from the appropriate accounts at this stage. Before leaving the computer center the checks are also sorted according to branch, microfilmed, and stamped 'processed.' The checks drawn on area branch banks are then sent to the branch account service center on the morning following the computer run. During the day the accounts for which the overdraft and other reports indicate possible problems are examined and decisions are made whether to pay specific checks. If it is determined not to pay a particular check, a reversing entry is made through the computer, correcting the individual account balance. Also during that day the checks are filed to the individual accouns.

The parties' briefs indicate agreement that U.S.'s usual procedures include substantially the steps we have summarized. U.S. contends, however, and presented evidence that before the checks are filed to the individual accounts, all checks in the amount of $1,000 or more are visually examined for irregularities in form and for erros in computercoding the amount of the check, and that the signatures on such checks are verified by a comparison with the signature card which is attached to the individual account filing tray. All of the checks involved in this case are for more than $1,000. None had been examined for verification of signatures or filed in the individual account trays when the stop payment orders were received. Whether U.S. had completed the process of posting these checks depends, therefore, upon whether its usual procedure in determining to pay them would have included a visual examination for signature or other possible irregularities prior to filing.

The trial court did not make a finding of fact on this issue. It did enter a 'finding of fact' that U.S. had 'completed the process of posting each of the said checks to the indicated account of the drawers * * * at the conclusion of...