Hall Bros. Const. Co., Inc. v. Mercantile Nat. Bank of Indiana

• Decision Date: 09 November 1994
• Docket Number: No. 45A05-9401-CV-14,45A05-9401-CV-14
• Parties: 27 UCC Rep.Serv.2d 1051 HALL BROTHERS CONSTRUCTION COMPANY, INC., Appellant-Defendant, v. MERCANTILE NATIONAL BANK OF INDIANA, Appellee-Plaintiff.
• Court: Indiana Appellate Court

Page 285

642 N.E.2d 285

27 UCC Rep.Serv.2d 1051

HALL BROTHERS CONSTRUCTION COMPANY, INC., Appellant-Defendant, v. MERCANTILE NATIONAL BANK OF INDIANA, Appellee-Plaintiff.

No. 45A05-9401-CV-14.

Court of Appeals of Indiana,

Fifth District.

Nov. 9, 1994.

Daniel L. Freeland, Highland, for appellant.

Brian L. Goins, John H. Lloyd, IV (argued), Galvin, Galvin & Leeney, Hammond, for appellee.

OPINION

BARTEAU, Judge.

Hall Brothers Construction Company, Inc. ¹ appeals from the entry of summary judgment in favor of Mercantile National Bank of Indiana (Mercantile). We heard oral argument on October 24, 1994. The decision of the trial court is affirmed.

SUMMARY JUDGMENT STANDARD

Our standard of review for the entry of summary judgment is well settled. Summary judgment is appropriate when the designated evidence shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56(C). When reviewing the propriety of a ruling on a motion for summary judgment, we apply the same standard as the trial court. Weaver v. Robinson (1993), Ind.App., 627 N.E.2d 442, 445. Summary judgment will be affirmed on appeal if it is sustainable on any theory or basis found in the evidentiary matter designated to the trial court. Id.

FACTS

Hall Brothers conducted business through December 31, 1991 as a sole proprietorship. The company was owned by Giles Hall. On January 1, 1992, Hall Brothers incorporated and continued business as Hall Brothers Construction Company, Inc. Giles Hall and his wife, Sue Hall, each became fifty percent shareholders of the corporation. The corporation occupied the same address as the sole proprietorship and employed the same people.

Mercantile is the assignee of the accounts receivable of Henderlong Lumber Company, Inc. (Henderlong) under a security agreement. Henderlong was a regular supplier of Hall Brothers. In January, 1992, Hall Brothers Construction Company, Inc. purchased materials from Henderlong, with payment due at the beginning of February.

Henderlong defaulted on its security agreement with Mercantile and Mercantile sought direct payment from Henderlong's debtors. Mercantile sent a notice letter to Hall Brothers via certified mail, return receipt requested. Mercantile addressed the envelope to "Hall Brothers Construction" and the notice contained the following language:

Notice is hereby given pursuant to Indiana Code Section 26-1-502(1) that effective immediately, and until further notice, your payments due to the HENDERLONG LUMBER COMPANY, INC. ("HENDERLONG"), 500 Foote Street, Crown Point, Indiana, are to be made directly to the MERCANTILE NATIONAL BANK OF INDIANA ("MERCANTILE") ...

MERCANTILE'S right to payment arises from the fact that MERCANTILE is a secured party to a security agreement transaction in which HENDERLONG, your account creditor, is the debtor with respect to MERCANTILE.

By said security agreement, your account creditor, HENDERLONG, created a security interest in favor of MERCANTILE in all accounts receivable, including your account. HENDERLONG has defaulted under said security agreement; thus, by virtue of the above cited law and the default under said security agreement, MERCANTILE has the immediate right to collect all moneys now owing or to be owed in the future by you to HENDERLONG.

R. 43. The body of the notice did not make any specific reference to either the Hall Brothers sole proprietorship or the corporation.

Sue Hall, the Secretary/Treasurer of Hall Brothers Construction Company, Inc., signed for and read the notice. Later, an agent of Mercantile telephoned Sue Hall and discussed the Henderlong account with her. However, on February 10, 1992, Sue Hall issued a check from Hall Brothers Construction Company, Inc. to Henderlong rather than Mercantile. Mercantile then filed the instant action against Hall Brothers Construction Company, Inc. alleging wrongful payment.

DISCUSSION

Indiana Code 26-1-9-502 and 26-1-9-318(3) establish the authority of assignees of accounts receivable to receive payments directly from the debtors of an assignor.

When so agreed and in any event on default the secured party is entitled to notify an account debtor or the obligor on an instrument to make payment to him whether or not the assignor was theretofore making collections on the collateral, and also to take control of any proceeds to which he is entitled under I.C. 26-1-9-306.

Ind.Code 26-1-9-502. It is undisputed in the case at bar that there is a valid assignment of Henderlong's accounts receivable to Mercantile and that the Indiana Uniform Commercial Code permits Mercantile to collect the balance of the account directly from Hall Brothers. However, in order to do so, Mercantile must first provide notice to Hall Brothers under I.C. 26-1-9-318(3):

The account debtor is authorized to pay the assignor until the account debtor receives notification that the amount due or to become due has been assigned and that payment is to be made to the assignee. A notification which does not reasonably identify the rights assigned is ineffective. If requested by the account debtor, the assignee must seasonably furnish reasonable proof that the assignment has been made and unless he does so the account debtor may pay the assignor.

Hall Brothers argues that Mercantile failed to provide sufficient notice under I.C. 26-1-9-318(3). The notice letter states that Henderlong assigned "all" its accounts receivable to Mercantile. However, Mercantile demanded that "your payments" on "your account" be sent directly to them. Hall Brothers reasons that since the notice was addressed to "Hall Brothers Construction," omitting the terms "Company" and "Inc.," the notice was directed to the sole proprietorship and not to the corporation. Hall Brothers also contends that Mercantile did not demand payment from the newly-formed corporation because the corporation was not reasonably identified in the notice. Thus, Hall Brothers Construction Company, Inc. concludes that the trial court erred in granting Mercantile's motion for summary judgment because the notice did not reasonably identify the entity from whom Mercantile demanded payment.

There are two prongs to Hall Brothers's argument which we must address separately. First, we must determine whether the corporation received the notice and demand letter. Second, we must determine whether the corporation was sufficiently identified in the notice so as to constitute a demand on the corporation for payment.

Receipt of Notice

Our supreme court examined the notice requirement of I.C. 26-1-9-318(3) in Ertel v. Radio Corp. of America (1974), 261 Ind. 573, 307 N.E.2d 471. In Ertel, an accounts receivable assignee sent a notice and demand letter via certified mail addressed to the account debtor. The notice was delivered to the debtor's receiving dock and the debtor's employee signed for the letter. The worker failed to forward the notice to the debtor's accounting department. Unaware of the notice and demand for payment, the debtor's accounting department paid the assignor rather than the assignee.

Our supreme court found that what constitutes notice is not defined in section 9-318, but rather in the General Definitions of Indiana's Uniform Commercial Code.

A person "notifies" or "gives" a notice or notification to another by taking such steps as may be reasonably required to inform the other in ordinary course whether or not such other actually comes to know of it. A person "receives" a notice or notification when:

(a) it comes to his attention; or

(b) it is duly delivered at the place of business through which the contract was made or at any other place held out by him as the place for receipt of such communications.

I.C. 26-1-1-201(26); Ertel, 307 N.E.2d at 473-74. The court concluded that the assignee had satisfied the notice requirements since the debtor, through its employee, had received the notice and demand letter. Id. It was no defense that the debtor's employee failed to forward the letter to the appropriate department. Id.

Hall Brothers points to First National Bank v. Board of Education (1979), 68 Ill.App.3d 21, 24 Ill.Dec. 670, 385 N.E.2d 811, for the authority that where an assignee addresses a notice of assignment to an officer of the debtor, rather than the debtor itself, sufficient notice has not been given. However, in First National, the Illinois Court of Appeals found significant the fact that the notice was sent to an officer of the debtor whom the debtor had not held out as the person who should receive notices of that kind. 24 Ill.Dec. at 673, 385 N.E.2d at 814. Mercantile, on the other hand, sent the notice to the Hall Brothers corporate office where it was received by the person whom the corporation charged with the responsibility of issuing checks to its creditors.

We find that the Hall Brothers corporation received notice that its account had been assigned to Mercantile. Hall Brothers concedes that it gained knowledge of Henderlong's assignment of all accounts receivable to Mercantile from the notice letter. Ertel holds that a notice sent to the debtor's place of business and received by an employee satisfies the statutory requirements. 307 N.E.2d at 474. In this case, the debtor's employee who received the letter is also the person in the corporation who is responsible to act on the notice. The notice letter specifically states that Henderlong had assigned all of its accounts receivable to Mercantile. This necessarily includes the account of Hall Brothers Construction Company, Inc. The corporation was notified that Henderlong had assigned the Hall Brothers Construction Company, Inc. account to Mercantile.

Demand for Payment

The facts of this case are not in dispute. However, there is a dispute about whether the facts show that the notice reasonably identified that Mercantile was demanding payment from the Hall Brothers corporation. If a jury could come to...