Raymer v. Bay State Nat. Bank

• Decision Date: 07 August 1981
• Citation: 424 N.E.2d 515,384 Mass. 310
• Parties: , 31 UCC Rep.Serv. 1537 Robert S. RAYMER, Assignee, v. BAY STATE NATIONAL BANK.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 515

424 N.E.2d 515

384 Mass. 310, 31 UCC Rep.Serv. 1537

Robert S. RAYMER, Assignee, v. BAY STATE NATIONAL BANK.

Supreme Judicial Court of Massachusetts, Essex.

Argued April 9, 1981.

Decided Aug. 7, 1981.

Joseph P. Donahue, Jr., Lowell (Arthur C. Sullivan, Jr., Lowell, with him), for defendant.

Avram G. Hammer, Boston, for plaintiff.

Jerome E. Andrews, Jr., Mark A. Michelson and John N. Garner, Boston, for Boston Clearing House Association, amicus curiae, submitted a brief.

Before HENNESSEY, C. J., and BRAUCHER, WILKINS, LIACOS and NOLAN, JJ.

BRAUCHER, Justice.

The plaintiff Raymer, as assignee of Raymer Products Corp. (company), brought this action against the defendant bank for damages for the wrongful dishonor of twenty-six checks, under the Uniform Commercial Code (UCC), G. L. c. 106, § 4-402, and for unfair and deceptive acts and practices under G. L. c. 93A, § 11. A judge of the Superior Court, sitting without a jury, awarded the plaintiff $36,463.73, the face amount of the dishonored checks, plus attorneys' fees and costs. Both parties appealed, and we transferred the case to this court on our own motion. We reverse the judgment and order the entry of judgment for the plaintiff for nominal damages plus attorneys' fees and costs.

We summarize the judge's findings of fact. Raymer was the president and principal shareholder of the company. The company became a customer of the bank in 1972, maintained a commercial checking account with the bank, and became indebted to the bank on three separate loans: (1) a real estate mortgage loan guaranteed by the Small Business Administration (SBA), (2) a second SBA-guaranteed loan secured by machinery, and (3) a "revolving" loan secured by accounts receivable and inventory. The first two were being repaid by monthly payments of principal and interest, and the revolving loan was maintained at varying levels, with interest payable monthly. The company did not miss any payments due. In the winter of 1975-1976 the company notified the bank that it expected an operating loss due to raw material shortages created by the oil embargo and to the bankruptcy of one of its customers. About May 23, 1976, after submission of the company's quarterly report, Raymer met with the bank's loan officer; they reviewed steps to be taken to restore profitable operations, to which the loan officer agreed. In June, 1976, a second loan officer took over the company's accounts, and he wanted further security. The balance on the revolving loan was then $229,000, and it was secured by more than $245,000 in accounts and more than $250,000 in inventory. The second loan officer was told to expect a loss of $15,000 for May and June, but an interim report showed a loss of less than $5,000. For the fiscal year ending April 30, 1976, the company had a net operating loss of some $122,000 on net sales of $1.7 million; for the three months ending July 31, 1976, the loss was $96,350.

On July 15, 1976, the second loan officer went to the company's plant and explained to Raymer that a separate account would be established the following week for the deposit of accounts receivable; until then the company should make deposits and pay bills as it normally would. Twenty-six checks drawn by the company before July 16, 1976, totalling $36,463.73, were presented to the bank, thirteen on Friday, July 16, and thirteen on Monday, July 19. The company's account contained sufficient available funds, and the twenty-six checks were "posted" by the bank's usual procedure then in force before 6 A.M. of the banking day following the day of receipt. On Tuesday, July 20, 1976, representatives of the company and the bank met at the bank at 3 P.M. to go over the company's earnings projections. Unknown to the company representatives while the meeting was going on the bank's loan officer was at the company's plant taking possession of all its property. Later that day the bank returned all twenty-six checks for "uncollected funds," crediting the company's account and setting off some $78,000 of the revolving loan.

The company filed a petition under c. 11 of the Bankruptcy Act on August 10, 1976, and completed the petition on September 24, 1976. The bank had begun a proceeding in the United States Bankruptcy Court to compel the turnover of accounts receivable, and the company filed an answer but no counterclaim. The present claims were not scheduled as assets in the bankruptcy proceeding. A plan of arrangement was filed in December, 1976, and confirmed January 28, 1977; final decree was entered in May, 1977. On February 4, 1977, the company assigned the present claims to Raymer, and this action was begun on July 19, 1977.

The judge ruled that the company's claims were assignable and were not barred by what took place in the bankruptcy court, that the bank's set-off came too late under G.L. c. 106, §§ 4-303, and 4-109, and that the plaintiff could recover the face amount of the checks under G.L. c. 106, § 4-402, as damages proximately caused by wrongful dishonor. He further ruled that the set-off was an unfair act or practice in violation of G.L. c. 93A, § 2, and awarded the plaintiff attorneys' fees under G.L. c. 93A, § 11. On the bank's appeal, it contests each of these rulings. On the plaintiff's appeal, he attacks the following rulings: that the plaintiff failed to show additional damages having the requisite causal connection under § 4-402, and that the plaintiff was not entitled to multiple damages under G.L. c. 93A, § 11. Except for the award of damages in the face amount of the checks, we uphold the actions taken by the judge. The result is that judgment is to be entered for the plaintiff for nominal damages plus attorneys' fees and costs.

1. The assignment. Before the enactment of the UCC, this court held that a claim for damages for wrongful dishonor of checks sounded in contract and was assignable. Robinson v. Wiley, 188 Mass. 533, 535-536, 74 N.E. 344 (1905). The related claim under G.L. c. 93A is a claim for loss of money or property and is assignable even if it is thought to sound in tort. Baldassari v. Public Fin. Trust, 369 Mass. 33, 44-45, 337 N.E.2d 701 (1975). Bethlehem Fabricators, Inc. v. H. D. Watts Co., 286 Mass. 556, 566-567, 190 N.E. 828 (1934). The fact that multiple damages are sought does not make the claim unassignable. Gray v. Bennett, 3 Met. 522, 529-530 (1842). See Murphy v. Household Fin. Corp., 560 F.2d 206, 208-210 (6th Cir. 1977). Nothing in the UCC changes these traditional rules. See UCC § 1-103, § 4-402 Comment 2.

It follows that when the company became a debtor in possession under c. 11 of the Bankruptcy Act the claims were part of the estate to be administered, the company had all the powers of a trustee in bankruptcy, and its assignment of the claims transferred them to the plaintiff, unless the proceedings in bankruptcy had some invalidating effect. Bankruptcy Act § 342, 11 U.S.C. § 742 (1970). See 4A Collier on Bankruptcy § 70.42 (14th ed. 1978); 8 id. § 6.32. The principle that a bankrupt cannot assert a claim after title to it as an asset has vested in a trustee in bankruptcy has no application. See Tamplin v. Wentworth, 99 Mass. 63, 64 (1868); Philbrick v. Burbank, 101 N.H. 311, 313, 141 A.2d 888 (1958); Annot., 111 A.L.R. 835 (1937); 4A Collier on Bankruptcy § 70.07 (14th ed. 1978). The defendant alleged that the company had fraudulently concealed the existence of the present claims in the bankruptcy proceedings, but there was no evidence to support that allegation. The judge thought the bank could have sought to have the plan of arrangement set aside in the bankruptcy court within six months after it was confirmed, and ruled that its failure to do so barred it from claiming a defense based on failure to list the present claims as assets. See Bankruptcy Act § 386, 11 U.S.C. § 786 (1970); Matter of Medical Analytics, Inc., 410 F.Supp. 922, 923-924 (S.D.N.Y.1975), aff'd, 532 F.2d 879 (2d Cir. 1976). He also ruled that the present claims were not required to be asserted as compulsory counterclaims in the bank's turnover proceeding. See In re Behring & Behring, 445 F.2d 1096, 1098-1099 (5th Cir.), cert. denied, 404 U.S. 991, 92 S.Ct. 535, 30 L.Ed.2d 542 (1971); Joler v. Depositors Trust Co., 309 A.2d 871, 876 n.1 (Maine 1973). We agree on both points.

2. Wrongful dishonor. The bank asserted a right to set off the balance of its revolving loan against the company's deposit. If the set-off was proper, there were insufficient funds, and the dishonor of the checks was not wrongful, although the stated reason, "uncollected funds," was inappropriate. The judge ruled, however, that the set-off came too late, and we agree. Under UCC § 4-303(1), ¹ a set-off exercised by a payor bank "comes too late" to terminate the bank's duty to pay an item if it is exercised after the bank has done any one of several things. As to checks received on Friday, July 16, the bank's midnight deadline was at the end of Monday, July 19, under UCC § 4-104(h ), and the bank then became "accountable for the amount of the item" under UCC §§ 4-213(1)(d ) and 4-302. The set-off on July 20 came thereafter and was "too late" under § 4-303(1)(e ). Hence the subsequent dishonor of these checks was wrongful. See Holland, An Analysis of the Legal Problems Resulting from Wrongful Dishonors, 42 Mo.L.Rev. 507, 513-514 (1977); H. Bailey, Brady on Bank Checks §§ 14.22, 18.7 (5th ed. 1979 & Cum.Supp.1981).

As to the checks received by the bank on July 19, however, the set-off on the afternoon of July 20 came before the bank's midnight deadline at the end of July 20. The judge ruled that the set-off came too late under § 4-303(1)(d ), because before 6 A.M. on July 20 the bank had "completed the process of posting" the items to the indicated account of the company as drawer and had "evidenced by examination of such indicated account and by action its decision to pay the item." Those rulings rested on the...