Silk v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

Decision Date19 August 1983
CourtAlabama Supreme Court
Parties37 UCC Rep.Serv. 187 Ralph H. SILK and Sylvia C. Silk v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., a corporation, et al. 82-621.

Ralph H. Ford and William B. Tatum of Ford, Caldwell, Ford & Payne, Huntsville, for appellants.

Ernest L. Potter, Huntsville, for appellees.

MADDOX, Justice.

The dispositive issue raised on appeal is whether the trial court properly granted defendants' motion for summary judgment. We conclude the trial court's judgment was proper.

The operative facts of this case are undisputed. On November 26, 1981, Ralph E. Silk, plaintiff/appellant, accepted four checks from Warrior Energy Corporation ("Warrior"). The four checks, which totaled $37,500, were all drawn on the Central Bank of Alabama, N.A., Haleyville, Alabama ("Central Bank") in payment of a debt. At the insistence of Warrior, Silk agreed not to deposit the checks until Warrior had sufficient funds in the account to cover them. Because Warrior agreed to pay Silk interest on the $37,500 loan, Silk decided to keep the checks dated November 26, 1981, instead of accepting from Warrior updated checks as substitutes for the original checks.

On or about February 4, 1982, Silk endorsed the checks and deposited them into a cash management account administered by Merrill Lynch, defendant/appellee, following assurances by Warrior that there were sufficient funds in its account to pay the checks. Merrill Lynch, after receiving the four checks, deposited the checks with its bank, First Alabama Bank of Huntsville ("First Alabama Bank"), which in turn presented the checks to the drawee bank, Central Bank, for payment. Central Bank refused to honor the checks because of insufficient funds. Copies of the cancelled checks, which appear as a part of the record, indicate that First Alabama Bank cancelled its "endorsement" on February 11, 1982.

On March 1, 1982, Silk closed out his cash management account with Merrill Lynch by purchasing 5,000 shares of SCI Systems, Inc. stock. Prior to the purchase, Silk received confirmation from Merrill Lynch that his account balance was over $80,000. This balance included the $37,500 Silk had deposited on February 4, 1982. The total purchase price of the 5,000 shares of stock was approximately $102,000. Silk purchased the stock with the proceeds of his money fund shares in his Merrill Lynch cash management account and went on margin for the balance of the purchase price.

On April 15, 1982, Merrill Lynch notified Silk that Warrior's checks had been returned for insufficient funds and, accordingly, debited his margin account for the amount of the checks. In an affidavit, John Niedergeses, the operations manager of the Huntsville office of Merrill Lynch, stated that the "first notice" that his office had that the checks had been returned for insufficient funds was on April 13, 1982, and that Ralph Silk was notified on April 15, 1982, that his margin account was to be debited in the amount of $37,500 for the returned checks. Consequently, the debit balance in Silk's margin account was increased to approximately $59,000. Silk, feeling apprehension about the possibility of a margin call, sold the stock to eliminate the debit balance in his account, though after the sale the value of the stock increased.

Ralph Silk and Sylvia Silk brought action against Merrill Lynch for wrongfully debiting their cash management account. After its motion to dismiss was overruled, and after filing an answer, Merrill Lynch filed a motion for summary judgment which contained the affidavit of John Niedergeses. The Silks also filed a motion for summary judgment which included an affidavit of Ralph Silk. The court granted Merrill Lynch's motion for summary judgment and entered judgment in its favor. This appeal followed.

The usual rules governing our review of summary judgment apply here. The standard for summary judgment as set forth in Rule 56, Ala.R.Civ.P., has two basic parts: the trial court must determine (1) that there is no genuine issue of material fact, and (2) that the moving party is entitled to judgment as a matter of law. Houston v. McClure, 425 So.2d 1114, 1116 (Ala.1983). Furthermore, this standard is conjunctive. Houston v. McClure, supra; McGuire v. Wilson, 372 So.2d 1297 (Ala.1979). The burden is upon the moving party to clearly show that there is no genuine issue of a material fact, and all reasonable doubts concerning the genuine issue of material fact must be resolved against the moving party. Fountain v. Phillips, 404 So.2d 614, 618 (Ala.1981); Butler v. Michigan Mut. Ins. Co., 402 So.2d 949, 951 (Ala.1981). The burden is further increased by the scintilla evidence rule, which requires that summary judgment not be granted if there is a scintilla of evidence supporting the position of the non-movant. Fountain v. Phillips, supra; Browning v. Birmingham News, 348 So.2d 455 (Ala.1978).

When an instrument has been indorsed, the indorser "engages [unless the indorsement provides otherwise] that upon dishonor and any necessary notice of dishonor and protest that he will pay the instrument according to its tenor at the time of the indorsement to the holder...." Code 1975, § 7-3-414. As a secondary party, an indorser's liability is subject to the conditions precedent of presentment, and proper notice of dishonor or protest. §§ 7-3-102(1)(d), 7-3-501(1)(b), and 7-3-501(2)(a). "Where without excuse any necessary presentment or notice of dishonor is delayed beyond the time when it is due ... [the] indorser is discharged." § 7-3-502. See also §§ 7-3-508(2) and 7-3-511.

The Silks contend that the liability of indorsement has been discharged in this case because Merrill Lynch failed to give them timely notice of dishonor of the four checks. They further assert that had good business practices been followed, and "due diligence" been exercised, i.e., reading monthly banking statements, reviewing all returned checks, etc., Merrill Lynch would have had "notice or notification" prior to the lapse of seventy days that the checks had not cleared the drawer's bank. See § 7-1-201(27).

Merrill Lynch submits that it complied with the notice of dishonor requirements of § 7-3-508(2), by giving notice of the checks' dishonor before midnight of the third business day after it allegedly received notice of the dishonor. Merrill Lynch further posits that under the circumstances of this case, however, the notice of dishonor requirement was not applicable, citing § 7-3-501(4), which reads: "Notwithstanding any provision of this section, neither presentment nor notice of dishonor nor protest is necessary to charge an indorser who has indorsed an instrument after maturity." (Emphasis added.)

The term "maturity" is not defined within the definitional provisions of the Uniform Commercial Code (UCC). Referring to decisions of courts from other jurisdictions as guidance in our interpretation as to what constitutes "after maturity," we have located but one case, and that case, as cited by Merrill Lynch in its brief, is Chandler Motors, Inc. v. Dunham, 127 N.J.Super. 320, 317 A.2d 386 (1974). In Chandler Motors, the New Jersey Superior Court ruled:

"Timely notice of dishonor was required to be given the indorsers, NJSA 12A:3-501(...

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