Willow City Farmers Elevator v. Vogel, Vogel, Brantner & Kelly, 9416-A

• Decision Date: 13 July 1978
• Docket Number: No. 9416-A,9416-A
• Citation: 268 N.W.2d 762
• Parties: 27 UCC Rep.Serv. 187 WILLOW CITY FARMERS ELEVATOR, Plaintiff and Appellee, v. VOGEL, VOGEL, BRANTNER & KELLY, Defendants and Appellants, and Pioneer State Bank, Towner, North Dakota, First State Bank of New Rockford, State Bank of Bottineau and Hayden Thompson, Defendants and Appellees. Civ.
• Court: North Dakota Supreme Court

Page 762

268 N.W.2d 762

27 UCC Rep.Serv. 187

WILLOW CITY FARMERS ELEVATOR, Plaintiff and Appellee, v. VOGEL, VOGEL, BRANTNER & KELLY, Defendants and Appellants and Pioneer State Bank, Towner, North Dakota, First State Bank of New Rockford, State Bank of Bottineau and Hayden Thompson, Defendants and Appellees.

Civ. No. 9416-A.

Supreme Court of North Dakota.

July 13, 1978.

Vogel, Brantner, Kelly, Knutson, Weir & Bye, Fargo, for defendants and appellants; argued by Kermit Edward Bye, Fargo.

Pringle & Herigstad, Minot, for plaintiff and appellee; argued by Herbert L. Meschke, Minot.

Lamb, Schaefer & McNair, Fargo, for Pioneer State Bank.

Mattson, Williams & Hovey, New Rockford, for First State Bank of New Rockford.

PEDERSON, Justice.

This appeal involves a determination of priority to deposited funds. The Willow City Farmers Elevator sold Hayden Thompson some feed for his hogs. Thompson "paid" the elevator by a personal check in the amount of $30,000 drawn on his deposit account in the Pioneer State Bank of Towner. The check was dated November 16, 1976, and, at that time, there was a $31,707.86 balance in Thompson's checking account. Before the check was presented for payment, the state bank examiner, on November 26, 1976, took possession of the Pioneer State Bank pursuant to § 6-07-04, NDCC, and froze all accounts. While the bank was in the hands of a receiver, the elevator presented Thompson's check but it was dishonored.

Ultimately the deposit liabilities of Pioneer State Bank, including Thompson's checking account, were assumed by the State Bank of Towner. The State Bank of Towner opened for business on January 17, 1977, and was immediately served in a garnishment action which involved other claims against Thompson. The State Bank of Towner dishonored the $30,000 check.

The elevator consequently, on April 14, 1977, sued Thompson and it is not clear whether it was a suit on the obligation (the sale of the feed) or on the dishonored check. See §§ 41-03-63(2) (3-507) and 41-03-76(1)(b) (3-802), NDCC. In answering the elevator's complaint, Thompson denied liability and, in a third-party complaint (Rule 14, NDRCivP), alleged that Pioneer State Bank, its receiver Roger B. West, and State Bank of Towner had wrongfully dishonored his check (§ 41-04-29, NDCC), thus, in effect, asking that the court assess his obligation to the elevator against the bank. The elevator's motion for summary judgment against Thompson, based only upon the $30,000 check, was granted and judgment was entered on May 5. Dismissal of the third-party complaint is not shown in the record. On May 16, Thompson appealed from that summary judgment and tried to get a stay of execution. The stay was denied and, on July 8, the elevator tried to levy execution against the Thompson checking account (Ch. 28-21, NDCC, and Rule 69, NDRCivP). On that same day, July 8, the garnishment of the account was dismissed. On December 19, 1977, we dismissed Thompson's appeal. Willow City Farmers Elevator v. Thompson, 261 N.W.2d 381 (N.D.1977).

The record does not disclose that a levy of the execution was ever accomplished; however, we know that the bank did not surrender the funds to the sheriff but, on July 11, deposited them with the court pursuant to authorization of § 32-11-02, NDCC, giving notice thereof to all parties concerned, including the law firm of Vogel, Vogel, Brantner and Kelly (hereinafter Vogel). There is no allegation that there was either actual or constructive seizure of the account pursuant to the execution.

Vogel had provided legal services for Thompson over a period of years and, having represented him in a United States District Court trial in 1976, billed him in December, 1976, for $37,103.57. This was not paid so, on May 5, 1977 (the same day that the elevator recovered summary judgment against Thompson), Vogel took an assignment from Thompson. The assignment was limited to $37,103.57, but described Thompson's personal checking account ($31,707.86), other deposit accounts, and the contents of four safety deposit boxes. The accumulative total of the identified accounts was $85,806.22, not including the contents of the safety deposit boxes.

When the trial court determined that the elevator's claim to the checking account took priority over the Vogel claim, this appeal resulted. Two questions are presented:

I. Is an assignment of the balance of a checking account (subject to a dollar limitation) effective?

II. If such an assignment is effective, does the assignee acquire, as of the date of the assignment, priority over other claims against the account?

Because the elevator levied against the checking account only, we consider only the effect of the assignment on that account. ¹

I.

The common law rule which denied the validity of an assignment of a chose in action has been modified so that, under the "modern rule," the assignability of things in action is the rule and nonassignability the exception. See 6 Am.Jur.2d Assignments, § 29, and cases cited therein.

In this State, "a chose in action may be transferred either by parol or by written assignment." Roberts v. First Nat. Bank, 8 N.D. 474, 79 N.W. 993 (1899), syllabus 3. See, also, Hecker v. Commercial State Bank, 35 N.D. 12, 159 N.W. 97, 98 (1916), where this Court said "It now seems to be generally understood, indeed, that . . . assignments of choses in action are valid . . . . ,"

and International Harvester Company v. Hanson, 36 N.D. 78, 161 N.W. 608, 610 (1917), where this Court further said:

"The law requires the observance of no particular formality in the assignment of a chose in action."

Reasons for not permitting the assignment of Thompson's checking account have not been forcefully presented in this case. Certainly the assignment of checking accounts has not been unknown. Most legal discussion on the subject involves early cases of assignments for the benefit of creditors. See, i. e., First Nat. Bank of Cincinnati v. Coates, 8 F. 540 (Cir.Ct., W.D.Mo.1881); Voorhes v. Hesket, 1 Ohio C.C.R. 1 (5th Cir. 1885). See, also, Baker v. National City Bank of Cleveland, 387 F.Supp. 1137 (N.D.Ohio, E.D.1974), affirmed, Baker v. National City Bank of Cleveland, 511 F.2d 1016 (6th Cir. 1975). Other depositors have attempted to transfer an interest in a bank account to an attorney by "assignment." See Bowie v. Union Bank, 11 Cal.App.3d 807, 90 Cal.Rptr. 103 (1970). We, accordingly, and for the purpose of this case, determine that a checking account may be transferred by assignment. We do not decide that an assignment of a checking account, under the circumstances of this case, must be honored by the bank. ²

II.

The assignment of Thompson's checking account occurred immediately after summary judgment had been entered in an action by the elevator, on a check drawn on that account. Thompson, the losing defendant in that action, assigned the account to Vogel, the law firm representing him in that action (and others). The elevator could not levy execution on the checking account immediately because of the garnishment action concerning the account. Immediately upon the dismissal of the garnishment action, the elevator levied upon the account. But, by then, notice of the assignment had reached the bank. ³

Faced with the competing claims of Vogel, the elevator and others, the bank paid the funds into court rather than honor one of the claims (to the necessary exclusion of the others). The object of the assignment was to establish a claim to the account superior to the judgment held by the elevator. The question for this Court is: Did the assignment succeed in that object? We hold that it did not.

(a)

In this case, both parties concede that the assignment to Vogel is an "item" as that term is defined in § 41-04-04(1)(g) (4-104), NDCC; however, they are not in complete agreement as to the need for "final payment" under § 41-04-23(1) (4-213), NDCC, or "late return" under § 41-04-26(4-302), NDCC, to establish the obligation of the bank nor the consequence thereof upon the priority determination in this case. See, § 41-04-27(4-303), NDCC, and the official comment in 2A Uniform Laws Annotated, Uniform Commercial Code, at 108, as follows:

"Final payment of an item is important for a number of reasons. It is one of several factors determining the relative priorities between items and notices, stop orders, legal process and set-offs (Section 4-303). It is the 'end of the line' in the collection process and the 'turn around' point commencing the return flow of proceeds. It is the point at which many provisional settlements become final. See Section 4-213(2). Final payment of an item by the payor bank fixes preferential rights under Section 4-214(1) and (2)."

Section 41-04-27(2) (4-303), NDCC, provides that "items" may be accepted, paid, certified, or charged to the indicated account in Any order convenient to the bank. In 3 Anderson, Uniform Commercial Code, 2d Ed., § 4-303:6, it is stated:

"Items which may otherwise be accepted, paid, certified, or charged by a bank have no priority or order of payment as between themselves. The bank may handle such items in any order which is convenient to it. Thus, there is no requirement that a bank pay checks in any particular order, regardless of the status of the customer's account. Likewise the bank has the power, if it so chooses, to pay first those instruments for which it is itself liable.

"When the account is insufficient to pay all items, the bank may charge items against the account in any order convenient to the bank."

At this stage of the proceedings, and because the bank chose to handle neither item, we do not concern ourselves with a determination of the duty owed by the State Bank of Towner to either the elevator or Vogel. By not "handling" either item, the bank failed to establish any priority between them. As a result § 41-04-27(2) (4-303), NDCC, provides no aid to us in our determination of priorities.

(b)

Much argument is made...