Yoder v. Cromwell State Bank

• Decision Date: 23 May 1985
• Docket Number: No. 3-584A132,3-584A132
• Citation: 478 N.E.2d 131
• Parties: 41 UCC Rep.Serv. 173 Elmer C. YODER and Irene Yoder, Appellants (Defendants Below), v. CROMWELL STATE BANK, Appellee (Plaintiff Below).
• Court: Indiana Appellate Court

Page 131

478 N.E.2d 131

41 UCC Rep.Serv. 173

Elmer C. YODER and Irene Yoder, Appellants (Defendants Below), v. CROMWELL STATE BANK, Appellee (Plaintiff Below).

No. 3-584A132.

Court of Appeals of Indiana Third District.

May 23, 1985.

Jerome B. Van Orman, Fort Wayne, for appellants.

Stephen R. Snyder, Thomas J. Goeglein, Beckman, Lawson, Sandler, Snyder & Federoff, Syracuse, for appellee.

STATON, Presiding Judge.

Elmer and Irene Yoder appeal from summary judgment granted in favor of Cromwell State Bank (CSB) for $109,453.08 plus interest and attorney's fees in CSB's suit to recover on three checks. Yoder presented the three checks to CSB for deposit in the Yoder's joint account and the account was provisionally credited for a total of $123,766.00. The maker of the checks, Blue Mound Dairy, stopped payment and the payor bank, State Bank of Worthington, Worthington, Minnesota, returned the checks to CSB without making payment. CSB subsequently set off against the Yoder's account the sum of $14,312.92 and brought this action to recover the balance.

The Yoders claim summary judgment was improper and present twelve issues for review which we have consolidated and restated as follows:

Did the trial court err in finding that there were no genuine issues of material fact and that

I. CSB had given the Yoders effective notice of the dishonor of the checks (Yoders' issues 1 & 2);

II. CSB had a right of charge back against the Yoders for the amount of the provisional credit (Yoders' issues 3, 4, 5, 6, & 9);

III. CSB properly set-off a portion of its claim against the balance in the Yoders' account (Yoders' issue 10);

IV. The Yoders were jointly and severally liable for the amount of the provisional credit extended: (Yoders' issues 7, 8, & 11).

We affirm.

The Yoders argue strenuously that the existence of numerous issues of fact make the disposition of this case by summary judgment improper. They also argue that the trial court incorrectly applied the law to the facts. When this Court reviews a grant of summary judgment against such claims we must look at the pleadings, affidavits, depositions and testimony submitted in the proceedings below. Any doubt as to a fact or an inference to be drawn therefrom, is resolved in favor of the party opposing the motion for summary judgment. Poxon v. General Motors Acceptance Corp. (1980), Ind.App., 407 N.E.2d 1181, 1184. The movant has the burden of establishing that no genuine issue of material fact exists. Hurst v. Bd. of Com'rs of Pulaski Co. (1983), Ind.App., 446 N.E.2d 347, 349; however, the adverse party may not rest upon the mere allegations or denials of his pleading, but by affidavit or otherwise must set forth specific facts showing that there is a genuine issue for trial. Ind. Rules of Procedure, Trial Rule 56(E). In order to preclude summary judgment, a conflicting fact or inference must be decisive to the action or a relevant secondary issue. Jones v. City of Logansport (1982), Ind.App., 436 N.E.2d 1138, 1143.

I. Notice

The parties do not dispute that on June 18, 1982 Elmer Yoder endorsed and delivered to CSB for deposit two checks totalling $88,320.00 drawn on the account of Blue Mound Dairy Farm, Inc. On June 21 Yoder deposited with CSB another check from Blue Mound Dairy for the sum of $35,446.00. Elmer and Irene Yoder's joint account was credited with a total of $123,766.00. The affidavit of Kent Cunningham, Executive Vice President of CSB, states that prior to acceptance of the checks by the payor bank, State Bank of Worthington, payment was stopped on the checks. Within twenty-four (24) hours after receipt of notice of the stop-payment order, Cunningham notified the Yoders of the dishonor and of the fact that CSB was revoking the provisional credit and charging back those sums against the Yoders' account. The affidavit of Deloris L. Lohr, an officer of State Bank of Worthington, states that "State Bank of Worthington determined that a stop-payment order was effective" against each of the checks and that the checks were dishonored and returned within twenty-four (24) hours of receipt.

The Yoders' first contention is that the notice of dishonor by Cunningham was not sufficient. We point out that nothing in the pleadings or affidavits of the Yoders refutes the fact that they were, indeed, notified. They argue, instead, that the notice should have been written rather than oral.

This case is governed by the Uniform Commercial Code, specifically Chapter 4 which deals with bank deposits and collections. Ind.Code 26-1-4-101 et seq. (Burns Code Ed., 1974).

A bank has the right to charge-back a customer's account or demand a refund under IC 26-1-4-212(1) which provides:

"If a collecting bank has made provisional settlement with its customer for an item and itself fails by reason of dishonor, suspension of payments by a bank or otherwise to receive a settlement for the item which is or becomes final, the bank may revoke the settlement given by it, charge-back the amount of any credit given for the item to its customer's account or obtain refund from its customer whether or not it is able to return the item if by its midnight deadline or within a longer reasonable time after it learns the facts it returns the item or sends notification of the facts. These rights to revoke, charge-back and obtain refund terminate if and when a settlement for the item received by the bank is or becomes final (subsection (3) of section [26-1-]4-211 and subsections (2) and (3) of section [26-1-]4-213)."

(emphasis added). Chapter 4 further provides that "[t]o the extent that items within this article are also within the scope of article 3 ... they are subject to the provisions of [article 3]. In the event of conflict the provisions of [article 4] govern those of article 3...." IC 26-1-4-102. Article 3, dealing with commercial paper, permits notice of dishonor to "... be given in any reasonable manner. It may be oral or written and in any terms which identify the instrument and state that it has been dishonored." IC 26-1-3-508(3). Applying 3-508 to article 4 pursuant to 4-102 would indicate that oral notice of the dishonor of the three checks deposited by Yoder is sufficient. The Yoders argue, however, that there is a conflict between the provisions because 4-212 grants the bank a right of charge-back if it "... sends notification of the facts." IC 26-1-4-212(1). Looking to the general definitional section of the code, we find "send" defined as follows:

" 'Send' in connection with any writing or notice means to deposit in the mail or deliver for transmission by any other usual means of communication with postage or cost of transmission provided for and properly addressed and in the case of an instrument to an address specified thereon or otherwise agreed, or if there be none to any address reasonable under the circumstances. The receipt of any writing or notice within the time at which it would have arrived if properly sent has the effect of a proper sending."

IC 26-1-1-201(38). The Yoders maintain this language indicates a writing and when inserted in 4-212 requires that the bank must send a written notification of dishonor. Two cases cited by the Yoders do interpret this purported conflict and decide that notice under 4-212 must be written. Valley Bank & Trust Co. v. First Security Bank (1975), Utah, 538 P.2d 298; Available Iron & Metal Co. v. First Nat'l Bank (1977), 56 Ill.App.3d 516, 13 Ill.Dec. 940, 371 N.E.2d 1032. There is an apparent split in the Illinois Appellate Court, however, for we find that the later case of Salem National Bank v. Chapman (1978), 64 Ill.App.3d 625, 21 Ill.Dec. 414, 381 N.E.2d 741, held that oral notice was sufficient under 4-212 based upon 3-508(3). The court did not discuss the purported conflict between the provisions. 21 Ill.Dec. at 417, 381 N.E.2d at 744. A New York court specifically rejected the "conflict" argument in Bank of Commerce v. DeSantis (1982), N.Y.Civ.Ct., 114 Misc.2d 941, 451 N.Y.S.2d 974 and followed Salem National Bank v. Chapman, supra, holding that 3-508 permits oral notice. Likewise in Laurel Bank & Trust Co. v. Sahadi (1975), 32 Conn.Supp. 172, 345 A.2d 53 the court found effective notice of dishonor where there was unrebutted testimony from the bank manager that he telephoned the customer on the day following the date the bank learned of dishonor. 345 A.2d at 55.

Indiana courts have not dealt with the precise issue of what notice is required under 4-212. In Hall v. Owen City State Bank (1977), 175 Ind.App. 150, 370 N.E.2d 918, construing the notice requirement under 9-504(3), dealing with disposition of collateral upon default, this Court considered the requirement that notification of a public sale "... shall be sent by the secured party to the debtor." IC 26-1-9-504(3). Noting the definition of "send" at 1-201(38), the court rejected the argument that only written notice would suffice.

"We feel that a rigid rule of law mandating a written notice in all cases conflicts with the general tenor of the UCC to reject strict procedural requirements and we would therefore read Sec. 1-201(38) in conjunction with Sec. 1-201(26) so as to impose upon the secured party the duty of taking reasonable steps to notify the debtor. The fact that the notice was oral instead of written should not invalidate that notice as a matter of law but should instead be one of the factors considered in deciding whether or not the notice was reasonable."

370 N.E.2d at 925. Hall is distinguishable because it deals with the secured transactions provisions of the U.C.C. rather than bank collections and deposits. The reasoning, however, is equally applicable to the case at bar in so far as it rejects a rigid requirement of written notice as being contrary to the general tenor of the U.C.C. We therefore reject the argument that 4-212 conflicts with 3-508 and follow the authorities which hold that a bank may "send" notice either orally or in writing...