Opinion
CV-000024-13/CA
04-11-2013
The Canandaigua National Bank and Trust Company, Plaintiff, v. Matthew Palmer and PALMER AUTOMOTIVE, INC., Defendants.
Canandaigua City Ct Plaintiff: Scott and Gilbert, LLP, John J. Gilbert, Esq., Of Counsel Defendants: Whitcomb Law Firm, P.C., David J. Whitcomb, Esq., Of Counsel
Canandaigua City Ct Plaintiff: Scott and Gilbert, LLP, John J. Gilbert, Esq., Of Counsel
Defendants: Whitcomb Law Firm, P.C., David J. Whitcomb, Esq., Of Counsel
Stephen D. Aronson, J.
When a bank commences a plenary action against its customer for an overdraft, what is the appropriate cause of action, and what defenses are available to the customer? This court holds that the bank has a cause of action against its customer for money had and received and that none of the defenses asserted by the customer is availing in this case.
THE PLEADINGS
The Canandaigua National Bank and Trust Company (CNB) filed a complaint alleging that Matthew Palmer (Palmer) and Palmer Automotive, Inc. opened a checking account with CNB in 1997 whereby Palmer agreed to be bound by an account agreement; that this account became overdrawn by $6,857.95, which Palmer refused to pay although it was duly demanded. Palmer, acting pro se, filed an answer containing a general denial.
MOTIONS
CNB filed a motion for summary judgment, accompanied by an affirmation of its attorney and an affidavit of its vice president JoAnn N. Mills. CNB's motion asserts that there is no material fact in dispute that would be sufficient to form a viable defense to its cause of action against Palmer, and it seeks judgment against Palmer for $6,857.95 plus interest. The supporting affidavit of Ms. Mills refers to the terms and conditions of the account agreement (attached to the motion as exhibit C) and the transactional history for Palmer's account (attached to the motion as exhibit D). CNB contends, in words or substance, that Palmer overdrew his account by $6,857.95, and CNB seeks recovery of those funds.
Palmer, through his attorney, opposed summary judgment and filed a motion to dismiss the complaint for failure to state a cause of action. Palmer's motion alleges, in words or substance, that a check for $44,184.42 drawn on an attorney's IOLA account at Community Bank, N.A. (incorrectly referred to as Citizens Bank) was deposited into Palmer's account at CNB on March 20, 2012; that upon presentment, CNB made those funds immediately available to Palmer and credited Palmer's account; and that funds were withdrawn from this account by Palmer. According to Palmer, on March 21 or 22, 2012, he was informed by the attorney (remitter) that there was a slight error in drafting the check and the attorney (remitter) was placing a stop-payment order on the check. According to Palmer, the stop payment was processed on March 23, 2012, and the check was returned, leaving an overdraft balance of $6,857.95 in Palmer's account. According to Palmer, CNB closed his account on March 23, 2012, and forbade him from entering the bank thereafter except for use of the back door for purposes of paying a mortgage loan. Palmer contends that by accepting the $44,184.42 check at presentment and making the funds immediately available, CNB certified the check and became a holder in due course; and he contends that Palmer should therefore not be liable for the overdraft. He contends that more discovery is necessary to determine whether CNB certified the $44,184.42 check. He cites Richardson v. Cheney, 146 AD 686 (1st Dept 1911), Gabriel v. Kost, 49 UCC Rep Serv 2d 826 (NY City Civ Ct 2001), UCC § 3-601(1)(g), and UCC § 3-411(1). Palmer also argues that the summary judgment motion should fail because (a) Ms. Mills is not a person with actual firsthand knowledge of the transactions in question, (b) CNB has provided no proof of having asked Palmer for payment of the overdraft, and (c) CNB's account agreement does not specify how long a depositor has to make a payment when his account is in overdraft, nor does it give the bank authority to close an account based upon an overdraft. Palmer also asserts that depositions of CNB employees with personal knowledge of the transactions in question will be necessary and that production of the $44,184.42 check will be necessary in order for the court to properly dispose of the case.
CNB filed a supplemental affidavit of Ms. Mills in response to Palmer's motion. A copy of the check for $44,184.42 from Community Bank, N.A. is attached. Ms. Mills points out in the affidavit that CNB would only certify its own check, not one from another bank. She also mentions that the check is a cashier's check, not a check from an attorney's IOLA account. The affidavit goes on to itemize the checks, withdrawals, and debit-card purchases made by Palmer on March 21 and 22, 2012, totaling $6,654.45 over the balance in Palmer's account.
ANALYSIS
Generally, the relationship between a bank and its customer is that of debtor and creditor. It is controlled by article four of the Uniform Commercial Code (UCC) (Call v. Ellenville National Bank, 5 AD3d 521, 523 [2d Dept 2004]). "The UCC represents the ultimate distillation of a painstaking process of evolution, pursuant to which the risk of loss in commercial matters has been attempted to be adjusted in a fair and equitable manner'"(Id.; case cites omitted). The UCC not only guides commercial behavior but increases certainty in the marketplace and efficiency in dispute resolution (Id.).
It is well settled under both common law and the UCC that a bank has a legitimate right to recover overdrafts from a customer (Jacobs v. Citibank, N.A., 61 NY2d 869, 872 [1984]; Center Cadillac, Inc. v. Bank Leumi Trust Co. of New York, 859 F Supp 97, 105 [SDNY 1994]). Under the common law, the payment of an overdraft constitutes a loan by the bank to the drawer of the overdraft, a loan for which the drawer is liable (United States Trust Co. of NY v. McSweeney, 91 AD2d 7, 9 [1st Dept 1982]). As between a bank and a depositor, an overdraft is a loan. If no funds stand to the depositor's credit in his account, an overdraft is an advance, and the customer is liable absolutely and in full, without abatement or contingency (Title Guar. & Trust Co. v. Emadee Realty Corp., 136 Misc 328, 329 [Sup Ct, Kings County 1930]).
An action in indebitatus assumpsit is historically based on an implied promise to recover the reasonable value of services performed or goods delivered (Waxman v. Williamson, 256 NY 117, 120-21 [1931]). There is at least one authority for the view that a bank may sue in indebitatus assumpsit to collect an overdraft (Title Guar. & Trust Co. v. Emadee Realty Corp., id. at 329). However, a bank's remedy is more closely akin to the modern view of a cause of action for money had and received (Parsa v. State of New York, 64 NY2d 143 [1984]). CNB's cause of action to collect the overdraft is in the nature of an action for money had and received. An action for money had and received is a contract implied in law (Parsa v. State of New York, id. at 148).The essential elements of a claim for money had and received are (1) the defendant received money belonging to the plaintiff, (2) the defendant benefitted from receipt of the money, and (3) under principles of equity and good conscience, the defendant should not be permitted to keep the money. (Parsa v. State of New York, id.; Matter of Moak, 92 AD3d 1040 [3d Dept 2012]; Gillon v. Traina, 70 AD3d 1443 [4th Dept 2010], lv denied 14 NY3d 711 [2010]). Here, CNB's complaint sufficiently sets forth a cause of action for money had and received. The complaint alleges that the account was overdrawn and that Palmer refused to pay the overdraft although payment was duly demanded. Palmer claims that no demand for payment was made. However, "demand for payment" is not an element of a cause of action for money had and received. The inclusion of the words "duly demanded" in CNB's complaint is mere surplusage. The issue of whether CNB demanded payment is irrelevant to a cause of action for money had and received.
Palmer's other arguments against summary judgment are (1) that the bank certified the $44,184.42 check, (2) that the motion is defective because Ms. Mills did not have personal knowledge of the material facts; and (3) that the parties' account agreement does not specify how long an account holder has to pay an overdraft and does not give CNB authority to close an account due to an overdraft. Each of these arguments will be evaluated.
First, Palmer contends that upon presentment of the $44,184.42 check, the CNB teller told him that the check was accepted and that CNB made the funds immediately available. He contends that CNB thereby certified the check. The CNB teller may have assured Palmer that the funds could be used immediately, but this is not the equivalent of certification. A certification of a check is acceptance (UCC § 3-411). "Acceptance is the drawee's signed engagement to honor the draft as presented" (UCC § 3-410[1]). Community Bank, N.A. is the bank on which this check is drawn. The facts in the cases cited by Palmer, Richardson v. Cheney, 146 AD 686 (1st Dept 1911), and Gabriel v. Kost, 49 UCC Rep Serv 2d 826 (NY City Civ Ct 2001),are inapposite. Under the UCC, CNB is an intermediary bank or collecting bank or depository bank (UCC § 4-105). There is no authority for the proposition that an intermediary or collecting or depository bank "certifies" a check by accepting it for payment. The check from Community Bank, N.A. was a cashier's check (rather than an attorney IOLA account check as alleged by Palmer). A cashier's check is the primary obligation of the issuing bank (Community Bank, N.A.), which, acting as both drawer and drawee, accepts the check upon its issuance (Hart v. North Fork Bank, 37 AD3d 414, 415 [2d Dept 2007]). Once a bank issues a cashier's check, it cannot thereafter stop payment based upon a unilateral request from its customer, unless there is evidence of fraud or the check is lost, stolen, or destroyed (Id.). Therefore, Palmer may have recourse against Community Bank, N.A. for wrongfully stopping payment on its cashier's check unless there was evidence of fraud or the check was lost, stolen, or destroyed. However, Palmer has no recourse against CNB, which merely dishonored the check before settlement. UCC § 4-201 provides that any settlement given for an item is provisional. Where a collecting bank makes a provisional settlement and fails to receive a settlement for the item, it may revoke the settlement and charge back any credit given for the item in the customer's account (Bank of NY v. Reichin, 201 AD2d 791 [3d Dept 1994]; UCC § 4-212[1]). In Hanna v. First Natl. Bank of Rochester, 87 NY2d 107, 119 (1995), the Court of Appeals held that a collecting bank acts as the agent of its customer, and until the collecting bank receives final payment, the risk of loss continues in the customer; the provisional credit to the customer remains provisional and revocable until the collecting bank receives the funds. A depository bank may charge back the provisional credit to its customer if it does not receive settlements from the payor bank (Roslyn Sav. Bank v. Jude Thaddeus Glen Cove Marina, Inc., 266 AD2d 198 [2d Dept 1999]). Oral notice of dishonor is acceptable (Bank of Commerce v. DeSantis, 114 Misc 2d 491 [NY City Civ Ct 1982]).
Palmer's argument that Ms. Mills is not a person with personal knowledge is also unavailing. "[W]here the affiant lacks personal knowledge of the facts, but the affidavit is based upon documentary evidence which is legally admissible, summary judgment may be granted"3 NY Prac, Com. Litig. in New York State Courts § 30:6 (3d ed.) (citing Marine Midland Bank, N.A. v. Embassy East, Inc., 160 AD2d 420 [1st Dept 1990] [affidavit based on legally admissible documentary evidence was sufficient to support motion for summary judgment on note, even though it was prepared by bank official who did not take part in loan negotiations and who allegedly did not have personal knowledge of facts]; and Shortt v. Chandler, 135 AD2d 932 [3d Dept 1987] [attorney's affirmation was sufficient to support summary judgment motion when documentary evidence was being relied upon]). The uncontroverted documentary evidence shows that Palmer's account is overdrawn. The balance history shown on CNB's Exhibit D shows $2,895.75 on deposit on March 20, before the cashier's check was deposited, and an additional $60.20 deposited on March 21, totaling $2,955.95 aside from the cashier's check. Knowing, apparently, that he could no longer rely on the cashier's check funds, Palmer nevertheless spent $9,610.40 on March 21 and 22, overdrawing his account by $6,654.45, as indicated in CNB's supplemental affidavit. (Exhibit D shows on those two days an electronic withdrawal, two point-of-sale purchases, and checks 9497, 9498, 9499, 9501, and 9481, totaling $9,610.40.) Ms. Mills's personal knowledge or lack thereof is of no significance since the uncontroverted evidence shows unequivocally that Palmer's account was overdrawn.
Finally, Palmer's two-pronged argument that CNB lacked authority to close his account and that the account agreement is defective (impliedly) because it fails to specify how long a depositor has to pay back an overdraft is, like the demand-for-payment argument, irrelevant. An overdraft is a loan, and the customer is liable absolutely and in full, without abatement or contingency (Title Guar. & Trust Co. v. Emadee Realty Corp., 136 Misc 328, 329 [Sup Ct, Kings County 1930]). Palmer has not cited any authority for the view that a demand for payment of an overdraft is a condition precedent to commencement of a plenary action for the overdraft by the bank; this court has found none.
A motion for summary judgment will be granted when the submitted papers warrant the court directing judgment in favor of a party as a matter of law (CPLR § 3212[b]). The basic question with a summary judgment motion is "whether the pleadings, affidavits, and exhibits in support of the motion are sufficient to overcome the opposing papers, and to justify finding, as a matter of law, either that there is no defense to the action or that the . . . defense is without merit" (Phillips v. Joseph Kantor & Co., 31 NY2d 307 [1972]). If the moving party does make a prima facie showing, then "the burden shifts to the nonmoving party to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact that require a trial for resolution" (Giuffrida v. Citibank Corp., 100 NY2d 72, 81 [2003]). Faced with a summary judgment motion, a court will view the evidence in the light most favorable to the nonmoving party, giving that party the benefit of all reasonable inferences to be drawn from the evidence (see Negri v. Stop & Shop, 65 NY2d 625, 626 [1985]). Summary judgment must be denied if there is any doubt as to the existence of a triable issue (see Rotuba Extruders, Inc. v. Ceppos, 46 NY2d 223, 231 [1978]). Here, CNB has established that Palmer's account is overdrawn; and, under principles of equity, the bank is entitled to recover that money. No factual issues are presented that stand in the bank's way of obtaining that money.
CONCLUSION
CNB's motion for summary judgment is granted as against defendant Matthew Palmer. Palmer's motion to dismiss the complaint is denied as against defendant Matthew Palmer. Palmer's motion to dismiss the complaint is granted as to the defendant Palmer Automotive, Inc. There is no allegation that Palmer Automotive, Inc. opened the bank account at CNB; the records attached to the motion papers show that the agreement was signed by Matthew Palmer as a sole proprietor. The papers do not show that Palmer Automotive, Inc. was involved in any way.
THIS CONSTITUTES THE DECISION AND ORDER OF THE COURT.
_________________________
Hon. Stephen D. Aronson
City Court Judge