A man deposits a check in the bank. Two months later, the bank realizes it has lost for the check and wants the money back. However, the man doesn't have the money in his own accounts. The bank then sues him for breach of contract and theft. What's a man to do?
, ___ N.E.2d ___ (Ind. Ct. App. 2011), 49A02-1101-PL-4, the Indiana Court of Appeals answered that question - he's going to trial - reversing a trial court decision granting summary judgment to the bank.
less..
In August 2005, Sapp presented a $125,000.00 check to Flagstar to deposit into a business account and Flagstar gave the account a provisional settlement. Flagstar then lost the check. In October 2005, Flagstar notified Sapp of the loss and sought his assistance in identifying the source of the check. However, he was not helpful.
The bank thought that them check had come from a trust account for Sapp's mother. Sapp had control over those funds and there were reasons for the bank to reach this conclusion. After Flagstar had notified Sapp of the loss and had threatened set-off against the trust account, Sapp continued to write checks from that trust account. Eventually, the back charged-back the check to the business account, resulting in a negative balance of over $123,000. Flagstar then sued Sapp for breach of contract, theft, and other claims.
The parties filed cross-motions for summary judgment and the trial court granted Flagstar's motion. It then awarded Flagstar both damages and attorney's fees. Sapp appealed.
The UCC describes when a bank may charge-back against an account. On appeal, Flagstar argued that the UCC did not apply, arguing, in essence, the following:
that the UCC time limitations must be explicitly adopted in a contract and, in the absence of such a provision, a depositor (under freedom of contract principles) may agree to indefinitely indemnify the bank, even for the bank's own negligence. In Flagstar's view, all risk of loss is on the depositor until final collection of an item.
But as the Court succintly put it, "This position is contrary to law." The contract between Sapp and Flagstar "cannot operate to indemnify Flagstar for its own failure to exercise ordinary care." Thus, the trial court erred when granting summary judgment on this claim.
The Court then turned to the question of whether the trial court properly granted summary judgment on the theft claim. It held that the trial court erred by not granting summary judgment to Sapp on this claim because there was no evidence that his control over the funds in the trust account was unauthorized.
Sapp admits that he negotiated trust fund checks amounting to $183,000, after having knowledge that Flagstar desired a set-off against accounts upon which Sapp was a signatory. Admittedly, the withdrawal of funds prevented Flagstar from attempting an offset from those funds. However, Flagstar has designated no materials that indicate Sapp removed funds from an account of which he was a primary owner as opposed to a trustee or minority shareholder. Moreover, it was undisputed that Sapp had a right to negotiate checks or withdraw funds.
Nonetheless, an element of the theft statute was negated in that Sapp did not exert "unauthorized" control over the funds. Again, these were funds available for withdrawal, and Sapp accessed them through honored negotiable instruments. Flagstar honored each of the Trust checks that it claims were the vehicle whereby Sapp allegedly accomplished "theft." Flagstar did not come forward with sufficient designated materials to show that Sapp's control was without authorization such that he could have been found by a preponderance of the evidence to have criminally stolen the funds.
Thus, after all of this, the question for the jury was whether the bank's loss of the check and two-month acquiescence was a failure to exercise ordinary care. The opinion does not indicate whether there are facts that weigh in the bank's favor on this issue, but that would appear to be a tough road to hoe.
Flagstar was aggressive in this lawsuit. It was aggressive in trying to get the funds back from Sapp and argued an aggressive position in support of that attempt. However, that same aggression may have ultimately hurt Flagstar when it argued that the UCC didn't matter. It is difficult to stretch the law in your favor when you don't have the cleanest hands in the world - and it just looks bad when a bank loses a check.
Take aggressive positions when your client can be painted in a favorable light. If your client is blameworthy, then you should stake out a more reasonable position.
