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United Bank of Crete-Steger v. Gainer Bank

UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT


decided: May 11, 1989.

UNITED BANK OF CRETE-STEGER, PLAINTIFF-APPELLANT,
v.
GAINER BANK, N.A., DEFENDANT-APPELLEE

Appeal from the United States District Court for the Northern District of Indiana, Hammond Division. No. H85-0415-Rudy Lozano, Judge.

Cudahy, Coffey, and Easterbrook, Circuit Judges.

Author: Coffey

COFFEY, Circuit Judge

Plaintiff United Bank of Crete-Steger ("Crete-Steger") appeals the order of the United States District Court for the Northern District of Indiana granting summary judgment for the defendant, Gainer Bank, N.A. ("Gainer"), finding that because Saturday, June 23, 1984, could not be considered as a "banking day" under Ind. Code § 26-1-4-104(1)(c), Gainer provided Crete-Steger with timely notice of its decision to dishonor a check. We affirm.

I.

The facts are not in dispute. On Thursday, June 21, 1984, Gentry Metals, Inc. ("Gentry"), issued a check for $142,300, drawn on its account at Gainer and made payable to John Zwick. Later that day Zwick deposited the check in his account at the United Bank of Crete-Steger. Crete-Steger forwarded the check through the routine banking channels for collection to the Federal Reserve Bank of Chicago, which in turn forwarded the check to Gainer. Gainer received the check on Friday, June 22.*fn1 Although Gainer's main facility and all of its branches were open during the morning hours of Saturday, June 23, Gainer did not process the check until Monday, June 25. Upon checking their records, Gainer determined that Gentry had insufficient funds in its account to cover the $142,300 draft, dishonored the check and immediately notified Crete-Steger. for to receiving Gainer's notice of dishonor, Crete-Steger credited Zwick's account with $142,300 and Zwick withdrew the funds.

Crete-Steger commenced this action in the district court on May 2, 1985, alleging that Gainer failed to give timely notice of its decision to dishonor Gentry's check as required under Ind. Code § 26-1-4-301(1)*fn2 -- Indiana's codification of the Uniform Commercial Code-and was thus strictly liable to Crete-Steger under Ind. Code § 26-1-4-302*fn3 for the face amount of the check.*fn4 Crete-Steger alleged that Gainer should have given notice on Saturday, June 23, rather than on Monday, June 25, because Gainer was open to the public, albeit for restricted hours and limited banking services on that Saturday.

On October 16, 1986, Crete-Steger filed a motion for summary judgment arguing that it was entitled to judgment as a matter of law because Gainer failed to give notice of its decision to dishonor Gentry's check prior to midnight on Saturday, June 23. Gainer filed a cross-motion for summary judgment on November 5, 1986, arguing that Saturday, June 23, was not a "banking day" and thus, Gainer was not required to give notice of dishonor until Monday, June 25. On June 1, 1988, the district court granted Gainer's motion for summary judgment and denied Crete-Steger's motion. The district court found that because Saturday, June 23, was not a "banking day" for Gainer, Gainer's notice of dishonor on Monday, June 25, was timely. On appeal Crete-Steger alleges that the district court misapplied the substantive law applicable on the question of whether Saturday, June 23, 1984, was a "banking day" under Ind. Code § 26-1-4-104(1)(c), and thus committed error in granting Gainer's summary judgment motion.

II.

Rule 56(c) of the Federal Rules of Civil Procedure allows the granting of a motion for summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving part is entitled to judgment as a matter of law." The facts of this case are not in dispute. Thus, "our inquiry is limited to determining whether the district court erred in concluding that [Gainer] is entitled to judgment as a matter of law. Our review is de novo." Commercial Union Insurance Co. v. Ramada Hotel Operating Co., 852 F.2d 298, 300 (7th Cir. 1988).

Section 26-1-4-301(1) of the Indiana Code requires that a payor bank either pay or notify a collecting bank of its decision to dishonor a check before the midnight deadline following the payor bank's receipt of the item. "Midnight deadline" is defined as "midnight on [the payor bank's] next banking day following the banking day on which it receives the relevant item . . . ." Ind. Code § 26-1-4-104(1)(h). Gainer received Gentry's check on Friday, June 22. Thus, under sections 4-301(1) and 4-104(1)(h) Gainer had until midnight of the next banking day following Friday, June 22, to notify Crete-Steger of its decision to dishonor Gentry's check. "Banking day" is defined as "that part of any day on which a bank is open to the public for carrying on substantially all of its banking functions." Ind. Code § 26-1-4-104(1)(c) (emphasis added).

The sole dispute between the parties to this lawsuit is whether Saturday, June 23, was a "banking day" for Gainer. If it was, as Crete-Steger contends, then Gainer's notice of dishonor on Monday, June 25, was untimely and Gainer would be strictly liable for Crete-Steger's loss on the check. On the other hand, if Gainer's assertion that Saturday, June 23, was not a full "banking day" under the Code is proper, then Gainer's notice of dishonor was given within the midnight deadline of its next banking day-Monday, June 25-and Crete-Steger must look to the other parties involved in the transaction in its attempt to recover the loss on Gentry's check.

Whether Saturday, June 23, was a "banking day" depends on whether Gainer was "open to the public for carrying on substantially all of its banking functions." It is undisputed that Gainer's main office and all of its branches were open only for limited banking services during the morning hours on Saturday, June 23. During these hours Gainer's customers could cash checks, make deposits and withdrawals, purchase cashier's checks and money orders, open new accounts, and fill out loan applications. Many of Gainer's departments, including but not limited to the installment loan department, the commercial loan department and the bookkeeping department, were closed on Saturday, June 23. Thus, the relevant inquiry is whether the limited services Gainer Bank offered on Saturday, June 23, comprised "substantially all of its banking functions."

This court was recently confronted with interpreting the phrase "substantially all of its banking functions" in Merrill Lynch, Pierce, Fenner and Smith, Inc. v. Devon Bank, 832 F.2d 1005 (7th Cir. 1987).*fn5 The plaintiff in Merrill Lynch argued that because the defendant bank maintained walk-up windows for customers to make deposits and withdrawals, processed checks, and made inter-bank loans on the day in dispute, that day was a "banking day" under § 4-104(1)(c). In considering the plaintiff's argument, we referred to the definition of "bank" in the Bank Holding Company Act and concluded that in order to "carry[] on substantially all of its banking functions," a bank must be open to the public for both accepting deposits and withdrawals and making loans, because "making loans is a necessary part of 'banking.'" Id. at 1006-07.*fn6 The Devon bank was not open on the disputed day for opening accounts, arranging loans, or drawing down lines of credit. Id. at 1006. Thus, in the Merrill Lynch case, we held that the day in question was not a "banking day" as that term is defined in § 4-104(1)(c) based on our conclusion that the limited activities Devon offered on that day were insufficient to deem the bank "'open to the public' for 'substantially all of its banking functions.'" Id.

On Saturday, June 23, Gainer listed its main facility and branches as being open for "limited service." These services included: check cashing; acceptance of demand deposits; acceptance of savings and certificate deposits; acceptance of signature cards for opening new accounts; acceptance of loan applications; and selling cashier's checks and money orders. Further, bank managers who were present on Saturday had the authority to pay out on a customer account and the discretion to issue a cashier's check based on uncollected funds that were deposited in a customer's account.

Crete-Steger argues that because Gainer's customers could make deposits and withdrawals, as well as fill out loan applications, Gainer was "open to the public for carrying on substantially all of its banking functions." In advancing this position, Crete-Steger misconstrues the bank's offering of a restricted number of banking activities on Saturday, June 23, to its own benefit as being full banking, when in reality it is in sharp contrast with the amount of banking activity Gainer normally conducted Monday through Friday. Thus, Crete-Steger improperly attempts to equate a "business day" with a "banking day" -- two terms the Official Comment to § 4-104 explicitly distinguishes.*fn7

Although Gainer accepted deposits and allowed withdrawals on Saturdays, these transactions were neither dated nor posted on the ledger until the following Monday.*fn8 Thus, Gainer's customers did not earn interest on Saturday deposits until the following Monday. In addition, despite the fact that a customer could execute a signature card for a new account on Saturday, the bank had a practice of not opening an account (thus not considering the account operative) until the following Monday; as a result, no interest accrued on opening deposits in these accounts until Monday.

The only loan services Gainer regularly offered on Saturday was the acceptance of loan applications. These applications were not acted upon, thus neither approved nor denied, until the following week except under special circumstances. Although it was possible to close a consumer loan on Saturday, special arrangements had to be made with Gainer in advance. We are cognizant of the fact that this court in Merrill Lynch relied on the fact that the defendant bank in that case performed no customer-related loan activities. 832 F.2d at 1006-07. Nonetheless, it is illogical to conclude that accepting loan applications to be processed the following week and allowing consumer loans to be closed under special circumstances comprised substantially all of Gainer's loan activities. Indeed, Gainer's installment, real estate and commercial loan departments were closed to the public on Saturday, June 23.

Also closed on Saturday, June 23, were the trust department, the personnel department, the comptroller's department, the auditing department, the marketing department, the wire transfer department, the investment department, the executive offices, and branch administration. Other than the lobby areas in Gainer's main facility and branches, the only departments open on that Saturday were the account statement department and the proof department. Five persons worked in the account statement department and four individuals worked in the proof department where deposits were received, deposit tickets were verified and the totals were entered into the bank's computer. Irrespective of the fact that a skeletal crew operated in these two departments on Saturday, June 23, it is important to note that by far the vast majority of Gainer's other departments were closed to the public on Saturday, June 23. In Security Bank and Trust Co. v. Federal National Bank and Trust Co., 554 P.2d 119, 122 (Okla. Ct. App. 1976), the court held that a given day was not a "banking day" under § 4-104(1)(c) based on the fact that many of the defendant bank's departments were closed on the day in dispute.

Finally, the following services were not available on Saturdays: the sale of government bonds; the sale of traveler's checks; and access to safety deposit boxes. Gainer offered all of these services during regular banking hours Monday through Friday.

Simply stated, the services that Gainer offered on Saturday, June 23, included only minimal customer contact operations. The majority of the transactions conducted on that day were not processed until the following Monday. Furthermore, the vast majority of Gainer's departments were closed. The departments that were open conducted only limited functions, which even in their totality are insufficient to justify a conclusion that Gainer was carrying on substantially all of its banking functions" on the day in question. Accordingly, we hold that Saturday, June 23, 1984, was not a "banking day" for Gainer Bank, M.A., under the definition of that term in section 26-1-4-104(1)(c) of the Indiana Code.

Summary judgment is appropriate in this matter. As we recently stated in Merrill Lynch:

"It would unacceptably disrupt commercial relations to put to a jury, case by case, the question whether a given day was a 'banking day.' Billions of dollars in transactions must be processed by every midnight deadline, and everyone has an interest in having this time defined with precision."

832 F.2d at 1007. In view of our holding that Saturday, June 23, 1984, was not a "banking day" for Gainer, Gainer's notice to Crete-Steger of its decision to dishonor Gentry's check was timely under Ind. Code §§ 26-1-4-301(1) and 26-1-4-104(1)(h). Gainer notified Crete-Steger of its decision before midnight on Gainer's next banking day, Monday, June 25, 1984, following the banking day it received Gentry's check for collection, Friday, June 22, 1984. The district court's grant of summary judgment in favor of Gainer is

AFFIRMED.


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