May 17, 1982

Mr. Timothy T. Weber 
McPherson County State's Attorney 
McPherson County Courthouse 
Leola, South Dakota 57456

Official Opinion No. 82-30

Service Charge on Insufficient Funds Checks

Dear Mr. Weber:

You have requested an official opinion from this office in regard to the following factual situation:

FACTS: 

A merchant prominently displays a notice on his checkout counter reading as follows: 

To all check writers there will be a seven dollar service charge added to all checks returned for insufficient funds. 

Customer X writes a check of merchandise which the merchant then presents to the bank for payment.  Customer X's check is returned and marked 'returned due to insufficient funds.'

Based on the above facts, you have asked the following questions:

QUESTIONS: 

(1)  Has the posted notice and the presented check created a contractual agreement between the merchant and the check writer as to the payment of the seven dollar service charge? 

(2)  Where a merchant has decided to impose a service charge or fee to be added to any check returned on the basis of insufficient funds, and a notice is prominently posted notifying each writer of that service charge, does Article 6, §  15 of the South Dakota Constitution preclude a criminal prosecution?

IN RE QUESTION NO. 1:

SDCL 53-1-3 establishes that a contract may be implied by the conduct of the parties.  The implied contract must contain all necessary elements of a contract and this can only be done by closely scrutinizing all the circumstances surrounding the actions of the parties.  St. Johns v. Storsteen, 84 N.W.2d 725 (S.D. 1957); Standard Gas v. Boyd, 71 N.W.2d 450 (S.D. 1955).

It is conceivable that under certain circumstances a contractual agreement might be formed between a check writer and a merchant for the amount of the service charge.  However, that must be determined in a case by case analysis based upon all facts and circumstances surrounding their dealings.  It is impossible to form an opinion as to any contractual agreements based upon the limited facts set forth in your request.

In addition, such an agreement may be void under the provisions of SDCL 53-9 concerning contracts fixing anticipatory compensation as being void.  That too is a factual question to be determined on a case by case review by the trial court.

IN RE QUESTION NO. 2:

SDCL 22-41-1, dealing with insufficient funds checks, is the counterpart to SDCL 22-41-1.2 dealing with no-account checks.  The Supreme Court of the State of South Dakota appears to have ruled on your request concerning criminal prosecution in State v. Mitchell, 309 N.W.2d 329 (S.D. 1981).  The Supreme Court of the State of South Dakota stated in essence that when there are criminal aspects to a transaction between a debtor and a creditor, any action to relieve the civil obligation does not absolve the defendant of the criminal liabilities.  Just as SDCL 22-41-1.2 does not deal with the civil component of a no-account check and cannot be termed a criminal sanction for failure to pay a civil debt, the same logic would apply to the provisions for the prosecution of insufficient funds checks.  In essence, a criminal prosecution for insufficient funds checks is not prohibited when a merchant brings a civil action to relieve a civil debt including the costs of obtaining restitution.

Respectfully submitted,

Mark V. Meierhenry
Attorney General