Harwood & Associates, Inc. v. Texas Bank and Trust

• Decision Date: 03 September 1981
• Docket Number: No. 80-2175,80-2175
• Citation: 654 F.2d 1073
• Parties: HARWOOD & ASSOCIATES, INC., Plaintiff-Appellant, v. TEXAS BANK AND TRUST, Defendant, First City Bank of Dallas, Defendant-Appellee. . Unit A
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1073

654 F.2d 1073

HARWOOD & ASSOCIATES, INC., Plaintiff-Appellant, v. TEXAS BANK AND TRUST, Defendant First City Bank of Dallas, Defendant-Appellee.

No. 80-2175.

United States Court of Appeals, Fifth Circuit.

Unit A

Sept. 3, 1981.

Rehearing Denied Oct. 6, 1981.

Bader & Cox, William D. Cox, Jr., Jackson Wilson, II, Dallas, Tex., for plaintiff-appellant.

Geary, Stahl & Spencer, D. Ronald Reneker, Dallas, Tex., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before CHARLES CLARK, TATE and WILLIAMS, Circuit Judges.

TATE, Circuit Judge:

This is a Texas diversity action. Harwood & Associates, Inc. appeals from the entry of a judgment notwithstanding the verdict (n. o. v.) setting aside a jury verdict awarding it damages against First City Bank of Dallas for fraud, breach of contract, and breach of a confidential relationship. The district court concluded, relevantly to our decision, that the oral contract found by the jury to have been breached by First City was unenforceable by virtue of the Texas statute of frauds and for lack of legally sufficient consideration. On review, we find that the court below erred as a matter of law in so concluding. Accordingly, the judgment of the district court is reversed.

Facts

In March of 1977, Reynolds Computer Corporation (Reynolds) approached Harwood & Associates, Inc. (Harwood) regarding the purchase of an NCR computer system for ultimate resale to American Airlines (American). Harwood's banker made a routine credit inquiry about Reynolds at Reynolds' bank, The First City Bank of Dallas (First City). ¹ Richard Bartholow, the bank officer in charge of Reynolds' account, responded with a favorable report.

Reynolds and Harwood entered into a sales contract for the equipment on April 4, 1977. At about the same time, Reynolds contracted to resell the same equipment to American. The Reynolds-Harwood contract called for a purchase price of $173,000, with ten percent to be paid immediately and the balance to be paid within five days of installation or the offering of a maintenance agreement to American, whichever occurred later. Harwood was to deliver the equipment directly to American at its Tulsa, Oklahoma, facilities.

Delivery was made in June of 1977. A maintenance agreement was offered to American on June 23, and on June 29 Harwood invoiced Reynolds for the balance due on the sale. On July 12, American presented its check for $193,760.16 to Reynolds. Reynolds deposited that check in its checking account at First City on July 13, with oral instructions to the bank to wire transfer funds in payment of the balance due Harwood to Harwood's account at Pioneer Bank.

On July 15, 1977, Harwood discovered that American had made its payment to Reynolds. Harwood informed American that Reynolds had not paid Harwood and that Harwood therefore claimed title to the equipment. As a result, American issued a stop payment order on its check to Reynolds. American informed Harwood and Reynolds that the stop payment order would be lifted only after the problems between Harwood and Reynolds had been resolved.

On that same day, Bartholow (representing First City) informed Harwood by telephone that if Harwood would send a telegram to American effecting the release of American's stop payment order, the bank would transfer funds from Reynolds' account sufficient to pay the balance due on the Reynolds-Harwood sales contract. (The factual dispute regarding this incident was resolved by the jury in Harwood's favor.) Harwood sent a telegram, ² and the stop payment order was lifted by American on July 15.

On July 16, 1977, Reynolds withdrew its authorization for First City to transfer the funds. The proceeds of the American check were collected on July 18, 1977. Thereafter, Reynolds directed First City to apply those funds to the repayment of loans then outstanding with First City in the amount of $92,765.63.

Harwood was never paid the balance due on its sales contract with Reynolds.

On September 30, 1977, Harwood brought this diversity action in the United States District Court for the Northern District of Texas against both Reynolds and First City. Harwood's claim against Reynolds was dismissed without prejudice prior to trial because of Reynolds' bankruptcy. Harwood proceeded against First City on a theory of breach of contract and on other grounds.

The case was tried to a jury. In a special verdict, the jury found in favor of Harwood on three of its several claims, including that First City had breached an oral contract obliging it to transfer funds from Reynolds' account to Harwood.

First City then moved in the alternative for a judgment n. o. v. or for a new trial. The trial court granted the motion and entered judgment n. o. v. in favor of First City on all claims. From that judgment, Harwood brings this appeal.

The Breach of Contract Issue

In response to special interrogatories, the jury found (1) that Harwood and First City had entered into an oral agreement that the bank would transfer funds from Reynolds' account to Harwood in exchange for Harwwood's sending a telegram to American which would effect the release of the stop payment order on American's check, ³ (2) that First City received consideration for its promise to transfer the funds, (3) that First City failed to perform its obligation under the contract thus formed, (4) that First City's failure to perform was the proximate cause of damage to Harwood, and (5) that Harwood was damaged in the amount of $150,990. The jury also found that Reynolds had instructed First City on July 16, 1977, not to transfer the funds to Harwood.

The trial court concluded, however, that Harwood was not entitled to a jury finding on the breach of contract claim for two reasons. First, the contract found by the jury constituted, as a matter of law, an oral contract of guarantee or suretyship unenforceable under the Texas statute of frauds, Tex.Bus. & Com.Code Ann. tit. 3, § 26.01 (Vernon 1968 and Supp.1980). ⁴ Second, the consideration given in exchange for the promise of First City to transfer funds to Harwood was insufficient as a matter of law to render that promise enforceable.

On appeal, Harwood vigorously challenges the court's conclusions on this issue. We agree that the trial court erred in this regard, and accordingly we reverse the judgment entered below.

1. The standard of review.

The standard by which the granting of a judgment n. o. v. is to be reviewed on appeal is well settled in this circuit.

Such judgment should be granted only when the facts and inferences point so strongly and overwhelmingly in favor of the moving party that reasonable men could not arrive at a contrary verdict, viewing the facts in the light most favorable to the party against whom the motion is made, and giving that party the advantage of every fair and reasonable inference which the evidence justifies. The standard for reviewing such motions is the same in the trial court and on appeal. The court considers only the question of law regarding the sufficiency of the evidence to raise a jury issue. See Houser v. Sears, Roebuck & Co., 627 F.2d 756, 757 (5th Cir. 1980); Boeing v. Shipman, 411 F.2d 365, 374-375 (5th Cir. 1969) (en banc).

2. The statute of frauds.

In concluding that Harwood's breach of contract claim was barred by the Texas statute of frauds, however, the trial court did not conclude that the evidence was insufficient to create a jury question as to the existence of an oral contract or First City's failure to meet its obligations thereunder. To the contrary, it accepted the jury's findings in those regards, but concluded that the contract was unenforceable by virtue of the statute of frauds requirement that promises to answer for the debt, default, or miscarriage of another must be in writing and signed by the promisor. See Tex.Bus. & Com.Code Ann. tit. 3, § 26.01 (Vernon 1968 and Supp.1980), quoted in note 1.

For reasons to be elaborated, the trial court was in error in so concluding. The oral contract did not constitute a contract of guarantee or suretyship that obliged First City to answer for the debt of its depositor, Reynolds.

The jury found, with substantial evidentiary support, that First City had unconditionally promised to transfer to Harwood funds deposited by Reynolds for that purpose in exchange for Harwood sending a telegram that would effect the release of American's stop payment order. See note 3. That promise was not a promise to pay the debt of another, imposing upon First City a collateral obligation to pay Harwood if Reynolds did not, or rendering First City secondarily liable for Reynolds's debt. It was an original undertaking whereby First City assumed the independent obligation to transfer to Harwood at a time when it was authorized by Reynolds, and indeed duty bound, to do so a sum owed to Harwood by Reynolds and deposited by Reynolds with First City for that express purpose.

Under Texas jurisprudence, such a promise does not fall within the ambit of the statute of frauds. See Jordan v. Crisp, 278 S.W.2d 482, 485 (Tex.Civ.App.1955) (oral promise to sell goods of third party and to use proceeds to pay third party's debts was original undertaking not within statute of frauds); Mercantile Nat'l Bank v. McCullough Tool Co., 250 S.W.2d 870, 878 (Tex.Civ.App.1952) (oral promise by bank to disburse funds loaned to oil company and on deposit in bank to pay creditors of oil company was original promise not within statute of frauds), rev'd on other grounds, 152 Tex. 471, 259 S.W.2d 724 (1953); American National Bank v. Petry, 141 S.W. 1040, 1043 (Tex.Civ.App.1911) (oral promise of bank to collect and pay over to creditors sums owed by third party was not promise to answer for debt or default of another within the statute of frauds). See also Gulf Liquid Fertilizer Co. v. Titus, 163 Tex. 260, 354 S.W.2d 378 (1962); Restatement of Contracts §§ 182(a), 184 (1932)...