Benton State Bank v. Warren
| Citation | 562 S.W.2d 74,263 Ark. 1 |
| Decision Date | 06 March 1978 |
| Docket Number | No. 77-22,77-22 |
| Parties | , 23 UCC Rep.Serv. 1303 BENTON STATE BANK, Appellant, v. Frank R. WARREN and wife, Appellees. |
| Court | Supreme Court of Arkansas |
Hall, Tucker, Lovell & Alsobrook, Benton, for appellant.
Owens, McHaney & McHaney by John C. Calhoun, Jr., Little Rock, for appellees.
The appellees, the Warrens, are engaged in building and operating apartments in California and elsewhere in the United States. In 1974 the Warrens, as owners and general contractors, began the construction of a 111-unit apartment complex at 2000 Reservoir Road in Little Rock. Four separate subcontracts for concrete work, rough carpentry, finish carpentry, and heating and air conditioning were let to Harps General Contractors.
Harps failed to pay its suppliers of labor and materials, even though adequate progress payments were made from time to time by the Warrens. Those progress payments were made by checks payable jointly to Harps and to the appellant, Benton State Bank, which had lent money to Harps and had taken an assignment of Harps's right to receive progress payments. Eventually the Warrens had to take over and complete Harps's four subcontracts. Various unpaid materialmen brought this suit against Harps and the Warrens, asserting liens against the apartment property. The Warrens cross-complained against Harps and the bank for any loss that the Warrens might ultimately sustain. That loss proved to be $13,367.12, for which the chancellor entered judgment in favor of the Warrens against Harps and the bank. The bank appeals. The sole question is whether the loss should be borne by the bank or by the Warrens. As we view the case, that question in turn depends upon which was more seriously at fault in allowing the loss to occur, both being at fault to some degree.
The facts, though undisputed, are not simple. The subcontract between Harps and the Warrens for rough carpentry is typical of the four subcontracts. The agreement provides that the Warrens will pay Harps $55,080 for its performance of the subcontract. On the tenth of each month the Warrens will make a progress payment to Harps for 90% Of the work done in the preceding month. If there are unpaid suppliers of labor and materials the Warrens at their option may make the progress-payment checks payable jointly to Harps and to the suppliers. The contract also provides that Harps's right to compensation under the contract is assignable. Any assignment is subject to the Warrens' rights against Harps.
Shortly before construction began, the bank made a $60,000 loan to Harps to pay a tax delinquency owed by Harps, secured by a lien on some cattle. Later on Harps, as additional security, assigned to the bank its right to the progress payments under its subcontracts with the Warrens.
The president of the bank testified that the bank agreed to make additional loans to Harps of up to 75% Of the amount due upon each application by Harps for a progress payment. In practice, the matter was handled in this way: Harps signed a printed form of application for each progress payment. The form set out the amount due and requested payment of 90% Of that amount. Harps certified on each form that all bills for labor and materials covered by earlier progress payments had been paid. Those certifications were false. Harps was delinquent all along in the payment of its outstanding accounts, as the bank had reason to know even if it did not have actual knowledge.
Whenever Harps submitted an application for a progress payment to the bank, the bank would advance money to Harps, as it had agreed to do. The bank president testified that he understood generally that the advances were to be used by Harps to meet its payroll. The bank sent each progress-payment application to the Warrens, with a covering letter like this one:
The Warrens, upon the receipt at their California office of each application for a progress payment, would send their check for the requested amount to the bank. The checks were payable jointly to Harps and to the bank and bore this statement above the payees' endorsement: "By endorsement of this check payee acknowledges payment for labor, materials, or both, in construction at the following address: 2000 Reservoir Road, Little Rock, Ark." Such progress-payment checks totaled $82,686.24. Of that amount the bank used $27,271.86 to repay itself for loans on the Warren project, used $9,393.42 to repay itself for other loans, and deposited the balance of $46,020.96 to Harps's general account at the bank.
The procedure that we have outlined was followed by the parties for several months. Finally, however, a representative of one of the unpaid materialmen visited the Warrens' superintendent at the project site and expressed concern about getting money that was overdue from Harps for materials delivered to the job. The Warrens at once made an investigation and learned that Harps was delinquent in its indebtedness to its suppliers and was unable to demonstrate its solvency. The Warrens then took over the responsibility for completing the work, and this suit followed.
In out study of the case we have been assisted not only by the briefs of opposing counsel but also by a brief, submitted at our request, by counsel for the Permanent Editorial Board for the Uniform Commercial Code.
The case falls within the general purview of the Code, which applies by its terms to any transaction which is intended to create a security interest in contract rights. Ark.Stat.Ann. § 85-9-102(1) Supp.1977. Harps's right to progress payments from the Warrens was a "contract right" as that term is defined in § 85-9-106. The Warrens were "account debtors" with respect to that contract right. § 85-9-105. Hence Harps was the assignor of a contract right, and the bank the assignee, as a result of Harps's assignment to the bank of its right to progress payments.
Section 85-9-318(1)(a) provides that the rights of an assignee (the bank) are subject to all the terms of the contract between...
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City of Hartford v. McKeever, No. 33027.
...more so.... We decline to transfer that loss to assignee, an essentially blameless party.” Id. at 351; see also Benton State Bank v. Warren, 263 Ark. 1, 562 S.W.2d 74 (1978) (holding assignee bank liable for payment made to assignor, after weighing equities). Similarly, in considering the e......
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In re Howell Enterprises, Inc.
...is an account, which is defined as any right to payment for goods sold. Ark.Code Ann. § 4-9-106 (1987); Benton State Bank v. Warren, 263 Ark. 1, 5, 562 S.W.2d 74, 75-76 (1978). Under Ark. Code Ann. § 4-9-203, FNB's security interest in the Bar Schwartz account could attach and become enforc......
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Michelin Tires (Canada), Ltd. v. First Nat. Bank of Boston
...614 (Minn.1979). There are also cases that have allowed affirmative claims, at least in limited circumstances. Benton State Bank v. Warren, 263 Ark. 1, 562 S.W.2d 74 (1978); Farmers Acceptance Corp. v. DeLozier, 178 Colo. 291, 496 P.2d 1016 (1972); K Mart Corp. v. First Penn. Bank, 29 UCC R......
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City of Hartford v. McKeever
...more so. . . . We decline to transfer that loss to assignee, an essentially blameless party. Id., 351; see also Benton State Bank v. Warren, 263 Ark. 1, 562 S.W.2d 74 (1978) (holding assignee bank liable for payment made to assignor, after weighing equities). Similarly, in considering the e......