Citizens Bank, Bentonville v. Chitty, 84-223

• Decision Date: 25 February 1985
• Docket Number: No. 84-223,84-223
• Citation: 285 Ark. 55,684 S.W.2d 814
• Parties: , 40 UCC Rep.Serv. 989 CITIZENS BANK, BENTONVILLE, Ark.; Now First National Bank, Bentonville, Ark., Appellant, v. Paul CHITTY, Appellee.
• Court: Arkansas Supreme Court

Page 814

684 S.W.2d 814

285 Ark. 55, 40 UCC Rep.Serv. 989

CITIZENS BANK, BENTONVILLE, Ark.; Now First National Bank, Bentonville, Ark., Appellant, v. Paul CHITTY, Appellee.

No. 84-223.

Supreme Court of Arkansas.

Feb. 25, 1985.

Ralph C. Williams, Mark W. Corley, Bentonville, for appellant.

Croxton & Boyer, Rogers, for appellee.

PURTLE, Justice.

A Benton County Circuit Court jury awarded appellee the sum of $8,000 on his complaint against the appellant for $9,000. On motion of appellant the trial court reduced the judgment by the amount appellee had collected from the drawer of the bad checks, Arthur L. Wagner, of Springfield, Missouri. Appellant appeals from the jury verdict on the ground that the trial court gave an erroneous instruction. The appellee cross appeals from the action of the trial court in reducing the judgment. We hold that the instruction was not prejudicial and that the court erred in reducing the jury verdict.

Arthur L. Wagner wrote appellee, Paul Chitty, three checks in 1981. All three were dishonored, the first two for insufficient funds and the third because the account was closed. The sequence of events is important in understanding the facts. The first check, in the amount of $4,750, was written on August 18, 1981, and deposited in appellee's account in the appellant bank on August 25, 1981. The second check, in the amount of $4,500, was dated September 9, 1981. The first check was returned to the appellant bank on September 10, 1981, because of insufficient funds. The first check was sent back through banking channels for collection on September 11, 1981. On this same day Wagner wrote appellee a third check in the amount of $9,000. The second check was deposited by appellee in the appellant bank on September 14, 1981. The third check was deposited on September 16, 1981. On October 5, 1981, the appellant learned through its wire service that the second check was being returned for insufficient funds. The appellant also learned by wire service on September 24, 1981, that the drawer's account had been closed. The first two checks were charged back to appellee's account on October 7, 1981, and the third on October 15, 1981.

The appellee payee filed suit for damages against the appellant bank in the amount of $9,000 plus costs and pre-judgment interest. The complaint alleged negligence in breach of a fiduciary duty owed to the depositor (appellee). The bank filed a general denial and attempted to reserve the right to counter-claim or cross-claim. However, the answer was not amended before trial.

Prior to trial the appellee had expended over $2,000 in attempting to obtain satisfaction from the maker of the bad checks. Proof of collection costs was introduced at the trial. Upon a post-trial motion of appellant, the trial court amended the judgment to give the bank credit for the $5,703 which appellee had collected from the maker of the bad checks.

Both parties appeal. The bank contends it was prejudicial error to give appellee's instruction # 8. The appellee contends that the court erred in giving the bank credit for the amount collected from the maker of the bad checks.

The instruction upon which the appellant relies for reversal reads as follows:

RIGHT OF CHARGE-BACK OR REFUND

If a collecting bank has made a provisional settlement with its customer for a check and said check is dishonored, the collecting bank may revoke the settlement given by it and charge back the amount of any credit given for the check to its customer's account or obtain a refund from its customer if, by its midnight deadline or within a longer, reasonable time after it learns the facts of the dishonored check, sends notification of the facts to the customer. The right to revoke, charge back, or obtain a refund from the customer, terminates if and when a settlement for the check received by the bank is or becomes final.

The objection to the instruction was that it related to the bank's action in making charge backs to appellee's account and that the issue of charge back was not before the jury. In looking at the complaint it alleges a breach of a fiduciary duty in failing to notify appellee that the first check was returned for insufficient funds. Thus, appellee alleges, the bank's negligence in not notifying him resulted in damages in the amount stated in the complaint. Admittedly, there was no mention of an illegal charge back in the complaint. The challenged instruction did not inform the jury that the amount of the charge back was to be considered in arriving at a verdict on damages. It did inform the jury that the bank could make a charge back if it acted by its midnight deadline or within a longer reasonable time, provided it notified the customer. Therefore, the court was simply instructing the jury on the bank's duties to its customer. The verdict was not in an amount of any or all of the checks which were charged back to the customer's account. The instruction was not contrary to appellee's theory of negligence.

Ark.Stat.Ann. § 85-4-103(1) (Add.1961) states that a bank may not disclaim its responsibility for "failure to exercise ordinary care...