Farmers and Merchants Bank v. Universal C. I. T. Credit Corporation

• Decision Date: 10 November 1955
• Docket Number: No. 8282,8282
• Parties: d 155 FARMERS and MERCHANTS BANK, a corporation, Plaintiff and Respondent, v. UNIVERSAL C. I. T. CREDIT CORPORATION, Defendant and Appellant.
• Court: Utah Supreme Court

Page 1045

289 P.2d 1045

4 Utah 2d 155

FARMERS and MERCHANTS BANK, a corporation, Plaintiff and Respondent, v. UNIVERSAL C. I. T. CREDIT CORPORATION, Defendant and Appellant.

No. 8282.

Supreme Court of Utah.

Nov. 10, 1955.

George E. Bridwell, Salt Lake City, for appellant.

Elias Hansen, Salt Lake City, J. Rulon Morgan, Provo, for respondent.

McDONOUGH, Chief Justice.

In October, 1952, Universal C.I.T. Credit Corporation undertook to finance the operation of Harry Parsley, Inc., a Lincoln-Mercury dealer in Provo, Utah. Both retail and wholesale financing was provided for in the agreement between the dealer and the finance house, the arrangement being that the contract of sale for the automobile was to be enclosed and sealed in an envelope, the face of which was a sight draft on Universal C.I.T., and Harry Parsley was authorized to draw against that company in the amounts represented by the contracts. Respondent bank was authorized to treat these drafts as cash by a verbal agreement with appellant Universal C.I.T.

These arrangements continued unquestioned by any of the parties until December 24, 1952, when an officer of C.I.T. instructed the bank that it was not to treat sight drafts for wholesale financing as cash from that date forward. There is a conflict in the evidence as to the agreed means of discovering whether a particular draft represented a wholesale or retail deal; but, at any rate, the bank continued giving immediate credit to the Parsley account upon receipt of drafts and allowing checks to be drawn against that credit. On January 6, 1953, C.I.T. instructed the bank that no more drafts drawn by Parsley would be accepted by the corporation. Thirteen drafts dated January 5 and 6, totalling $29,223.65 were credited to the account of Harry Parsley, Inc., in accordance with an oral promise by an officer of the defendant corporation that retail drafts in process up to the close of business on January 6, 1953, would be honored.

Likewise, on January 6, the defendant presented and received payment for ten checks drawn in favor of the corporation on the Parsley account to the amount of $24,668.03. On January 7, further representations that the drafts would be paid were made by members of the staff of defendant corporation. On January 8, C.I.T. presented additional checks amounting to an excess of $20,000, which the bank refused to pay inasmuch as it had received directions from Harry Parsley not to pay any checks in excess of $300 and further because there was not enough credit in favor of Harry Parsley, Inc., to pay this amount. On the same date, C.I.T. refused to honor the thirteen drafts above mentioned.

Subsequent to this time, the bank surrendered to Harry Parsley, Inc. four of the thirteen drafts in exchange for a promissory note for $21,000 and a chattel mortgage and an assignment of accounts receivable.

In a judgment for the plaintiff, the trial court subtracted the amount of the four drafts released to Parsley from the total amount of the refused drafts and awarded judgment of $17,876.81 against the defendant corporation.

It is fundamental that in absence of an acceptance or a promise to accept a holder of a bill has no right of action upon that bill against the drawee. Miller v. Northern Bank, 239 Wis. 12, 300 N.W. 758, 137 A.L.R. 870; State Bank of Chicago v. Mid-City Trust & Sav. Bank, 259 Ill. 599, 129 N.E. 498, 12 A.L.R. 989. The N.I.L., U.C.A.1953, 44-2-7 and 44-2-10, provides that an acceptance or a promise to accept must be in writing in order to bind the acceptor. The reason for the rule requiring acceptance in writing is that sound policy requires some substantial and tangible evidence of the contract, more reliable in its nature than the statements or recollection of witnesses. Selma Sav. Bank v. Webster County Bank, 182 Ky. 604, 206 S.W. 870, 2 A.L.R. 1136; Lawless v. Temple, 254 Mass. 395, 150 N.E. 176, 48 A.L.R. 758. However, the defendant, C.I.T., waived its defense that the agreement must be in writing and, in effect, admitted that it had accepted for payment all drafts representing retail transactions. All the outstanding retail drafts have been paid in accordance with that acceptance.

However, the value of the requirement that an acceptance be in writing is clearly illustrated by the present case. The bank, plaintiff, claims that the promise to accept was enlarged by a statement of a representative of C.I.T. given in reply to a question by Mr. Calder, Vice President and Cashier of the bank. Mr. Calder testified:

'Mr. Nichols had said that we had presented some $32,000.00 of wholesale financing which at that time consisted of drafts which were up for payment in their office. I informed him at that time that Parsley had a sizeable stock of used cars and that his stock appeared to be in pretty good condition, and that it appears as though he would be able to work off the excess stock in the period of some sixty days. At that time he said they didn't want to handle any more financing of used cars and for us not to accept any more drafts, [wholesale] apparently and I assured him that we would not. I said, 'By the way, how do we determine whether the draft is wholesale or retail financing?' and his reply was 'Wholesale financing drafts are for even amounts and generally in excess of $3,000.00.' And that terminated the conversation. I asked him how to determine whether a draft was wholesale or retail, and the reason I asked the question is the drafts didn't reveal on its face anything as to its character. My understanding was in even sums of $1000.00, or in round figures like $6000.00-$8,000.00 or $10,000.00, whereas a retail sum had a figure in every digit, dollars and cents.'

Mr. Nichols' version of the conversation was that he had told Mr. Calder that normally items of wholesale would be in larger amounts than retail, but the only way one could actually distinguish the items was to open the drafts and examine the contracts. The trial court found, despite Mr. Nichols' testimony, that he had made the statement in accordance with Mr. Calder's testimony and based its judgment for the bank upon an estoppel. The question before us, thus narrowed, is whether, as a matter of law, the elements of estoppel exist in this case.

As stated in J. T. Fargason Co. v. Furst, 8 Cir., 287 F. 306, 310:

'Equitable estoppel is bottomed upon the notion that, when one person makes representations to another which warrant the latter in acting in a given way, the one making such representations will not be permitted to change his position when such change would bring about inequitable consequences to the other person, who relied on the representations and acted thereon in good faith. * * * The representations made must be in themselves sufficient to warrant the action taken, and their sufficiency is a judicial...