Farmers and Merchants State Bank of Krum v. Ferguson, 18277

• Decision Date: 10 July 1980
• Docket Number: No. 18277,18277
• Citation: 605 S.W.2d 320
• Parties: 30 UCC Rep.Serv. 300 FARMERS AND MERCHANTS STATE BANK OF KRUM, Appellant, v. Earnest FERGUSON, Appellee.
• Court: Texas Court of Appeals

Page 320

605 S.W.2d 320

30 UCC Rep.Serv. 300

FARMERS AND MERCHANTS STATE BANK OF KRUM, Appellant, v. Earnest FERGUSON, Appellee.

No. 18277.

Court of Civil Appeals of Texas, Fort Worth.

July 10, 1980.

Rehearing Denied Sept. 11, 1980.

Kenneth C. Raney, Jr., Houston, for appellant.

Kelsey, Wood, Gregory & Banks and R. William Wood and Ronald L. Phillips, Denton, for appellee.

OPINION

SPURLOCK, Justice.

This is a suit by a bank customer against a bank for damages caused by the wrongful dishonor of several checks. The jury found that the bank had wrongfully dishonored some of plaintiff's checks in violation of Tex.Bus. & Comm.Code Ann. sec. 4.402 (1968). Plaintiff claims violation of the Texas Deceptive Trade Practices Act (DTPA) sec. 17.01 et seq. ^* (1968). Bank claims that DTPA does not apply and that the security agreement justified Bank in dishonoring of the checks.

Judgment was rendered disregarding the jury's findings on mental anguish and punitive damages. The remainder of the damages were trebled and attorneys' fees awarded. Judgment was rendered for plaintiff in the sum of $34,063.68.

We reform and, as reformed, affirm.

Ferguson obtained a loan from The Farmers and Merchants State Bank of Krum to open and operate a drug store in Krum. Several loans were arranged, including a consolidated loan which included money for living expenses prior to the opening of the store and two other loans which were for inventory financing. These loans were made between September of 1974 and January of 1976. Plaintiff pledged the inventory of the Krum store as collateral for loans, one of which had been paid in full.

Ferguson later formed a partnership and opened a new store in Lake Dallas. The Bank was informed and with the knowledge and approval of the Bank Ferguson sold some of the prescription drugs to a Denton pharmacist and moved the remainder of the inventory to his new Lake Dallas store, which was in the process of being opened. He deposited the proceeds of this sale in his account at the Bank. The Krum drug store, a sole proprietorship of Ferguson, was closed by May 1, 1977. Bank froze Ferguson's Krum drug store account on or about May 12, 1977, thus causing a number of checks written by Ferguson to drug companies to be dishonored.

At the time of the freeze, there was a balance in excess of $7,000 in the Ferguson account. The Bank honored three checks to prevent Ferguson from learning of the freeze, which would have caused him to stop making deposits. During the freeze the Bank also made three normal withdrawals as payment on the unmatured notes it held. Ferguson and the Bank agree that at the time of the freeze all payments on the loans were current and that the Bank never notified Ferguson that the account had been or would be frozen. The frozen account had sufficient funds to pay the checks drawn against it.

Ferguson was unable to obtain other bank financing to operate his Lake Dallas store and pay his dishonored checks to the drug companies. The wholesale drug companies were his suppliers at both Lake Dallas and Krum. He eventually obtained a loan from his father and paid the Bank in full. He left a small sum in the account which the Bank used to pay service charges.

Ferguson's suit was then brought for damages to his credit rating with the drug companies, damages sustained in his new store's opening and reputation, loss of time, loss of money, and damages because of loss of discounts for drug purchases. Damages for mental anguish and punitive damages were also sought and were found by the jury but not awarded by the court.

The jury found in response to special issues, stated in abbreviated form, the following: 1) that the Bank was a "payor" Bank when the checks were presented for payment; 2) that at all times here involved, Ferguson was a customer of the Bank; 3) that the Bank wrongfully dishonored the checks; 4) that such dishonoring was accompanied by malice by the Bank; 5) that the amount of punitive damages for dishonoring the checks was $10,000.00; 6) that the Bank represented to Ferguson that the depository contract conferred or involved rights, remedies, or obligations which it did not have; 7) that this misrepresentation proximately caused Ferguson's damages; 8) that the dishonoring of the checks constituted an unconscionable course of action; 9) that the unconscionable course of action proximately caused Ferguson's damages; 10) that the actions of the Bank in dishonoring some checks and honoring others constituted false, misleading, or deceptive acts or practices; 11) that these actions proximately caused Ferguson's damages; 12) that the Bank waived its rights, if any, under the security agreement to dishonor the checks; 13) that Ferguson's damages proximately caused by the dishonoring of the checks were: (a) loss of credit-$3,000; (b) mental anguish-$25,000; (c) loss of time-$5,000; (d) loss of money-$354.56; (e) loss of use of money-$1,500; and 14) attorneys' fees.

The trial court disregarded the jury's answers to special issues 4, 5, 6, 7 and 13B. It is our opinion the court erred in disregarding the jury's answers to special issues 4 and 13B.

Liability claims for the wrongful dishonor of checks can be based on either DTPA or sec. 4.402. Ferguson was awarded judgment under DTPA. Ferguson also proved the Bank's liability under sec. 4.402. The particular basis of liability is significant because recoverable damages under the two acts are not identical. Of particular importance in the instant case is that under DTPA actual damages are trebled and attorneys' fees may be awarded. Section 17.43 of DTPA, which deals with Cumulative Remedies, is also applicable. At the time Ferguson's claim arose, this section read:

"The provisions of this subchapter are not exclusive. The remedies provided in this subchapter are in addition to any other procedures or remedies provided for in any other law; ...."

The first cluster of points of error assert that DTPA does not apply. The Bank states that DTPA is inapplicable because the Act at the time the case arose did not apply to services for "commercial or business use" and because the Act does not ever apply to Banks. The Bank also attacks jury submission and findings that the Bank's actions were false, misleading, deceptive and unconscionable, and raises no evidence and insufficient evidence points of error.

In reference to the Bank's first argument concerning whether DTPA applies, we note that the legislature on May 23, 1977, deleted "for other than commercial or business use" after "leased" in subdivision 2 of sec. 17.45. This amendment did not take effect until after the Bank had frozen Ferguson's account about May 12, 1977. The DTPA at the time in question was not available to business and commercial consumers and we are obliged to determine whether Ferguson's relationship with the Bank was in the character of such a consumer.

Ferguson carried the account under the City Drug name. The account was opened with a $2,000 loan from the Bank for Ferguson's living expenses prior to the time that City Drug opened. These funds were for the personal use of Ferguson, and the Bank was fully aware that the funds were to be used by him for personal living expenses. Ferguson testified that he worked with cattle and in building remodeling under the banker's direction before beginning the work involved in opening the drug store. The Bank had the opportunity to rebut this testimony but did not do so. No issue on the nature of the account was submitted to the jury. The signature card at the Bank was labeled "individual-commercial account", and this document was introduced into evidence and marked as Plaintiff's Exhibit 25. We hold that the account was for both personal and commercial use. Since it was not wholly for commercial use, Bank's point of error is overruled.

We next consider Bank's points of error dealing with whether DTPA applies to Banks. Although oral argument in this case preceded the Supreme Court's decision in Riverside National Bank, et al. v. James Lewis, 603 S.W.2d 169 (1980), we have delayed our judgment so that this case could be considered in light of the Supreme Court's ruling in Riverside.

Briefly, the facts in Riverside were as follows: Lewis purchased a new car and obtained financing from Allied Bank. A car loan was secured by a certificate of deposit and the car itself. After the first payment was missed, Allied told Lewis to seek other financing. He approached other banks and seemed to have been successful when a Riverside National Bank official told him that his loan there had been approved, but then, after a draft from Allied had been presented and refused, Riverside Bank confirmed that Lewis' loan would not be granted. Due to Riverside's refusal to honor the draft from Allied, Allied repossessed the car and sold it, deducted the deficiency from the certificate of deposit, and returned the balance to Lewis. Lewis sued Riverside for losses suffered in this transaction, claiming Riverside had breached its contract to loan money, had engaged in fraud, was guilty of deceptive trade practices, and had converted his property since Riverside retained a promissory note after refusing to give him a loan.

Riverside is not on point factually with the case now before this court. The majority ruling in Riverside carefully limits that holding "in the instant transaction" (at 172) and deals specifically only with the use of money over a period of time. The crux of the question considered by that Court is phrased at page 173 as follows "Other than Lewis' payment for the use of money, there was nothing else for which he paid, or which he sought to acquire. In order to determine whether Lewis was a 'consumer' entitled to maintain a private cause of action under section 17.50 of the DTPA, we must determine whether, in this transaction, Lewis sought or acquired 'by purchase or lease, any goods or services.' "

Under the facts in the case before ...