First Nat. Bank in Grand Prairie v. Lone Star Life Ins. Co., 18487
| Decision Date | 27 February 1975 |
| Docket Number | No. 18487,18487 |
| Citation | 524 S.W.2d 525,17 UCCRep.Serv. 835 |
| Parties | 17 UCC Rep.Serv. 835 FIRST NATIONAL BANK IN GRAND PRAIRIE, Appellant, v. LONE STAR LIFE INSURANCE COMPANY, Appellee. |
| Court | Texas Court of Appeals |
Don C. Templin, Haynes & Boone, Dallas, for appellant.
William D. Sims, Jr., Jenkens & Gilchrist, Dallas, for appellee.
Lone Star Life Insurance Company sued the First National Bank in Grand Prairie to recover $30,000 plus interest which the bank refused to pay on a non-negotiable certificate of deposit payable to T. H. Hamilton. Lone Star alleged that it owns the certificate of deposit by virtue of foreclosure under a security agreement between Lone Star and Hamilton. The certificate of deposit was purchased by Hamilton with funds from Lone Star simultaneously with the closing of a real estate loan transaction between Hamilton and Lone Star, and pledge of the certificate of deposit was one of the conditions of the loan. Hamilton signed a security agreement covering the certificate of deposit and delivered the security agreement and certificate of deposit to Lone Star.
An officer of the bank was present throughout the transaction, and, as the trial court found on sufficient evidence, he had actual knowledge that the certificate of deposit was pledged to Lone Star. Hamilton defaulted and Lone Star foreclosed on all security, including the certificate of deposit, and notified the bank. The bank then claimed an equitable right to offset Hamilton's previous indebtedness to the bank against the certificate of deposit and attempted to do so.
Lone Star contends that the bank could not offset its claims against the certificate of deposit because the bank had notice of Lone Star's interest in the funds, under such decisions as National Indemnity Co. v. Spring Branch State Bank, 162 Tex. 521, 348 S.W.2d 528 (1961), which hold that where a bank has knowledge that a depositor's funds are trust funds, the bank may not seize and detain such funds to offset a debt of the depositor to the bank. The bank contends that these decisions are not controlling in this case because the Uniform Commercial Code, which was adopted in 1967, requires the filing of a financing statement for perfection of a security interest in such a deposit. We agree with the bank that the Code 1 applies here, but we also agree with Lone Star's alternative contention that the certificate of deposit, as distinguished from an ordinary deposit account, is an 'instrument,' with respect to which a security interest Can be perfected only by transfer of possession, without the filing of a financing statement, under Tex.Bus. & Comm.Code Ann. § 9.304 (Tex. UCC 1968). (Emphasis added.)
We conclude that the National Indemnity rule does not apply here because that opinion, which was written before adoption of the Code, treats the certificate of deposit like any deposit account. The Code, however, makes a sharp distinction between the two. Article 9 .105(a)(5) of the Code in its definition of 'deposit account' specifically Excludes an account evidenced by a 'certificate of deposit.' Furthermore, § 9.104(12) provides that article 9 does not apply to the transfer of an interest in any 'deposit account' (except as provided with respect to proceeds and priorities in proceeds). Therefore, a certificate of deposit, regardless of negotiability, falls within the ambit of article 9 of the Code.
The situation here is not affected by § 9.104(9), which excludes 'any right of set-off' from the requirements of article 9. In the context of this provision, it means that the claimant of a right of setoff is not required to comply with the Code. It does not mean that a setoff can be successfully asserted against a party who has perfected a security interest in the manner prescribed by article 9.
The bank asserts that this alleged pledge of the certificate of deposit is governed by § 9.102(b), which states that article 9 of the Code 'applies to security interest created by contract including Pledge, assignment,' and that the certificate of deposit is Not a 'deposit account' as defined under Tex.Bus. & Comm.Code Ann. § 9.105(a)(5) (Tex. UCC Supp.1974), which provides: '(A) demand, time, savings, passbook or like account maintained with a bank, savings and loan association, credit union or like organization, Other than an account evidenced by a certificate of deposit.' The bank's conclusion is that since the certificate of deposit is not excluded under § 9.104, which enumerates transactions excluded from article 9, and since a certificate of deposit is Not a deposit account under § 9.105(a)(5), then this entire transaction is governed solely by the Code.
We Agree with this contention. We interpret the Code provisions concerning security interests as exclusive with respect to perfection of a security interest in such a certificate. This interpretation is in accordance with the policy of the Code to provide certainty and uniformity in the rules governing transactions within its scope. Tex.Bus. & Comm.Code Ann. § 1.102 (Tex. UCC 1968) .
The bank cites the recent Supreme Court cases of Hudnall v. Tyler Bank and Trust Co., 458 S.W.2d 183, 186 (Tex.1970) and Citizens National Bank of Dallas v. Hill, 505 S.W.2d 246, 248 (Tex.1974), which arose after adoption of the Code, for the proposition that one who seeks to impress a trust upon such funds or to show that the deposit was restricted in some manner (as a 'special deposit') must show that the bank agreed to such a restriction of the deposit or agreed to act as trustee.
We do not reach this point because we hold, for reasons to be discussed later, that Lone Star perfected a security interest by taking possession of the certificate under its security agreement. We do not consider these cases as holding that the National Indemnity rule still applies to certificates of deposit as here, under the Code, because no certificates of deposit were involved. The deposits involved in each were 'deposit accounts' under the definition in § 9.104 and, therefore, excluded from coverage by article 9. Consequently, the Supreme Court had no occasion to consider the application of the Code to a 'certificate of deposit.' We also note that Martin v. First State Bank, 490 S.W.2d 208, 211 (Tex.Civ.App.--Amarillo 1973, no writ), apparently follows the National Indemnity rule. However, no question under the Code was presented, and Martin is distinguishable on its facts. The decision turned on the construction of a contract between Martin and a third party which had been assigned to the bank . Since the bank had possession of the certificates of deposit under a pledge agreement with Martin, no question under the Code was raised. The case was simply one of interpretation of an ambiguous written contract between Martin and the bank with reference to the application of the proceeds of the certificates of deposit.
We conclude that the rule in National Indemnity is still the law in Texas except for cases like the present, in which it has been displaced by the Code. Tex.Bus. & Comm.Code Ann. § 1.103 (Tex. UCC 1968).
Although we agree with the bank that the Code applies to the perfection of a security interest in a certificate of deposit, we cannot agree that the Code requires filing of a financing statement with the Secretary of State in a case like the present. Here it is undisputed that Lone Star did not file a financing statement. Therefore, the question is: Did Lone Star perfect a security interest in the certificate of deposit in question by taking possession pursuant to a security agreement?
Section 3.104(c) of the Code provides: 'As used in other chapters of this title, and as the context may require, the terms 'draft', 'check', 'certificate of deposit' and 'note' may refer to instruments which are not negotiable within this chapter as well as to instruments which are so negotiable.' (Emphasis added.)
Section 9.304(a) provides: 'A security interest in instruments (other than instruments which constitute part of chattel paper) can be perfected Only by the secured party's taking possession . . ..' (Emphasis added.)
The question then turns upon whether or not the certificate of deposit is an 'instrument' under Tex.Bus. & Comm.Code Ann. § 9.105(a)(9) (Tex. UCC Supp.1974) of the Code, thereby bringing it within the ambit of § 9.304(a).
The bank asserts that a certificate of deposit cannot be an 'instrument' under § 9.105(a)(9) of the Code because the restrictive legend 'Non-Negotiable' would prevent the certificate of deposit from being transferred In the ordinary course of business by delivery and assignment. We agree that the instrument is non-negotiable. 2 Nevertheless, we hold that it is an 'instrument' within § 9.105(a)(9). This section is not limited to negotiable instruments. It provides:
'Instrument' means a negotiable instrument (defined in Section 3.104), or a security (defined in Section 8.102) Or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease And is of a type which is in Ordinary course of business transferred by delivery with any necessary indorsement or Assignment. (Emphasis added.)
A certificate of deposit is a writing which evidences a right to the payment of money. The question is whether or not it may be transferred in the ordinary course of business by delivery with any Necessary endorsement Or assignment. 'Instrument' in § 9.105(a)(9) covers non-negotiable documents because of the language 'in ordinary course of business transferred by delivery with any necessary . . . assignment.' There would be no reason for the insertion of the aforesaid language if we construed the term 'instrument' only to mean a negotiable instrument, as the bank would have us do in this case. The concept and intention of article 9 of the Code is to provide a method whereby all security interests in personal property and fixtures can be...
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