First United Bank v. Philmont Corp., 58933

• Citation: 533 So.2d 449
• Decision Date: 26 October 1988
• Docket Number: No. 58933,58933
• Parties: 7 UCC Rep.Serv.2d 1550 FIRST UNITED BANK v. PHILMONT CORPORATION d/b/a Oakhill Ranch and Country Club and Gary Montgomery.
• Court: United States State Supreme Court of Mississippi

Page 449

533 So.2d 449

7 UCC Rep.Serv.2d 1550

FIRST UNITED BANK v. PHILMONT CORPORATION d/b/a Oakhill Ranch and Country Club and Gary Montgomery.

No. 58933.

Supreme Court of Mississippi.

Oct. 26, 1988.

Rehearing Denied Nov. 30, 1988.

M.D. Tate, II, Smith, Smith, Tate & Cruthird, Picayune, Anson B. Chunn, Chunn & Landrum, James L. Young, C. John Hedglin, Young, Scanlon & Sessums, Jackson, for appellant.

Robin L. Roberts, Lawrence C. Gunn, Jr., Hattiesburg, for appellee.

Before DAN M. LEE, P.J., and ROBERTSON and GRIFFIN, JJ.

I.

ROBERTSON, Justice, for the Court:

This appeal arises from a dispute between a bank and a merchant/customer regarding the actions of the bank in placing a "hold" or "freeze" on the merchant's bank account. After a one-day hearing, the Chancery Court issued an injunction which ordered the bank to allow the merchant access to seventy percent (70%) of the balance of the account.

The law of this case is that, absent agreement to the contrary, a customer may not draw against deposits until the credit given has become final. Because the injunction below fails to honor this principle, we reverse.

II.

A.

Gary Montgomery is the founder, sole shareholder and principal managing officer of Philmont Corporation. The Philmont Corporation in turn owns and is the developer of Oakhill Ranch and Country Club, located near Poplarville, Mississippi. Oakhill is associated with a nationwide system of camping facilities known as Camp Coast to Coast (CCC). CCC caters to owners of recreational vehicles (RVs) by providing a nationwide system of campgrounds open exclusively to members of the organization. There are over 400 campgrounds in all fifty states affiliated with CCC. Membership in a local CCC campground entitles the RV owner entry into any other affiliated campground for the nominal charge of $1.00 per night.

Philmont began this venture when it purchased a horse farm in April of 1984 for $180,000. Philmont spent in excess of $300,000.00 remodeling the farm into an RV campground.

On July 15, 1986, Philmont entered into a VISA/Mastercard Merchant Agreement with First United Bank. First United was a local non-member bank acting as agent for VISA/Mastercard member bank, Trustmark National Bank of Jackson, Mississippi. At the same time Philmont opened two accounts at First United in the name of Oakhill. One of these accounts was a standard business checking account. The other account, the one in controversy, was opened to receive the deposit of VISA/Mastercard sales slips. Philmont could also write checks from this account.

Memberships in Oakhill Ranch sold slowly in the first year of operation. The credit card account at First United reflected an average balance of only a few thousand dollars during this time.

In May, 1987, Montgomery contacted Roy Morris who was connected with a telemarketing service known as Vacation Services, Inc. Vacation Services was engaged in telemarketing memberships in a discount travel club.

Vacation Services and Philmont worked out an agreement that ran something like this: Postcards were sent to Visa and Mastercard cardholders informing them that they had qualified for a "free" trip to Orlando and provided them with an "800" number to find out how to claim their prize. When the customer called Vacation Services' telephone boiler room, located in Jackson, his VISA or Mastercard number would be recorded and the customer was sent an information packet for review. Later, upon the customer's approval and purchase of a membership in the discount travel club, the computers at Vacation Services would generate a VISA or Mastercard sales slip in the name of the customer. The name of Oakhill Ranch appeared as the merchant on these computer-generated slips. Each of these sales were in the amount of $349.00.

Philmont/Oakhill's only tie-in to this marketing scheme was the inclusion of Montgomery's business card in the information packet sent to the customer. The $349.00 purchase also included a one-year trial membership in Oakhill Ranch, although there is no mention of that fact in any of the marketing materials. Montgomery said his intent was to follow-up the leads generated by Vacation Services with Oakhill promotional material, although he had not yet done so and at the hearing was unable to produce any of the contemplated marketing mailings.

For his part in the activities of Vacation Services Montgomery received 23% of the gross sales. ¹

Beginning in the first week of July, 1987, Philmont/Oakhill's credit card account at First United Bank experienced a flurry of activity. Between July 1 and July 14 Philmont presented for deposit nine separate transactions totaling $131,000.00. Each of these nine deposits consisted entirely of the computer-generated sales slips from Vacation Services. Upon examining the account bank officers learned that Philmont had written checks against these deposits totaling $77,000.00, leaving a balance of $53,000.00. At this time, of course, the items had not yet been paid by the credit card holder.

When all of this happened, Raymond Saucier, the manager of First United's Poplarville branch, opened a batch envelope and attempted to verify a handful of these sales by telephoning the cardholders. Of the seven customers contacted by Saucier, only two acknowledged that they had authorized the use of their credit card for a purchase of a discount travel club membership. Immediately thereafter First United put a hold on the Oakhill credit card account and instructed Montgomery that it was terminating the Merchant Agreement with Philmont. Although Saucier discussed his plan of action with the VISA member bank (Trustmark), he did not consult legal counsel before taking action. In time Trustmark received fifty-one customer protests, amounting to some $17,500.00. As a result of the freeze on the account, thirteen checks were returned to various Philmont/Oakhill creditors marked "uncollected funds".

B.

Philmont and Montgomery commenced this civil action on September 10, 1987, by filing their complaint in the Chancery Court of Pearl River County, Mississippi. First United Bank was named the sole defendant.

Eight days later the Chancery Court entered an order granting Philmont and Montgomery a preliminary injunction. As a preliminary matter the Court found that "the merchant agreement ... does not authorize First United Bank to place a hold or freeze on any funds in the bank accounts of plaintiffs."

The Court enjoined First United Bank from "freezing, withholding, impounding, or in any way preventing Philmont Corporation or Gary Montgomery from withdrawing any funds from the two bank accounts identified in the preceding paragraph and [further] ... enjoined [Bank] from applying charge-backs to either of these accounts on account of credits to Mastercard and Visa charge sales slips."

Finally, the Court ordered that thirty percent (30%) of the funds in the merchant's accounts "may be retained by First United Bank as security pursuant to Rule 65(c), Mississippi Rules of Civil Procedure." The effect of the order of the Chancery Court was to leave a balance of $15,652.86 as security for the repayment of any future charge-backs.

The Bank now appeals to this Court.

III.

A.

The parties have proceeded on the assumption that this is an interlocutory appeal. To that end, they presented to the Chancery Court an agreed order allowing interlocutory appeal pertinent paragraphs of which include:

4. .... All pertinent documentary exhibits are before the court and all testimony germane to the issues involved has been presented at the hearing held on plaintiffs' motion for preliminary injunction.

5. An interlocutory appeal to the Supreme Court will settle the controlling issue in this case and will aid in a speedy and efficient determination of the controlling issue in this case and will avoid expense and delay in this exceptional case.

Reflection makes clear, however, that this is not an appeal interlocutory under former Miss.Code Ann. 11-51-7 (1972) as supplemented by Sonford Products Corp. v. Freels, 495 So.2d 468, 471 (Miss.1986); Southern Farm Bureau Casualty Ins. Co. v. Holland, 469 So.2d 55, 62-64 (Miss.1985) (Anderson, J., concurring); and other cases. Rather, this matter lies within Rule 54(b), Miss.R.Civ.P. This is a case where more than one claim for relief has been presented. The Chancery Court has decided the question of law that controls all else in this case. That Court has in effect directed entry of final judgment on a single issue, to-wit: 2. The only issue involved in this appeal, and the controlling legal issue in this case, is whether First United Bank was authorized to take the action recited in Raymond Saucier's letter of July 23, 1987, that is, to place a hold or freeze on any funds in these bank accounts and to refuse to pay checks drawn by the plaintiffs when properly presented.

We will treat the Court's order as a determination that there is no just reason for delay and that this appeal should be heard at this time. See Cox v. Howard, Weil, Labouisse, Friedrichs, Inc., 512 So.2d 897 (Miss.1987).

B.

During the pendency of this appeal, Philmont Corporation brought a second action which, in part, arose out of these facts and circumstances. This action was brought in the Circuit Court of Hinds County, Mississippi, and named Trustmark National Bank as defendant. Trustmark in turn filed a third-party complaint against First United Bank. We are advised that the Hinds County proceedings have been stayed pending the outcome of this appeal.

In May of 1988, First United Bank moved to dismiss the present appeal. The Bank argues that it runs the risk of conflicting and inconsistent judgments between that finally entered in the case at bar and that which may be entered in the Circuit Court of Hinds County. Philmont and Montgomery, on the other hand, strenuously oppose dismissal, arguing that there has already been a year's delay as a result of the...