New Ulm State Bank v. Brown
| Decision Date | 04 August 1977 |
| Docket Number | No. 16902,16902 |
| Citation | 558 S.W.2d 20 |
| Parties | 23 UCC Rep.Serv. 389 NEW ULM STATE BANK, Appellant, v. Robert B. BROWN et al., Appellees. (1st Dist.) |
| Court | Texas Court of Appeals |
Conner, Odom & Clover, C. E. Clover, Jr., Sealy, for appellant.
Kamp, Pope & Shoemake, T. Turner Pope, III, Houston, for appellees Robert B. Brown and Hayden Rabon d/b/a B & R Cattle Co.
Kelberg, Mobley, Lockett & Weil, Matthew A. Rosenstein, Corpus Christi, for appellee State Nat. Bank of Robstown.
This is a bank collection case involving documentary drafts.
Kenneth Richardson, doing business as R & R Farms, Inc. and Robert B. Brown and Hayden Rabon, doing business as B & R Cattle Company were cattle traders, having bought and sold each other's cattle since 1965. Each time Richardson bought cattle from Brown, he would instruct Brown to draw a draft on New Ulm State Bank, where R & R Farms, Inc. maintained its account. Brown would cause a "bill of sale" draft to be prepared, naming B & R Cattle Company as the payee, for the amount of the purchase price of the cattle. B & R Cattle Company would then deposit the draft with State National Bank of Robstown, where it would receive immediate credit to its account, and State National Bank of Robstown would transfer the draft to New Ulm State Bank for payment or dishonor. There were eleven drafts transferred by State National Bank of Robstown to New Ulm State Bank in connection with the transactions in question. A history of these drafts is indicated by the following schedule:
DATE REC'D DAYS HELD
EXHIBIT DATE OF BY NEW ULM DATE AFTER
NUMBER DRAFT AMOUNT BANK RETURNED PRESENTMENT
---------------------------------------------------------------
Px 1 7/ 5/74 $ 6,613.47 7/ 8/74 7/26/74 18
Px 2 7/16/74 5,705.33 7/17/74 7/26/74 9
Px 3 7/19/74 10,567.90 7/20/74 7/26/74 6
Px 4 7/23/74 6,600.15 7/24/74 7/26/74 2
Px 5 7/26/74 6,697.57 7/27/74 8/ 6/74 10
Px 6 7/29/74 13,529.04 7/31/74 8/ 6/74 6
Px 7 7/30/74 11,131.03 8/ 2/74 8/ 6/74 4
Px 8 7/29/74 6,613.47 7/31/74 8/ 6/74 6
Px 9 7/29/74 5,705.33 7/31/74 8/ 6/74 6
Px 10 7/29/74 10,567.90 7/31/74 8/ 6/74 6
Px 11 7/29/74 6,600.15 7/31/74 8/ 6/74 6
The testimony shows that the drafts marked Exhibits 1 through 4 were returned to State National Bank of Robstown by New Ulm State Bank with the stamped notation "refer to maker". Upon Richardson's representation that the four drafts would be honored if they were re-presented, B & R Cattle Company caused four new drafts to be prepared, shown as Exhibits 8 through 11, which he deposited with State National Bank of Robstown, and which were then transferred by that bank to New Ulm State Bank. All of the exhibits marked Plaintiff's Exhibits 5 through 11 were subsequently returned to State National Bank of Robstown by New Ulm State Bank, on the dates indicated, with the stamped notation "no authority to pay".
Mr. Charles Mewis, a Vice President and Cashier of New Ulm State Bank, and the bank officer responsible for handling Richardson's checks and drafts, testified that Richardson was a good customer of the bank and that his account showed a high volume of outgoing and incoming drafts. Normally, Richardson appeared each day at the bank to examine the drafts which had been presented for payment against his account. He would customarily write a check for the amount of the draft, and upon his payment, the bank would turn over the draft to him. The bank would then apply the check against his account, and it would send a cashier's check for the amount of the draft to the transferring bank. This transaction usually occurred on the day following the day when a draft was first presented to Richardson. Mr. Mewis testified that a draft would not have been honored unless Richardson first delivered his check to the bank in payment.
During the period of time that the eleven drafts in question were being handled by the bank, Richardson was in serious financial condition, a fact known to Mr. Mewis. Richardson had been given immediate credit by the bank for approximately $94,000.00 worth of drafts on cattle sales he had made in the State of Oklahoma. In July 1974, Mr. Mewis knew that those drafts were going to be returned unpaid, and he began to "capture" all deposits made to Richardson's account, which he held for the benefit of New Ulm State Bank. Mr. Mewis testified that he did not transmit to State National Bank of Robstown any information concerning Richardson's financial condition, and he conceded that he had not fairly represented to State National Bank of Robstown the extent of Richardson's financial difficulties. He also testified that he had been given instructions by the President of New Ulm State Bank that he should try to keep Richardson in business and that he was following those instructions in his handling of the drafts in question.
"Q Didn't Mr. Harris at one time give you instructions to try to keep Mr. Richardson in business?
A Yes, sir.
Q And weren't you following those instructions when you kept these drafts beyond the time period when you should have sent them back or paid them?
A I was yes. I was trying to keep Mr. Richardson in business."
B & R Cattle Company brought this action against New Ulm State Bank, claiming that it had been damaged by reason of the bank's failure to timely return the drafts in question to State National Bank of Robstown. New Ulm State Bank filed a cross-action against Richardson and R & R Farms, Inc. and against State National Bank of Robstown. A cross-action was also filed by State National Bank of Robstown against New Ulm State Bank and B & R Cattle Co.
After a jury trial, the trial court instructed a verdict in favor of B & R Cattle Company against New Ulm State Bank for the sum of $60,844.49, being the aggregate face amount of the seven drafts in question, plus pre-judgment interest in the amount of $8,001.47 and for an additional sum of $5,000.00 as damages based upon the jury's finding that New Ulm State Bank had acted in bad faith in failing to pay or return the drafts within the time provided by law. The trial court also decreed that State National Bank of Robstown was entitled to a preferential lien against the judgment rendered in favor of B & R Cattle Company and that New Ulm State Bank was entitled to judgment against Richardson and R & R Farms, Inc. All other claims for affirmative relief were denied.
This partial appeal, perfected by New Ulm State Bank, is from that portion of the judgment awarding B & R Cattle Company a recovery against New Ulm State Bank and establishing a preferential lien against the judgment in favor of State National Bank of Robstown. The other parties to the action have not perfected an appeal.
In its first seven points of error New Ulm State Bank complains that the trial court erred in instructing a verdict in favor of B & R Cattle Company, contending that the evidence raised fact issues for the jury on the question of whether the bank acted in a timely manner in returning the drafts.
In determining the nature of New Ulm's responsibility in handling the drafts, it is necessary to examine their form and substance. All of the drafts are similar in form; plaintiff's Exhibit No. 5, set forth below, being typical:
Each draft is payable "at sight", constituting the instrument a "demand" item. Tex.Bus & Comm.Code Ann. § 3.108. Each designates B & R Cattle Co. as "payee" and both R & R Farms, Inc. and New Ulm State Bank as "drawees". Accompanying each draft is a bill of sale for a specific number of livestock, constituting the item a "documentary draft" as defined in Tex.Bus. & Comm.Code Ann. § 4.104(6). Marfa National Bank v. Powell, 512 S.W.2d 356 (Tex.Civ.App. El Paso 1974, writ ref'd n.r.e.).
The first theory of liability relied upon to support the trial court's judgment is that New Ulm State Bank converted the drafts in question under the provisions of Tex.Bus. & Comm.Code Ann. § 3.419:
"(a) An instrument is converted when
(1) a drawee to whom it is delivered for acceptance refuses to return it on demand; or
(2) any person to whom it is delivered for payment refuses on demand either to pay or to return it; or
(3) it is paid on a forged indorsement.
(b) In an action against a drawee under Subsection (a) the measure of the drawee's liability is the face amount of the instrument. In any other action under Subsection (a) the measure of liability is presumed to be the face amount of the instrument."
The Official Comment to Section 3.419 states that an action based upon that section of the Code is not an action on the instrument, but, rather, an action in tort for its conversion. It further explains that the "demand" for the return of the instrument may be implied under the circumstances or understood as a matter of custom, and that the term "refuses to return" is meant to cover any intentional failure to return the instrument.
The drafts in question, being demand instruments, were due and actionable upon presentation. Henry v. Roe, 83 Tex. 446, 18 S.W. 806 (1892). The collection letter to New Ulm State Bank specifically instructed the bank not to hold the item after maturity or for the convenience of the payer. In view of the bank's own admission that the drafts were held after demand for the purpose of assisting its customer, the trial court could have concluded, as a matter of law, that a demand was made for the return of each draft at the time of delivery and that there was an intentional failure by New Ulm State Bank to return the instrument. Thus the trial court's judgment may be upheld upon the theory of conversion under Tex.Bus. & Comm.Code Ann. § 3.419.
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