Union Bank v. Safanie

• Decision Date: 01 May 1967
• Docket Number: CA-CIV,No. 2,2
• Citation: 427 P.2d 146,5 Ariz.App. 342
• Parties: UNION BANK, an Arizona corporation, Appellant, v. Murray D. SAFANIE et al., partners under the firm name and style of Shearson, Hammill & Co., a partnership, Appellees. 203.
• Court: Arizona Court of Appeals

Page 146

427 P.2d 146

5 Ariz.App. 342

UNION BANK, an Arizona corporation, Appellant, v. Murray D. SAFANIE et al., partners under the firm name and style of Shearson, Hammill & Co., a partnership, Appellees.

No. 2 CA-CIV 203.

Court of Appeals of Arizona.

May 1, 1967.

Rehearing Denied June 19, 1967.

Review Denied Sept. 21, 1967.

Hall, Jones, Hannah, Trachta & Birdsall, by Ben C. Birdsall, Tucson, for appellant.

Dunseath, Stubbs & Burch, by Dean Burch and Robert B. Buchanan, Tucson, for appellees.

HATHAWAY, Chief Judge.

This appeal arises out of a civil action wherein the appellees, as plaintiffs, recovered damages which resulted from the alleged misrepresentation by appellant, defendant therein, concerning a check drawn on the defendant bank by a third person. The plaintiffs' claim for damages was submitted to a jury upon theories of fraud, negligence and estoppel. The jury returned a verdict in the amount of $23,261.14 in favor of the plaintiffs and from the judgment entered thereon the defendant bank has appealed.

The following are the pertinent facts: The plaintiffs, a nation-wide stock brokerage partnership, maintained an office in Tucson. The defendant-bank was an Arizona corporation operating in Tucson. Kenneth E. Parker was a customer of both parties. During 1963, Mr. Parker had bought and sold stocks for his account with the plaintiffs in an amount exceeding $450,000 and had always made timely payment on his stock purchases.

On April 10, 1964, Mr. Parker purchased one thousand shares of Syntex stock through the plaintiffs at a total cost of $85,224.77. Initially the transaction was undertaken as a 'day trade' in contemplation that the stock would be sold on the same day with a quick profit. The 'day trade' plan was abandoned and the stock was transferred from Mr. Parker's margin account to his cash account. He was advised by the plaintiffs that he had until the 16th of April to make payment in full for the stock purchased. (The rules and regulations of the Federal Reserve Board, however, permitted an extension for payment until April 21.)

On the 15th, Parker informed plaintiffs that he was waiting for funds from an estate and requested additional time for payment. On the 20th, Parker was advised by the plaintiffs that if payment was not made by 11 a.m. on the 21st, all stocks then held for him by the plaintiffs, including the Syntex stock, would be sold and applied on his account at that time.

On April 21, Mr. Parker borrowed $39,600 from the defendant on an unsecured note to pay for stock purchased from E. F. Hutton and Company, another stock brokerage firm doing business in Tucson. He also requested a loan of $85,000 to pay for the purchase of the Syntex stock. He told the president of the bank that he was going to receive approximately $100,000 in the very near future from his mother's estate in Indiana and that he needed $85,000 to pay the plaintiffs that day. The bank president told him that the loan would be considered and an assignment of the inheritance was prepared which he signed. He was advised to call his brother and request a wire confirming the existence of the inheritance in order to expedite the loan. The bank president called the plaintiffs' representative who handled the Parker account. The representative was not in at the time but shortly thereafter returned the call. Although at the trial the bank president adamantly denied having made such statement, the plaintiffs' representative testified that he was told by the president:

'Ken Parker will be in to see you with a check for $85,000. Go ahead and run it through. It will clear when it gets here.'

Later that morning, after this telephone conversation, Mr. Parker went to the plaintiffs' offices and wrote a check for the amount due on the Syntex stock. On April 23, payment of the check, which was deposited in the ordinary course of business, was refused. Plaintiffs, however, had not liquidated Parker's account on April 21 since his cleck was received. (His bank balance was actually about $2,200.)

Had the Parker account been liquidated at 11 a.m. on the 21st, the plaintiffs would not have suffered loss, despite the fact that sale of the 1,000 shares of Syntex would have resulted in a $10,656.47 loss, because the plaintiffs held other securities for Parker. On April 23, prior to the bank's refusal of the subject check, Mr. Parker transacted through the plaintiffs another 'day trade' of five thousand shares of Texas Gulf Sulpher stock. (These shares were later sold for the Parker account at a loss of $15,814.58.) Although this purchase was considerably larger than any previously made for Parker, the plaintiffs explained that they relied upon the $85,000 worth of Syntex stock and approximately $12,000 additional security in the account.

Later the same day after learning that Parker had sustained a $20,000 loss at E. F. Hutton and Company, the president of the defendant bank instructed an employee to refuse payment for insufficient funds of the $85,244.77 check, which had been presented for payment. He also notified the plaintiffs by telephone that the check would not be honored. On the opening of business the following morning, the plaintiffs sold the Parker stock and received an amount which was $23,261.14 less than the amount necessary to pay what was owed to plaintiffs. This amount was awarded by the jury to the plaintiffs as damages.

The following questions are presented for review:

1. Is a bank liable to the promisee when it orally promises to pay a check for a depositor whose account does not contain sufficient funds to cover the check?

2. Was plaintiffs' loss on the Texas Gulf Sulphur transaction properly includible as an element of damages?

3. Was reversible error committed in:

(a) Allowing evidence concerning defendant's recoveries from Mr. Parker on other obligations.

(b) Failure to require plaintiffs to join Mr. Parker as a defendant.

(c) Allowance of Parker's deposition into evidence.

LIABILITY

The case was submitted to the jury on the theories of fraud, negligence and estoppel. Defendant's position in the trial court, and reiterated on appeal, was that its promise to pay the check upon presentment was not actionable since it was not in writing as required by the Statute of Frauds ¹ and the Uniform Negotiable Instruments Law. ² Plaintiffs, on the other hand, argue that recovery was not sought on the basis of a contractual arrangement, but rather for a tortious act, therefore rendering inapplicable the foregoing statutes requiring a writing. They further contend that if the statutes did apply, the defendant was estopped from asserting them as a bar to the action.

The trial court refused to give defendant's proffered instructions as to the Statute of Frauds and the requirement that the bank could be liable only if an acceptance were in writing. We believe the court was correct in so refusing since plaintiffs were not seeking to recover from defendant on a 'promise to pay the debt of another' or because of acceptance of the check. In substance, the statement made to plaintiffs' account representative who was handling the Parker transaction, was a representation as to Parker's credit with the bank, i.e., that there would be sufficient funds to cover the check when presented. Such representations do not fall within the purview of A.R.S. § 44--101, subsec. 2 requiring a writing. See 37 C.J.S. Frauds, Statute of § 32 and cases cited in note 7. The provision of the N.I.L. negating the drawee's liability to the Holder of a check unless the drawee has accepted the check in writing or certified it is likewise inapplicable since plaintiffs were not seeking recovery on the check.

The Uniform Commercial Code, Section 3--409(2) now adopted in Arizona, effective January 1, 1968, Senate Bill 23, provides:

'Nothing in this section (acceptance provisions) shall affect any liability in contract, tort or otherwise arising from any letter of credit or other obligation or representation which is not an acceptance.'

Comment 3 to Section 3--409 states:

'Subsec. (2) is new. It is intended to make it clear that this section does not in any way affect any liability which may arise apart from the instrument itself. * * * He (the drawee) may be liable in tort or upon any other basis because of his representation that he has accepted, or that he intends to accept. The section leaves unaffected any liability of any kind apart from the instrument.'

It is pointed out in 10 Am.Jur.2d Banks § 568 that the code provisions clarify the interpretation to be placed on the Uniform Negotiable Instruments Act:

'It is to be noted that while the Uniform Negotiable Instruments Act, after providing that a check does not of itself operate as an assignment of any part of the funds to the credit of the drawer with the bank, further provides that the bank is not liable to the holder unless and until it accepts or certifies the check, the Uniform Commercial Code, in the analogous section, further provides that the drawee is not liable 'on the instrument' until he accepts it. As explained in the Official Code Comment, the original language of the Uniform Negotiable Instruments Act that the drawee is not liable 'to the holder' has been changed as inaccurate and not intended. That is, the drawee is not liable On the instrument until he accepts, but he remains subject to any other liability to the holder * * *.'

It is well settled in this jurisdiction that there is no actionable fraud without a concurrence of all nine elements thereof. Nielson v. Flashberg, 101 Ariz. 335, 419 P.2d 514 (1966); Gallagher Construction Co. v. Viking Supply Corp., 3 Ariz.App. 55, 411 P.2d 814 (1966). Viewing the evidence most favorably in support of the judgment, we believe there was sufficient evidence upon which the trier of fact could find the defendant liable for fraud and deceit.

The grounds of defendant's attack on the trial court's submission of the fraud issue to the...