Warrington v. Dawson
| Citation | 798 F.2d 1533 |
| Decision Date | 09 September 1986 |
| Docket Number | No. 85-4276,85-4276 |
| Parties | 2 UCC Rep.Serv.2d 1 Leon WARRINGTON, Plaintiff-Appellant, v. Ray DAWSON, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Chapman, Bobo, & Heaton, Fincher G. Bobo, Clarksdale, Miss., for plaintiff-appellant.
Merkel & Cocke, Charles M. Merkel, John H. Cocke, Clarksdale, Miss., for defendant-appellee.
Appeal from the United States District Court for the Northern District of Mississippi.
Before GOLDBERG, HILL and JONES, Circuit Judges.
Dramatis Personae
RAY DAWSON (defendant-appellee): Farmer, "good ol' boy," and hero of this tragi-comedy.
LEON WARRINGTON (plaintiff-appellant): Financier, business associate and father-in-law of John Reitz, infra.
The curtain rises on a small town in Mississippi. It is April, 1980, and John Reitz is wondering how to make a go of his failing cropdusting business. Deciding that a fresh infusion of cash is the best answer, he and his father-in-law, Leon Warrington, head down to the Valley Bank of Rosedale.
At the bank they are received cordially by the President, George Green. They have all played this scene before. Green states that the bank will require additional security before loaning any more money to Reitz, Inc. Reitz offers to assign Ray Dawson's account with Reitz, Inc. to the bank. That sounds fine to Green, so he takes an assignment of the Dawson account and accepts a promissory note for $13,360.27, signed by Reitz and Warrington as officers of Reitz, Inc. As a favor to his son-in-law, Warrington also signs a personal guaranty on the back of the note, as he has done several times before. Green gives Reitz an account acknowledgment for Dawson to sign. Exeunt.
Several weeks pass, and the bank has still not received Dawson's account acknowledgment. The bank telephones Warrington and threatens to foreclose on the Reitz, Inc. note unless Dawson signs the acknowledgment. "I'll be right down," says Warrington.
At the bank, a secretary types up a new letter of acknowledgment for Dawson to sign. The letter is on Valley Bank stationery, with "George W. Green, President" imprinted at the top. It says:
April 22, 1980
Ray Dawson
West Helena, Ark.
Dear Mr. Dawson,
It is our understanding that you owe in excess of $18,000.00 to Reitz Dusters and Sprayers Inc. If this is correct, please indicate by signing below that you will make all checks payable on this account to Reitz Dusters and Sprayers Inc. and The Valley Bank in compliance with our lien on this account.
Thank you.
Sincerely,
The letter is signed by George Green; there is also a space for Ray Dawson's signature. Warrington takes the letter, hops into his pickup truck, and roars off.
The scene shifts to a rice field in Arkansas. Ray Dawson is out in the middle of the field on his tractor, about a mile from the highway, planting rice. It is a nice, sunny day, and Dawson is thinking pleasant thoughts. He does not have his reading glasses with him, because he is not planning to read anything out there on the rice field.
Suddenly, out of nowhere, Warrington roars up, trailing a cloud of dust. Dawson gets down off his tractor. Warrington hands him the letter and says Dawson cannot read the letter, since he does not have his reading glasses with him, but he signs it anyway. Warrington takes the letter, hops back into his pickup truck, and roars away. Dawson gets on his tractor and heads back into the rice field, muttering under his breath "What was that all about?"
It is several months later, and the Dawsons are paying their bills. Ray has a vague recollection that their checks to Reitz, Inc. are supposed to be made out differently now, so his wife Luetta, the bookkeeper in the family, telephones Reitz, Inc. to find out what to do. June Kind, secretary at Reitz, Inc. answers the phone and confers with John Reitz. He says: "Tell her to make it out to Reitz, Inc." Ms. Kind relays this message to Mrs. Dawson, who makes out the check as instructed. During the course of the next year or so the Dawsons pay between $50,000 and $100,000 to Reitz, Inc. in this manner.
In February, 1981, the situation begins to deteriorate rapidly. Reitz, Inc. defaults on the promissory note held by the Valley Bank. Pursuant to his personal guarantee on the note, Warrington assumes liability for it and pays off the amount due. In return, the Valley Bank assigns all of its rights in the promissory note--including the Dawson account--to Warrington, who now stands in the shoes of the bank.
There has apparently been a falling-out in the Reitz family, for Warrington and Reitz are no longer related as father-in-law to son-in-law. Warrington demands payment from Reitz, Inc. under the note and from Dawson on the account. Receiving none, Warrington brings suit against both. Reitz, Inc. declares bankruptcy and is removed from the suit. Dawson responds that he has already paid everything he owed to Reitz, Inc. once, and would rather not do so twice. Warrington is unmoved. "See you in court," he says.
Thus it is that this little human drama, like so many others before it, ends up in the courtroom. On February 28, 1985, the case went to trial in the U.S. District Court for the Northern District of Mississippi, Biggers, J.
Warrington, the plaintiff, put George Green on the witness stand and also testified on his own behalf. Dawson, the defendant, testified on his own behalf and put on his wife and Douglas Turner, a former commercial pilot at Reitz, Inc.
From Warrington's own testimony it is clear that his presentation of the acknowledgment letter to Dawson was not an occasion for much discussion:
Q. And threatened with foreclosure, you took a piece of paper and went over to Mr. Ray Dawson out in the field and handed him that piece of paper?
A. Yes, sir.
Q. Got off--him off a tractor where he was working?
A. Yes, sir.
Q. And I believe, according to your previous testimony, there was very little conversation at all between you and Mr. Dawson, is that right, sir?
A. Yes, sir.
Q. You just handed him a piece of paper and told him that you wanted him to sign it to acknowledge what he owed Reitz Dusters?
A. Yes, sir.
Dawson's account was one of trust betrayed:
I knew Leon and I knew John, and I never dreamed they would put something like that in front of me.
....
I had too much confidence in the people that I was fooling with.
....
Q. You signed it to verify an account, is that your statement?
A. Yes, sir.
Q. Okay. And you realized that you were giving someone a verification of account for some purpose?
A. Yes, sir. I gave a friend a verification of account.
Q. Okay. And you would not verify something for a friend or anyone if it was not true, would you?
A. I have learned a lot.
After hearing the evidence presented at trial and considering the arguments of counsel, the trial court found that Warrington had "wholly failed to prove that the bank provided Dawson with adequate notice of the assignment." The court stated that the bank employed "suspect methods" of appraising Dawson of the assignment, that the bank's failure to provide Dawson with a copy of the account acknowledgment was a "cardinal flaw" in Warrington's argument, and that Dawson should have had "more than just a fleeting glance" at the document purporting to provide notice of an assignment of his account. Thus, the court found in Dawson's favor and held that the case should be dismissed. "Let an order issue accordingly," he wrote, and one issued. Exeunt all.
Were we writing strictly as drama critics we could only applaud this poignant little play. In our capacity as legal reviewers, however, we are moved to suggest revisions of several key passages. In sum, we agree with the trial court that the notice of assignment Dawson received was insufficient both as to the manner of notification and as to the content of the notification.
The situation presented in this diversity case is governed by Mississippi Code Sec. 75-9-318(3) (1972):
The account debtor is authorized to pay the assignor until the account debtor receives notification that the amount due or to become due has been assigned and that payment is to be made to the assignee. A notification which does not reasonably identify the rights assigned is ineffective. If requested by the account debtor, the assignee must seasonably furnish reasonable proof that the assignment has been made and unless he does so the account debtor may pay the assignor.
The official Comments to the corresponding U.C.C. section elaborate as follows:
Subsection (3) clarifies the right of account debtor to make payment to his seller-assignor in an "indirect collection" situation (see Comment to Section 9-308). So long as the assignee permits the assignor to collect claims or leaves him in possession of chattel paper which does not indicate that payment is to be made at some place other than the assignor's place of business, the account debtor may pay the assignor even though he may know of the assignment....
....
Subsection (3) requires reasonable identification of the account assigned and recognizes the right of an account debtor to require reasonable proof of the making of the assignment and to that extent validates such requirements in contracts or purchase order forms. If the notification does not contain such reasonable identification or if such reasonable proof is not furnished on request, the...
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