Western Air and Refrigeration, Inc. v. Metro Bank of Dallas
| Decision Date | 20 July 1979 |
| Docket Number | No. 77-1955,77-1955 |
| Parties | 26 UCC Rep.Serv. 1248 WESTERN AIR AND REFRIGERATION, INC., Plaintiff-Appellee, v. METRO BANK OF DALLAS, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Roy J. True, Dallas, Tex., for defendant-appellant.
James L. Truitt, John M. Skrhak, Jr., Dallas, Tex., for plaintiff-appellee.
Appeal from the United States District Court for the Northern District of Texas.
Before COLEMAN, GODBOLD and INGRAHAM, Circuit Judges.
Western Air, the payee, presented a check to Metro Bank of Dallas, the payor bank, and it was dishonored for insufficient funds. Western presented the check again in person and was told there were insufficient funds to cover it. Following negotiations between Western, Metro and the drawer of the check, Metro held the check for more than two weeks awaiting the availability of funds in the drawer's account. The funds did not become available, and Metro returned the check to Western again, dishonored because of insufficient funds. Western sued the bank, and after a bench trial the district court held the bank liable to Western under § 4.302, Texas Business & Commercial Code, adopted from the Uniform Commercial Code, which makes a payor bank liable when it does not timely act upon a demand item.
The district judge noted that under § 4.103 parties by agreement may vary their rights and liabilities, although some commentators have suggested that their right to vary the terms of their relationship as defined by the Uniform Commercial Code may be limited. 1 He found it unnecessary to base his decision on this point because he found no agreement expressly or implicitly varying § 4.302.
We reverse because the check was not presented for payment but was left by Western with the bank for collection when and if funds became available in the drawer's account. Also, this arrangement validly varied § 4.302.
Western, a California company, received a check from Harbor Boat Building Company in the amount of $21,537.20, dated August 11, 1975, drawn on Harbor's account in Metro Bank, and deposited the check in its bank account in California. When the check was presented to Metro for payment, after going through usual banking channels, payment was refused because of insufficient funds and the check was returned dishonored.
Furnish, the treasurer of Western, telephoned Metro on September 4, and was told there were sufficient funds in the account to cover the check. The next day he flew to Dallas, presented the check to a teller at Metro, was told there were insufficient funds to cover it, and the check was returned to him by the teller. He talked to Davenport, the bank president who told him that he was expecting funds to be deposited by Harbor that day. Furnish waited at the bank for funds to arrive. After a few minutes Davenport told Furnish that he had spoken with Farris, president of Harbor's parent company, and Davenport suggested Furnish go and talk to Farris.
Furnish met with Farris, who told him that the matter would be straightened out and the check honored that afternoon. Furnish returned to the bank in the afternoon and found that Farris and another officer of Harbor's parent company were meeting with Davenport. These three emerged from their meeting and talked with Furnish.
The district court found that in this conversation Furnish was "advised" that the problem with the Harbor check had been resolved and that the bank would pay it within the week and that Furnish left this meeting after being assured that the check would be paid. The court did not find who gave the "advice" or "assurance" that the check would be paid. Furnish did not testify to any representation by Davenport that the check would be paid but rather that someone, he could not recall who, told him the check would clear the following week, and that he (Furnish) "felt that the check would be paid."
If the foregoing findings were intended to reflect promissory undertakings by the bank they are clearly erroneous and are also irrelevant to the § 4.302 claims except insofar as they bear on the issues, discussed below, of whether the check when left with the bank was "presented" as a demand item and whether the parties made an agreement varying § 4.302. Application of § 4.302 does not depend upon whether the bank undertakes or agrees to pay the item. Strict liability follows as a matter of law. New Ulm State Bank v. Brown, 558 S.W.2d 20, 25 (Tex.Civ.App.1977); Marfa National Bank v. Powell,512 S.W.2d 356, 358 (Tex.Civ.App.1974) (Writ refused n. r. e.); National City Bank of Rome v. Motor Contract Co., 119 Ga.App. 208, 166 S.E.2d 742 (1969).
With respect to resolution of Harbor's financial problems, if such a representation had been made by Davenport it might have been circumstantial evidence of an undertaking by the bank to assure payment of the check, but Furnish did not attribute it to Davenport; instead he testified that one of the persons present told him they had resolved some of Harbor's financial problems, but he could not recall who it was. 2
The overwhelming evidence is that on the afternoon of September 5 Furnish did not present the check as a demand item but left it with the bank for collection if and when funds came into the Harbor account with which to pay it. Furnish testified that it was suggested to him that the check be left with the bank for collection. This testimony followed:
Q But there at the conclusion of that meeting in the bank, when Mr. Farris and Mr. Rich Thomas emerged from their meeting with Mr. Davenport, someone in the group suggested that maybe the check would be paid next week and if you would leave it for collection with the bank the bank could collect it out of the funds when they were deposited, is that correct?
A That's correct.
Q This statement and this request could have been made by any one of the three parties, including Mr. Davenport, correct?
A Well, Mr. Davenport gave me the receipt and took the check for collection.
Q Okay. You stated that you did not request this particular receipt, Defendant's Exhibit 1, which is up there before you, but that is in fact the receipt that you did receive, is it not?
A Right.
Q You would have wanted some receipt for whatever you left there for collection, would you not?
A That's true.
Q So would it have been the orderly thing to do for you to request a receipt before you left that check?
A Yes.
Q And you did understand, did you not, from your conversations with Mr. Davenport that the purpose of your leaving that check was for Mr. Davenport and the Metro Bank to see if those funds could be collected out of the future deposits of Harbor Boat Building Company, out of their account there at that bank?
A That's true.
It was after this testimony that Furnish stated he "felt" that the check would be paid by the bank and that he did not know where the funds would come from.
In cross-examination Furnish was pressed with respect to specifically what Davenport said that led him to think Metro would pay the check whether or not Harbor funds were available. He responded, "Well, I don't recall his specific statements to me," and added that he "got the impression" that the financial problems concerning the check would be solved and the check would clear the following week and a cashier's check would be issued to him.
If there were any substantial doubt about the nature of the afternoon transaction it would be dissipated by the receipt given to Furnish by the bank. It described the Harbor check and stated "Received for collection from Western Air, P.O. Box 4548, Compton, California, 90224." Furnish made no objection to the terms of the receipt.
Davenport testified that Furnish told him that he (Furnish) had worked something out with Farris and that he (Davenport) stated that the bank would take the check for collection, to be held until Farris made a deposit, that Furnish requested the bank do this, and the bank then "entered" the check for collection. He testified that it was the ordinary practice of the bank to hold items for collection in this manner, hundreds of them each month, received by mail, through other banks and in person. He explained that an item presented for payment had to be paid or sent back unless it was "worked out" with the customer that it was to be held for collection. Davenport described the receipt given to Furnish as the bank's standard form used for collection items.
Subsequent events sustain that the check was held for collection. Furnish returned to California and, during the next few days, made several calls to the bank. His description of these calls was not in terms of whether or when the bank would perform on any guarantee or assurance to him but rather they were inquiries concerning whether Harbor's check had "cleared." For example, after refreshing his recollection from his dairy, Furnish described a conversation on September 9 this way:
September 9th, I called Davenport. He was in a meeting. His secretary checked on collection on the Harbor Boat check and still was not paid.
The district court found that on September 12 Davenport indicated to Furnish that the check had cleared and that a cashier's check would be sent that day. The evidence does not support this. First, Furnish testified that Davenport told him on the 12th that he "thought" the check would clear because a deposit had been made to the Harbor account of a check drawn on a California bank; later in his testimony Furnish said that Davenport told him the check "will clear." But the California check did not even enter the picture until September 16, when Harbor deposited in its Metro account a $36,000 check drawn on a California bank. Based on statements by Farris, Davenport thought the check would be good, thus it is possible that he did indicate on the 16th to Furnish (as the court also found that he did) that a cashier's check would be sent that day. On its books, on the...
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