Texas Supreme Court Finds Wire Transfer Form Did Not Create Contract Under Which Bank Could Be Sued

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United States: Texas Supreme Court finds wire transfer form did not create contract under which bank could be sued

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The Texas Supreme Court recently ruled that an attorney who was defrauded and wired money before a check was cashed could not sustain a breach of contract claim against the bank based on the wire transfer form. banking from the bank. To see Cadence Bank, NA vs. Elizondo, 2022 Texas LEXIS 263 (2022). In 2014, one party asked a lawyer to help with a legal matter. As soon as the lawyer agreed to represent the party, the party informed the lawyer that he had settled with the adversary and that the adversary would send a cashier’s check. The lawyer deposited the check in his IOLTA account with the plaintiff’s bank and then instructed the bank to wire the money to an account in Japan, as instructed by the client. The next day, the check was dishonoured, and the bank demanded that the lawyer reimburse the discovered funds. The lawyer refused and the bank sued. The bank alleged that the attorney violated the depository agreement and the UCC, and the attorney countered that the bank violated the wire transfer form used in connection with the transfer. The attorney did not dispute “that the UCC and the deposit agreement allow [the bank] to revoke provisionally granted credit for depositing a check which is later dishonoured”, but argued that the transfer form overruled UCC rules. The trial court granted the attorney’s motion to summary judgment on his breach of contract claim and dismissed the bank’s motion, and a split appeals court upheld. As the Supreme Court stated, “the lower courts agreed that [the
bank’s] damages were caused by its breach of a contractual obligation to transfer funds from a “checked balance” or “collected” which excludes provisionally credited funds. . . . Yes [the bank] had fulfilled its duty to ensure that
[the attorney’s] ‘balance collected’ was sufficient before making the transfer, so [the bank] would have seen that
[the attorney’s] the balance collected was insufficient, he would not have made the transfer, and he would not have suffered any damage.”

On appeal, the Court reversed. First, the Court found that Articles 4.207 and 4.214 UCC prevailed. To see,
for example UCC 4.214 (“If a collecting bank has made provisional settlement with its customer for an item and fails because of a refusal…or otherwise to receive settlement for the item which is or becomes final, the bank may revoke the settlement it has given, charge the amount of any credit given for the item to its customer’s account, or obtain reimbursement from its customer”). Second, he concluded that the wire transfer form was not a contract replacing the UCC. It concluded that a contract must be “sufficiently specific” to enable a court to determine the respective obligations of the parties. Here, “the form of transfer does not create the obligation contract that [the
attorney] urge. Its title is “International outgoing transfer
Demand‘. It has all the clues of a form whose purpose is to facilitate [the bank’s] internal processing of the bank transfer. With one exception, all fields in the bottom half of the form were blank when [the attorney] signed and returned. Because this form was not a contract, it could not replace the express obligations of UCC. [the
attorney’s] view, the mere presence of these words on a form created by [the bank] had the effect of implicitly imposing on [the
bank] a contractual obligation which superseded his rights under the UCC and the Custodian Agreement. If this reasoning prevailed, then any of a bank’s routine administrative forms could potentially override the UCC’s default rules.” Accordingly, the Court quashed and remanded to the trial court instance.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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