The Supreme Court of Texas recently held that a bank’s wire transfer form did not create a contractual duty as claimed by a bank customer.
A copy of the opinion in Cadence BANK, NA v. Elizondo is available at: Link to Opinion.
A lawyer in Houston (“Attorney”) was the victim of an internet scam. The scammer (“Scammer”) emailed Attorney seeking his representation in a debt-collection action. After agreeing to represent Scammer, Attorney was informed that a settlement had been reached and a cashier’s check would be sent. On Scammer’s instruction, Attorney deposited the check with plaintiff (“Bank”) in his IOLTA account and was given a check with a limitation stating, “All items are credited subject to payment.”
The next day Attorney contacted Bank to execute a wire transfer as instructed by Scammer. An employee of Bank emailed Attorney a one-page form titled International Outgoing Wire Transfer Request (“Transfer Form”).
The Transfer Form contained a printed declaration requiring the transferor to acknowledge that Bank could not guarantee delivery of an international wire and that the transferor could be responsible for “tracer fees” under certain circumstances. Attorney signed the Transfer Form and returned it to Bank’s employee.
The Transfer Form also contained a preprinted admonishment to Bank employees stating, “Before signing off, be sure you ‘know your customer’ and have verified the collected balance and documented any exception approvals.”
Two versions of the Transfer Form were entered into the record, one of which contained a handwritten note of a Bank employee which stated “Ava Bal” of $497,643.80, “verified @11:08 am.” Bank transferred $398,980 pursuant to Attorney’s instructions to the bank identified on the Transfer Form. The next day, the cashier’s check was dishonored and returned to Bank unpaid. Bank notified Attorney and charged the provisionally deposited amount back to his account and demanded that he pay the overdrawn funds. Attorney refused.
Bank sued Attorney for breach of deposit agreement, breach of warranty under Section 4.207 of the UCC and common-law torts. The trial court granted summary judgment in favor of Attorney and signed a final judgment that each party take nothing.
A split court of appeals panel affirmed. Bank petitioned for review.
Attorney argued, and the lower courts agreed, that Bank’s damages were caused by its breach of a superseding contractual duty to transfer funds from a “verified” or “collected balance” that excluded provisionally credited funds.
More specifically, Attorney argued that, by signing the top of the Transfer Form and providing it to Bank employee, Attorney made an offer to pay Bank the transfer fee in exchange for transferring money from the “collected balance” of his account, which consisted of the remaining balance once provisionally credited funds were excluded.
Attorney also argued that the funds being taken only from the “collected balance” was a material term of the agreement, and that Bank accepted Attorney’s offer by completing the form and initiating the transfer. In addition, Attorney argued that if Bank had fulfilled its duty to ensure the “collected balance” was sufficient prior to making the transfer, then Bank would have seen the balance was insufficient and would not have made the transfer, thereby avoiding any damages.
The Texas Supreme Court noted that Attorney’s theory was premised on a banking customer’s “verified” or “collected balance” being a balance that excludes provisionally credited funds.
Bank argued that this theory was preempted by the Texas version of the Uniform Commercial Code, which does not allow for disclaimer of a bank’s statutory right to rely on the transfer warranties established in Section 4.207(a). Attorney responded that the Transfer Form imposed a separate obligation on the bank rather than disclaiming any warranty.
The Court did not resolve the parties’ disputes regarding the UCC, as it found that the Transfer Form did not create an agreement.
“To be enforceable, a contract must address all of its essential and material terms with ‘a reasonable degree of certainty and definiteness.’” Fischer v. CTMI, L.L.C., 479 S.W.3d 231, 237 (Tex. 2016). At a minimum, “a contract must at least be sufficiently definite to confirm that both parties actually intended to be contractually bound.” Id. It must also be “sufficiently definite to ‘enable a court to understand the parties’ obligations’” and “to give ‘an appropriate remedy’ if they are breached” Id.
The Texas Supreme Court found that the Transfer Form failed to create a contractual duty measured against these standards. First, the Court noted that the Transfer Form was titled “International Outgoing Transfer Request” and that it had all indicia of a form with the purpose of facilitating Bank’s internal processing of a wire transfer. In addition, the bottom half of the Transfer Form remained blank with the exception of the transfer fee amount at the time it was executed by Attorney.
Attorney based his claim on the fields adjacent to the fee field, “Collected Balance/Cash” and “Employee Who Verified Collected Balance,” arguing the presence of these words, created by Bank, had the effect of implicitly imposing on Bank a contractual duty that superseded the UCC and deposited agreement.
However, the Court found this reasoning would allow any of a bank’s routine administrative forms to potentially override the UCC’s default rules.
Thus, the Texas Supreme Court found that the Transfer Form was not “sufficiently definite to confirm that [Bank] actually intended to be contractually bound” by the promise to only transfer “collected funds.” Id.
As such, the Court reversed the judgment of the court of appeals and remanded the case to the trial court to consider Lawyer’s remaining claims or defenses that were not based on breach of contract.