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

The Texas Supreme Court recently held that an attorney who fell victim to a scam and wired monies before a check cleared could not sustain a breach of contract claim against the bank based on the bank’s wire transfer form.  See Cadence Bank, N.A. v. Elizondo, 2022 Tex. LEXIS 263 (2022).  In 2014, a party asked an attorney to help with a legal matter.  Upon the attorney’s agreement to represent the party, the party informed the attorney that he had settled with the adversary and that the adversary would be sending a cashier’s check.  The attorney deposited the check in his IOLTA account with the plaintiff bank, then had the bank wire the money to an account in Japan, per the client’s instructions.  The next day, the check was dishonored and the bank demanded that the attorney reimburse it for the overdrawn funds.  The attorney refused, and the bank brought this action.  The bank alleged that the attorney breached the deposit agreement and the UCC, and the attorney counterclaimed that the bank breached the wire-transfer form used as part of the wire.  The attorney did not dispute “that both the UCC and the deposit agreement authorize [the bank] to revoke credit provisionally given for the deposit of a check that is later dishonored,” but argued that the wire form superseded the UCC rules.  The trial court granted the attorney’s motion for summary judgment on his breach of contract claim and denied the bank’s motion, and a divided appellate court affirmed.  As the Supreme Court stated, “the lower courts agreed with that [the bank’s] damages were caused by its breach of a superseding contractual duty to transfer funds from a ‘verified’ or ‘collected balance’ that excludes provisionally credited funds. . . . If [the bank] had fulfilled its duty to ensure that [the attorney’s] ‘collected balance’ was sufficient before making the transfer, then [the bank] would have seen that [the attorney’s] collected balance was insufficient, it would not have made the transfer, and it would not have any damages.”  

On appeal, the Court reversed.  First, the Court found that UCC sections 4.207 and 4.214 control. See, e.g. UCC 4.214 (“If a collecting bank has made provisional settlement with its customer for an item and fails by reason of dishonor . . . or otherwise to receive settlement for the item that is or becomes final, the bank may revoke the settlement given by it, charge back the amount of any credit given for the item to its customer's account, or obtain refund from its customer”).  Second, it found that the wire-transfer form was not a contract superseding the UCC.  It found that a contract must be “sufficiently definite” to enable a court to determine the parties’ respective obligations.  Here, “the wire-transfer form fails to create the contractual duty that [the attorney] urges. Its title is ‘International Outgoing Transfer Request’. It has all the indicia of a form whose purpose is to facilitate [the bank’s] internal processing of the wire transfer. With one exception, all of the fields in the bottom half of the form were blank when [the attorney] signed and returned it.”  Because this form was not a contract, it could not supersede the express obligations of the UCC.  “In [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 duty that superseded its rights under the UCC and the deposit agreement. If that reasoning carried the day, then any one of a bank’s routine administrative forms could potentially override the UCC’s default rules.”  Accordingly, the Court reversed and remanded to the trial court.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com