Case Title: SUN RIVER CATTLE CO v MINER S BAN

Citation: 

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1974-04-17T00:00:00Z

Document:
No. 12511 I N THE S U P R E M E C O U R T O F THE STATE O F M O N T A N A 1974 S U N RIVER CATTLE CO., I N C . , a Corporation; LOUIS S K A A R & SONS; and BRUCE E. BECK & SONS, P l a i n t i f f s and Appellants, MINERS BANK O F MONTANA N .A. , a Banking Corporation, Defendant and Respondent. Appeal from: D i s t r i c t Court of t h e Second J u d i c i a l D i s t r i c t , Honorable James D. Freebourn, Judge presiding. Counsel of Record : For Appellants : Corette, Smith and Dean, Butte, Montana Kendrick Smith argued, Butte, Montana For Respondent : Alexander, Kuenning and Miller, Great F a l l s , Montana Paul D. Miller argued, Great F a l l s , Montana Henningsen, Purcell and Genzberger, Butte, Montana For Amici Curiae: Wesley Wertz, Helena, Montana Turnage and McNeil, Polson, Montana Luxan, Murfitt and Davis, Helena, Montana Filed : fiw? 17' lW# ,.. a ? , , . r b Submitted: arch 18, 1974 Decided : @R 1 7 ~ 4 i PER C U R I A M : This appeal was originally heard on November 27, 1973; an opinion issued January 14, 1974; a rehearing was granted and argued. This opinion replaces that appearing i n 31 St.Rep. 44. This -is a case involving three separate plaintiffs and six separate checks. The plaintiffs are c a t t l e raisers and brought t h i s action t o recover $74,868.02, plus interest which represents the total of the six checks drawn by Schumacher's N e w Butte Butchering, hereinafter referred to as N e w Butte, on i t s account a t Miners Bank of Montana, hereinafter referred to as Miners. One check was payable to Bruce Beck & Son, two t o Louis Skaar & Sons, and three t o Sun River Cattle Co., who will be referred to hereinafter, respect- ively, as Beck, Skaar and Sun River individually and as plaintiffs collectively. Each of the checks was accepted by the plaintiff payees i n payment for c a t t l e sold and delivered t o N e w Butte. A summary of the history of a l l six checks is as follows: The Beck check dated April 28, 1970, was for the amount of $12,478.63. This check was sent by Beck's bank t o Miners, stamped "Paid", run through N e w Butte's checking account and deducted from the balance on M a y 11, 1970, (a Monday). The check was reversed and added to the balance on M a y 13, 1970, and returned to Beck's bank for insufficient funds. The check was sent back t o Miners, stamped "Paid", run through N e w Butte's checking account, deducted from the balance on M a y 20, 1970, reversed on M a y 21 , 1970, and returned t o Beck's bank for insufficient funds. I t was then returned t o Miners "for collection" June 4, 1970, received by Miners on June 8, 1970, and retained by Miners until July 7 , 1970, when i t was returned t o Beck's bank. The f i r s t Skaar check, dated April 14, 1970, was for the amount of $11,514.74. This check was sent by Skaar's bank t o Miners, stamped "Paid", run through N e w Butte's checking account, deducted from the balance on April 27, 1970, reversed April 28, 1970, and added t o the balance and returned t o Skaar's bank for insufficient funds on April 28, 1970. The check was sent back t o Miners, run through N e w Butte's checking account and deducted from the balance on M a y 11 , 1970, reversed and added t o balance May 13, 1970, and returned t o Skaar's bank for insufficient funds. I t was returned by Skaar's bank "for collection'' on May 15, 1970, received by Miners on M a y 18, 1970, and retained by Miners until July 27, 1970, when i t was returned t o Skaar's bank. The second Skaar check, dated M a y 4, 1970, was for the amount of $12,434.26. This check was sent by Skaar's bank t o Miners, stamped "Paid", run through N e w Butte's checking account, deducted from the balance on May 12, 1970, reversed on May 13, 1970, and added t o the balance and returned t o Skaar's bank for insufficient funds. The check was returned by Skaar's bank to Miners "for collection", received by Miners on May 20, 1970, and retained by Miners until July 27, 1970, when i t was returned to Skaar's bank. The f i r s t Sun River check, dated April 27, 1970, was for the amount of $12,882.57. This check was deposited in the First National Bank of Great Falls on April 28, 1970, and sent t o Miners. I t was stamped "Paid M a y 1, 1970", run through N e w Butte's checking account and deducted M a y 1, 1970, (a Friday). The check was reversed and added t o the balance on M a y 4, 1970, (a Monday) and returned t o First National Bank of Great Falls. The check was sent back to Miners "for collection" on M a y 8, 1970, received by Miners on M a y 11, 1970, and has never been returned. The second Sun River check, dated M a y 4, 1970, i n the amount of $13,114.23, and the third Sun River check, dated April 1, 1970, (although the invoice for this load of cattle is dated April 28, 1970) i n the amount of $12,443.59, were both sent t o Miners directly "for collection". The second check was sent on M a y 6, 1970, and received by Miners on M a y 7, 1970, and the t h i r d was sent on M a y 12, 1970, and received by Miners May 13, 1970. These checks have never been returned. None of the checks have been paid. In 1962 the original transaction between Miners and N e w Butte took place when Miners loaned N e w Butte some $289,500. In 1968 refinancing of N e w Butte became necessary in an amount i n excess of Miners' lending capacity. Refinancing was carried out w i t h two separate loans. One was for $200,000 w i t h Miners having a 30% participation and the remaining 70% spread among seven sister banks. The other was for $100,000, 90% of which was guaranteed by the Small Business Administration (hereinafter referred t o as SBA). The loans were made t o provide working capital, and t o comply w i t h federal regulations as t o slaughterhouses . Miners filed financing statements w i t h the county clerk of Silver B o w County and the secretary of state. A l i s t of equipment was attached t o the statement filed with the secretary of state; no such l i s t was attached t o the one filed with the county clerk and recorder. N o amounts being secured are shown on the statements but M r . Pitts, Miners1 president a t the time, stated that they were designed t o cover both loans. Nitness Pitts testified that the lien of the $200,000 loan was f i r s t as to a l l equipment b u t that the $100,000 loan was f i r s t as t o the accounts receivable and inventory. Miners also took mortgages securing the $200,000 loan as follows: mortgage on N e w Butte's plant and a mortgage from Harold F. Schumacher and Loretta Schumacher covering thei r home and personal property. Securing the $100,000 loan Miners took a mortgage from N e w Butte to Miners covering the plant and equipment and a mortgage from the Schumachers covering their home and personal property. In each instance the mortgage securing the $200,000 loan was filed f i r s t . None of these mortgages has been foreclosed. Miners also filed a security agreement w i t h the registrar of motor vehicles securing the $200,000 loan and also took an assignment on Schumacherls l i f e insurance as security for the $200,000 loan. The policies were cashed for the cash value. In December of 1969, N e w Butte closed down i t s operation for financial reasons. Operations were resumed i n January 1970. A t this time a financing firm, Doug1 as Guardian, with its program of warehousing receipts and accounts receivable financing became involved i n cooperation w i t h Miners and N e w Butte. Advances by Miners under the warehouse recei pts plan approximated $390,000. The amounts advanced by Miners under the accounts receivable financing exceeded $400,000. The warehouse receipts program started January 15, 1970, and ended M a y 22, 1970; the accounts receivable financing covered a period from January 30, 1970, to M a y 11, 1970. During the f i r s t seven months of 1970, the N e w Butte checking account was overdrawn i n amounts ranging from nominal t o as much as $55,000 for a l l but 87 of those days. A s of M a y 18, 1970, the $700,000 loan was current in payments. All payments on the $200,000 were made currently through M a y 28, 1970. On June 2, 1970, the S B A took over the assets of the business. Neither loan was i n default a t that time. On M a y 29 and June 1, 1970, Miners' president, P i t t s , debited the M e w Butte account for $12,000 and $9,000 and credited those amounts to the $100,000 S B A loan. P i t t s admitted that he was looking carefully t o the account on M a y 29, 1970, so that he could put i n the withdrawal s l i p for $12,000 and be sure that Miners got ahead of anybody else. H e stated that he personally handled the withdrawal. A s t o the $9,000 withdrawal, Pitts testified that he kept s t r i c t watch of the account and when there was enough deposited, he personally p u t in a withdrawal s l i p . On June 18, 1970, Miners credited the $200,000 loan w i t h $4,602, which represented 30% of the total of $15,342 as the result of a sale of equipment by N e w Butte. The proceeds were not deposited i n N e w Butte's account but were applied directly to the $200,000 loan and that credit was enough t o discharge i n advance the principal and interest f o r six months. There was no foreclosure of the security interests nor were the proceeds of the sales placed into N e w Butte's account. The bank in this instance knew of the condition of the account of N e w Butte, i t had intimate knowledge of the transactions, i t was the "on the ground" representative of the s i s t e r banks who shared in the loan and i t had more than the usual normal interest i n the a c t i v i t i e s of N e w Butte. Plaintiffs brought this action against N e w Butte and Miners to re- cover the amounts of the checks plus interest and damages. After a t r i a l without a jury in the second judicial district, Judge James D . Freebourn presiding, found for the plaintiffs against N e w Butte and found against the plaintiffs and for defendant Miners. Plaintiffs appeal that part of the judgment which exculpated Miners. Plaintiffs present five issues for review, which are summarized as follows: (1) Whether Miners i s liable for holding the Beck check and the f i r s t Skaar check past the midnight deadline provided for in section 87A-4-302, R.C.M. 1947, and ( 2 ) whether Miners i s liable for holding all six of the checks past the midnight deadline as provided for in the statute. Plaintiffs' remaining issues involve the question of good faith, which the district court specifically found was exercised by Miners in i t s dealings with plaintiffs. The question of good faith will be considered in connection with plaintiffs' f i r s t two issues. This case involves sections of the Uniform Commercial Code enacted in Title 87A, R.C.M. 1947. The issues presented by plaintiffs are of f i r s t impression to this Court, and there are few cases in other jurisdictions which have construed the effect of the sections of the Uniform Commercial Code which are determinative of the issues presented for review. . . - - T (: $',,iicilh( Plaintiffs' f i r s t and second issues raise questions concerning-ectio 4 of the Uniform Commercial Code. (Hereafter, references to the Uniform C o m - mercial Code will be made by the section number only; the t i t l e number will be omitted). Generally plaintiffs argue that Miners i s liable for the face amount of the checks for not complying with what i s commonly referred to as the "mid- night deadline" rule. Defendant argues that with respect to the f i r s t issue section 4-108 i s an exception to section 4-302 and with respect to the second issue section 4-103 i s an exception to section 4-302 and under these sections Miners i s not liable. Initially, w e will generally discuss the construction of section 4-302, which provides: "In the absence of a valid defense such as breach of a presentment warranty (subsection (1) of section 87A- 4-207), settlement effected or the like, if an item i s presented on and received by a payor bank the bank i s accountabl e for the amount of "(a) a demand item other than a documentary draft whether properly payable or not i f the bank, in any case where i t i s not also the depositary bank, retains the item beyond midnight of the banking day of receipt without settling for i t or, regardless of whether i t i s also the depositary bank, does not pay or return the item or send notice of dishonor until after its midnight deadline; or * * *." The 'hidnight dead1 ineuis midnight of the banking day following the < ,.-- i e ' day of the receipt of the item by the payor bank. Section 4-104'(h). A payor bank i s a bank by which an item is payable as drawn or accepted. Section 4-105(b). There i s no question b u t that Miners i s the payor bank. .'* ) The checks involved herein are demand items. Section 4-10P(g) and section 3-104(1) and (2). Section 4-302 was construed in the case of Rock Island Auction Sales v. Empire Packing Co., 32 I11.2d 269, 204 N.E.2d 721, 18 ALR.3d 1'368, where the Illinois court held that the word "accountable" in the statute i s synonymous with "1 iable". W e agree. Essentially, section 4-302 says that i n the absence of a valid de- fense, a demand item, retained beyond thellnidnight deadlineUby the payor bank without either paying, returning, or giving notice of dishonor renders the payor bank liable to the payee for the face amount of the item. In addition, there i s a fundamental requirement of good faith under the specific provision of section 1-201(19), which reads as follows: "'Good f a i t h ' means honesty in f a c t i n the conduct or transaction concerned. Furthermore, 1-203 provides: "Every contract or duty w i t h i n this act imposes an obligation of good faith i n its performance or enforcement." Plaintiffs' f i r s t issue concerns the Beck check dated April 28, 1970, and the first Skaar check dated April 14, 1970. These checks were submitted as cash items to Miners on M a y 11, 1970, and were not returned until M a y 13, 1970. Plaintiffs contend that because of the delay that Miners violated the ('midnight deadline" rule. Facts not heretofore s e t forth relevant to this issue and undisputed are as follows: The Computer Corporation of Montana, a data processing company, is a wholly owned subsidiary of Bancorporation of Montana which processed checks for eleven banks in the Bancorporation chain, including Miners. Items t o be processed for Miners are sent to Computer Corporation i n Great Falls by armored car between 5:00 p.m. and 6:00 p.m. of the day of receipt and are usually back a t Miners by 8:00 a.m. the following morning. The checks norm- a l l y reach Great Falls about 10:30 p.m. On M a y 11, 1970, the day on which Miners received the checks under discussion, the armored car broke down and did not reach Computer Corporation until 1:30 a.m. the morning of M a y 12, 1970. Ordinarily the work on Miners' checks would have been processed by 11:30 p.m.; the checks would have started back t o Butte by armored car a t 4:00 a.m. and have reached Miners a t 7:00 a.m. On the morning of M a y 12, 1970, the computer malfunctioned, and the checks which would have normally been returned t o Miners on the morning of M a y 12, 1970, did not arrive until 2:30 p.m. that afternoon. Ken Mahle, vice-president of Miners a t the time of the t r i a l , outlined the procedures which were followed each day after the receipt of the checks from the Computer Center. H e could not, however, testify as t o what occurred on M a y 12, 1970. There was no testimony as to what actually happened on the day after the checks were received by Miners. Miners contend that i t is this type of situation which section 4-108(2) was intended t o cover. Section 4-1 08(2) provides: "Delay by a collecting bank or payor bank beyond time limits prescribed or permitted by this act or by instructions is excused i f caused by interruption of communication f a c i l i t i e s , suspension of payments by another bank, war, emergency conditions or other cir- cumstances beyond the control of the bank provided i t exercises such di 1 igence as the circumstances require. " The Official Code Comment on this point states: "4. Subsection (2) is another escape clause from time limits. This clause operates not only with respect to time limits imposed by the article i t s e l f b u t also time limits imposed by special instructions, by agreement or by Federal Reserve regulations or operating letters, clearing house rules or the like. The l a t t e r time 1 imits are 'permitted' by the Code. This clause operates, however, only i n the types of situation specified. Examples of these situations include bl izzards , floods, or hurricanes, and other 'Act of God' events or con- ditions, and wrecks or disasters, interfering w i t h mails; suspension of payments by another bank; abnormal operating conditions such as substantial increased volume or substantial shortase of ~ersonnel durins war or emergency situations ." When' delay i s sought to be excused under this subsection the bank must 'exercise such dili- gence as the circumstances require' and i t has the burden of proof." (Emphasis supplied.) 3 Anderson, Uniform Commercial Code 191 . The effect of section 4-108(2) i s to excuse a payor bank from the standard of s t r i c t accountability of section 4-302 and to hold i t to a stan- dard of "di 1 igence as the ci rcumstances require". Under section 4-1 08(2) there must be a showing that the circumstances were beyond the control of the bank and that the bank exercised such diligence as the circumstances require. A s the Official Code Comment states, the burden i s on the bank. The district court found that Miners' failure to pay or return the checks or to give notice of dishonor within the prescribed time was due to circumstances bqond i t s control. The district court also found that Miners exercised the required di 1 igence and that no evidence was introduced showing that Miners failed to exercise due care. The evidence as to the events in question i s undisputed. This Court i n In re Wadsworth's Estate, 92 Mont. 135, 150, 11 P.2d 788 stated: " * * * B u t where, as here, there i s no dispute as to the facts, this court i s in as favorable a position in applying the law as the district court, and in such instances will not hesitate t o do so. (Citing author- ity.) And a judgment or order unsupported by the evi- dence will be reversed on appeal to this court. (Citing authority.)" The only evidence produced by Miners was what the ordinary operating procedures were. A s w e have heretofore stated, Miners had more than the usual normal interest in the activities of N e w Butte. I t necessarily follows that under the circumstances of this case that the degree of diligence required under 4-108(2) i s greater than under normal circumstances. Miners argues t h a t the testimony of Mahle as to normal operating procedures constitutes a showing of due diligence. While there may be in- stances where a showing as to what occurs on a normal operating day may constitute a showing of diligence under circumstances where the delay i s similar as t o the one i n the instant case, this case is n o t one of those instances. Miners' interest i n N e w Butte was more than usual, and a show- ing of diligence by Miners required more than testimony as to what the normal operating procedures were. Miners' burden under the circumstances of this case is greater f o r the reason that i t s relationship and interest i n N e w Butte was significantly more than ordinary. Miners did not meet its burden as imposed by section 4-108(2). Under the exception of section 4-108(2) the bank must show: (1) A cause for the delay; (2) that the cause was beyond the control of the bank; and (3) that under the circumstances the bank exercised such diligence as required. In the absence of any one of these showings, the excuse for the delay will not apply, and the bank will be held liable under the provisions of section 4-302. Since Miners d i d not meet its burden, i t i s therefore liable for the face amount of the Beck check and the first Skaar check under the s t r i c t accountabil i t y rule of section 4-302. Having illustrated that Miners had more than a normal interest i n the activities of N e w Butte and that the exception of 4-108(2) i s not appli- cable herein, w e now consider plaintiff's second issue which concerns a l l six checks. For the reason that w e have found in considering plaintiff's issue No. 1 that 1 iability attached as to the Beck check and the f i r s t Skaar check as of M a y 13, 1970, under section 4-302, our consideration of the second issue will be w i t h reference to the remaining four checks. The second Skaar check and the f i r s t Sun River check were ultimately sent to Miners "for collection". The second and third Sun River checks were sent directly to Miners for collec- tion. The second Skaar check was received by Miners on M a y 20, 1970, and re- tained until July 27, 1970, a period of more than two months. The three Sun River checks were never returned by Miners. Plaintiffs contend that Miners, the payor bank, may not become a collecting bank and therefore, cannot take a check for collection and hold the same beyond the regular midnight deadline. Plaintiffs rely upon the following cases: In Rock Island the seller of cattle received the buyer's $14,706.90 check on the same day. On t h a t day the seller deposited the check in seller's bank and i t was received by the payor bank on Thursday, three days later. The buyer's account in the payor bank was inadequate to pay the check, and the payor bank, relying on the buyer's assurances that additional funds would be deposited, held the check until the following Tuesday, when i t marked the check "not sufficient funds", placed i t in the mail to a Federal Reserve Bank and sent notice of dishonor by telegram to the Federal Reserve Bank. The court held the payor bank 1 iable for the amount of the i tem under section 4-302. Section 4-302 was also involved in the case of Farmers Coop. Live- stock Mkt. v. Second Nat. Bank, 427 S.W.2d 247 (Ky. 1968). The buyer's alleged agent signed a draft in the amount of $7,687.01 payable to the seller. The instrument was drawn on the defendant bank and contained the notation "'To (be) Charged to Acct. of Robert Martin"'. I t was deposited with Northwestern Bank and sent by Northwestern direct to defendant bank on October 1 , with an accom- panying letter. The letter, among other things, stated: "'We enclose for collection * * *' " 'Wire non-payment of i tems $1,000.00 or over. ' " 'Please send us your draft. ' "'Please wire i f unpaid upon arrival, b u t hold for payment with advice to us. * * *"I The instrument was received by defendant bank on October 4, and although there were sufficient funds in Martin's account to pay the check, defendant bank had not been authorized by Martin to make payment, so no charge was made to his account. N o wire was sent to Northwestern as Northwestern had requested. On October 6, Northwestern called the defendant bank and "'was told that Martin had not come into the bank to authorize payment of the instrument in question. ' I ' I t was undisputed that the defendant bank had failed to take action before the "midnight dead1 inel'. There was a dispute as to whether the instrument was a "check" or a "draft". The Court said that this was an immaterial distinction and that the important question was whether the instrument was a demand item referred to - 11 - in section 4-302(a). The Court quoted the definition of an "i tem", and said a demand item would obviously be one on demand, and held the instru- ment i n this case was a demand item. The Court also held that the de- fendant bank was clearly the "payor" bank and clearly liable for the amount of the item. The defendant bank contended that i t was a collecting bank because the letter accompanying the draft contained the words, "'We enclose for collection * * *I1', and the defendant bank treated the item as a col lection item. In this regard, the Court on page 250 said: " * * * The use of the term 'collection' in the letter certainly cannot be said to have destroyed the statutory scheme governing the collection process. The letter also said 'Please wire if unpaid upon arrival I . This draft was presented for payment. (Had appel l ee wired as instructed, i t would have discharged i t s duty as the payor bank and subsequent action t o settle this account would have been governed by other considerations . ) With respect to h o w appellee treated this item, w e can only say that i t took the risk of loss by failure to comply with the law. * * *" Miners asserts several reasons why i t i s not liable under section 4-302. The f i r s t of these i s that section 3-511 (4) excuses notice of dis- honor where a check has been presented to the bank and payment refused a t least once before. Miners argues that the "midnight deadline" rule does not apply and re1 ies on Leaderbrand v. Central State Bank of Wichita, 202 Kan. 450, 450 P.2d 1. Section 3-511 (4) provides: "Where a draft has been dishonored by nonacceptance a later presentment for payment and any notice of dis- honor and protest for nonpayment are excused unless i n the meantime the instrument has been accepted." The Kansas court in Leaderbrand held that under section 3-511, once notice of dishonor had been given, an additional notice of dishonor was not required. In Wiley v. Peoples Bank and Trust Company, 438 F.2d 513, the court rejected Leaderbrand and held section 3-511(4) inapplicable for the reason that "acceptance appl ies only to time items. I t has nothing to do with demand items." Likewise, w e hold that section 3-511 (_4) i s inapplicable to the checks under consideration herein, for section 3-51 l(4) does not apply to demand items. Another reason contended by Miners takes into consideration the practice of submitting checks "for collection". I t i s Miners' position that any obligation i t may have had t o observe the midnight deadline rule was negated under section 4-103 by specific agreement between the parties and by a general custom and practice within the banking industry for the handling of checks sent for collection. Section 4-103 provides in part: "Variation by aqreement--measure of damages--certai n action constituting ordinary care, [I) The effect of the provisions of this chapter may be varied by agree- ment except that no agreement can disclaim a bank's responsibility for i t s own lack of good faith or fail- ure to exercise ordinary care or can limit the measure of damages for such lack or failure; b u t the parties may by agreement determine the standards by which such responsibility i s to be measured i f such standards are not manifestly unreasonable. "(2) Federal Reserve regulations and operating letters, clearinghouse rules, and the like, have the effect of agreements under subsection (1 ), whether or not spec- ifically assented to by all parties interested in items hand1 ed. "(3) Action or nonaction approved by this chapter or pursuant t o Federal Reserve regulations or operating letters constitute the exercise of ordinary care and, in the absence of special instructions, action or nonaction consistent with clearinghouse rules and the 1 ike or with a general banking usage not disapproved b y this chapter, prima facie constitutes the exercise of ordinary care. I ' I t i s plaintiffs' position that since the checks here are demand items any agreement to vary the terms of section 4-302 i s directly contrary to the express terms of the instruments. While section 4-302 holds a payor bank strictly liable, section 4-103 i s clearly designed to make an exception to section 4-302 by agreement between the parties. A s the Official Code Comment states: " * * * Section 4-103 states the specific rules for variation of Article 4 by agreement and also certain standards of ordi- nary care. In view of the technical complexity of the field of bank collections, the enormous number of items handled b y banks, the certainty that there will be variations from the normal in each day's work in each bank, the certainty of changing conditions and the possi bi 1 i ty of developing im- proved methods of collection to speed the process, i t would be unwise to freeze present methods of operation by mandatory statutory rules. This section, therefore, permits within wide limits variation of provisions of the Article by agreement.'' 3 Anderson, Uniform Commercial Code 165. The question then becomes whether under the circumstances of the instant case there was an agreement between the parties excepting Miners from the s t r i c t l i a b i l i t y rule of 4-302. The d i s t r i c t court found that a prior course of dealing between plaintiffs and Miners shows the existence of an agreement. The definition of an agreement as used herein is found i n section 1-201(3) where i t states: "'Agreement' means the bargain of the parties i n fact as found i n their language or by imp1 ication from other circumstances including course of dealing or usage of trade or course of performance as provided in this act (sections 87~-1-205' and 87~-2-208): Whether an agree- ment has legal consequences is determined by the pro- visions of this act, i f applicable; otherwise by the law of contracts (section 87A-1-103)." (Emphasis suppl ied. ) Section 1-205(1) provides as to course of dealing: " A course of dealing i s a sequence of previous conduct between the parties to a particular transaction which is fairly t o be regarded as establishing a comon basis of understanding for interpreting their expressions and other conduct. " Miners has attempted t o establish a course of dealing as to plain- t i f f Sun River and plaintiff Skaar because each had one check sent for collec- tion paid from the N e w Butte account after being held past the'hidnight dead- line." The holding and paying of one check i s not sufficient to form "a sequence of previous conduct" which is necessary to establish a course of deal ing . In addition, the Uniform Commercial Code does not contemplate that the course of dealing may constitute the entire agreement, b u t merely gives meaning to or supplements the express terms of an existing agreement. See 1 Anderson, Uniform Commercial Code 175, 176. Miners could show b u t one previous transaction--clearly insufficient to establish a course of dealing. Miners also claims that Sun River used i t s banker, Malcolm Adams of the First National Bank of Great Falls, as i t s agent and that because Adams understood that the check would be held by Miners that this constituted an agreement. This asserted agreement between Miners and Sun River i s ineffec- tive i n view of the fact of Miners' obvious lack of fairness and the standard imposed upon i t by its own more than normal re1 ationship with N e w Butte. Contrary t o the district court's finding of good faith, i t is this Court's view that Miners did not act in compliance with f a i r dealings contemplated by the Uniform Commercial Code. W e present this question; How effective or reliable may an agree- ment be, assuming there i s one, when the bank's president, himself, i s looking closely to the account and withdraws money therefrom for purposes of applying the money to a loan which i s not in default? I t i s true that a bank may have the right of setoff or may pay checks in any order that i t chooses (section 4-303) or a secured party may upon default take possession of collateral with- out judicial process and dispose of i t in any commercially reasonable fashion (sections 9-503 and 9-504). Under the facts here, however, Miners' ~nique position with relation to N e w Butte establishes a standard of care greater than under normal situations, and for any agreement to come within the excep- tion in this case requires more than what Adams may have understood. In addi- tion, Miners cannot shield itself by asserting that the alleged agreement i s an exception in light of i t s o w n lack of fairness. While Miners stood in an advantageous position with respect to i t s o w n interests, these plaintiffs stood with no recourse whatsoever after having provided essential inventory, namely cattle, for the operations of N e w Butte. In i t s argument Miners also claims that oral notice of dishonor was given to plaintiff Skaar with respect to the check under consideration. Whereas, under sections 4-104(3) and 3-508, oral notice of dishonor m a y be sufficient to meet the requirements of section 4-302, the circumstances here required more than oral notice. In one conversation that Skaar had with Pitts on M a y 11, 1970, Pitts indicated that the checks would clear because things were looking better. Pitts did indicate, however, that i t was going to take time. In view of what subsequently happened, any notice given to Skaar or purported agreement between Miners and Skaar under the facts here are not sufficient to release Miners from the s t r i c t liability rule of 4-302. Defendant's final contention i s that s t r i c t compliance with section 4-302 is also varied by custom and practice. The district court found that the establ ished custom and practice followed b y the banking industry in Montana in handling checks "for collection'' i n the absence of special instructions and writing is t o hold the check for an arbitrary length of time. W e have heretofore established that there was no agreement between the parties which varied the provisions of section 4-302. In the absence of an agreement the s t r i c t l i a b i l i t y rule of section 4-302 applies. Custom and practice i s relevant under section 4-103C31, i f a t a l l , only w i t h res- pect to the establishment of what standard constitutes ordinary care. The standard of care imposed upon Miners in the instant case was more than ordi- nary, and therefore, custom and practice are not relevant. Clearly, the four checks under consideration herein are subject to the rule of section 4-302. Miners cannot now claim that the statute i s varied either by agreement as provided i n 4-103 or by custom and practice, particularly where Miners has assumed a position i n relation to i t s customer, N e w Butte, which imposes a greater standard of care and responsibility than under normal situations. Miners cannot prevail in i t s argument when i t has demonstrated a disregard for good faith deal i ngs contemplated by the Uniform Commerci a1 Code. For the foregoing reasons, the judgment of the d i s t r i c t court i s reversed.