No. 12511 INTHE SUPREME COURT OF THE STATE OF MONTANA 1974

SUN RIVER CATTLE CO., INC., a Corporation; LOUIS SKAAR & SONS; and BRUCE E. BECK & SONS, Plaintiffs and Appellants,

MINERS BANK OF MONTANA N.A. 

## , a Banking Corporation, Defendant and Respondent.

Appeal from: District Court of the Second Judicial District, 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 Falls, Montana Paul D. Miller argued, Great Falls, 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 

## 17~4

iPER CURIAM: 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 in31 St.Rep. 44. This 

### -is a case involving three separate plaintiffs and six separate checks. The plaintiffs arecattleraisers and brought thisaction 

### torecover $74,868.02, plus interest which represents the total of the six checks drawn by Schumacher's New Butte Butchering, hereinafter referred to as New Butte,

on itsaccount atMiners Bank of Montana, hereinafter referred to asMiners. One check was payable to Bruce Beck & Son, two to Louis Skaar & Sons, and three

### toSun River Cattle Co., who will be referred to hereinafter, respectively, as Beck, Skaar and Sun River individually and as plaintiffs collectively. Each of the checks was accepted by the plaintiff payees inpayment forcattle sold and delivered toNew Butte. A summary of the history of all 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 toMiners, stamped "Paid", 

### run through New Butte's checking account and deducted from the balance on May 11, 1970, (a Monday). The check was reversed and added to the balance on May 13, 1970, and returned to Beck's bank for insufficient funds. The check was sent back to Miners, stamped "Paid", 

### run through New Butte's checking account, deducted from 

### the balance on May 20, 1970, reversed on May 21

### , 1970, and returned to Beck's bank for insufficient funds. Itwas then returned toMiners "for collection" June 4, 1970, received by Miners on June 8, 1970, and retained by Miners until July 7, 1970, when itwas returned to Beck's bank. The firstSkaar check, dated April 14, 1970, was forthe amount of $11,514.74. This check was sent by Skaar's bank toMiners, stamped "Paid",



### run through New Butte's checking account, deducted from the balance on April 27, 1970, reversed April 28, 1970, and added tothe balance and returned to Skaar's bank for insufficient funds on April 28, 1970. The check was sent back 

### toMiners, 

### run through New Butte's checking account and deducted fromthe balance on May 11

## ,1970, reversed and added tobalance May 13, 1970, and returned toSkaar's bank for insufficientfunds. Itwas returned by Skaar's bank "for collection'' on May 15, 1970, received by Miners on May 18, 1970, and retained by Miners until July 27, 1970, when itwas returned toSkaar's bank. The second Skaar check, dated May 4, 1970, was forthe amount of $12,434.26. This check was sentby Skaar's bank toMiners, stamped "Paid",



### run through New Butte's checking account, deducted from the balance on May 12, 1970, reversed on May 13, 1970, and added tothe balance and returned to Skaar's bank for insufficientfunds. The check was returned by Skaar's bank toMiners "forcollection", received by Miners on May 20, 1970, and retained by Miners until July 27, 1970, when itwas returned to Skaar's bank. The firstSun 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 senttoMiners. Itwas stamped "Paid May 1, 1970", 

### run through New Butte's checking account and deducted May 1, 1970, (a Friday). The check was reversed and added tothe balance on May 4, 1970, (aMonday) and returned to First National Bank of Great Falls. The check

was sent back toMiners "for collection" on May 8, 1970, received by Miners

on May 11, 1970, and has never been returned. The second Sun River check, dated May 4, 1970, inthe amount of $13,114.23, and the third Sun River check, dated April 1, 1970, (although the invoice forthis load of cattle isdated April 28, 1970) inthe amount of $12,443.59, were both sent toMiners directly "for collection". The second check was senton May 6, 1970, and received by Miners on May 7, 1970, and the thirdwas sent on May 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 New Butte took place when Miners loaned New Butte some $289,500. In 1968refinancing of New Butte became necessary in an amount inexcess of Miners' lending capacity. Refinancing was carried out with two separate loans. One was for$200,000 withMiners having a 30%participation and the remaining 70%spread among seven 

### sisterbanks. The other was for $100,000, 90%of which was guaranteed by the Small Business Administration (hereinafter referred toas SBA). The loans were made toprovide working capital, and tocomply with federal regulations asto slaughterhouses

# . Miners filed financing statementswiththe county clerk of Silver Bow County and the secretary of state. A listof equipment was attached tothe statement filedwith the secretary of state; no such listwas attached tothe one filedwith the county clerk and recorder. No amounts being secured

are shown on the statements but 

### Mr. Pitts, Miners1president atthe time, stated that they were designed tocover both loans. Nitness Pitts testified that the lien of the $200,000 loan was firstas to all equipment but that the $100,000 loan was firstastothe accounts receivable and inventory. Miners also took mortgages securing the $200,000 loan as follows: mortgage on New 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 amortgage from New Butte toMiners covering the plant and equipment and a mortgage from the Schumachers covering theirhome and personal property. In each instance the mortgage securing the $200,000 loan was filed first. None of these mortgages has been foreclosed. Miners also filed a security agreement with the registrar of motor vehicles securing the $200,000 loan and alsotook an assignment on Schumacherls lifeinsurance as security forthe $200,000 loan. The policies were cashed for the cash value. In December of 1969, New Butte closed down itsoperation forfinancial

reasons. Operations were resumed inJanuary 1970. Atthis time a financing firm, Doug1as Guardian, with itsprogram of warehousing receipts and accounts receivable financing became involved incooperation withMiners and New 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 May 22, 1970; the accounts receivable financing covered a period from January 30, 1970, toMay 11, 1970. During the firstseven months of 1970, theNew Butte checking account was overdrawn inamounts ranging from nominal to as much as $55,000 for all but 87 of those days. 

### As of May 18, 1970, the $700,000 loan was current in payments. All payments on the $200,000 were made currently through May 28, 1970. On June 2, 1970, the SBA took over the assets of the business. Neither loan was in default atthat time. On May 29 and June 1, 1970, Miners' president, Pitts, debited the Mew Butte account for $12,000 and $9,000 and credited those amounts to the $100,000 SBA loan. Pitts admitted that he was looking carefully to the account on May 29, 1970, so that he could put inthe withdrawal slipfor $12,000 and be sure thatMiners got ahead of anybody else. He stated that he personally handled the withdrawal. 

### As tothe $9,000 withdrawal, Pitts testified that he kept strict watch of the account and when there was enough deposited, he personally put in a withdrawal slip. On June 18, 1970, Miners credited the $200,000 loan with $4,602, which represented 30%of the total of $15,342 as the result of

a saleof equipment by New Butte. The proceeds were not deposited inNew Butte's account but were applied directly to the $200,000 loan and that creditwas enough todischarge inadvance the principal and interest for six months. There was no foreclosure of the security interests nor were the proceeds of the sales placed intoNew Butte's account. The bank in this instance knew of the condition of the account of New Butte, ithad intimate knowledge of the transactions, itwas the "on the ground" representativeof the sisterbanks who shared in the loan and ithad

more than the usual normal interest inthe activitiesof New Butte. Plaintiffs brought this action against New Butte and Miners to recover the amounts of the checks plus interest and damages. After a trialwithout ajury in the second judicial district, Judge James D. Freebourn presiding, found for the plaintiffs against New Butte and found against the plaintiffs and fordefendant Miners. Plaintiffs appeal that part of the judgment which exculpated Miners. Plaintiffs present five issues forreview, which are summarized as follows: (1) Whether Miners isliablefor holding the Beck check and the firstSkaar check past the midnight deadline provided for in section 87A-4-302, R.C.M. 1947, and (2) whether Miners isliable for holding all sixof the checks past the midnight deadline as provided for in the statute. Plaintiffs' remaining issues involve the question of good faith, which the districtcourt specificallyfound was exercised by Miners in itsdealings with plaintiffs. The question of good faithwill be considered in connection with plaintiffs' firsttwo issues. This case involves sections of the Uniform Commercial Code enacted in Title87A, R.C.M. 1947. The issues presented by plaintiffs are of first impression to this Court, and there arefew cases in otherjurisdictions which have construed the effect of the sections of the Uniform Commercial Code which aredeterminative of the issues presented forreview.

..--T 

### (: $',,iicilh( Plaintiffs' firstand second issues raise questions concerning-ectio 4 of the Uniform Commercial Code. (Hereafter, references to the Uniform Commercial Code will be made by the section number only; the titlenumber will be omitted). Generally plaintiffs argue that Miners isliable for the face amount of the checks for not complying with what iscommonly referred to as the "midnight deadline" rule. Defendant argues that with respect to the firstissue section 4-108 isan exception to section 4-302 and with respect to the second issue section 4-103 isan exception to section 4-302 and under these sections Miners isnot liable. Initially, we 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 87A4-207), settlement effected or the like, if an item is presented on and received by a payor bank the bank is accountable for the amount of"(a) a demand item other than a documentary draftwhether properly payable or not ifthe bank, in any casewhere itisnot alsothe depositarybank, retains the item beyond midnight of thebanking day of receipt without settling for itor, regardless of whether itisalso the depositarybank, does not pay orreturn the item or send notice of dishonor until after itsmidnight deadline; or

## * *

## *." The'hidnight dead1ineuismidnight of the banking day following the

< ,.-- ie' day of 

### the receipt of the item by the payor bank. Section4-104'(h). A payor bank isa bank by which an item is payable as drawn oraccepted. Section 4-105(b). There isno question but that Miners isthe payor bank. .'*

### ) The checks involved herein aredemand 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, 18ALR.3d 1'368, where the Illinois court held that the word "accountable" in the statute issynonymous with "1iable". We agree. Essentially, section4-302 says that inthe absence of a valid defense, a demand item, retained beyond thellnidnightdeadlineUbythe payor bank without either paying, returning, or giving notice of dishonor renders the payor bank liable to the payee forthe face amount of the item. In addition, there isa fundamental requirement of good faithunder the specificprovision of section 1-201(19), which reads as follows: "'Good faith' means honesty in factinthe conduct or transaction concerned. Furthermore, 1-203 provides: "Every contract orduty within this act imposes an obligation of good faith in

### itsperformance or enforcement." Plaintiffs' firstissue concerns the Beck check dated April 28, 1970, and the firstSkaar check dated April 14, 1970. These checks were submitted as cash items toMiners on May 11, 1970, and were not returned until May 13, 1970. Plaintiffs contend that because of the delay thatMiners violated the ('midnight deadline" rule. Facts not heretofore setforth 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 foreleven banks in the Bancorporation chain, including Miners. Items tobe processed forMiners are

### sent toComputer Corporation inGreat Falls by armored car between 5:00 p.m. and 6:00 p.m. of the day of receipt and are usually back atMiners by 8:00 a.m. the followingmorning. The checks normallyreach Great Falls about 10:30 p.m. On May 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 May 12, 1970. Ordinarily the work on Miners' checks would have been processed by 11:30 p.m.; the checks would have started back toButte by armored carat 4:00 a.m. and have reached Miners at7:00 a.m. On the morning of May 12, 1970, the computer malfunctioned, and the checks which would have normally been returned toMiners on the morning of May 12, 1970, did not arrive until 2:30 p.m. that afternoon. Ken Mahle, vice-president of Miners atthe time of the trial, outlined the procedures which were followed each day afterthe receipt of the checks from the Computer Center. He could not, however, testifyas to what occurred on May 12, 1970. There was no testimony as towhat actually happened on the day afterthe checks were received by Miners. Miners contend that itis thistype of situationwhich section 4-108(2)

was intended tocover. Section 4-108(2) provides: "Delay by a collecting bank or payor bank beyond time limits prescribed or permitted by this act or by instructions is excused ifcaused by interruption of communication facilities, suspension of payments by another bank, war, emergency conditions or other circumstances beyond the control of the bank provided it exercises such di1 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 itself but also time limits imposed by special instructions, by agreement or by Federal Reserve regulations or operating letters, clearing house rules orthe like. The lattertime 1 imits are 'permitted' by the Code. This clause operates, however, only inthe types of situation specified. Examples of these situations include blizzards

### ,floods,or hurricanes, and other 'Act of God' events or conditions, and wrecks or disasters, interfering 

### with mails; suspension of payments by another bank; abnormal operating conditions such 

### as substantial increased volume or substantial shortaseof ~ersonnel durins war or emergency situations

# ."When'delay issoughtto be excused under this subsection the bank must 'exercise such diligence as the circumstances require' and ithas the burden of proof." (Emphasis supplied.) 3 Anderson, Uniform Commercial Code 191

# . The effect of section 4-108(2) isto excuse a payor bank from the standard of strictaccountability of section 4-302 and to hold itto a standard of "di1 igence as the circumstances require". Under section 4-108(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. As the Official Code Comment states, the burden ison the bank. The districtcourt found that Miners' failuretopay or return the checks or togive notice of dishonor within the prescribed time was due to circumstancesbqond itscontrol. The districtcourt also found that Miners exercised the required di1 igence and that no evidence was introduced showing that Miners failed toexercise due care. The evidence as to the events in question isundisputed. This Court inIn reWadsworth's Estate, 92 Mont. 135, 150, 11 P.2d 788 stated: 

### " 

## *** Butwhere, as here, there isno dispute as to the facts,this court is in as favorable a position in applying the law as the district court, and in such instances will not hesitate 

### todo so. (Citing authority.) And ajudgment 

### or order unsupported by the evidence will be reversed on appeal to this court. (Citing authority.)" The only evidence produced by Miners was what the ordinary operating procedures were. As we have heretofore stated, Miners had more than the usual normal interest in the activities of New Butte. Itnecessarily follows that under the circumstances of this case that the degree of diligence required under 4-108(2) isgreater than under normal circumstances. Miners argues thatthe testimony of Mahle as to normal operating procedures constitutes a showing of due diligence. While theremay be instances where a showing as towhat occurs on a normal operating day mayconstitutea showing of diligence under circumstances where the delay is similarastothe one 

### inthe instant case, thiscase 

### is 

### not one of those instances. Miners' interest inNew Butte was more than usual, and a showing of diligenceby Miners requiredmore than testimony astowhat the normal operating procedures were. Miners' burden under the circumstances of this case 

### isgreaterforthe reason that itsrelationship and interest inNew Butte was significantly more than ordinary. Miners did not meet 

### itsburden as imposed by section 4-108(2). Under the exception of section 4-108(2) the bank 

### must show: (1)A cause forthe 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 delaywill not apply, and the bank will be held liableunder the provisions of section 4-302. Since Miners did not meet its burden, itistherefore liable forthe face amount of the Beck check and the firstSkaar check under the strictaccountabilityruleof section4-302. Having illustrated thatMiners had more than a normal interest in the activitiesof New Butte and that the exception of 4-108(2) isnot applicable herein, we 

### now consider plaintiff's second issue which concerns all six checks. For the reason that we have found in considering plaintiff's issue No. 1that 1 iabilityattached as to the Beck check and the firstSkaar check

asof May 13, 1970, under section 4-302, our consideration of the second issue will be withreference to the remaining four checks. The second Skaar check and the first Sun River check were ultimately sent toMiners "for collection". The second and third Sun River checks were sentdirectlytoMiners forcollection. The second Skaar check was received by Miners on May 20, 1970, and retained until July 27, 1970, a period of more than two months. The three Sun River checks were never returned by Miners. Plaintiffs contend thatMiners, 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 relyupon thefollowing cases: In Rock Island the sellerof cattle received the buyer's $14,706.90 check on the same day. On thatday the sellerdeposited the check in seller's bank and itwas 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 itmarked the check "not sufficient funds", placed itin 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 1iable for the amount of the item under section 4-302. Section 4-302 was also involved in the case of Farmers Coop. Livestock 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 tothe seller. The instrument was drawn on the defendant bank and contained the notation "'To (be) Charged to Acct. of Robert Martin"'. Itwas deposited with Northwestern Bank and sent by Northwestern direct to defendant bank 

### on October 1,with an accompanying letter. The letter, among other things, stated: "'We enclose for collection 

## * **'

"'Wire non-payment of items $1,000.00 orover.

### '

"'Please send us your draft.

### ' "'Please wire if unpaid upon arrival, but hold for payment with advice to us. 

## * * *"I The instrument was received by defendant bank on October 4, and although there were sufficientfunds in Martin's account topay the check, defendant bank had not been authorized by Martin tomake payment, so no charge was made to his account. 

### No wire was sent to Northwestern as Northwestern had requested. On October 6, Northwestern called the defendant bank and "'was told thatMartin had not come into the bank to authorize payment of the instrument in question. 'I' Itwas undisputed that the defendant bank had failed to take action before the "midnight dead1inel'. There was a dispute as towhether 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 "item", and said a demand item would obviously be one 

### on demand, and held the instrument inthis case was a demand item. The 

### Court also held that the defendant bank was clearly the "payor" bank and clearly liable forthe amount of the item. The defendant bank contended that itwas 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 collection item. In this regard, the Court 

### on page 250 said: 

## " *

## ** The use of the term 'collection' in the letter certainlycannot be said tohave destroyed the statutory scheme governing the collection process. The letter also said 'Please wire if unpaid upon arrival I. This draftwas presented forpayment. (Had appellee wired as instructed, itwould have discharged itsduty as the payor bank and subsequent action 

### tosettlethis account would have been governed by other considerations

# .) With respect to how appellee treated this item, we can only say that ittook the risk of loss by failure to comply with the law. 

## ***" Miners asserts several reasons why itisnot liable under section 4-302. The firstof these isthat section 3-511(4) excuses notice of dishonor where a check has been presented to the bank and payment refused at least once before. Miners argues that the "midnight deadline" rule does not apply and re1ies on Leaderbrand 

### v. Central StateBank 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 dishonor and protest for nonpayment are excused unless in 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 applies only to time items. Ithas nothing to do with demand items." Likewise, we hold that section 3-511(_4)isinapplicable to the checks under consideration herein, for section 3-51l(4) does not apply to demand items. Another reason contended by Miners takes intoconsideration the practice of submitting checks "for collection". ItisMiners' position thatany obligation 

### itmay have had 

### toobserve 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 forthe 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 chaptermay be varied by agreement except that no agreement can disclaim a bank's responsibility for its

### own lack of good faith or failure to exercise ordinary care or can limit the measure of damages for such lack or failure; but the parties may by agreement determine the standards by which such responsibility isto be measured if 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 specificallyassented to by all parties interested in items hand1ed. "(3)Action or nonaction approved by this chapter or pursuant 

### to Federal Reserve regulations or operating letters constitutethe 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 by thischapter, prima facie constitutes the exercise of ordinary care.I' Itisplaintiffs' position that since the checks here are demand items any agreement to vary the terms of section 4-302 isdirectlycontrary to the express terms of the instruments. While section 4-302 holds a payor bank strictly liable, section 4-103 isclearlydesigned tomake an exception to section 4-302 by agreement between the parties. As the Official Code Comment states:

" 

## *

## ** Section 4-103 statesthe specific rules for variation of Article 4by agreement and also certain standards of ordinary care. In view of the technical complexity of the field of bank collections, the enormous number of items handled by 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 possibi1 ity of developing improved methods of collection to speed the process, itwould be unwise tofreeze present methods of operation by mandatory statutory rules. This section, therefore, permits within wide limits variation of provisions of the Article by agreement.'' 3Anderson, 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 fromthe strictliabilityrule of 4-302. The districtcourt found that a prior course of dealing between plaintiffs and Miners shows the existenceof an agreement. The definition of an agreement asused herein 

### is found insection 1-201(3) where it states: "'Agreement' means the bargain of the parties infact as found intheir language 

### or by imp1ication from other circumstances including course of dealing orusage of trade or course of performance as provided in this act (sections 87~-1-205' and 87~-2-208): Whether an agreement has legal consequences is determined by the provisions of this act, if applicable; otherwise by the law of contracts (section 87A-1-103)." (Emphasis supplied.) Section 1-205(1) provides as to course of dealing: "A course of dealing isa sequence of previous conduct between the parties toa particular transaction which is fairlytobe regarded as establishing a comon basis of understanding for interpreting their expressions and other conduct.

### " Miners has attempted toestablish a course of dealing as to plaintiff Sun River and plaintiff Skaar because each had one check sent forcollection paid from the New Butte account after being held past the'hidnight deadline." The holding and paying of one check isnot 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, butmerely gives meaning to or supplements the express terms of an existing agreement. See 1Anderson, Uniform Commercial Code 175, 176. Miners could show but one previous transaction--clearly insufficient to establish a course of dealing. Miners also claims that Sun River used itsbanker, Malcolm Adams of the First National Bank of Great Falls, as itsagent 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 isineffective inview of the factof Miners' obvious lack of fairness and the standard imposed upon itby 

### its own more than normal re1ationshipwith New Butte. Contrary 

### tothe district court's finding of good faith, it

### isthis Court'sview thatMiners did not act in compliance with fairdealings contemplated by the Uniform Commercial Code. We present this question; 

### How effective or reliable may an agreement be, assuming there isone, when the bank's president, himself, islooking closely to the account and withdraws money therefrom forpurposes of applying the money to a loan which isnot in default? Itistrue that a bank may have the right of setoff or may pay checks in any order that itchooses (section 4-303) or a secured party may upon default take possession of collateral withoutjudicial process and dispose of itin any commercially reasonable fashion (sections 9-503 and 9-504). Under the facts here, however, Miners' ~nique position with relation to New Butte establishes a standard of care greater than under normal situations, and forany agreement to come within the exception in this case requires more than what Adams may have understood. In addition, Miners cannot shield itself by asserting that the alleged agreement is

an exception in light of itsown lack of fairness. While Miners stood in an advantageous position with respect to its

own interests, these plaintiffs stood with no recourse whatsoever after having provided essential inventory, namely cattle, forthe operations of New Butte. In itsargument Miners also claims that oral notice of dishonor was given to plaintiff Skaar with respect to the check under consideration. Whereas, under sections4-104(3) and 3-508, oral notice of dishonor may be sufficient tomeet the requirements of section 4-302, the circumstances here required more than oral notice. In one conversation that Skaar had with Pitts on May 11, 1970, Pitts indicated that the checks would clear because things were looking better. Pittsdid indicate, however, that itwas going to take time. In view of what subsequently happened, any notice given to Skaar orpurported agreement between Miners and Skaar under the factshere are not sufficient to release Miners from the strictliabilityrule of 4-302. Defendant's final contention isthat strictcompliance with section 4-302 

### is also varied by custom and practice. The district court found that the established custom and practice followed by the banking industry in Montana inhandling checks "forcollection'' 

### inthe absence of special instructions and writing 

### is

### tohold the check for

### an arbitrary length of time. We 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 strictliabilityrule of section 4-302 applies. Custom and practice isrelevant under section 4-103C31, if atall, only withrespect to the establishment of what standard constitutes ordinary care. The standard of care imposed upon Miners in the instant case was more than ordinary, 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 thatthe statuteisvaried either by agreement as provided in4-103 or by custom and practice, particularly where Miners has assumed a position inrelation to itscustomer, New Butte, which imposes a greater standard of care and responsibility than under normal situations. Miners cannot prevail in itsargument when ithas demonstrated a disregard forgood faithdealings contemplated by the Uniform Commercia1 Code. For the foregoing reasons, thejudgment of the districtcourt is reversed.