No. 12511 

IN THE 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 

i 
PER 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 in 31 St.Rep. 44. 

This -is a case involving three separate plaintiffs and six separate 

checks. The plaintiffs are cattle raisers and brought this action to recover 

$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 its account at Miners Bank of Montana, hereinafter referred to as Miners. 

One check was payable to Bruce Beck & Son, two to Louis Skaar & Sons, and 

three to Sun 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 in payment for cattle 

sold and delivered to New 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 to Miners, 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. It was then returned to Miners "for 

collection" June 4, 1970, received by Miners on June 8, 1970, and retained by 

Miners until July 7, 1970, when it was returned to Beck's bank. 

The first Skaar check, dated April 14, 1970, was for the amount of 

$11,514.74. This check was sent by Skaar's bank to Miners, stamped "Paid", 

run through New Butte's checking account, deducted from the balance on April 

27, 1970, reversed April 28, 1970, and added to the balance and returned to 

Skaar's bank for insufficient funds on April 28, 1970. The check was sent 

back to Miners, run through New Butte's checking account and deducted from 
the balance on May 11 , 1970, reversed and added to balance May 13, 1970, and 

returned to Skaar's bank for insufficient funds. It was 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 it was returned to Skaar's 

bank. 

The second Skaar check, dated May 4, 1970, was for the amount of 

$12,434.26. This check was sent by Skaar's bank to Miners, stamped "Paid", 

run through New Butte's checking account, deducted from the balance on May 

12, 1970, reversed on May 13, 1970, and added to the balance and returned to 

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 it was returned to Skaar's bank. 

The first 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 to Miners. It was 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 to the balance on May 4, 1970, 

(a Monday) and returned to First National Bank of Great Falls. The check 

was sent back to Miners "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, in 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) in the amount of 

$12,443.59, were both sent to Miners directly "for collection". The second 

check was sent on May 6, 1970, and received by Miners on May 7, 1970, and the 

third was 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 1968 refinancing of 

New Butte became necessary in an amount in excess of Miners' lending capacity. 

Refinancing was carried out with two separate loans. One was for 
$200,000 with 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 to as 

SBA). The loans were made to provide working capital, and to comply with 

federal regulations as to slaughterhouses . 

Miners filed financing statements with the county clerk of Silver 

Bow County and the secretary of state. A list of equipment was attached 

to the statement filed with the secretary of state; no such list was attached 

to the one filed with the county clerk and recorder. No amounts being secured 

are shown on the statements but Mr. Pitts, Miners1 president at the time, 

stated that they were designed to cover both loans. Nitness Pitts testified 

that the lien of the $200,000 loan was first as to all equipment but that the 

$100,000 loan was first as to the 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 a mortgage from New 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 

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 also took an assignment on Schumacherls 

life insurance as security for the $200,000 loan. The policies were cashed 

for the cash value. 

In December of 1969, New Butte closed down its operation for financial 

reasons. Operations were resumed in January 1970. At this time a financing 

firm, Doug1 as Guardian, with its program of warehousing receipts and accounts 

receivable financing became involved in cooperation with Miners 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, to May 11, 1970. 

During the first seven months of 1970, the New Butte checking 

account was overdrawn in amounts 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 at that 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 in the withdrawal slip for $12,000 and be sure 

that Miners got ahead of anybody else. He stated that he personally handled 

the withdrawal. 

As to the $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 sale of equipment by New Butte. The proceeds were not deposited in New 

Butte's account but were applied directly to the $200,000 loan and that 

credit was enough to discharge in advance the principal and interest for six 

months. There was no foreclosure of the security interests nor were the 

proceeds of the sales placed into New Butte's account. 

The bank in this instance knew of the condition of the account of 

New Butte, it had intimate knowledge of the transactions, it was the "on the 

ground" representative of the sister banks who shared in the loan and it had 

more than the usual normal interest in the activities of New Butte. 

Plaintiffs brought this action against New Butte and Miners to recover the amounts of the checks plus interest and damages. After a trial 
without a jury in the second judicial district, Judge James D. Freebourn 

presiding, found for the plaintiffs against New 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 is liable for holding the Beck check and the 

first Skaar check past the midnight deadline provided for in section 87A-4-302, 

R.C.M. 1947, and (2) whether Miners is 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 its dealings with plaintiffs. 

The question of good faith will be considered in connection with plaintiffs' 

first 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 first 

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' first and 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 title number will be 

omitted). Generally plaintiffs argue that Miners is liable for the face amount 

of the checks for not complying with what is commonly referred to as the "midnight deadline" rule. Defendant argues that with respect to the first issue 

section 4-108 is an exception to section 4-302 and with respect to the second 

issue section 4-103 is an exception to section 4-302 and under these sections 

Miners is not 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 

accountabl e for the amount of 
"(a) a demand item other than a documentary draft whether 

properly payable or not if the bank, in any case where 

it is not also the depositary bank, retains the item 

beyond midnight of the banking day of receipt without 

settling for it or, regardless of whether it is 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 < ,.-- 

ie ' day of the receipt of the item by the payor bank. Section 4-104'(h). A 

payor bank is a bank by which an item is payable as drawn or accepted. 

Section 4-105(b). There is no question but that Miners is 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 is synonymous 

with "1 iable". We agree. 

Essentially, section 4-302 says that in the absence of a valid defense, 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 is a fundamental requirement of good faith under 

the specific provision of section 1-201(19), which reads as follows: 

"'Good faith' means honesty in fact in the conduct or 

transaction concerned. 

Furthermore, 1-203 provides: 

"Every contract or duty within this act imposes an obligation 

of good faith in its performance or enforcement." 

Plaintiffs' first 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 May 11, 1970, and were not returned 

until May 13, 1970. Plaintiffs contend that because of the delay that Miners 

violated the ('midnight deadline" rule. Facts not heretofore set 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 

to be processed for Miners are sent to Computer Corporation in Great Falls 

by armored car between 5:00 p.m. and 6:00 p.m. of the day of receipt and are 

usually back at Miners by 8:00 a.m. the following morning. The checks normally reach 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 to Butte by armored car at 

4:00 a.m. and have reached Miners at 7:00 a.m. 

On the morning of May 12, 1970, the computer malfunctioned, and 

the checks which would have normally been returned to Miners on the morning 

of May 12, 1970, did not arrive until 2:30 p.m. that afternoon. 

Ken Mahle, vice-president of Miners at the time of the trial, 

outlined the procedures which were followed each day after the receipt of 

the checks from the Computer Center. He could not, however, testify as to 

what occurred on May 12, 1970. There was no testimony as to what actually 

happened on the day after the checks were received by Miners. 

Miners contend that it is this type of situation which section 4-108(2) 

was intended to 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 if caused 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 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 itself but also time 

limits imposed by special instructions, by agreement 

or by Federal Reserve regulations or operating letters, 

clearing house rules or the like. The latter time 1 imits 

are 'permitted' by the Code. This clause operates, 

however, only in the types of situation specified. 

Examples of these situations include bl izzards , 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 shortase of ~ersonnel durins war or 

emergency situations ." When' delay is sought to be excused 

under this subsection the bank must 'exercise such diligence as the circumstances require' and it has the burden 

of proof." (Emphasis supplied.) 3 Anderson, Uniform 

Commercial Code 191 . 

The effect of section 4-108(2) is to excuse a payor bank from the 

standard of strict accountability of section 4-302 and to hold it to a standard 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. As the Official Code Comment states, the burden is 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 its 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 is undisputed. This Court 

in In re Wadsworth's Estate, 92 Mont. 135, 150, 11 P.2d 788 stated: 

" * * * But where, as here, there is no 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 to do so. (Citing authority.) And a judgment 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. It necessarily follows that under 

the circumstances of this case that the degree of diligence required under 

4-108(2) is greater than under normal circumstances. 

Miners argues that the testimony of Mahle as to normal operating 

procedures constitutes a showing of due diligence. While there may be instances where a showing as to what occurs on a normal operating day may 
constitute a showing of diligence under circumstances where the delay is 

similar as to the one in the instant case, this case is not one of those 

instances. Miners' interest in New Butte was more than usual, and a showing 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 for the reason that its relationship and interest 

in New 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 did not meet its burden, it is therefore liable 

for the face amount of the Beck check and the first Skaar check under the 

strict accountabil ity rule of section 4-302. 

Having illustrated that Miners had more than a normal interest in 

the activities of New Butte and that the exception of 4-108(2) is not 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. 1 that 1 iability attached as to the Beck check and the first Skaar check 

as of May 13, 1970, under section 4-302, our consideration of the second issue 

will be with reference to the remaining four checks. The second Skaar check 

and the first Sun River check were ultimately sent to Miners "for collection". 

The second and third Sun River checks were sent directly to Miners for collection. 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 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 that day the seller deposited the check in seller's 

bank and it 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 it marked the 

check "not sufficient funds", placed it 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. 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 to the seller. The 

instrument was drawn on the defendant bank and contained the notation "'To (be) 

Charged to Acct. of Robert Martin"'. It was 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 i tems $1,000.00 or over. ' 

" '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 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. No 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' It 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 instrument in this case was a demand item. The Court also held that the defendant bank was clearly the "payor" bank and clearly liable for the amount 

of the item. 

The defendant bank contended that it 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, 

it would have discharged its duty as the payor bank and 

subsequent action to settle this account would have been 

governed by other considerations . ) With respect to how 

appellee treated this item, we can only say that it took 

the risk of loss by failure to comply with the law. * * *" 

Miners asserts several reasons why it is not liable under section 

4-302. The first of these is that 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 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 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 appl ies only to time items. It has nothing to do with demand 

items." Likewise, we hold that section 3-511 (_4) is 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". It is Miners' position that 
any obligation it may have had to 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 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 is to 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 specifically assented to by all parties interested in items 

hand1 ed. 

"(3) Action or nonaction approved by this chapter or 

pursuant to 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 by 

this chapter, prima facie constitutes the exercise of 

ordinary care. I' 

It is plaintiffs' position that since the checks here are demand 

items any agreement to vary the terms of section 4-302 is directly contrary 

to the express terms of the instruments. While section 4-302 holds a payor 

bank strictly liable, section 4-103 is clearly designed to make an exception 

to section 4-302 by agreement between the parties. 

As the Official Code Comment states: 

" * * * Section 4-103 states the specific rules for variation 

of Article 4 by 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 possi bi 1 i ty of developing improved methods of collection to speed the process, it 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 strict liability rule of 4-302. 

The district 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 in section 1-201(3) where it states: 

"'Agreement' means the bargain of the parties in fact 

as found in 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 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 

suppl ied. ) 

Section 1-205(1) provides as to course of dealing: 

"A course of dealing is a sequence of previous conduct 

between the parties to a particular transaction which 

is fairly to be regarded as establishing a comon basis 

of understanding for interpreting their expressions and 

other conduct. " 

Miners has attempted to establish a course of dealing as to plaintiff Sun River and plaintiff Skaar because each had one check sent for collection paid from the New Butte account after being held past the'hidnight deadline." The holding and paying of one check is 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, but merely gives 

meaning to or supplements the express terms of an existing agreement. See 

1 Anderson, 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 its banker, Malcolm Adams 

of the First National Bank of Great Falls, as its 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 is ineffective in view of the fact of Miners' obvious lack of fairness and the standard 

imposed upon it by its own more than normal re1 ationship with New Butte. 

Contrary to the district court's finding of good faith, it is this Court's 
view that Miners did not act in compliance with fair dealings contemplated 

by the Uniform Commercial Code. 

We present this question; How effective or reliable may an agreement be, assuming there is one, when the bank's president, himself, is looking 

closely to the account and withdraws money therefrom for purposes of applying 

the money to a loan which is not in default? It is true that a bank may have 

the right of setoff or may pay checks in any order that it chooses (section 

4-303) or a secured party may upon default take possession of collateral without judicial process and dispose of it in 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 for any 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 its own 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, for the operations of New Butte. 

In its 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 may 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 May 11, 

1970, Pitts indicated that the checks would clear because things were looking 

better. Pitts did indicate, however, that it 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 strict liability rule of 4-302. 

Defendant's final contention is that strict compliance with section 

4-302 is also varied by custom and practice. The district court found that the 

establ ished custom and practice followed by the banking industry in Montana in 
handling checks "for collection'' in the absence of special instructions 

and writing is to hold 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 strict liability rule of section 4-302 applies. Custom 

and practice is relevant under section 4-103C31, if at all, only with respect 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 that the statute is varied 

either by agreement as provided in 4-103 or by custom and practice, particularly 

where Miners has assumed a position in relation to its customer, New Butte, 

which imposes a greater standard of care and responsibility than under normal 

situations. Miners cannot prevail in its argument when it 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 district court is 

reversed.