Opinion ID: 2451624
Heading Depth: 2
Heading Rank: 1

Heading: The Valley Fidelity Bank & Trust Company Case

Text: Plaintiff opened a checking account with Valley Fidelity Bank & Trust Company in Knoxville on September 29, 1978. She was given a number of starter checks for her new account, and when these were exhausted she was given an additional supply of counter checks until her regular printed checks could be prepared and delivered. On October 14, 1978, she gave one of these counter checks to The Kroger Company in the amount of $17.61 for merchandise purchased at its Chapman Highway store. The signature on this check is very difficult to read. It appears to begin with a capital D, and the remaining letters of the signature are difficult to decipher. The check was not encoded with an account number, although it did have encoded on it the bank number for purposes of data processing. Kroger deposited the check in its account at the United American Bank, but when the check was presented to the drawee, it was returned with a notation unable to locate account. Kroger apparently ran the check through its own account twice, but ultimately it was returned to The Kroger Company without payment. Although the check listed the address, telephone number, date of birth, Tennessee driver's license number and Visa credit card number of the plaintiff, it did not carry her account number. Apparently personnel of the drawee made no independent investigation to ascertain the identity of the drawer, although it had honored all of her other counter checks, including one drawn the day before without an encoded account number. [1] After the check was returned unpaid, on November 4, 1978, the store manager, Gary Cheatwood, sent to plaintiff a notice and demand letter, as required by the Tennessee worthless check law, T.C.A. §§ 39-3-301 to 309. The letter explicitly warned plaintiff that her check had been returned and that legal action would be taken unless she paid the check within ten days. The letter inaccurately stated that the check had been returned for insufficient funds, rather than unable to locate account, but it clearly advised the addressee that her check had been returned unpaid. Plaintiff received the letter and testified that on two or three occasions she attempted to call the store manager but was unable to reach him. She did not leave her name or any message with him. Having had no communications from the plaintiff, the store manager turned the check over to the assistant manager, Alfred L. Harrison. Mr. Harrison made telephone calls to the residence of the plaintiff on November 20 and November 28, some two weeks and three weeks respectively, after the letter had been sent to plaintiff and received by her. On one occasion he reached her sister and told her sister that he needed urgently to speak with the plaintiff. Still having had no response from the letter or telephone calls, Mr. Harrison caused a criminal warrant to be issued against the plaintiff on December 5, 1978. She was arrested several days later. Ultimately her case was bound over to the grand jury and she was indicted. Thereafter, however, the charges were dismissed. Upon being contacted by personnel from the Sheriff's Department about the warrant, plaintiff called the bank and was advised that it had no record of any of her checks having been returned. She obtained a letter from a vice president of the bank to the effect that she had ample funds to cover the check. She took this to the General Sessions Court on the day when the warrant was served on her and later at a bindover hearing. Representatives of the bank appeared at both hearings and advised both the prosecuting attorney, the trial judges, and representatives of The Kroger Company that the check had apparently not been paid because of the illegible signature. On appeal it is insisted by the bank that there was no technical dishonor within the meaning of the Uniform Commercial Code because it did not return the check for insufficient funds, lack of account or a stop order. The textual comments to T.C.A. § 47-3-510 indicate that there are justifiable reasons for refusing to pay a check which do not amount to evidence of dishonor, such as an illegible signature, lack of a signature or endorsement, forgery, etc. It is the insistence of the bank, therefore, that there was not a dishonor within the meaning of the U.C.C. and that the bank is not liable for any consequential damages resulting from wrongful dishonor as provided in T.C.A. § 47-4-402. The latter statute makes a payor bank liable to its customer for damages proximately resulting from wrongful dishonor of an item. When the dishonor occurs through mistake, liability is limited to actual damages proved, but these may include damages for an arrest or prosecution of the customer which are shown to have been proximately caused by the dishonor. As noted in the comments to this section, an action for wrongful dishonor has sometimes been stated as one for breach of contract, and sometimes as being based upon tort. One of the leading cases on the subject in this state is James v. Bank, 105 Tenn. 1, 58 S.W. 261, 51 L.R.A. 255 (1900). In that case the action was analogized to one sounding in tort, but the Court specifically held that the six-months statute of limitations provided for the uttering of slanderous words did not control. See T.C.A. § 28-3-103. Since no other statute of limitations was relied upon in that case, the Court did not attempt to determine the applicable period of time within which such an action must be brought. In the present case, however, the issue is specifically raised. Since we deem it controlling, we need not attempt to decide here whether there was a technical dishonor within the meaning of the U.C.C. The refusal of the bank to make payment occurred on or about October 19, 1978. The letter from The Kroger Company to the plaintiff was dated November 4, 1978. There is no showing that she received it other than within due course, so that certainly within a few days after November 4, 1978, she knew that her check had not been honored. Early in December she was arrested on a warrant based upon a worthless check, and two hearings on that matter were held during December 1978 and January 1979. Subsequently she was indicted by the grand jury, and the criminal charges were not concluded until April 6, 1979. She did not file this action, however, until April 7, 1980, based upon the alleged wrongful dishonor of her check, which had occurred during October 1978. [2] Both the trial court and the Court of Appeals held that the action against the bank was based upon contract rather than tort and that it was therefore governed by the general six-year statute of limitations applicable to contracts not otherwise expressly provided for. T.C.A. § 28-3-109(3). The only authority cited by the Court of Appeals was the case of McCombs v. Guild, Church & Company, 77 Tenn. 81 (1882). That case simply repeated the familiar rule that a plaintiff may waive a tort and sue in contract under certain circumstances, but it is not in point with respect to the issues presented here. There is no question from the complaint and from the record that the gravamen of the action in the present case was mental anguish, humiliation, embarrassment, and damage to reputation. Plaintiff established no special or monetary damages whatever. She claimed to have spent two hundred fifty dollars in 1980 for treatment by a psychologist. [3] Neither the psychologist nor any other medical witness testified, nor were any medical bills or checks in payment thereof introduced into evidence. These alleged medical expenses constituted but a small portion of the claim. The remainder was for loss of reputation and embarrassment. Plaintiff proved no actual expenses in connection with the making of bond or the retention of counsel in the criminal proceedings. It is well settled in this state that the gravamen of an action, rather than its designation as an action for tort or contract, determines the applicable statute of limitations. In this state the general statute of limitations for personal injury is one year. T.C.A. § 28-3-104. The bank insists that the claim as presented was purely one for personal injuries, that this statute applies and that the claim is time-barred. We agree and dismiss the action against the bank. The Uniform Commercial Code provides no special or separate statute of limitations for actions against a bank by a customer for wrongful dishonor. There is very little authority on the subject. One of the leading cases is Smith's Cash Store v. First National Bank, 149 Cal. 32, 84 P. 663 (1906). In that case the Court specifically held that an action for wrongful dishonor was not governed by the statute of limitations governing actions upon written instruments but by a shorter statute governing contractual obligations not founded upon such instruments. See 10 Am.Jur.2d Banks § 573 (1963). The plaintiff insists that the present action is based upon a contract between the bank and its customer and the consequent duty of the bank to honor all properly payable items, including checks. T.C.A. § 47-4-302. See Memphis Aero Corp. v. First American National Bank, 647 S.W.2d 219 (Tenn. 1983). The bank does not deny that the action may be brought in contract or in tort, but it insists, properly, that not all contract actions are subject to the six-year statute of limitations. They may be subject to a one-year period for personal injuries or a three-year period for property damage. For example, in the case of Williams v. Thompson, 223 Tenn. 170, 443 S.W.2d 447 (1969), it was held that an action against a builder for improper construction of improvements on real property was controlled by the three-year statute of limitations governing property damages, T.C.A. § 28-3-105, even though the suit was clearly brought for breach of a building contract. Numerous other cases apply this same principle to personal injury actions. It was held in Brown v. Dunstan, 219 Tenn. 291, 409 S.W.2d 365 (1966), that the one-year statute for personal injuries governed an action brought for damage to the plaintiff's reputation as a businessman and citizen. The Court specifically held that the statute of limitations governing personal injuries was not restricted to bodily injury resulting from trauma. Citing the earlier leading case of Bland v. Smith, 197 Tenn. 683, 277 S.W.2d 377, 49 A.L.R.2d 1212 (1955), the Court said: The Bland case holds in determining the real purpose of a suit the court must look to the basis for which damages are sought. In the case at bar a substantial part of the recovery sought is for damages done to plaintiff's reputation as a business man; father and respected man of society; humiliation, etc. These rights, so alleged to be damaged, are personal and would be included within `for injuries to the person' as this phrase is used in T.C.A. sec. 28-304. [4] Brown v. Dunstan, 219 Tenn. 291, 293-4, 409 S.W.2d 365, 367 (1966). In the later case of Carney v. Smith, 222 Tenn. 472, 437 S.W.2d 246 (1969), it was held that a claim for mental anguish resulting from the desecration of a burial plot fell within the one-year statute of limitations. Obviously a claim against a bank for wrongful dishonor of a check could cause property damage or some other form of injury which might not come within the personal injury statute. No such damages were claimed or proved in the present case, however, and accordingly we are of the opinion that the action was not timely brought. We find unpersuasive the contention of plaintiff that her right of action against the bank did not arise until the criminal prosecution had been concluded. She knew all of the facts by December 1978, at the very latest, and there is no basis for the application of principles of the discovery rules here. An action against a bank for wrongful dishonor arises at the time of the dishonor, without further notice or demand. 10 Am.Jur.2d Banks § 567 (1963). The judgments of the courts below with respect to appellant Valley Fidelity Bank & Trust Company are reversed, and the action as to it is dismissed.