Opinion ID: 2455879
Heading Depth: 2
Heading Rank: 2

Heading: La Sara's other claims

Text: In addition to the unauthorized payment of its checks, La Sara complains that the bank failed to follow a restrictive endorsement, allowed Jones to orally transfer money from its account, and paid Jones the proceeds of loans made in La Sara's name. These complaints concern four separate transactions: 1. On July 15, 1977, the Holland Farms check made payable to La Sara and endorsed For Deposit Only was split with $40,000 deposited to Jones's personal account and $22,600 deposited to La Sara's account. 2. On May 12, 1977, the bank transferred $14,000 from La Sara's account to Jones's personal account at Jones's oral request. 3. On June 8, 1976, a $19,506 loan was made to La Sara at Jones's request. Proceeds of the loan were used by Jones to purchase a cashier's check payable to the McCrabb Brothers. 4. On July 22, 1977, a $35,000 loan was made to La Sara at Jones's request. The proceeds were split with $12,000 deposited to Jones's personal account and $23,000 deposited to La Sara's account. The court of appeals did not expressly address these claims but implicitly held that section 4.406(d) barred La Sara's right to recovery. La Sara argues that section 4.406(d) does not shield the bank from liability. We agree. In Fultz v. First National Bank, 388 S.W.2d 405 (Tex.1965), we held that a bank breached its depository contract when it failed to follow its depositor's restrictive endorsement, For Deposit Only. Although Fultz predates the adoption of the Uniform Commercial Code, the rule remains unchanged. Under the Code, a depositary bank is liable for paying an instrument other than in accordance with the terms of a restrictive endorsement. Tex. Bus. & Com.Code Ann. §§ 3.206(c), (d), 3.419(c), (d) (Tex.UCC) (Vernon 1968). The bank also breached its contract by transferring $14,000 from La Sara's account at Jones's oral request. When a customer deposits funds with a bank, the bank impliedly agrees to disburse those funds only in accordance with the depositor's instructions. Mesquite State Bank v. Professional Investment Co., 488 S.W.2d 73, 75 (Tex.1973); Tex.Bus. & Com.Code Ann. §§ 3.404(a), 4.401(a) (Tex.UCC) (Vernon 1968). La Sara did not authorize the bank to disburse funds from La Sara's account at the oral request of Jones. Section 4.406(d) provides no defense to the bank because no unauthorized signature was used to obtain the $14,000 withdrawal. Finally, the bank does not assert section 4.406(d) as a defense to the loans in dispute. Instead, the bank argues that Jones had the authority to borrow money in La Sara's name and that La Sara is estopped to the extent it has gained the use and benefit of these loans. The record shows, however, that La Sara did not have the use and benefit of all funds borrowed in its name. La Sara established that the first loan was used by Jones to purchase a cashier's check payable to a third party, and that a portion of the second loan was deposited directly into Jones's personal account. We hold that La Sara is entitled to judgment against the bank for the $40,000 loss caused by the bank's failure to follow La Sara's restrictive endorsement, for the $14,000 withdrawal from La Sara's account made without proper authorization and for $31,506 representing the sum the bank delivered to Jones but charged to La Sara as proceeds from two loans.