Court Opinion

ID: 6325018
Source: CourtListenerOpinion
Date Created: 2022-03-21 07:14:20.651383+00
Date Added: 2024-06-11T09:21:57.216158
License: Public Domain

Supreme Court of Texas
                           ══════════
                            No. 20-0273
                           ══════════

                        Cadence Bank, N.A.,
                              Petitioner,

                                   v.

        Roy J. Elizondo III and Roy J. Elizondo III, PLLC,
                             Respondents

   ═══════════════════════════════════════
              On Petition for Review from the
       Court of Appeals for the First District of Texas
   ═══════════════════════════════════════

                      Argued October 26, 2021

      CHIEF JUSTICE HECHT delivered the opinion of the Court.

      In response to a stranger’s email for legal assistance in settling a
debt, respondent attorney deposited a large cashier’s check in his bank
account and then wired most of the funds to an overseas account. When
the check was dishonored, the bank charged the transfer back to
respondent, as allowed by the Uniform Commercial Code and the
parties’ deposit agreement. But respondent contends that the bank
agreed to verify the funds before the wire transfer, precluding the
chargeback. A divided court of appeals agreed. We disagree because the
wire-transfer form that respondent relies on did not create the
contractual duty he claims. We reverse the judgment of the court of
appeals.
                                    I
      Roy Elizondo is a lawyer in Houston. He has an IOLTA deposit
account at Cadence Bank that is governed by a deposit agreement.
      In 2014, Elizondo was the victim of a scam. The scammer emailed
Elizondo seeking his legal representation in a debt-collection action. As
soon as Elizondo agreed to the representation, the scammer informed
Elizondo that the debtor had agreed to settle and would mail Elizondo a
cashier’s check in the amount of the settlement. The scammer instructed
Elizondo to deposit the check into his IOLTA account and then wire
$398,980 to a third party in Japan. The scammer urged Elizondo to
complete the wire transfer as soon as possible, claiming that the
uncollected debt had impacted his cash flow and caused him to fall
behind on bill payments.
      A few days later, Elizondo received a cashier’s check for $496,850
that appeared to be drawn from an account at Chase Bank. Elizondo
deposited the check into his IOLTA account and was given a receipt
stating, “All items are credited subject to payment”.
      The next day, Elizondo contacted Cadence to execute the wire
transfer. Bank employee Shannon Yang-Oh emailed Elizondo a one-
page form titled International Outgoing Wire Transfer Request. The
form is attached as an appendix to this opinion. The top half of the form
contains blanks for information about the sender and the recipient, their
accounts, and the amount to be transferred. These blanks were filled in

                                   2
by Yang-Oh with the information provided by Elizondo. The top part of
the form also contains a printed declaration requiring the transferor to
acknowledge that Cadence could not guarantee the delivery of an
international wire, that the transferor could be responsible for “tracer
fees” under certain circumstances, and that the transfer could take up
to ten business days. Elizondo signed the form and emailed it back to
Yang-Oh.
      The bottom half of the form notes a transfer fee of $55 and
contains fields for administrative information to be filled in by Cadence
after receiving Elizondo’s signature and before initiating the transfer. It
also contains this preprinted admonishment to any Cadence employee
who handles a wire transfer: “Before signing off, be sure you ‘know your
customer’ and have verified the collected balance and documented any
exception approvals.”
      Elizondo never saw the completed form until it was produced to
him in discovery. One of the administrative fields in the bottom half of
the form says “Collected Balance/Cash”. The completed form shows
“$497,643.89” handwritten in that box. Immediately to the right of that
field, Yang-Oh signed her name under the prompt, “Employee Who
Verified Collected Balance”. Under those fields, there is a prompt for the
signature of a bank officer, which was filled in by an assistant branch
manager named Villatoro.
      There are two versions of the completed form in the record. One
reflects that before the transfer was initiated, the form also passed
through the hands of another Cadence employee, S. Baker, who made
some notes in the margins. The right-hand margin contains a hand-

                                    3
written note signed by Baker reflecting that Elizondo’s account had an
“Ava Bal” (available balance) of $497,643.80. In the bottom margin,
“verified @ 11:08 am” is handwritten.
      Pursuant to Elizondo’s instructions, Cadence wired $398,980 to
the Japanese bank account Elizondo had identified on the form. The
very next day, Chase dishonored the cashier’s check and returned it to
Cadence unpaid. Cadence notified Elizondo that the check was returned,
charged the provisionally deposited amount back to this account, and
demanded that he pay the overdrawn funds. Elizondo refused.
                                      II
      Cadence sued Elizondo for breach of the deposit agreement,
breach of warranty under Section 4.207 of the Uniform Commercial
Code (UCC), and common-law torts. Elizondo raised various defenses
and counter-claimed for breach of contract, fraud, and negligent
misrepresentation. Cadence moved for summary judgment on its
affirmative claims, and Elizondo filed a counter motion for summary
judgment on his breach-of-contract claim. The trial court denied
Cadence’s motion, granted Elizondo’s, and signed a final judgment that
each party take nothing. A split panel of the court of appeals affirmed. 1
We granted Cadence’s petition for review.
      Elizondo does not dispute Cadence’s allegations that by
depositing a counterfeit check and then initiating a transfer of
provisionally credited funds, he breached warranties established in

      1   606 S.W.3d 802, 820 (Tex. App.—Houston [1st Dist.] 2020) (2-1).

                                       4
Section 4.207(a) of the UCC. 2 Elizondo also does not dispute that both
the UCC and the deposit agreement authorize Cadence to revoke credit
provisionally given for the deposit of a check that is later dishonored.
Section 4.214(a) of the UCC provides:

       2   Titled “Transfer Warranties”, Section 4.207 states in part:
       (a)         A customer or collecting bank that transfers an item and
                   receives a settlement or other consideration warrants to
                   the transferee and to any subsequent collecting bank
                   that:
             (1)      the warrantor is a person entitled to enforce the item;
             (2)      all signatures on the item are authentic and
                      authorized;
             (3)      the item has not been altered;
             (4)      the item is not subject to a defense or claim in
                      recoupment (Section 3.305(a)) of any party that can
                      be asserted against the warrantor;
             (5)      the warrantor has no knowledge of any insolvency
                      proceeding commenced with respect to the maker or
                      acceptor or, in the case of an unaccepted draft, the
                      drawer; and
             (6)      with respect to a remotely-created item, the person on
                      whose account the item is drawn authorized the
                      issuance of the item in the amount for which the item
                      is drawn.
TEX. BUS. & COM. CODE § 4.207(a). Cadence argues, and Elizondo does not
dispute, that Elizondo breached the warranty in (a)(1) that he “is a person
entitled to enforce” the check he deposited and the warranty in (a)(2) that “all
signatures on [the check] are authentic and authorized”. Section 4.207(d)
states that these warranties “cannot be disclaimed with respect to checks.” Id.
§ 4.207(d). Subsection (c) authorizes “[a] person to whom the warranties under
Subsection (a) are made and who took the item in good faith [to] recover from
the warrantor as damages for breach of warranty an amount equal to the loss
suffered as a result of the breach”. Id. § 4.207(c).

                                           5
      If a collecting bank has made provisional settlement with
      its customer for an item and fails by reason of
      dishonor . . . or otherwise to receive settlement for the item
      that is or becomes final, the bank may revoke the settlement
      given by it, charge back the amount of any credit given for
      the item to its customer’s account, or obtain refund from its
      customer . . . . 3
      The deposit agreement also provides:
      “We may deduct funds from your account if an item . . . is
      returned to us unpaid, or if it was improperly paid, even if
      you have already used the funds.”
      “Credit for any item we accept for deposit to your
      account, . . . is provisional and may be revoked if the item
      is not finally paid, for any reason, in cash or its equivalent.”
      “In the event a deposited item . . . drawn on any other
      payor is returned to us for any reason, . . . we may charge
      the item to your account . . . . We may debit all or part of a
      chargeback item to your account even if doing so results in
      or causes an overdraft to your account.”
      Absent Elizondo’s counterclaims, this case might be open and
shut. But the lower courts agreed with Elizondo that Cadence’s damages
were caused by its breach of a superseding contractual duty to transfer
funds from a “verified” or “collected balance” that excludes provisionally
credited funds. Elizondo’s theory of contract formation is this: By signing
the top part of the wire-transfer form and emailing it back to Yang-Oh,
Elizondo made an offer to pay Cadence $55 to transfer money from the
“collected balance” of his account, which, according to Elizondo, is the
remaining balance once provisionally credited funds are excluded. That
the transfer only be made from Elizondo’s “collected balance” was a

      3   Id. § 4.214(a) (emphasis added).

                                       6
material term of the agreement established by the administrative field
with that phrasing in the bottom half of the form. Cadence accepted
Elizondo’s offer by completing the form and initiating the transfer. If
Cadence had fulfilled its duty to ensure that Elizondo’s “collected
balance” was sufficient before making the transfer, then Cadence would
have seen that Elizondo’s collected balance was insufficient, it would not
have made the transfer, and it would not have any damages.
       The premise of Elizondo’s contractual theory is that a banking
customer’s “verified” or “collected balance” is necessarily a balance that
excludes provisionally credited funds. To support his motion for
summary judgment, Elizondo offered expert-witness (deposition)
testimony that a “collected balance” is an industry term meaning the
bank client’s “balance minus deposited checks in the process of
collection.”
       Cadence argues that Elizondo’s contractual theory is preempted
by the UCC, which provides that the bank’s statutory right to rely on
the transfer warranties established in Section 4.207(a) cannot be
disclaimed. Elizondo responds that the wire-transfer form does not
disclaim any warranty but rather imposes a separate and distinct
contractual obligation on the bank. 4 Cadence also denies that the wire-

       4  Compare id. § 1.103(b) (“Unless displaced by the particular provisions
of this title, the principles of law and equity, including the law merchant and
the law relative to capacity to contract, principal and agent, estoppel, fraud,
misrepresentation, duress, coercion, mistake, bankruptcy, or other validating
or invalidating cause shall supplement its provisions.” (emphasis added)), and
U.C.C. § 1-103 cmt. 2 (AM. L. INST. & UNIF. LAW COMM’N 2021) (“[W]hile
principles of common law and equity may supplement provisions of the
Uniform Commercial Code, they may not be used to supplant its provisions, or

                                       7
transfer form created an enforceable contract imposing on it the duty
that Elizondo claims, and it offered its own expert-witness testimony
disputing Elizondo’s narrow definition of “collected balance”.
       We need not resolve the parties’ disagreement about whether the
UCC allows a bank and its customer to make the contract that Elizondo
claims. Whatever the answer, the wire-transfer form did not create any
such agreement here.
                                         III
       In Compass Bank v. Calleja-Ahedo, we examined whether a bank
and its customer had altered a provision of the UCC in the customer’s
deposit agreement. 5 “The proper inquiry”, we said, “is whether the
statutory provision and the contractual provision contain conflicting
rules governing the same circumstances.” 6 We compared the language
of the deposit agreement and the statutory provision and concluded that
there was no conflict. 7 Importantly, we refused to stretch our reading of

the purposes and policies those provisions reflect, unless a specific provision of
the . . . Code provides otherwise.”), and TEX. BUS. & COM. CODE § 1.302(a)
(“Except as otherwise provided in Subsection (b) or elsewhere in this title, the
effect of provisions of this title may be varied by agreement.” (emphasis
added)), and id. § 4.207(d) (“The [transfer] warranties stated in Subsection (a)
cannot be disclaimed with respect to checks.”), and id. § 4.208(e) (“The
[presentment] warranties stated in Subsections (a) and (d) cannot be
disclaimed with respect to checks.”), with id. § 4.103(a) (“The effect of the
provisions of this chapter may be varied by agreement [with certain stated
exceptions].”).
       5   569 S.W.3d 104 (Tex. 2018).
       6   Id. at 115.
       7See id. (“The quoted contractual language does not express an intent
to dispense with all the statutory limitations on liability that apply . . . .”).

                                         8
the deposit agreement beyond its plain language to find a conflict that
was not clearly stated. 8
       The situation here is a step removed from Calleja-Ahedo because
the parties dispute whether an enforceable contract even exists. So our
analysis starts with these basic rules: “To be enforceable, a contract
must address all of its essential and material terms with ‘a reasonable
degree of certainty and definiteness.’” 9 At a minimum, “a contract must
at least be sufficiently definite to confirm that both parties actually
intended to be contractually bound.” 10 It must also be “sufficiently
definite to ‘enable a court to understand the parties’ obligations’” 11 and
“to give ‘an appropriate remedy’ if they are breached”. 12
       Measured against these standards, the wire-transfer form fails to
create the contractual duty that Elizondo urges. Its title is
“International Outgoing Transfer Request”. It has all the indicia of a
form whose purpose is to facilitate Cadence’s internal processing of the
wire transfer. With one exception, all of the fields in the bottom half of
the form were blank when Elizondo signed and returned it. The only

       8See id. (“A contractual amendment to one set of protections does not
automatically extinguish the other set of protections absent some indication
the parties intended to do so.”); see also id. at 114 (“Contracts, like statutes,
should be construed based on their plain language.”).
       9Fischer v. CTMI, L.L.C., 479 S.W.3d 231, 237 (Tex. 2016) (quoting
Pace Corp. v. Jackson, 284 S.W.2d 340, 345 (Tex. 1955)).
        Id. (citing Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22
       10

S.W.3d 831, 846 (Tex. 2000)).
       11   Id. (quoting Fort Worth Indep. Sch. Dist., 22 S.W.3d at 846).
        Id. (quoting RESTATEMENT (SECOND) OF CONTRACTS § 33(2) (AM.
       12

LAW INST. 1981)).

                                         9
populated field was the one for the transfer fee, which contained “$55”
in typeface.
      The bases for Elizondo’s claim are the two fields adjacent to the
fee, “Collected Balance/Cash” and “Employee Who Verified Collected
Balance”. In Elizondo’s view, the mere presence of these words on a form
created by Cadence had the effect of implicitly imposing on Cadence a
contractual duty that superseded its rights under the UCC and the
deposit agreement. If that reasoning carried the day, then any one of a
bank’s routine administrative forms could potentially override the
UCC’s default rules.
      We need not decide the meaning of “collected balance”. Even if the
record conclusively supported Elizondo’s definition—which it does not—
we would nonetheless hold that the transfer-request form was not
“sufficiently definite to confirm that [Cadence] actually intended to be
contractually bound” by a promise to only transfer “collected” funds. 13
                        *       *        *       *       *
      We reverse the judgment of the court of appeals and remand this
case to the trial court to consider any of Elizondo’s remaining claims or
defenses that are not based on breach of contract.

                                             Nathan L. Hecht
                                             Chief Justice

OPINION DELIVERED: March 18, 2022

      13   Id. (citing Fort Worth Indep. Sch. Dist., 22 S.W.3d at 846).

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