The relationship between banks and their customers has always been a love-hate relationship. Technology and the different services banks now provided has made life easier especially with the mobile apps, wire transfers, Zelle®, etc. One thing that has not changed is that the relationship between a customer and their financial institution is governed by the deposit agreement with the bank and the Texas Uniform Commercial Code. This point was made again by the Supreme Court of Texas with Cadence Bank, N.A. v. Elizondo, 2022 Tex. LEXIS 263 * (Tex. Mar. 18, 2022).
Elizondo had a trust account with Candence Bank, and he was scammed by a fraudster. Elizondo was hired to represent a creditor in a debt collection action and after agreeing to represent the creditor, the creditor said Debtor had agreed to settle. The settlement cashier’s check was sent to Elizondo and Elizondo deposited the check into his trust account and then he was instructed to wire the funds to the client in Japan. Elizondo contacted Cadence Bank and received a one-page “International Outgoing Wire Transfer Form.”
The form contained a pre-printed admonishment to any Cadence employee who handles a wire transfer to know the customer before signing off and to verify the collected balance and document any exception approvals. The funds were sent off as instructed and as you already can guess, the cashier’s check was dishonored, and returned to Cadence unpaid. Cadence then charged the deposited amount back to the trust account and demanded that Elizondo repay the overdrawn funds.
Elizondo refused arguing that the one-page International Outgoing Wire Transfer Form and its preprinted instructions was a superseding contractual duty and had Cadence fulfilled its duty to know its customer and verified that the funds were sufficient before sending the wire, it would have suffered no damages. The trial court agreed with Elizondo and granted Elizondo’s summary judgment against Cadence Bank on its counterclaim. The Supreme Court of Texas reversed and without reaching whether the UCC allows a bank and its customer to make a contract as claimed by Elizondo, held that the wire-transfer form created no contractual duty.
The Supreme Court of Texas held that for a contract to be enforceable, a contract must address the essential and material terms with a reasonable degree of certainty and definiteness. At a minimum, the contract must at least be sufficiently definite to confirm that both parties actually intended to be contractually bound and to enable a court to understand the parties’ obligations and to fashion a remedy if there is a breach. Cadence Bank, N.A. v. Elizondo, 2022 Tex. LEXIS 263 *10 (Tex. Mar. 18, 2022).
When measured against those standards, the wire-transfer form failed to create a contractual duty and it has all the indication of a form to simply facilitate Cadence’s internal processing of the wire-transfer. Otherwise, if the Supreme Court adopted Elizondo’s view, then any of a bank’s routine administrative forms could overrule the UCC’s default rules. Cadence Bank, N.A. v. Elizondo, 2022 Tex. LEXIS 263 * 11 (Tex. Mar. 18, 2022).
The Supreme Court of Texas decision is correct otherwise there would be chaos in the financial system. The point of a contract, such as a deposit agreement, is to set out the parties’ duties and responsibilities so each party knows what their obligations and duties are to each other. The opinions in this blog are solely the authors and any comments, suggestions, or replies can be sent to john@jrjoneslaw.com.
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