Texas Supreme Court Says Wire Transfer Form Did Not Create Contractual Obligation

ByRichard C. Sloan

Mar 29, 2022

The Texas Supreme Court recently ruled that a bank’s wire transfer form did not create a contractual obligation as claimed by a bank customer.

A copy of the notice in Cadence BANK, NA vs. Elizondo is available at: Link to Opinion.

A Houston lawyer (“Attorney”) was the victim of an Internet scam. The scammer (“scammer”) emailed the attorney requesting representation in a debt collection action. After agreeing to represent Scammer, the attorney was informed that a settlement had been reached and a cashier’s check would be sent. On Scammer’s instructions, the attorney deposited the check with the plaintiff (“Bank”) in his IOLTA account and received a check with a disclaimer stating: “All items are credited subject to payment.”

The next day, the attorney contacted the bank to execute a wire transfer as per Scammer’s instructions. A bank employee emailed the lawyer a one-page form titled Request for International Outgoing Bank Transfer (“Transfer Form”).

The transfer form contained a printed statement requiring the transferor to acknowledge that the Bank could not guarantee delivery of an international wire transfer and that the transferor may be liable for “trailing fees” in certain circumstances. The lawyer signed the transfer form and returned it to the bank employee.

The transfer form also contained a pre-printed warning to Bank employees stating: “Before signing, ensure you ‘know your customer’ and have verified the balance collected and documented any exception approvals.”

Two versions of the transfer form were on file, one of which contained a handwritten note from a Bank employee stating “Ava Bal” of $497,643.80, “verified at 11:08 a.m.” The bank transferred $398,980 in accordance with the attorney’s instructions to the bank identified on the transfer form. The next day, the cashier’s check was dishonored and returned to the bank unpaid. The bank informed the lawyer and debited the amount provisionally deposited in his account and asked him to pay the overdrawn funds. The lawyer refused.

The bank sued the attorney for breach of the custodial agreement, breach of warranty under UCC Section 4.207, and common law torts. The trial court granted summary judgment in favor of the attorney and signed a final judgment that each party takes nothing.

A split panel of the appeals court upheld. The bank has requested a review.

The attorney argued, and the lower courts agreed, that the bank’s damages were caused by its breach of a contractual obligation to transfer funds from a “checked balance” or “collected” that excluded funds provisionally credited.

Specifically, the lawyer argued that by signing the top of the transfer form and handing it to the bank employee, the lawyer offered to pay the bank the transfer fee in exchange for the transfer of money from his account’s “collected balance”, which consisted of the balance remaining after the provisionally credited funds were excluded.

The lawyer also argued that the funds taken only from the “cashed balance” was an essential condition of the agreement, and that the bank had accepted the lawyer’s offer by filling out the form and initiating the transfer. Furthermore, the lawyer argued that if the bank had fulfilled its obligation to ensure that the “collected balance” was sufficient before making the transfer, then the bank would have found that the balance was insufficient and would not have not made the transfer, thus avoiding any damage.

The Texas Supreme Court noted that the attorney’s theory was based on the fact that a bank customer’s “checked” or “collected” balance was a balance that excludes provisionally credited funds.

The bank argued that this theory was preempted by the Texas version of the Uniform Commercial Code, which does not permit the waiver of a bank’s legal right to rely on the transfer guarantees established in Section 4.207 (a ). The lawyer replied that the transfer form imposed a separate obligation on the bank rather than giving up any security.

The Court did not resolve the parties’ disputes over the UCC, as it concluded that the transfer form did not create an agreement.

“To be enforceable, a contract must address all of its essential and material terms with ‘a reasonable degree of certainty and certainty’.” Fischer v. CTMI, LLC, 479 SW3d 231, 237 (Tex. 2016). At a minimum, “a contract must at least be specific enough to confirm that both parties actually intended to be contractually bound”. Identifier. It must also be “sufficiently precise to ‘enable a court to understand the parties’ obligations'” and “to provide ‘an appropriate remedy’ for breach of them”. Identifier.

The Texas Supreme Court found that the transfer form did not create a contractual obligation measured against those standards. First, the Court noted that the transfer form was titled “Request for Outgoing International Transfer” and that it contained all the indicia of a form for the purpose of facilitating the Bank’s internal processing of a wire transfer. Additionally, the bottom half of the transfer form remained blank except for the transfer fee amount at the time it was executed by the lawyer.

The lawyer based his request on the fields adjacent to the fee field, “Balance collected/Cash” and “Employee who verified the balance collected”, arguing that the presence of these words, created by the Bank, had the effect of Implicitly impose on the Bank a contractual obligation which superseded the UCC and the deposited agreement.

However, the Court found that this reasoning would allow any of a bank’s routine administrative forms to potentially override the UCC’s default rules.

Thus, the Texas Supreme Court concluded that the transfer form was not “specific enough to confirm that [Bank] actually intended to be contractually bound” by the promise to transfer only the “funds raised”. Identifier.

As such, the Court reversed the judgment of the Court of Appeal and sent the case back to the trial court to consider the solicitor’s other claims or defenses that were not based on breach. of contract.