Gordon v. Planters & Merchants Bancshares, Inc.
Annotate this Case
Ashel GORDON v. PLANTERS & MERCHANTS
BANKSHARES, INC., d/b/a Planters & Merchants
Bank
95-1058 ___ S.W.2d ___
Supreme Court of Arkansas
Opinion delivered December 23, 1996
1. Banks & banking -- punitive damages -- when allowed under
Uniform Commercial Code. -- Punitive damages are allowable
under the Uniform Commercial Code (UCC) whenever a wrongdoer
acts in a willful or malicious manner.
2. Banks & banking -- UCC general provision on damages --
provision made for imposition of other damages. --
Article 4 of the UCC, codified as Ark. Code Ann. 4-4-103
(Repl. 1991), the general provision on damages, provides for
the imposition of "other" damages when a bank acts in bad
faith when dealing with its customers.
3. Banks & banking -- punitive damages -- allowed in wrongful-
dishonor cases. -- The imposition of punitive damages has been
recognized in wrongful-dishonor cases which, like wrongful
charge-back cases, are governed by Article 4 of the UCC.
4. Banks & banking -- punitive damages allowed when pertinent
wrongful-dishonor provision did not specifically provide for
them -- clear that court has not adopted narrow interpretation
of Ark. Code Ann. 4-1-106 (Repl. 1991). -- Because the
supreme court has allowed the imposition of punitive damages
when the pertinent wrongful-dishonor provision did not
specifically provide for them, it was clear that a narrow
interpretation of Section 1-106 has not been adopted in
determining damages allowable under the UCC.
5. Banks & banking -- punitive damages are allowable for Article
4 violations -- appellant's failure to assert claim for
conversion not fatal to his claim for punitive damages. --
Because the supreme court has indicated that punitive damages
can be awarded for Article 4 violations where the statute does
not specifically prohibit them, without the necessity that an
alternative, common-law tort be pleaded, appellant's failure
to assert a claim for conversion was not fatal to his claim
for punitive damages.
6. Banks & banking -- contracts impose duty of good-faith dealing
-- appellee's breach of this duty could be construed as an
exercise of bad faith. -- Arkansas Code Annotated 4-1-203
(Repl. 1991) imposes a clear duty of good faith in the
performance of every contract or duty within the subtitle;
here, appellee had a clear duty under Ark. Code Ann. 4-4-215
to refrain from charging-back the check against appellant's
account once payment had become final; the breach of this
duty, under the circumstances, could have been construed to be
an exercise of bad faith which is strictly prohibited by
Section 1-203.
7. Banks & banking -- punitive damages are recoverable for breach
of duty of good faith -- appellant's right to punitive damages
not defeated. -- Punitive damages are recoverable for a breach
of the duty of good faith under Section 1-203 of the UCC;
consequently, appellees' argument that punitive damages may
not be allowed because appellant's case was based in contract,
as opposed to negligence or intentional tort, did not defeat
appellant's right to punitive damages pursuant to the duty of
good faith imposed by Section 1-203 of the UCC.
8. Damages -- punitive damages -- proof required to go to jury. -
- In order to avoid a directed verdict and reach the jury on
the issue of punitive damages, a party must present
substantial evidence that the defendant acted "wantonly in
causing the injury or with such conscious indifference to the
consequences that malice may be inferred."
9. Evidence -- substantial evidence of bank employee's
intentional and malicious purpose -- evidence sufficient to
present issue of punitive damages to jury. -- There was
substantial evidence that the bank employee knew the effect of
his actions and intentionally did them to achieve his personal
ends; thus, there was substantial evidence that it was that
employee's intentional and malicious purpose to have the
check, in which he had a personal, pecuniary interest,
charged-back against appellant's account; hence, there was
sufficient evidence to present the issue of punitive damages
to the jury.
10. Damages -- doctrine of respondeat superior defined and
discussed. -- Under the doctrine of respondeat superior, an
employer may be held liable for punitive damages for the acts
of his employee if the employee was acting within the scope of
his or her employment at the time of the incident; whether the
employee's action is within the scope of the employment is not
necessarily dependent upon the situs of the occurrence, but on
whether the individual is carrying out the "object and purpose
of the enterprise," as opposed to acting exclusively in his
own interest.
11. Master & servant -- employee's actions motivated by personal,
pecuniary interest -- employee acting within scope of
employment when he caused charge-back to appellant's account.
-- The bank employee's personal, pecuniary interest motivated
him to cause the charge-back of appellant's check; however,
the employee utilized his position at the bank to achieve this
purpose and to start the charge-back procedure; he was clearly
acting within his supervisory capacity when he instructed the
bank's bookkeeper to charge-back appellant's check;
consequently, the employee was found to be acting within the
scope of his employment when he caused the charge-back of the
account.
12. Banks & banking -- punitive liability also applicable due to
bank president's actions -- president acted with conscious
indifference to appellant's problem. -- Appellee bank could
also be held liable for punitive damages based on the conduct
of the bank's president; his refusal to assist appellant with
the charge-back to his account, and his instruction to
appellant to resolve the matter with the clearly biased
employee, demonstrated his awareness of the employee's actions
and, more importantly, his "conscious indifference" to the
charge-back on appellant's account; appellee may be held
liable for punitive damages based on the employee's and/or the
bank president's conduct.
13. Master & servant -- ratification of employee's actions --
ratification discussed. -- When the principal has knowledge of
the unauthorized acts of his agent and remains silent, he
cannot thereafter be heard to deny the agency but will be held
to have ratified the unauthorized acts; the affirmance of an
unauthorized transaction may be inferred from the failure to
repudiate it or from receipt or retention of benefits of the
transaction with knowledge of the facts; the principle of
ratification also applies when the agent's actions are
tortious, and ratification may bind the principal for punitive
damages.
14. Appeal & error -- evidence sufficient to go to jury on issue
of punitive damages -- directed verdict reversed and case
remanded for retrial. -- Because there was sufficient evidence
to allow the jury to decide whether appellant was entitled to
punitive damages based on the bank employee or bank
president's conduct, the directed verdict was reversed and the
case remanded for retrial.
Appeal from Arkansas Circuit Court; Russell Rogers, Judge;
reversed and remanded.
Thomas D. Deen, for appellant.
Russell D. Berry, and Arnold, Grobmyer & Haley, by: Robert R.
Ross, for appellee.
Andree Layton Roaf, Justice.
The appellant, Ashel Gordon, sued his bank, the appellee,
Planters & Merchants Bancshares, Inc. ("Planters"), for wrongful
charge-back of a check he deposited into his account. Gordon
alleged that Planters violated Ark. Code Ann. 4-4-213 (1987) and
acted maliciously, intentionally, and in bad faith; he sued for the
amount of the check, plus interest and punitive damages. This
court reversed the trial court's previous dismissal of Gordon's
action under Ark. R. Civ. P. 12(b)(6) in Gordon v. Planters &
Merchants Bancshares, Inc., 310 Ark. 11, 832 S.W.2d 492 (1992), and
held that a collecting bank's right to charge-back an account
terminates when settlement for a check becomes final. On remand,
during a jury trial, the trial court granted a directed verdict to
Planters on the issue of punitive damages, after which Planters
conceded liability for compensatory damages for the wrongful
charge-back. The trial court awarded Gordon the amount of the
check, plus interest and $335 in attorney's fees. On appeal,
Gordon contends that the trial court erred in granting Planters a
directed verdict as to punitive damages and the amount of
attorney's fees awarded. We agree that the trial court erred in
directing a verdict on punitive damages and reverse and remand for
a new trial.
Ashel Gordon and Lloyd Wallace were partners for approximately
three years in a farming business known as "Gordon Wallace Farms."
In 1982, the partnership ended when Wallace decided to take a job
with Planters Bank. Pursuant to a dissolution agreement, Gordon
paid Wallace $67,000 for what Gordon believed was the right to all
assets formerly belonging to the partnership.
In September, 1990, Gordon received a $2,494.21 check issued
by Stuttgart Cooperative Buyers' Association ("Co-op"), drawn on
the First National Bank of Stuttgart ("First National"), and made
payable to Gordon Wallace Farms. The check was for patronage
dividends which accrued during the operation of the partnership.
Gordon endorsed the check "Gordon Wallace Farms" and deposited it
on September 24, 1990 into his personal account at Planters where
Wallace, Gordon's former partner, was working as a loan officer.
The next day, First National made final settlement with Planters
for the amount of the check, Planters completed the posting
process, and credited Gordon's account for the amount of the check.
On September 26, just two days after the check was deposited,
Wallace phoned the Gordon home and inquired whether Gordon Wallace
Farms had received a check from the Co-op. It is not clear whether
Wallace acquired knowledge of the check through his employment with
Planters or through some other source. Gordon's wife told Wallace
that the check had been received and deposited. When Wallace
inquired whether he was entitled to one-half of the check, Mrs.
Gordon instructed him to call back later and speak to Mr. Gordon;
Wallace did not do so.
Instead, on September 27, Wallace called the Co-op to
determine whether the check to Gordon Wallace Farms had been
cleared. The Co-op officer manager called Wallace back at his
office phone number at Planters and informed him that the check had
been cleared. Wallace did not identify himself as an officer of
the bank, or tell the Co-op manager that he was calling from his
office phone.
Wallace then called Jack Barber, a friend of his who was a
loan officer at First National. Wallace told Barber that Gordon
Wallace Farms no longer existed, that he had been a member of the
partnership, and that the check had been improperly endorsed.
Barber passed this information on to the Co-op and to a customer
service manager at First National. The First National service
manager called the Co-op manager on two consecutive days, October
1 and October 2, obtained return of the canceled check from the Co-
op after the second call, and returned it to Planters.
On October 3, a bookkeeper at Planters received from First
National the check which was marked "Return to Maker." The
bookkeeper consulted Wallace, her supervisor, who instructed her to
charge-back the check against Gordon's account. At Wallace's
instruction, the bookkeeper charged-back the check and deducted the
amount from Gordon's account.
Planters did not contact Gordon about the charge-back of the
check, and Gordon was not aware of the debit to his account until
he received a notice of overdraft approximately eight days after
the check had been deposited at Planters. Gordon immediately went
to Planters and spoke with Larry Bauer, the bank president. Bauer
told Gordon that the charge-back was a personal matter between him
and Wallace, and that Gordon would have to resolve the dispute with
Wallace. Bauer did not investigate the matter or offer to assist
Gordon in the resolution of the dispute.
Gordon brought suit against Planters alleging that the bank
was strictly liable under Ark. Code Ann. 4-4-213 (1987) (now
codified as Ark. Code Ann. 4-4-215 (Repl. 1991)) when it charged-
back the check after final settlement. In addition, Gordon sued
for punitive damages on the basis that Planters, through Wallace,
acted maliciously and in bad faith. The trial court dismissed the
action under Ark. R. Civ. P. 12(b)(6) for failure to state a claim
on which relief could be granted.
Gordon appealed the dismissal to this court in Gordon v.
Planters & Merchants Bancshares, Inc., 310 Ark. 11, 832 S.W.2d 492
(1992) ("Gordon I"). In Gordon I, this court held that under Ark.
Code Ann. 4-4-213 (1987), a collecting bank's right to charge-
back an account terminates when a settlement for the check becomes
final. Id. Therefore, the facts, as alleged by Gordon, were
sufficient to state a cause of action, and the case was remanded
for trial. Id.
At trial, the judge granted Planters' motion for a directed
verdict as to punitive damages. At that point, Planters conceded
liability for compensatory damages for the wrongful charge-back.
Accordingly, Gordon was granted a judgment of $2,494.21 in
compensatory damages plus costs and interest, and $335 in
attorney's fees. Planters was given credit for one-half of the
amount of the check which represented the funds that Gordon had
received in a settlement of his dispute with Wallace. On appeal,
Gordon challenges the directed verdict on punitive damages and the
amount of attorney's fees awarded.
1. Punitive damages.
Planters admitted that it wrongfully charged-back Gordon's
account; thus, the only issue on appeal is whether Gordon has
sufficiently pled and submitted evidence to support an award of
punitive damages. In order to reverse the trial judge's ruling,
this court must find that: 1) punitive damages are permissible
under 4-4-215(d); 2) there was sufficient evidence to allow the
issue to be submitted to the jury; and 3) Planters Bank may be held
vicariously liable for Wallace's wrongful actions.
A. Punitive Damages under 4-4-215(d).
This issue of whether punitive damages are recoverable under
the wrongful charge-back provision of the Uniform Commercial Code
("UCC"), Ark. Code Ann. 4-4-215(d) (Repl. 1991), is an issue of
first impression in Arkansas. We also have not found that other
jurisdictions have considered this question. Therefore, it is
necessary to review the general provisions in the UCC regarding the
appropriate measure of damages, and cases in which we and other
states have addressed the award of punitive damages under other UCC
provisions. The introductory article to the UCC instructs that:
The remedies provided by this subtitle shall be
liberally administered to the end that the aggrieved
party may be put in as good as position as if the other
party had fully performed but neither consequential or
special nor penal damages may be had except as
specifically provided in this subtitle or by other rule
of law.
Ark. Code Ann. 4-1-106(1) (Repl. 1991) (emphasis supplied).
There are three different ways that courts have interpreted this
language. William D. Hawkland, UCC Series 1-106:04 (1982).
Some jurisdictions take a broad view of this section and find
that it is permissible to impose consequential, special, or
punitive damages unless they are specifically prohibited by a
particular section of the Code. Id. Courts following this
approach rely on the mandate at the beginning of the paragraph that
remedies under the UCC are to be "liberally administered." Id.
Other courts take the opposite, or narrow approach, and hold
that consequential, special, and punitive damages are allowable
only when specifically authorized by the Code. Id. These
jurisdictions find that as a general principle of law courts should
not go beyond the Code for answers to problems that are not
specifically addressed therein. Id. Instead, "gaps in the Code are
usually best filled through the use of analogy and extrapolation"
rather than resort to common law. Id. However, the commentators
note that this narrow approach appears "contrary to the plain
meaning of subsection 1-106(1)" which specifically refers to "other
rules of law." Id.
The third, and final approach is an intermediary or neutral
interpretation of the section. Id. According to this view,
Section 1-106 neither provides for nor prevents the imposition of
special, consequential, or punitive damages. Id. Instead, the
court must look to the common law to supplement the Code as
provided in Section 1-103. Id. The commentators state that:
This theory seems sound, because subsection 1-106(1)
states quite plainly that it does not authorize the
imposition of consequential, special or penal damages and
that such damages are unavailable to the aggrieved party
unless "specifically provided in this Act or by other
rule of law."
Id. (emphasis in the original).
Arkansas has not specifically adopted any of these three
approaches. However, regardless of the approach, other
jurisdictions have held that punitive damages are allowable under
the UCC whenever a wrongdoer acts in a willful or malicious manner.
See, e.g., Fedders Corp. v. Boatright, 493 So. 2d 301 (Miss. 1986)
(finding that punitive damages are allowable under the UCC when
there is a breach of "gross magnitude"); First Nat'l Bank v.
Twombly, 689 P.2d 1226 (Mont. 1984) (holding that punitive damages
are recoverable under the UCC when "the Bank's conduct is
sufficiently culpable).
As to damages under Article 4 of the UCC, the general
provision on damages in this article declares:
(a) The effect of the provisions of this chapter may
be varied by agreement, but the parties to the agreement
cannot disclaim a bank's responsibility for its lack of
good faith or failure to exercise ordinary care or limit
the measure of damages for the lack or failure.
However, the parties may determine by agreement the
standards by which the bank's responsibility is to be
measured if those standards are not manifestly
unreasonable.
(e) The measure of damages for failure to exercise
ordinary care in handling an item is the amount of the
item reduced by an amount that could not have been
realized by the exercise of ordinary care. If there is
also bad faith, it includes any other damages the party
suffered as a proximate consequence.
Ark. Code Ann. 4-4-103 (Repl. 1991) (emphasis added). From this
provision, it is clear that Article 4 provides for the imposition
of "other" damages when a bank acts in bad faith when dealing with
its customers.
Moreover, we have recognized the imposition of punitive
damages in wrongful dishonor cases which, like wrongful charge-back
cases, are governed by Article 4 of the UCC. City Nat'l Bank v.
Goodwin, 301 Ark. 182, 783 S.W.2d 335 (1990); Twin City Bank v.
Isaacs, 283 Ark. 127, 672 S.W.2d 651 (1984).
When Goodwin and Isaacs were decided, the UCC provision on
damages allowable for wrongful dishonor provided in part:
A payor bank is liable to its customers for damages
proximately caused by the wrongful dishonor of an item.
When the dishonor occurs through mistake, liability is
limited to actual damages proved. If so proximately
caused and proved damages may include damages for an
arrest or prosection of the customer or other
consequential damages.
Ark. Code Ann. 4-4-402 (1987) (emphasis supplied). As with Ark.
Code Ann. 4-4-215, the wrongful dishonor provision was silent as
to punitive damages. In addition, Section 4-402 specifically
included limiting language as to the types of damages awardable,
and only provided for actual and consequential damages.
In Goodwin, this court said that punitive damages were
allowable when a bank dishonors a check based on an "erroneous
belief that it had a legal right to do so" or in bad faith
"deliberately or willfully dishonors a check," but that only actual
damages were recoverable when the dishonor occurred through a
mistake. Goodwin, supra. Although reference to dishonor through
mistake was deleted from Section 402(b) in the revised uniform law
in 1991, which Arkansas has adopted, Goodwin remains evidence of
this court's rejection of the narrow approach in determining the
amount of damages allowable under the UCC.
Furthermore, in Citizen's Bank v. Chitty, 285 Ark. 55, 684 S.W.2d 814 (1985), we addressed the question of damages in the
context of a wrongful charge-back by a bank to its customer's
account. Chitty's complaint alleged that his bank was negligent in
the breach of a fiduciary duty owed to its depositor. Id. Although
we held that Chitty was not entitled to consequential damages
because there was not even an implication that the bank acted in
bad faith, we stated:
Ark. Stat. Ann. 85-4-103(1) (Add. 1961) states that
a bank may not disclaim its responsibility for "failure
to exercise ordinary care or . . . limit the measure of
damages for such lack or failure. . ." "The measure of
damages for failure to exercise ordinary care in handling
an item is the amount of the item reduced by an amount
which could not have been realized by the use of ordinary
care, and where there is bad faith it includes other
damages, if any, suffered by the party as approximate
consequence." Ark. Stat. Ann. 85-4-103(5). Thus it may
be seen that the amount of recovery is limited to the
amount of the item[s] in the absence of bad faith.
Id. (citing Ark. Stat. Ann. 85-4-103 which is now codified as Ark.
Code Ann. 4-4-103 (Repl. 1991)) (emphasis added).
Because we have allowed the imposition of punitive damages
when the pertinent wrongful dishonor provision did not specifically
provide for them, it is clear that we have not adopted a narrow
interpretation of Section 1-106. Moreover, in Goodwin, this court
stated that punitive damages were recoverable under both the claim
of wrongful dishonor and conversion, although we found no
substantial evidence to support a punitive-damage award on either
cause of action in that instance. Goodwin, supra. Consequently,
this court has indicated that punitive damages can be awarded for
Article 4 violations where the statute does not specifically
prohibit them without the necessity that an alternative, common law
tort be pled. Thus, Gordon's failure to assert a claim for
conversion is not fatal to his claim for punitive damages.
There is a further reason that punitive damages should be
allowed in this case. Arkansas Code Annotated 4-1-203 (Repl.
1991) clearly provides that, "Every contract or duty within this
subtitle imposes an obligation of good faith in its performance or
enforcement." (Emphasis added.) As previously mentioned, Planters
had a clear duty under Ark. Code Ann. 4-4-215 to refrain from
charging-back the check against Gordon's account once payment had
become final. Planters' breach of this duty, under the
circumstances presented by this case, could have been construed to
be an exercise of bad faith which is strictly prohibited by Section
1-203. Moreover, Gordon sufficiently apprised the trial court of
this issue when he alleged in his complaint that Planter's actions
were "taken in bad faith," and that Planters "violated and
exploited its fiduciary relationship" with him.
Although we have not specifically addressed whether punitive
damages are recoverable for a breach of the duty of good faith
under Section 1-203 of the UCC, in Adams v. First State Bank, 300
Ark. 235, 778 S.W.2d 611 (1989), we declared that the issue could
have gone to the jury under a subjective test if the plaintiff had
simply alleged sufficient facts to avoid summary judgment.
Moreover, other jurisdictions have recognized that punitive damages
are recoverable for a breach of the duty of good faith imposed by
Section 1-203. See, e.g., Twombly, supra (finding that punitive
damages are recoverable under the UCC when there is a breach of
"gross magnitude"); Commercial Cotton V. United Cal. Bank, 209 Cal. Rptr. 551 (Cal. App. 4th Dist. 1981) (holding that punitive damages
are recoverable where the bank breached the duty of good faith and
fair dealing towards its depositor). Consequently, Planters'
argument that punitive damages may not be allowed because Gordon's
case is based in contract, as opposed to negligence or intentional
tort, does not defeat Gordon's right to punitive damages pursuant
to the duty of good faith imposed by Section 1-203 of the UCC.
B. Substantial Evidence.
In order to avoid a directed verdict and reach the jury on the
issue of punitive damages, Gordon must have presented substantial
evidence that the defendant acted "wantonly in causing the injury
or with such conscious indifference to the consequences that malice
may be inferred." Stein v. Lukas, 308 Ark. 74, 823 S.W.2d 832
(1992). We find that Gordon satisfied this burden, and thus the
issue should have been submitted to the jury. See Goodwin, supra.
On September 26, Wallace notified Gordon that he thought he
was entitled to half of the check made payable to "Gordon Wallace
Farms" which Gordon had deposited into his personal bank account.
Instead of pursuing the matter with Gordon or an attorney, Wallace
abused his position at Planters Bank to have the check charged-back
against Gordon's account with Planters.
The testimony with regard to the handling of this check is
pertinent to the resolution of the issue of punitive damages and it
is accordingly summarized in detail. The Co-op manager, Virginia
Woodward, testified that she did not dispute the check, that the
Co-op did not have any problems with the endorsement, and that the
check would not have been sent back "but for the intervention of
whoever it was there at the bank in Stuttgart." Woodward was
sufficiently concerned about this incident that she prepared a memo
approximately one week after she returned the check. This memo
recited the three phone calls she received from Wallace and Harr
and the request from Harr to return the check because of a disputed
endorsement.
Jack Barber, Gordon's friend at First National, testified that
he did not determine that the negotiation of the check was
unlawful, that he never saw the check, did not check the
endorsement, and that he called the Co-op simply to relate
information to his customer. Donna Harr, the manager at First
National, testified that the reason for return which was stamped on
the check was "other" and that "refer to maker" was also written on
it at her direction. Harr could not explain why the endorsement box
was not checked. She stated that the "customer [the Co-op] is the
one that asked us to return the check, at our request." Harr
further testified that she thought the Co-op asked that the check
be returned "because of the endorsement," and that she made the
decision that the endorsement was insufficient because the check
was not signed by an authorized partner or party. She further
stated that First National returned the check to Planters and the
Co-op's account was credited with the funds.
Bonnie Wilbanks, the bookkeeper for Planters, testified that
she discovered the returned check sitting in a basket by itself at
the end of the work day on October 3. Wilbanks explained that the
endorsement box was not checked, and that according to the bank's
policy, "Gordon Wallace Farms" was a proper endorsement. When she
inquired about the check, Wilbanks was instructed to speak with
Wallace. According to Wilbanks, Wallace told her that there was a
problem with the check and that it should be returned. Wilbanks
further testified that Larry Bauer, the president of Planters, was
in the room when she discussed the check with Wallace.
We think that there is substantial evidence that Wallace knew
the effect of his actions and intentionally did them to achieve his
personal ends. Thus, there is substantial evidence that it was
Wallace's intentional and malicious purpose to have the check, in
which he had a personal, pecuniary interest, charged-back against
Gordon's account. At the very least, Wallace's behavior amounted
to a conscious disregard for the consequences of his actions.
Hence, we hold that there was sufficient evidence to present the
issue of punitive damages to the jury.
C. Agency Relationship.
Finally, to allow the jury to impose punitive damages on
Planters, we must find that an agency relationship existed between
Wallace and Planters when Wallace caused the check to be charged-
back against Gordon's account.
Under the doctrine of respondeat superior, an employer may be
held liable for punitive damages for the acts of his employee if
the employee was acting within the scope of his or her employment
at the time of the incident. J.B. Hunt Transp., Inc. v. Doss, 320
Ark. 660, 899 S.W.2d 464 (1995). Whether the employee's action is
within the scope of the employment is not necessarily dependent
upon the situs of the occurrence, but on whether the individual is
carrying out the "object and purpose of the enterprise," as opposed
to acting exclusively in his own interest. Id.
Planters asserts correctly that Wallace's personal, pecuniary
interest motivated him to cause the charge-back of Gordon's check.
However, Wallace utilized his position at the bank to achieve this
purpose. Wallace further utilized his banking connections with
Jack Barber of First National to start the charge-back procedure.
Finally, Wallace was clearly acting within his supervisory capacity
when he instructed Planters' bookkeeper to charge-back Gordon's
check. Consequently, we find that Wallace was acting within the
scope of his employment when he caused the charge-back of the
account.
In addition, Planters may be held liable for punitive damages
based on the conduct of Larry Bauer, the president of Planters.
Specifically, Bauer refused to assist Gordon with the charge-back
to his account, and instead, instructed Gordon to resolve the
matter with Wallace. With this response, Bauer demonstrated his
awareness of Wallace's actions, and more importantly, his
"conscious indifference" to the charge-back on Gordon's account.
See, Stein v. Lucas, 308 Ark. 74, 823 S.W.2d 832 (1992). We find
that Planters Bank may be held liable for punitive damages based on
Wallace's and/or Bauer's conduct.
Furthermore, Bauer's behavior may be construed as a
ratification of Wallace's conduct. In Brady v. Bryant, 319 Ark.
712, 894 S.W.2d 144 (1995), we said:
[i]t is well settled in Arkansas law that when the
principal has knowledge of the unauthorized acts of his
agent, and remains silent...he cannot thereafter be heard
to deny the agency but will be held to have ratified the
unauthorized acts.... It has been said that the
affirmance of an unauthorized transaction may be inferred
from the failure to repudiate it, or from receipt or
retention of benefits of the transaction with knowledge
of the facts.
(citing Arnold v. All American Assurance Co., 255 Ark. 275, 496 S.W.2d 861 (1973)). Although Brady involved an agent's
unauthorized entrance into a settlement agreement on behalf of the
principal, the principle of ratification also applies when the
agent's actions are tortious, and ratification may bind the
principal for punitive damages. Restatement (Second) of Agency
217(c) & 218 (1957).
Because there was sufficient evidence to allow the jury to
decide whether Gordon was entitled to punitive damages based on
Wallace or Bauer's conduct, we reverse the directed verdict and
remand for retrial.
2. Attorney's fees.
Because we reverse and remand this case for retrial, we do not
reach the issue of the award of attorney's fees to Gordon.
However, we note that in an affidavit submitted to the court Gordon
claimed he was entitled to $11,248.95 in attorney's fees for
eighty-seven billable hours at $120 an hour and $800 for
depositions. The trial judge awarded Gordon's attorney only $335,
which does not even cover the cost of the depositions in this case
involving a difficult issue of first impression in Arkansas.
Reversed and remanded.
Corbin, J., and Special Justices Robert S. Shafer and K.
LeAnne Daniel dissent.
Dudley and Brown, JJ., not participating.
=================================================================
Donald L. Corbin, Associate Justice, dissents.
So much for the old adage that cheaters never prosper. After
the majority's opinion today, it is apparent that not only do they
prosper, but they may be entitled to punitive damages in addition
to all the prosperity. There was no substantial evidence presented
at trial to support an award of punitive damages to Appellant Ashel
Gordon. To the contrary, there was evidence presented to the jury,
including Gordon's own admissions, which demonstrated that Gordon
was not entitled to the entire proceeds of the check and that this
cause of action resulted only because Gordon's former partner,
Wallace, happened to catch Gordon while he was attempting to keep
the proceeds of the check all to himself. The trial judge said it
best when he stated:
[M]y conscience tells me that Mr. Gordon is trying to
make--is already doubling his money on this deal. And to
--to allow for him to shoot for punitive damages on top
of that, after he has been frustrated in his attempt to
possibly avoid his liability to Mr.--Mr. Wallace, that I
can't in good conscience go with that.
The majority opinion mischaracterizes the trial testimony when
it states that substantial evidence existed to present the issue of
punitive damages to the jury. The majority is correct that both
Gordon and his wife testified that it was their understanding that
the partnership had been bought out by Gordon, and that, at the
time, Wallace was not entitled to half of the money. The majority
neglects to point out, however, that during the trial, on cross-
examination, Gordon testified that ultimately he agreed that the
check did not belong entirely to him. There was a further
admission by Gordon that the Co-op had in the interim paid one-half
of the proceeds of the check to him and the other half to Wallace.
Thus, the trial judge was correct in his observation that Gordon
had already gained all that he was rightfully entitled to when the
Co-op paid him his share of the proceeds. The fact that he
received the other half of the proceeds of the check when Planters
moved for a directed verdict against itself demonstrates that
Gordon had in fact gained twice the amount to which he was ever
entitled.
The testimony elicited through Gordon's own witnesses does not
support his contention that Wallace, and Planters as Wallace's
employer, maliciously and intentionally caused damage to him.
Virginia Woodward, the Stuttgart Co-op bookkeeper, stated that
Wallace called her on September 27, 1990, and asked her if the
check to "Gordon Wallace Farms" had cleared the bank. She stated
that she did not know, but she would call her bank and find out,
and then call Wallace. When she found out the check had cleared,
she called Wallace and told him. She stated that Wallace did not
identify himself as a bank officer with Planters. She stated that
she next heard from an employee of First National Bank, informing
her that there was a dispute among the parties to the check, and
that the Co-op could bring the check back to the bank for credit if
the Co-op desired to do so. She stated that the bank employee told
her it was up to the Co-op to do what it wished in the situation,
since the check had already been paid. She stated that ultimately,
she decided that it would be best to return the check to First
National Bank for credit. She verified that she had no input from
Wallace in her decision, and that Wallace said nothing that
influenced her in any way.
Jack Barber, the loan officer at First National Bank, stated
that he knew Wallace through some bank seminars and classes that
they had attended together. He stated that he recalled being
contacted by Wallace concerning the check. He stated that the
purpose of Wallace's call was to inform him that a check had been
deposited in Planters bank from the Stuttgart Co-op, payable to a
farming partnership that had been dissolved for a couple of years.
He stated that Wallace informed him that he (Wallace) had personal
information that the entity was dissolved, because he had been
involved in the partnership. He stated that Wallace did not ask
him to do anything about the check, only that he wanted to inform
Barber that a check had been written to a dissolved partnership so
that Barber could inform its customer, the Co-op. Barber stated
that to the best of his recollection, Wallace never called him
about the check again.
Donna Harr, the bookkeeper at First National Bank, stated that
she had been on vacation when the information initially came in
about the check. She stated that when she returned, she was
notified that the Co-op wanted to return the check because it
questioned the propriety of the endorsement. She stated that it
would have been her decision whether or not to return the check to
Planters as unpaid. She further stated that in her opinion the
endorsement was improper, because it lacked an individual signature
by the person who signed "Gordon Wallace Farms" on the back of the
check, and because there was no indication from the endorsement
whether the person signing the check was authorized to endorse such
checks. She further stated that she had not heard the name of
"Lloyd Earl Wallace" connected with the check, and that she did not
even know who Wallace was.
Bonnie Wilbanks, the bookkeeper at Planters, stated that when
she received the check, now marked "Refer to Maker," back from
First National Bank, she asked Wallace, her supervisor, what to do
with it. She stated that Wallace told her it was a return item,
that it would have to be returned to the person who deposited it,
and that there was a problem with it. She further stated that she
knew that Wallace was the Wallace referred to in "Gordon Wallace
Farms," but that she did not consider the situation as one in which
Wallace had a personal interest in the proceeds of the check. She
stated that when she asked Wallace what she should do with the
check, Larry Bauer, the bank's president, was present in the room.
She stated that it was normal practice that when the bank received
a dishonored check it would be charged back to the customer's
account.
Gordon testified that after his wife had discovered that their
bank account was overdrawn due to the returned check from the
Stuttgart Co-op, he went to the bank to talk to the president,
Larry Bauer. Gordon stated that when he approached Bauer to ask
him what happened, he was told by Bauer that he would have to check
with Wallace, because the situation was between Gordon and Wallace.
Gordon did, however, state that he received half of the funds due
to him from the Co-op, and that the other half went to Wallace. It
was at that point that Gordon acknowledged that he was not entitled
to all of that money to the detriment of his former partner,
Wallace.
None of the actions taken by Wallace, not to mention any
actions which may have been attributable to Planters, demonstrate
any malice or deliberate intent to harm or injure Gordon.
Moreover, Gordon presented no testimony that he was in fact injured
by the charge-back, other than the fact that he was out half the
proceeds of the check, money which he was later paid by the Co-op.
There was no testimony presented concerning the amount of money
that Gordon's bank account was overdrawn due to the charge-back.
In fact, during oral argument before this court, it was pointed out
that none of the checks written by Gordon during that interim
period were returned to him for reasons of insufficient funds;
Planters covered any amount that the account was overdrawn. In
short, I can see no justification for actual damages, let alone
punitive damages.
The evidence recited above demonstrates nothing more than that
Wallace contested Gordon's actions in cashing a check made payable
to the dissolved partnership and attempting to deprive Wallace of
his share of the money. Wallace was attempting to defend his own
interest in the proceeds of the check. Such defensive action
hardly amounts to malicious, intentional, or willful desire to
cause injury to Gordon. Gordon has already received a windfall
from this cause of action to the tune of double his money. For
this court to sanction his behavior by allowing him a chance to
receive punitive damages, which he seeks in the amount of
$150,000.00, is unconscionable.
For all of the above reasons, I respectfully dissent.
=================================================================
Robert S. Shafer, Special Justice, dissents.
An action by a customer against a collecting bank pursuant to
Ark. Code Ann. 4-4-215(d), standing alone, should not support a
claim for punitive damages as a matter of law. Even if punitive
damages were recoverable in a case such as this, I would hold that
the evidence is insufficient to submit the claim for punitive
damages to the jury. Accordingly, I respectfully dissent from the
Court's remand of the punitive damages claim for trial. I further
would address the issue of attorney's fees and hold that the trial
court abused its discretion under Ark. Code Ann. 16-22-308 in
awarding a fee of only $335 for the services of Gordon's attorney.
The Court held in Gordon v. Planters & Merchants Bancshares,
Inc., 310 Ark. 11, 14, 832 S.W.2d 492 (1992), that 4-4-215(d) of
the UCC provides a strict liability cause of action. Thus, if a
customer of a collecting bank proves that the bank has received
final settlement for an item, the bank is accountable for the full
amount of the item, without regard to fault.
Under Arkansas law, a claim for punitive damages is a remedy,
not an independent cause of action. It depends upon proof of an
intentional tort, or in some cases, breach of contract coupled with
tortious conduct, together with proof of malice or an intentional
course of conduct for the purpose of causing harm. AMI Civil 3rd
2217. In short, there must be fault in regard to the underlying
cause of action (and not mere negligence, but intentional and
willful conduct) and fault in regard to what the law calls
"malice," or the evil disposition or purpose of causing harm to
another. Since this case was tried solely on the basis of a strict
liability cause of action, Gordon should not be permitted to pursue
his claim for punitive damages.
Even assuming that 4-4-215(d) has not displaced the common
law with regard to the conduct in question, which is an issue the
parties have not raised, no cause of action which may support a
claim for punitive damages was pleaded in this case or argued in
the first appeal. See Ark. Code Ann. 4-1-103. There is no
suggestion that an intentional tort cause of action was tried by
consent of the parties and there was no request at trial to amend
the pleadings to conform to such proof. Gordon alleged in his
complaint that the bank's actions were malicious and taken in bad
faith, but the mere allegation of malice does not state a cause of
action, nor does every intentional act open the door to the
imposition of punitive damages. McClellan v. Brown, 276 Ark. 28,
632 S.W.2d 406 (1982).
Gordon compares his statutory UCC claim to conversion, but the
fact remains that he chose not to plead conversion. If he had done
so, he would have been required to prove an ownership or possessory
interest in the item in dispute, a check made payable to "Gordon
Wallace Farms," not to Gordon individually, and that Wallace's
conduct was in violation of Gordon's right. Reed v. Hamilton, 315
Ark. 56, 59, 864 S.W.2d 845 (1993); Giroir v. MBank Dallas, N.A.,
676 F. Supp. 915, 919 (E.D.Ark. 1987). Gordon was not required to
offer such proof under 4-4-215(d), because recovery under that
provision lies in favor of any customer of the collecting bank.
Assuming that Gordon could have presented a prima facie case of
conversion, his proof on the claim would have been different than
the record now before the Court.
Moreover, even proof of conversion would not automatically
have entitled Gordon to submit a request for punitive damages to
the jury. As the Court stated in City National Bank v. Goodwin,
301 Ark. 182, 188, 783 S.W.2d 335 (1990):
Punitive damages are not recoverable in a
conversion action simply because the defendant
intentionally exercised control or dominion
over the plaintiff's property. Simply put,
the act of conversion in itself will not
support an award of punitive damages.
Instead, the plaintiff must show that the
defendant intentionally exercised control or
dominion over the plaintiff's property for the
purpose of violating his right to the property
or for the purpose of causing damages.
The majority errs in excusing Gordon's failure to assert a
claim for conversion, or some other intentional tort which might
support a request for punitive damages, while permitting him to
tack evidence of malice and bad faith onto his strict liability
cause of action under 4-4-215(d).
The majority recognizes that punitive damages are expressly
prohibited in UCC cases "except as specifically provided in this
subtitle or by other rule of law." Ark. Code Ann. 4-1-106(1).
In holding that 4-4-215(d) may support an award of punitive
damages, without requiring a plaintiff to plead and prove an
independent tort, the majority has overlooked the force of the
prohibition imposed by the legislature in 4-1-106(1).
The majority looks elsewhere for specific authority for
punitive damages, but without success. Ark. Code Ann. 4-4-103,
cited by the majority, refers to the possibility that a plaintiff
may recover damages "suffered as a proximate consequence" of a
defendant's breach of the UCC, when bad faith is also present.
Since punitive damages are imposed to punish and to deter egregious
conduct and not as a proximate consequence of a defendant's acts,
4-4-103 is not a specific provision in the UCC for punitive
damages and thus is inapplicable to 4-1-106(1).
The majority cites City National Bank v. Goodwin, supra, in
which the Court held that punitive damages were recoverable in a
wrongful dishonor case against a payor bank pursuant to Ark. Code
Ann. 4-4-402, provided that the dishonor was willful and not
merely "mistaken." At the time Goodwin was decided, 4-4-402
limited a payor bank's liability for wrongful dishonor to actual
damages "when the dishonor occurs through mistake." The Goodwin
Court construed "mistake" as a "wrongful dishonor made in good
faith," so that the limitation to actual damages applied only in
such circumstances, and not when the dishonor was willful. In the
case before it, the Court ruled that punitive damages were not
recoverable because there was no evidence of a deliberate and
willful dishonor by the defendant bank.
One year after Goodwin, the legislature amended 4-4-402,
designating the then-existing statutory text as subparagraph (b)
and deleting the words "when the dishonor occurs through mistake."
The effect of this amendment was to make the limitation to actual
damages in the statute unconditional. The majority recognizes that
there is no longer any statutory basis in 4-4-402(b) for the rule
regarding punitive damages announced in Goodwin, but the majority
states that Goodwin is still competent authority for rejecting a
"narrow approach" to damages under the UCC. This construction of
Goodwin accords too little deference to the legislature, which
plainly intended by its amendment to eliminate the option of
punitive damages in wrongful dishonor cases. The legislative
response to Goodwin should guide the majority in holding that the
option of punitive damages should not be read into 4-4-215(d).
The majority relies upon the duty of good faith in Ark. Code
Ann. 4-1-203. However, the official comment to 4-1-203 states
that this section "does not support an independent cause of action
for failure to perform or enforce in good faith." Furthermore, the
UCC elsewhere implicitly limits damages for bad faith to damages
"suffered as a proximate consequence" thereof, which does not
include punitive damages. Ark. Code Ann. 4-4-103(e).
The loss of Goodwin as competent authority for an award of
punitive damages under chapter four of the UCC, together with the
fact that Gordon did not plead an independent tort, indicates that
the claim for punitive damages in this case is unsupported by the
UCC or by any "other rule of law," as required by 4-1-106(1).
But even if punitive damages were recoverable in law in a case
such as this, the evidence presented by Gordon, viewed in the light
most favorable to him, does not show any malice or conscious
wrongdoing on the part of the bank's employee and agent, Wallace.
Granted that Wallace acted intentionally, there is no proof that
his purpose was other than to "roll back" the transaction so that
the respective rights of the former partners in the check to
"Gordon Wallace Farms" could be determined. After the charge-back,
neither Gordon nor Wallace retained any of the proceeds of the
check. Such damage to Gordon is hardly malicious. Wallace's
conduct, while wrongful under the statute, is not the type of
conduct that the civil law punishes with exemplary damages. See
McClellan v. Brown, 276 Ark. at 31-32. Indeed, this case presents
nothing more than a simple commercial dispute, which 4-4-215(d)
remedies by making the collecting bank's duty and liability in
these circumstances as straightforward and clear as possible. See
Ark. Code Ann. 4-1-102(2)(a).
Special Justice K. LeAnne Daniel joins this dissent.
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