Wachovia v. Winona Grain Co.

PER CURIAM: In this banking dispute brought by Respondent Wachovia Bank
to collect on an outstanding note, Appellants Winona

THIS OPINION HAS NO
PRECEDENTIAL VALUE.  IT SHOULD NOT BE CITED OR RELIED ON

AS PRECEDENT IN ANY
PROCEEDING EXCEPT AS PROVIDED BY RULE 239(d)(2), SCACR.

THE STATE OF SOUTH CAROLINA

In The Court of Appeals

Wachovia Bank, N.A., Respondent,

v.

Winona Grain Co., Inc., and Michael Britton, Appellants.

Appeal From Florence County

 James E. Brogdon, Jr., Circuit Court
Judge

Unpublished Opinion No. 2004-UP-482   

Submitted September 15, 2004 – Filed September 20, 2004

AFFIRMED

Michael S. Church, of Columbia, for Appellants.

Hamilton Osborne, Jr. and James Y. Becker, for Respondent.

PER CURIAM:  In this banking dispute brought
by Respondent Wachovia Bank to collect on an outstanding note, Appellants Winona
Grain Company and Michael Britton—the note’s borrower and guarantor, respectively—challenge
the trial court’s dismissal of their counterclaim against Wachovia.  We affirm.
[1]

FACTS

In late 1997, Michael Britton, the principal manager
of Winona Grain Company, a corporation in the business of buying and selling
grain, met with Darren Bouknight, a loan officer for Wachovia Bank, to acquire
capital for operating the business.  Through Bouknight, the bank agreed to extend
two lines of credit to Winona, one in the amount of $750,000.00 and the other
in the amount of $75,000.00. 

Wachovia secured the larger line of credit through
a first priority lien on Winona’s South Carolina Department of Agriculture warehouse
grain receipts and capped the amount of credit available to 80% of the value
of the receipts.  To maintain this 80% margin, the loan’s commitment letter
allowed Wachovia to demand partial repayment anytime grain devaluation caused
the balance owed on the loan to exceed 80% of the value of the grain receipts. 
If Wachovia made such a demand, the commitment letter gave Winona five business
days to bring the amounts back within the 80% margin requirement.  Though the
smaller line of credit had no corresponding margin requirement, Wachovia secured
the smaller loan through a “[c]ontinuing first security interest in all non-receipted
grain inventory, inventory, accounts receivable, and assignment of grain trading
Margin Account.” 

The commitment letters for both loans contained
cross-default clauses and established April 30, 1999 as the date when the lines
of credit expired.  The commitment letters also contained the following terms:

Prepayment:

Both Notes – At your company’s election, your company
may prepay these Loans in whole or part without penalty.

. . . .

Disbursement and Conditions:

Both Notes – Funds are to be distributed to Winona Grain
Co. Inc.’s business checking account at Wachovia Bank, N.A.

. . . .

The provisions of the commitment shall survive the Loan closing
and shall be incorporated in the Loan documents so that a default by the Borrower
of any such provision shall constitute a default under the Loan documents.

More than a week after agreeing to the terms of
the commitment letters, Winona executed a Note and Security Agreement for both
revolving lines of credit using the bank’s standard forms.  Both notes specifically
incorporated the terms and conditions contained in the commitment letters and
indicated the loans were due on demand.  The notes also included the following
provision:

In addition, to the extent not prohibited by law, the Borrower
hereby grants to the Lender a security interest in and security title to, and
does hereby assign, pledge, transfer and convey to Lender . . . any balance
or deposit accounts of the Borrower, whether such accounts be general or special,
or individual or multiple party, and upon all drafts, notes, or other items
deposited for collection or presented for payment by the Borrower with the Lender,
and the Lender may at any time, without demand or notice, appropriate and apply
any of such to the payment of any of the Obligations (except for Restricted
Debt), whether or not due.

In the months following execution of the
notes, Wachovia dispersed the requested funds from both lines of credit into
Winona’s business checking account.  At some time in August, Bouknight telephoned
Britton to tell him to deposit funds into Winona’s account to cover checks that
had been presented for payment against the account that day.  Though Britton
responded by making a deposit into Winona’s checking account, the deposit came
in the form of an out-of-state check and was thus subject to Wachovia’s five-day
hold policy for out-of-state checks.  As a consequence, the checks that prompted
Bouknight’s telephone call were returned for insufficient funds. 

In October of 1998, because Winona had
not given the South Carolina Department of Agriculture their audited financial
statements, the Department withheld validation of Winona’s warehouse receipts. 
Although Winona’s receipts lacked Department validation, Bouknight agreed to
advance funds to Winona on the grain under the trust receipts.  Thus, while
Winona collected the financial records required for Department validation, Wachovia
made advancements of $40,000.00, $15,000.00, $75,000.00, and $8,000.00, with
respective due dates of October 29, October 31, November 2, and November 5,
1998. 

On November 3, 1998, after the expiration
dates for the first three trust receipts passed with no repayment from Winona,
Wachovia applied $16,684.10 of Winona’s checking account against the larger
line of credit.  Again on November 4, Wachovia applied an additional $21,042.06
of Winona’s account against the larger line of credit.  Over the same two days,
Wachovia returned 12 checks on Winona’s account unpaid. 

On November 12, 1998, the Department of Agriculture
validated Winona’s warehouse receipts, thereby providing adequate security for
the larger line of credit.  Shortly thereafter, with the loan no longer under-collateralized,
Wachovia made advancements of $145,000.00 and $300,000.00 on the larger line
of credit, though Wachovia applied $45,000.00 of the advanced funds against
the outstanding amount on the smaller line of credit. 

Over the next two months, Wachovia returned 19 checks on
Winona’s account for insufficient funds.  Thereafter, Wachovia brought this
action against Winona for claim and delivery and recovery on the notes.  Wachovia
also sought to recover against Britton on his personal guarantee.  Winona asserted
setoff as a defense and counterclaimed for wrongful dishonor of checks presented
for payment against Winona’s checking account. 

Prior to the trial on the merits, the trial court
granted Wachovia’s motion for summary judgment on its claims against Winona
and Britton for the balance due on the notes in the amount of $54,916.75.  With
only Winona’s counterclaims remaining, a trial was commenced before a jury on
November 18, 2002.  After Winona presented its evidence, Wachovia moved for
directed verdict.  After hearing argument, the trial court granted Wachovia’s
directed verdict motion as to all causes of action.  This appeal follows.

STANDARD OF REVIEW

Motions for directed verdict require the trial
judge to view the evidence in the light most favorable to the non-moving party. 
This court will reverse the trial court only when there is no evidence to support
the ruling below. Steinke v. South Carolina Dept. of Labor, Licensing and
Regulation, 336 S.C. 373, 520 S.E.2d 142 (1999). 

LAW/ANALYSIS

I.      Wrongful Dishonor

Winona contends the trial court erred in directing
a verdict against its counterclaim for wrongful dishonor because the loan agreement
with Wachovia was ambiguous and unconscionable.  We disagree.

A bank owes a general duty to each customer to
honor checks drawn on his or her account if the customer’s account has sufficient
funds to cover the item presented.  St. Charles Mercantile Co. v. Armour
& Co., 156 S.C. 397, 405, 153 S.E. 473, 477 (1930) (“It was the duty
of the bank, when a check which properly demanded payment was presented, to
make payment, if the drawer had sufficient funds to meet it.”).  Rather than
contending the company’s checking account had sufficient funds to cover each
of the dishonored checks, Winona argues that the account’s reoccurring insufficiencies
were due to Wachovia’s improper conduct, not its own. 

Specifically, Winona argues Wachovia was required
to immediately credit Winona’s account for all deposits, and when Wachovia placed
a five-day hold on the deposit of an out-of-state check for $80,000.00, Wachovia
wrongfully caused an insufficiency that resulted in two checks being returned
on August 10, 1998.  To support their position that Wachovia was bound to give
immediate credit for all deposits—a requirement not found in the loan documents—Winona
contends that because Wachovia had previously given Winona immediate credit
on deposits, they established a course of dealing that Wachovia was bound to
continue.  This argument finds no support in our law.  Courts do not look to
the course of dealing between parties as a tool for inserting new obligations
among those made explicit by the terms of a written agreement.  Rather, courts
draw upon parties’ dealings only when necessary to acquire an improved understand
of the meaning the parties intended by using particular words or expressions
in a subsequent written agreement.  Thus, course of dealing evidence is used
to aid to contract interpretation, not to show contract augmentation.  See
Columbia Nitrogen Corp. v. Royster Co., 451 F.2d 3, 9 (4th Cir. 1971)
(“[E]vidence of usage of trade and course of dealing should be excluded whenever
it cannot be reasonably construed as consistent with the terms of the contract.”);
Wolfe v. Herlihy, 218 S.C. 90, 95, 61 S.E.2d 764, 767-68 (1950) (“The
testimony shows that this payment was tendered in full conformity with the construction
placed upon the ambiguous provisions of the lease by the parties themselves
through their long course of dealing.”). 

Ambiguities or conflicts in documents constituting
contract must be construed against the party who prepared the contract. Mid-Continent
Refrigerator Co. v. Way, 263 S.C. 101, 208 S.E.2d 31 (1974); Southern
Atlantic Financial Services, Inc. v. Middleton, 349 S.C. 77, 562 S.E.2d
482 (Ct. App. 2002).  Identical repayment provisions of both commitment letters
state, “[b]orrower shall repay all or any part of the amount committed on such
dates as it may determine…” Winona asserts these provisions, coupled with the
ability to prepay without penalty, conflict with Wachovia’s right under the
notes to require payment at any time.  These two provisions, however, merely
allow either party to elect at any time to extinguish the debt.  No ambiguity
results from these terms.   

Winona also argues that
the court should give more weight to the typed commitment letters than to the
printed notes.  This rule, however, only applies when the documents create an
inconsistency and because the trial judge correctly found no ambiguity in the
documents, this argument is without merit.  See 17A Am. Jur. 2d Contracts
§ 395 (2002).

As such, even though Wachovia had immediately credited
previous deposits, both parties’ responsibilities and obligations remained the
same as outlined in their written agreement.

Winona next argues Wachovia was required to make
automatic advances from the lines of credit to cover overdrafts on the Winona
account.  If Wachovia had made such automatic advances, Winona argues, the balance
in the checking account would have been sufficient to cover certain checks Wachovia
dishonored.  Although no written agreement between Wachovia and Winona mentions
automatic overdraft coverage, Winona relys exclusively on Britton’s own testimony
about an alleged oral agreement made with Bouknight.  Winona’s reliance is misplaced.
 The parol evidence rule bars the introduction of extrinsic evidence to modify
or contradict the terms of an integrated written agreement.  Levy v. Outdoor
Resorts, 304 S.C. 427, 432, 405 S.E.2d 387, 390 (1991).  As a matter of
substantive law, therefore, Britton’s testimony cannot modify the explicit terms
of the parties’ written agreement.

Winona further argues that Wachovia wrongfully
dishonored two $30,000.00 checks that Winona drew on its account at Wachovia
Bank and then deposited into Winona’s account at Pee Dee Federal Savings Bank. 
Winona contends that although Wachovia later tendered a cashier’s check to satisfy
the dishonored checks, the subsequent tender did not retroactively ameliorate
the account’s previous insufficiency. 

As the forgoing makes clear, Winona has adduced
no evidence to show it had sufficient funds in its account to satisfy the checks
dishonored by Wachovia.  Further, Winona’s allegations of wrongdoing by Wachovia
all fail as a matter of law.  Accordingly, the trial court committed no error
in granting Wachovia’s directed verdict motion on Winona’s counterclaims. 

II.    Setoff

As its final issue on appeal, Winona argues
the trial court erred in granting Wachovia’s motion for summary judgment because
the defense of setoff asserted by Winona created factual issues as to the amount
of indebtedness owed under the notes.  We disagree.

Rather than contesting facts germane to Wachovia’s
claim, Winona, in effect, asserts that the mere existence of its counterclaim
allows for the possibility of a right of setoff, thereby precluding the trial
court from granting summary judgment.  As the trial court correctly noted, “the
mere existence of this potential right of setoff does not create a genuine issue
of material fact.”  With no genuine dispute as to the material facts of Wachovia’s
claim, the trial court committed no error in granting summary judgment.

AFFIRMED.

STILWELL, BEATTY, and SHORT, JJ., concur.

[1] We decide this case without oral argument pursuant
to Rule 215, SCACR.