On Petition For Rehearing
CLARK, Circuit Judge:
The hands on the clock had turned past the midnight deadline fixed by the Mississippi Uniform Commercial Code (MUCC),
Plaintiffs, Marcus Wiley, James Tate and James Irby, were partners engaged in buying and selling used cars under the trade name, Wiley, Tate & Irby. Over an extended period of time Wiley, Tate & Irby sold a number of automobiles to Billy Houston, a sole proprietor doing business as Houston Auto Sales (Houston). In connection with each purchase Houston executed and delivered to Wiley, Tate & Irby a negotiable instrument drawn on the defendant, Peoples Bank & Trust Company of Tupelo, Mississippi (Payor Bank). Upon delivery of each negotiable instrument, the respective automobiles sold were at once turned over to Houston. All transactions were consummated at Wiley, Tate & Irby's place of business in Milan, Tennessee.
In each instance Wiley, Tate & Irby deposited the instrument they received from Houston in the Milan Banking Company (Depositary Bank) and thereupon were authorized by that bank to draw against such money. The Depositary Bank transferred the instrument to Union Planters National Bank of Memphis, Tennessee (Intermediary Bank), which transferred the same to the Payor Bank.
All of the instruments except the printed check form were on envelopes which arrived at the Payor Bank sealed. One of the instruments had been presented several times and returned unpaid on each occasion. Two of the instruments were presented on two occasions and returned unpaid both times. No envelope was ever opened during the periods of time the instruments remained in the possession of the Payor Bank. When opened at the time of trial, four of the envelopes contained automobile title documents while the other four were empty. When the check form was received it had automobile title papers attached by means of a staple and the face of the instrument stated, "Title attached." All of the instruments in suit were retained by the Payor Bank from the various dates of their last (or only) presentment until September 25, 1968, when they were bundled together by the Payor Bank and returned with notice of nonpayment. The interval between these dates of final presentment and the date of their last return ranged from a minimum of 12 days to a maximum of over three and a half months. All of these times were well past the midnight deadline established by the MUCC.
Each of the instruments arrived at the Payor Bank with a printed collection letter form issued by the Intermediary Bank, addressed to the Payor Bank, showing that the item or items covered were drawn on Houston Auto Sales and had been endorsed by the Depositary Bank and by Wiley, Tate & Irby. The pertinent parts of this collection letter are as follows:
Liability was affixed on Payor Bank under MUCC § 4-302, which provides:
Three MUCC definitions form the basis for our disagreement. The term "documentary draft" means any negotiable or non-negotiable draft with accompanying documents, securities or other papers to be delivered against the honor of the draft.
Because of the liberality with which amendments are to be allowed under the Federal Rules of Civil Procedure,
The remand in this light indicates we should deal with the Payor Bank's arguendo contention that MUCC § 3-511(4) insulates it from liability as to the three items which had been previously presented and returned unpaid. That section provides:
Literally read, the language of this section covers only drafts which have been dishonored by non-acceptance.
The very nature of a check which is also a documentary draft contemplates no acceptance. The only decision to be made by the Payor Bank was the same decision it must make as to any demand item — to pay or refuse payment. However, the Kansas Supreme Court has applied § 3-511(4) to excuse compliance with the stricture of the midnight deadline in the case of dishonor by non-payment. The facts in Leaderbrand v. Central State Bank of Wichita, 202 Kan. 450, 450 P.2d 1 (1969), were that an ordinary check had twice been presented in person by the payee to the payor bank. Both times it was not paid because the maker lacked sufficient funds. On a third presentation through a depositary bank, the payor bank held the item several banking days before returning it unpaid. Reasoning that dishonor of a check by non-acceptance included dishonor of a check by non-payment, the court refused to hold the bank liable. We disagree with Leaderbrand and hold § 3-511(4)
Payor Bank forcefully asserts that on last presentation of these previously presented items it knowingly and intentionally received and dealt with them as documentary drafts and made numerous efforts to get the drawer to produce sufficient funds to pay them. An interpretation of § 3-511(4) which would excuse the course of action required for the handling of documentary drafts by Part 5 of Article 4, would bring these sections into direct conflict when literally they don't conflict at all. We hold that § 3-511(4) is inapplicable to every one of the demand items in suit.
The cause is reversed and remanded for further proceedings consistent with this opinion.
Reversed and remanded.