WHETHER UCC ARTICLE 4 IN TEXAS PREEMPTS COMMON LAW FRAUD AND BREACH OF CONTRACT CLAIMS IN THE RELATIONSHIP BETWEEN A BANK AND ITS CUSTOMER

Under Texas law, the UCC regulates a bank’s handling of deposits and collections for its customers. American Dream Team, Inc. (“ADT”) filed suit against Citizens State Bank (“Bank”) alleging that Bank had improperly charged back $30,000.00 against its account for a provisional credit extended on a counterfeit check. The trial court granted summary judgment to Bank, and ADT appealed. There are two pertinent issues in this review: (1) whether Uniform Commercial Code Article 4 (the “Code”) preempts a claim of common law fraud when looking at communication between a bank and its customer; and (2) whether the Code preempts common law rules concerning breach of contract. The Tyler Court of Appeals (the “Court”) held that: (1) if the Code is silent on an issue, common law may supplement the Code; and (2) the Code preempts common law breach of contract claims.