In the case,  a member of Austin Area Teachers Federal Credit Union (Austin Area) pledged her certificate of deposit at the credit union as collateral for her son’s note to First City Bank-Northwest Hills (First City).

When the son defaulted on the loan, First City demanded the credit union release the pledged certificate of deposit to the bank.

The credit union advised the bank that it had already permitted the member to withdraw the C.D. The bank then proceeded against Austin Area to recover the loss incurred from the son’s default on his loan.

The trial court found in favor of the bank and awarded damages against the credit union of $16,591.00.

On appeal, however, the appellate court found that the credit union should be liable for the actual amount of the certificate of deposit pledged ($12,591.00), plus attorney fees, but the credit union should not be liable for an additional $4,000.00 of damages the trial court awarded.

Apparently, after the credit union member withdrew the C.D., she still had another $4,000.00 on deposit in another account. The trial court awarded that $4,000.00 deposit to the bank in addition to the actual C.D. amount of $12,591.00.

In this case, after the credit union member pledged her C.D., the bank personnel sent an acknowledgment of the assignment to Austin Area. The acknowledgment was signed by a veteran employee of Austin Area and returned to the bank. Thereafter, First City confirmed by telephone to Austin Area that the assignment of the C.D. was in place.

This court found that there was a valid pledge and assignment of the C.D. by the credit union member and that Austin Area clearly breached its duties under the assignment acknowledgment.

The acknowledgment stated that:

. . . no account holder or assignee [except for First City] shall have any right to make any withdrawal from said account….

By allowing the credit union member “to withdraw her C.D. in contravention of this language, the credit union breached its contract with First City.”

Austin Area would, therefore, be liable to First City for the actual amount of the C.D. pledged, plus attorney fees. Austin Area Teachers Federal Credit Union vs. First City Bank–Northwest Hills, Court of Appeals of Texas, Case No. 3-91-136-CV.

Author: Charles R. Harroun, Attorney at Law