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APRIL 08, 1987




Deposit Guaranty National Bank appeals from a judgment of the circuit court of Yazoo County in favor of B. N. Simrall & Son, Inc., for $84,639.66 for offsetting funds of a cotton buyer's general business account to apply on an indebtedness due the bank by the cotton buyer, and thereby causing the check by the cotton buyer to Simrall for $84,639.66 to be returned for insufficient funds.

Finding the bank had the authority to offset the deposit and apply it against the cotton firm's indebtedness, we reverse and render judgment here for the bank.


 In the late `70s Holmes & Barrier was a cotton buying firm operating out of Yazoo City. This business began in

 1934 and in the `70s two sons, Jerry B. Barrier and B. J. Barrier, III, purchased the firm from their father, and thereafter operated as a general partnership under this trade name.

 Barnwell and Hays, Inc., is a close Tennessee corporation, with principal offices in Memphis, also engaged in cotton buying. Its president was Andrew Jackson (Jack) Hays, Jr.

 Although the record refers to the Barrier firm as Holmes & Barrier, and Barnwell and Hays, Inc., as Barnwell and Hays, because the close similarity of the names, in this opinion the Holmes and Barrier firm will be referred to as the" Barriers, "and the Memphis firm as" Barnwell and Hays. "

 Also in the late `70s these two firms engaged in a joint venture for the purchase and sale of" gin direct "cotton. A group of Mississippi cotton farmers in and around Yazoo County were contacted by the Barriers to sell their cotton under a" gin direct contract. "Several thousand bales of cotton would be bought under these contracts. Barnwell and Hays marketed the cotton thus purchased. The advantage of this type of contract to the farmer was the ability to sell his cotton from the gin without having to store it in a compress, and thereby avoid the storage charges.

 Typically the procedures were as follows. In the spring the farmer and the Barriers contracted for the purchase by the Barriers of a certain number of bales of cotton at a cotton futures base price, less a point discount. Discount would also be made based upon the grade of cotton. Thus, a farmer entering a contract with the Barriers in March could choose the prevailing futures price for December cotton. The Barriers would agree to pay him at that price when delivered, less a set, agreed upon discount. The contract was only with the Barriers, and the farmer was never told there was another firm involved, or this was a joint venture. Barnwell and Hays, however, was promptly notified when any contract was executed.

 To hedge against market fluctuations, Barnwell and Hays upon the execution of such a contract usually purchased a futures contract to sell a certain number of bales of December cotton.

 In the fall when the farmer delivered his bales to the gin, cotton samples would be taken for classing the cotton, and the cotton would be loaded on trucks under bills of lading showing Barnwell and Hays as the owner and a

 designated cotton textile mill as the destination.

 When the cotton was delivered to the mill, if the quality was acceptable the mill accepted the cotton and remitted a check to Barnwell and Hays. Occasionally bales of cotton would be rejected and Barnwell and Hays would have to bear the expense of storing such rejected cotton until sold. Also upon occasion the ginned cotton had to be stored for a brief period in a local compress.

 Meanwhile, the cotton samples and class cards were sent to Greenwood where U. S. Department of Agriculture employees graded the cotton and wrote the grade on the class cards, and returned them to the gin. In the fall of the year this usually took two or three weeks.

 When the farmer got his class cards he would take them to the Barriers' office in Yazoo City where an employee of the Barriers would work up an invoice showing the sale of the cotton to the Barriers, and the Barriers after doing so would make out a check to the farmer for bales of cotton based upon the contract price per pound. On that same day the Barriers would telephone Barnwell and Hays, notifying it of the purchase and the amount to transmit to the Barriers. Barnwell and Hays would then wire the requested amount to the Barriers' bank in Yazoo City to be deposited in the Barriers' general business checking account. The Barriers would request an excess of the amount paid the farmer in order to take care of commissions and United States government charges, usually amounting to a little over two dollars a bale. Barnwell and Hays occasionally made wire transfers to the Barriers for other purposes, such as wiring the Barriers their share of the profits derived from the joint venture. All checks to farmers in payment for cotton purchased under the gin direct contracts were paid out of the general business checking account of the Barriers. This same account was used for all business transactions and payment of all business expenses.

 The joint venture's business expenses consisted of trucking, telephone and insurance charges, storage charges for rejected cotton until sold, and employee salaries. The joint venture made profits by selling the cotton for more than the contract price, and also by collecting interest on the money from the time the mill paid Barnwell and Hays until the farmer was paid. Following delivery of the cotton to the mill, the mill would usually make a check to Barnwell and Hays within five days. Interest derived by the joint venture in this manner was called a" float. "The Barriers for a much shorter period also got a" float "from the time they wrote

 the farmer a check until it cleared their account. When all the cotton under the gin direct contracts had been sold, Barnwell and Hays deducted all expenses and the profits were then divided equally between the joint venturers. In 1981 the joint venture made a net profit of approximately $300,000. A copy of one of the gin direct contracts involved in this case is made an appendix to this opinion.

 While these gin direct cotton contracts amounted to several million dollars yearly business for both of these firms, it was by no means all the cotton business either of them did.

 The Barriers also bought and sold thousands of bales of cotton in the conventional manner. AS a result of these dealings, other cotton merchants also wire transferred funds into the Barriers' general business account.

 In 1981 the local bank in Yazoo City merged with the Deposit Guaranty National Bank of Jackson (DGB). The Barriers were shareholders in the local bank and following the merger were also shareholders in DGB.

 DGB was interested in securing the Barriers' business. DGB not only wanted their deposits, but more importantly, wanted to be their prime lender in all their cotton purchases. DGB actively solicited the Barriers' business and subsequently learned about the financial strength of the Barriers individually and of their firm, Holmes and Barrier. DGB also learned the Barriers' monetary needs in purchasing and selling cotton. The written information and discussions between officers of DGB and Jerry Barrier also clearly revealed that no bank financing would be required in ...

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