In a jury trial, appellee Elizarraras was awarded damages of $89,800 due to appellant bank's failure to honor appellee's check. The bank appeals the denial of its motions for a directed verdict and a new trial. The principal issues raised, inter alia, are whether a bank can have the right of setoff: (1) against a contingent debt, (2) as a subrogee of another's claim where it has neither paid the party whose rights it claims to be subrogated to nor proved those rights, and (3) without notice where it has previously indicated to the depositor it will not exercise its right of setoff. We answer these three questions in the negative and affirm on the issue of liability. Because, however, we find insufficient evidence to support the award of damages, we reverse the judgment and remand for a new trial solely on the issue of damages.

On April 2, appellee, a citizen and resident of Mexico, issued a check for $12,000 to Joe Rey as partial payment for a tractor. The check was written on appellee's account at the Bank of El Paso, appellant herein. On April 5, Rey, also a depositor at the Bank of El Paso, presented the check for payment. The bank applied $1,115.07 to one note owed to the bank by Rey and $7,539.04 to another note which it marked "paid" and delivered to Rey.1 The balance, $3,345.89, was deposited by the bank in Rey's account. On the same day, the appellee delivered to the bank a stop payment order, which, on a form provided by appellant, included an agreement by appellee to indemnify appellant for all expenses and costs resulting from appellant's honoring the stop payment order.2 On either April 5 or April 6,3 appellant reversed the entries it had made with respect to Rey. On April 6, appellee issued a check for $64,000, which he believed to be the amount he had on deposit in the Bank of El Paso, payable to Financiera Del Norte, S.A., a Mexican financial institution which we will refer to for convenience as a Mexican bank. On April 15, Rey filed suit against appellee and appellant, alleging that appellee wrongfully stopped payment on the check and that appellant wrongfully reversed the entries it had made. On April 26, Pedro Jurado, vice president of the Bank of El Paso "acting as a commercial loan and regular installment loan officer," notified appellee that there was a shortage of $756.68 in his account. Appellee immediately deposited the $756.68. Appellee testified that he emphasized to Jurado that it was important that the $64,000 check not be returned for insufficient funds, since such a return would have serious repercussions in Mexico, including a penalty and loss of credit. According to appellee, Jurado assured him that there would be no problem covering the $64,000 check. On April 30, without giving notice to appellee, appellant returned the $64,000 check to the Mexican bank for insufficient funds and deposited $12,000 from appellee's account into the federal court in which Rey's suit was pending, interpleading Rey and appellee. When Rey's suit was subsequently dismissed for lack of subject matter jurisdiction and Rey sued in state court, the appellant interpled the money into state court.

Appellee subsequently filed suit in federal district court alleging that the wrongful dishonor of the $64,000 had damaged him in Mexico. Appellee prevailed in a jury trial. The jury awarded damages in the amount of $89,800: $75,000 for loss of credit and damage to reputation, $12,800 for the penalty the Mexican bank charged appellee, and $2,000 for interest on the $64,000 still owed to the Mexican bank.

The appellant contends that the trial court erred in several respects. First, it maintains that the stop payment order was ineffective, because it was delivered after final payment. See Tex.Bus. & Com. Code Ann. tit. 2 §§ 4.403, 4.303(a)(3), 4.301, 4.213 (Vernon) (hereinafter all references to § 4.403, § 4.407, § 4.213, § 4.402, § 4.301, or § 4.303 will be to those sections in this title). Thus appellee was not entitled to the $12,000 at issue, which would mean the dishonor of the $64,000 check would not be wrongful under § 4.402. Second, even if the stop payment order was valid, the indemnification agreement created a contingent debt from appellee to appellant. Appellant contends that contingent debts generally can be set off in Texas; specifically, setoff is permitted when a nonresident depositor attempts to withdraw all his funds from the bank. This right to setoff, appellant urges, justifies the dishonor. Alternatively, the appellant argues that under § 4.407, appellant was subrogated to Rey's claim against the appellee for $12,000 which validated the setoff. The appellant also contends that the use of interpleader was the appropriate action for it to take under the circumstances.

Appellant also questions the proof of damages. It maintains that the trial court's admission of appellee's testimony as to the penalty and interest he paid the Mexican bank was error in that such admission violated the best evidence and hearsay rules. Finally, appellant argues that there was insufficient evidence to allow the jury to award any damages for loss of credit and or reputation.

The first contention of the appellant is that the stop payment order was not binding on the bank. Section 4.403 states that to be effective the order must be received "at such a time and in such a manner as to afford the bank a reasonable opportunity to act on it prior to any action by the bank with respect to the item described in Section 4.303." Section 4.303 provides, inter alia,4 that if the item has been paid in cash or settled irrevocably, a stop order subsequently received will be ineffective.5 The appellant contends that stamping one of Rey's notes "paid" and giving it to him6 was the equivalent of payment in cash, and, if we construe its brief liberally, that it was an irrevocable settlement.

Appellant did not raise this issue at trial.7 In its motion for an "instructed verdict," the appellant maintained that the appellee did not prove the "fact and amount of loss resulting from the payment of an item contrary to a binding stop order." § 4.403(c). This motion, using Section 4.403(c), deals with damages, not the validity of the stop order; appellant's supporting reasons reflect this interpretation. Appellant does not mention § 4.303 or its requirements elsewhere in his motion for an instructed verdict. Furthermore, although the judge's instructions failed to mention the fact that an irrevocable settlement renders subsequent stop payment orders ineffective, the appellant did not object to this omission nor did he request any instructions on how marking a note "paid" constituted final payment. Finally, the appellant did not advance his § 4.303 theory in his motion for a new trial.8 This court should not consider a point raised for the first time on appeal unless it is a pure question of law and a refusal to consider it would result in a miscarriage of justice. Delancey v. Motichek Towing Service, Inc., 427 F.2d 897 (5th Cir.1972); Patton v. Archer, 590 F.2d 1319 (5th Cir.1979). The error here, if any, was not so fundamental that it would result in a miscarriage of justice.9

The appellant next argues that even if the stop payment order was valid, it was entitled to a setoff of $12,000.10 This contention is based on the fact that the indemnification agreement created a contingent debt from appellee to appellant: if Rey recovered a judgment for the $12,000 against the appellant, the appellee would have to indemnify the appellant.

Appellee contends that the indemnification agreement is void since there was no consideration flowing to the appellee, citing Central National Bank v. Martin, 396 S.W.2d 218 (Tex.Civ.App.1965). We note that appellee did not raise this issue at trial; the question, therefore, is not before us. See Delancey ; Patton. We must assume the agreement to be valid.

Appellant contends that a bank may set off a contingent debt, citing Security State Bank and Trust v. Texas Bank & Trust Co. of Dallas, 466 S.W.2d 590 (Tex.Civ.App.1971) as its authority. We do not read Security State Bank so broadly; thus we reject this contention. First, the language relied on in Security State Bank is dicta; the debt in Security State Bank had matured. Second, under a long line of Texas cases, a setoff may only be used against a matured debt unless the debtor is insolvent in which case the bank can set off against an unmatured claim. See, e. g., Baldwin v. Peoples National Bank, 327 S.W.2d 616 (Tex.Civ.App.1959); McCollum v. Parkdale State Bank, 566 S.W.2d 670 (Tex.Civ.App.1978); Northshore Bank v. Palmer, 525 S.W.2d 718 (Tex.Civ.App.1975) (dicta); Bank of El Paso v. Powell, 550 S.W.2d 383 (Tex.Civ.App.1977) (no setoff springing from an indemnity agreement until actual payment by bank, so depositor entitled to interest on funds withdrawn from his account). Moreover, the rule proposed by appellant would create enormous uncertainty for depositors. Contingent liability is common: co-signing a check or note is one of many ordinary examples. If the bank could set off against these debts, depositors would be forced to avoid contingent liability completely or suffer uncertainty as to their accounts. Finally, such a rule would render the U.C.C. stop payment order rules meaningless wherever there was a valid indemnification agreement.

The appellant, relying on the insolvency rule noted supra, urges that appellee's residence in a foreign country and attempted withdrawal of all funds are equivalent to insolvency and thus authorize its right to setoff. This argument also fails. The rule in Texas is that the non-residence of a depositor cannot justify a setoff not otherwise justifiable. See Stockyards National Bank v. Presnall, 194 S.W. 384 (Sup.Ct.Tex.1917). Insolvency has been defined under Texas law to mean a debtor's inability or "failure or refusal to pay his debts in the due course of his business."11 McCollum, at 673. Insolvency, however, does not mean the imminent absence of funds in the bank attempting the setoff. The appellant has made no showing that the appellee was insolvent under Texas law12 at the time of the setoff.13

Appellant next urges that assuming the stop payment order was valid, appellant was entitled to judgment as a matter of law because under § 4.407 the bank was subrogated to Rey's claim against the appellee, and such debt justified the setoff.

The main problem with this contention is that the appellant had not paid the $12,000 to Rey and thus could not be subrogated to his rights. Under the circumstances of this case, the failure to pay Rey the $12,000 meant appellant could not be subrogated to Rey's rights. See American Employers' Insurance Co. v. Dallas Joint Stock Land Bank, 170 S.W.2d 546 (Tex.Civ.App.1943); Providence Institution for Savings v. Sims, 441 S.W.2d 516 (Sup.Ct.Tex.1969) (full payment required unless prior creditor consents to subrogation).

A further flaw in appellant's argument is that even if the appellant were subrogated to Rey's claim, the appellant did not prove Rey's claim. The appellant cannot simply assert that the appellee owes it money; it must prove the existence of this debt, just as Rey would. See generally McBroome-Bennett Plumbing, Inc. v. Villa France, Inc., 515 S.W.2d 32 (Tex.Civ.App.1974).

In short, we hold that appellant's claim of subrogation fails because appellant neither acquired Rey's rights nor proved them.

The next ground urged by the appellant is that interpleading the $12,000 was proper, and therefore, regardless of its right to setoff, the appellant was entitled to a directed verdict. We need not reach this issue,14 for even if the appellant were correct, it would be liable on another ground.15 See Stegmaier v. Trammell, 597 F.2d 1027 (5th Cir.1979) (appellate court must affirm if result is correct). See also Securities & Exchange Commission v. Chenery Corp., 318 U.S. 80, 63 S.Ct. 454, 87 L.Ed. 626 (1942) (limiting the rule to cases where appellate court need not make findings of fact).

Here, the appellant implicitly assured the appellee that his check for $64,000 would be honored. Appellant did so by notifying the appellee that he was $756.68 short (an undisputed fact); such a statement carries the clear implication that appellee is only $756.68 short.16

Neither party directs us to any Texas cases on whether notice to a depositor is required prior to a bank's interpleading funds at least arguably in the depositor's account. However, our research has revealed that the law in Texas and elsewhere is that notice is not required prior to setoff, an analogous question. Baldwin v. Peoples National Bank, 327 S.W.2d 616, 620-22 (Tex.Civ.App.1959). Even if this rule were applicable to interpleader (a question we do not decide), there is no indication, however, that Texas or other jurisdictions would apply the rule where the bank has indicated that a check would be honored and the check could only be honored if there were no setoff. In the absence of such authority, we decline to extend the no notice rule to such a situation. A proper concern for depositor expectations requires us to engraft such a limitation on the no notice rule.17 Furthermore, this limitation should apply to interpleader as well as setoff when the funds being interpled are on deposit at a bank.

Analogous case law supports this result. In Central National Bank v. Martin, 396 S.W.2d 218 (Tex.Civ.App.1965), the bank mistakenly issued a cashier's check to the payee of a check which had been stopped three days before. The bank sued for the return of the money. The court held that the bank had a right to the money: "money paid under a mistake of fact caused by carelessness, negligence or forgetfulness may be recovered." The court, however, remanded the case to provide the payee with an opportunity to prove that if he had to return the money he would suffer damages as a result of the bank's negligence in paying it to him.

Central National Bank is not directly on point, but it is analogous. In Central National Bank, the bank had a right to a certain sum of money. By its own act, it led another to believe that the money was irrevocably his. In such a situation, the bank was entitled to recover the money, subject to any damages suffered by the payee in relying on the bank's negligent act.18 In our case, the bank would arguably have a right to interplead the $12,000. However, by in effect indicating to the appellee that it would not interplead the money, it led him to believe the money was irrevocably his. Thus, when the bank exercised its right, it became liable for all damage suffered by the appellee in reliance on the bank's assurances (which is what he recovered at trial).19

For the bank to be liable under the Central National Bank principle, the bank must have been negligent in leading appellee to believe the $12,000 was clearly his. The appellant might contend that the indication that the $64,000 check would be honored was not negligent, since at the point the indication was given no plans had been made to interplead the $12,000. Even if this were so, which seems unlikely (the money was interpled four days later), the failure to give notice of the decision to interplead the money was a negligent omission since there was a duty to act created by the earlier indication that the $64,000 check would be honored.

In summary, we hold that (1) appellant did not properly raise the validity of the stop payment order, (2) appellant has no right of setoff against a contingent debt, (3) appellant neither acquired nor proved Rey's rights, and (4) under the circumstances, appellant's negligent failure to notify appellee of its decision to interplead the $12,000 made it liable for damages suffered by appellee due to appellant's dishonor of the $64,000 check. We thus affirm on the issue of liability.

Appellant contends that essential evidence to support the award of $12,800 penalty and $2,000 interest to the Mexican bank was wrongfully admitted and that evidence to sustain the $75,000 award for loss of credit and damage to reputation was insufficient.

At trial appellant objected to the following statement made by appellee: "I paid the $64,000; then $12,800 and twenty-three and something else."20 Under Fed.R.Evid. 602, a "witness may not testify to a matter unless evidence is introduced sufficient to support a finding that he has personal knowledge of the matter." The Advisory Committee on the Federal Rules, in its notes on Rule 602, points out that "(t)his rule would prevent (a witness) from testifying to the subject matter of (a) hearsay statement, as he has no personal knowledge of it." The problem in the instant case is that the appellee did not carry the burden Rule 602 puts on him of showing personal knowledge of the matter testified to (although appellant objected on hearsay grounds, not personal knowledge, we will not draw such a fine line). In context, it is clear that as to the penalty and interest appellee was not testifying to any act of payment he committed, but rather to the fact his account was charged $12,800 and $2,000; thus, this is not an instance where one can infer personal knowledge from the testimony itself.21 The only basis appellee appeared to have for his testimony concerning the payment of the penalty and interest was the Mexican bank officers' oral assertions22 and the Mexican bank notice appellant received; yet this evidence had been excluded as inadmissible hearsay.23 Neither the conversation nor notice is in the record on appeal. Therefore, we do not rule on the admissibility of this evidence.24

Nor can we agree that admission of the appellee's testimony was harmless error.25 The testimony was introduced to show that the appellee paid the Mexican bank a penalty of $12,800 and interest of $2,000 due to the return of the check.26 The only other evidence introduced with regard to these facts was expert testimony on whether Mexican law would have required a 20% penalty on the return of the check and authorized the interest charge, and appellee's testimony that the bank asserted that he owed it interest due to the return of the check.27 Although to reach its verdict the jury had to find that under Mexican law the Mexican bank was entitled to a penalty of $12,800 and interest of $2,000 from the appellee, and that the Mexican bank asserted there was an interest charge, the jury might very well have not found these facts alone without proof of payment sufficient to establish the disputed damages. See Liner v. J. B. Talley & Co., Inc., 618 F.2d 327 (5th Cir. 1980) (articulating harmless error standard). We therefore reverse the judgment insofar as it awards the appellee $12,800 and $2,000 and remand for a new trial on those issues.28

Appellant also questions the sufficiency of evidence to sustain the award of $75,000 for loss of credit and or reputation. Appellant made a timely objection to that part of the jury charge which instructed the jury to consider plaintiff's damages for loss of credit and or reputation. Appellant contends that the evidence of the amount of the damages due to loss of credit was so lacking that any award would be the product of pure speculation. Household Goods Carriers' Bureau v. Terrell, 417 F.2d 47 (5th Cir. 1969). It points out that no evidence was introduced as to the amount of the loss appellee suffered from losing his line of credit. Nor was enough evidence introduced from which the jury could reasonably infer the amount of damage suffered by his businesses, such as the amount of credit used29 or needed or the size and prospects of appellee's businesses. Without such information, appellant argues, no reasonable estimate of appellee's damages could have been made.

Appellant assumes that the normal rules of proof apply with respect to damages. However, our research has revealed that this may not be so and that a special rule for wrongful dishonor of checks should apply.30

Prior to the U.C.C., the common law rule, the so-called trader rule, was that a businessman need not prove actual damages to recover substantial damages for the wrongful dishonor of a check. See, e. g., First National Bank v. N. R. McFall & Co., 222 S.W. 40 (Sup.Ct. Ark. 1920). See generally Annot. 126 A.L.R. 206, 220-25 (1940). Although the question is not free from doubt, it appears that the rule prevailed in Texas.31 See Stone Fort National Bank v. Forbess, 41 S.W.2d 695, 697 (Tex.Civ.App.1931). But cf. State National Bank v. Rogers, 89 S.W.2d 825 (Tex.Civ.App.1935) (the court does not mention the trader rule).32

Where the U.C.C. does not address an issue, one should refer to the common law for guidance. Thus, the first question is whether the U.C.C. abolished the trader rule. In the absence of any meaningful guidance on this from the Texas courts,33 we hold on the basis of the legislative history and the language of the statute that the U.C.C. only narrowed the trader rule. The U.C.C., § 4.402, reads:

A payor bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item. When the dishonor occurs through mistake liability is limited to actual damages proved. If so proximately caused and proved damages may include damages for an arrest or prosecution of the customer or other consequential damages. Whether any consequential damages are proximately caused by the wrongful dishonor is a question of fact to be determined in each case. (emphasis added)

The key words are in the second sentence: "through mistake." Where the dishonor is not "through mistake," the sentence does not apply and thus the common law applies.

It can be argued that the third sentence, by negative inference, and the fourth sentence indicate that damages must always be proved for one to recover consequential damages. We decline to adopt such an interpretation. The third sentence should be read as limited in scope to instances where the wrongful dishonor was by mistake. If the drafters had meant the "through mistake" limitation not to apply to the third sentence and its requirement of proof of damages, they would have said so expressly. Furthermore, the legislative history supports our interpretation. See White & Summers, Uniform Commercial Code 671 n.73 (2d ed. 1980). As for the fourth sentence, Comment 5 to § 4.402 indicates that it was meant to liberalize the proximate cause rules for plaintiffs, not further erode the trader rule. Moreover, the fourth sentence is actually consistent with the trader rule, since under the common law the defendant could rebut the trader rule "presumption" of substantial damages and show the plaintiff suffered no damage. See generally White & Summers, at 673; but cf. First National Bank v. McFall, 222 S.W.2d 40 (Sup.Ct. Ark. 1920) (defendant may, by such proof, reduce but not eliminate substantial damages).

The next question we must decide is what the word "mistake" means in the second sentence, for whether the dishonor was a mistake determines which rule applies. "Mistake" here has several possible meanings. One is anything but a knowingly wrongful dishonor. This is overly broad; even if the mistake exception was included primarily to allow courts to award punitive damages,34 "mistake" should not be limited to all but such deliberate dishonors.35 Another is that suggested in White & Summers, at 669-74, which is essentially a distinction between mistakes of law and mistakes of fact. We are not persuaded that this distinction is the proper one. The most sensible meaning is good faith as defined in Article 2: "honesty in fact and the observance of reasonable commercial standards of fair-dealing in the trade." Cf. Farmers & Merchants State Bank of Krum v. Ferguson, 605 S.W.2d 320 (Tex.Civ.App.1980) (at least where bank is reckless, action under § 4.402 sounds in tort for purposes of recovery for mental anguish as consequential damages); Northshore, at 720 (implies good faith may be the standard). We hold that after implicitly assuring appellee the check would be honored, appellant's failure to notify the appellee of the interpleading of the money prior to dishonoring appellee's check is conclusive as to appellant's bad faith; the wrongful dishonor, therefore, was not a "mistake" as defined in § 4.402.

Since the wrongful dishonor was not a mistake, the common law applies. The next issue is whether under the trader rule the evidence was sufficient.

Even under the trader rule some evidence should be required. The rationale of the rule is that it is too difficult to prove that any specific loss of income was caused by the damage to one's general reputation or to a loss of credit. See First National Bank v. McFall, 222 S.W. 40 (Sup.Ct. Ark. 1920). This rationale satisfactorily explains why a plaintiff need not show that the wrongful dishonor proximately caused actual damage, but it does not explain why a plaintiff need not show his business' size, past income, prospects, and need for and past use of credit to recover for damages due to loss of credit. Requiring some such evidence reduces the jury's area for speculation, while still achieving the purposes of the trader rule. Such a form of the rule was implied in McFall v. First National Bank, 211 S.W. 919, 922 (Sup.Ct. Ark. 1919). Without such a rule, a business could recover damages disproportionate to any possible injury. We believe that this form of the trader rule should be applied. Under it appellee failed to carry his burden of proof.

For the above reasons, we also reverse the award of $75,000 for loss of credit and or reputation and remand for a new trial on this issue.36

AFFIRMED IN PART, REVERSED IN PART. REMANDED FOR A NEW TRIAL ON DAMAGES.