British Caledonian Airways Ltd. v. First State Bank of Bedford, Tex.

• Decision Date: 19 June 1987
• Docket Number: 87-2020,Nos. 86-2616,s. 86-2616
• Citation: 819 F.2d 593
• Parties: 4 UCC Rep.Serv.2d 523 BRITISH CALEDONIAN AIRWAYS LIMITED, Plaintiff-Appellant, v. FIRST STATE BANK OF BEDFORD, TEXAS, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 593

819 F.2d 593

4 UCC Rep.Serv.2d 523

BRITISH CALEDONIAN AIRWAYS LIMITED, Plaintiff-Appellant, v. FIRST STATE BANK OF BEDFORD, TEXAS, Defendant-Appellee.

Nos. 86-2616, 87-2020.

United States Court of Appeals Fifth Circuit.

June 19, 1987.

Rehearing Denied in No. 86-2616 July 20, 1987.

Robert L. Weinberg, Washington, D.C., Edward B. McDonough, Jr., Houston, Tex., for plaintiff-appellant.

Kevin F. Risley, Houston, Tex., for defendant-appellee.

Appeals from the United States District Court for the Southern District of Texas.

Before RUBIN, RANDALL, and JOHNSON, Circuit Judges.

JOHNSON, Circuit Judge:

British Caledonian Airways, Ltd. (British Caledonian) appeals from an adverse summary judgment entered in a suit against First State Bank of Bedford (Bedford Bank). The suit arose out of Bedford Bank's processing of a check on an endorsement forged by one of British Caledonian's employees. British Caledonian raises issues concerning the standard of "good faith" under the Texas Uniform Commercial Code, the interpretation of a restrictive endorsement, irregularities in the check, and the interest that the dishonest employee intended the payee to have in the check. British Caledonian also appeals the district court's denial of a Fed.R.Civ.P. 60(b) motion based on new evidence. For the reasons outlined below, we affirm.

I. BACKGROUND

In March 1980, J. Roland Savoie, a dishonest employee of British Caledonian Airways, arranged to have British Caledonian write a check for $116,000 to Mary Tull Charter Services on British Caledonian's account at the Texas Commerce Bank. Savoie's mother, Simone Gauthier, took the check to the defendant, the Bedford Bank, around March 10, 1980, and presented it to teller Jean Tedrow. On the back of the check, the following lines appeared, all in the same person's handwriting:

Mary Toll

Charter Services

to deposit

068-777-2.

Plaintiff's Exhibit No. 1, Record Vol. 1 at 227. The account number, 068-777-2, corresponded to a Bedford Bank account in the name of P O M International controlled by Savoie. Gauthier deposited the check in that account. On March 17, 1980, Gauthier also purchased a cashier's check from Preston State Bank for $30,600, payable to Mary Tull Charter Services. Mary Tull had actually performed charter services for British Caledonian, for which some payment was due.

Bedford Bank sent the $116,000 check to Texas Commerce for collection, accompanied by a routine "collection letter" form that listed the payee as "Mary Tull Services (P O M International)." Texas Commerce cleared the check, and on March 31, 1980, Bedford Bank credited the $116,000 to P O M's account. On the same day, Mary Tull cashed the $30,600 cashier's check at another bank.

British Caledonian eventually discovered the defalcation, and brought suits against Savoie, Texas Commerce, Bedford Bank and other parties. On April 14, 1986, the district court granted summary judgment to Bedford Bank on the grounds of Tex.Bus. & Comm.Code Ann. Sec. 3.405(a)(3) (Vernon's 1968) (Tex.U.C.C. or the Code). In the fall of 1986, British Caledonian deposed B.F. Robinson, the officer of Bedford Bank who had initialled the $116,000 check, in the suit against Texas Commerce; it also recovered the collection letter from Texas Commerce. Armed with this "new evidence," British Caledonian moved the district court under Fed.R.Civ.P. 60(b) to vacate the judgment. The district court denied the motion. This appeal consolidates British Caledonian's appeal from the summary judgment and from the denial of its Rule 60(b) motion.

II. DISCUSSION

A. Timeliness of Bedford Bank's Motion for Summary Judgment Under Section 3.405

Bedford Bank raised the possibility of a section 3.405 defense in February 1984, in the answer to British Caledonian's complaint. Both parties moved for summary judgment on other grounds. On November 1, 1984, a motions deadline set by the district court passed; on December 1, 1984, a discovery deadline passed. At a May 10, 1985, motions conference, the district court discussed Bedford Bank's section 3.405 defense with the parties at length. The district court also directed a deposition by a representative of British Caledonian, despite the expiration of the discovery deadline. On June 17, 1985, Bedford Bank filed a response to British Caledonian's summary judgment motion, again asserting a section 3.405 defense. Attached to this response were affidavits from Robinson and Wanda O'Rourke, Bedford Bank's custodian of records, concerning Bedford Bank's good faith in processing the $116,000 check. On November 20, 1985, Bedford Bank filed a Supplemental Motion for Summary Judgment on the basis of section 3.405. That motion relied on the same evidence cited in Bedford Bank's June 17 response. British Caledonian opposed Bedford Bank's motion both on timeliness and on the merits, but never moved to strike the Robinson and O'Rourke affidavits or to take additional discovery. On April 14, 1985, the district court granted summary judgment for Bedford Bank on section 3.405.

British Caledonian argues that Bedford Bank's Supplemental Summary Judgment Motion violated the district court's motions deadline and caught British Caledonian by surprise, depriving it of the chance to gather evidence to oppose the motion. We note that British Caledonian's own motion for summary judgment opened the door to allow the district court to grant summary judgment for Bedford Bank sua sponte, provided adequate warning and the other summary judgment requirements. Landry v. G.B.A., 762 F.2d 462, 464 (5th Cir.1985); 10A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure Sec. 2720 (2d ed. 1983). Moreover, British Caledonian was not unfairly surprised. Bedford Bank asserted the section 3.405 defense at the start of the case. As the original discovery deadline approached, British Caledonian could not safely forego all discovery on section 3.405, since neither party could be sure that the case would be decided on the then-pending summary judgment motions. Even after the December 1, 1984, "discovery deadline" passed, the district court ordered another deposition. The importance of section 3.405 was again emphasized by Bedford Bank's June 17 response and its accompanying affidavits, evidence that British Caledonian would have to counter in order to prevail on its own summary judgment motion. In sum, British Caledonian knew for over two years that Bedford Bank would assert a section 3.405 defense, yet now claims that the district court deprived it of the opportunity to meet that defense. We decline to find error in the district court's actions.

B. Good Faith

The district court granted summary judgment for Bedford Bank on the basis of section 3.405 of the Texas Uniform Commercial Code, which reads:

(a) An indorsement by any person in the name of a named payee is effective if

* * *

(3) an agent or employee of the maker or drawer has supplied him with the name of the payee intending the latter to have no such interest.

Often called the "imposter" or "padded payroll" rule, section 3.405 represents a policy decision to place certain losses on the employer:

The principle followed is that the loss should fall upon the employer as a risk of his business enterprise rather than upon the subsequent holder or drawee. The reasons are that the employer is normally in a better position to prevent such forgeries by reasonable care in the selection or supervision of his employees, or, if he is not, is at least in a better position to cover the loss by fidelity insurance; and that the cost of such insurance is properly an expense of his business rather than of the business of the holder or drawee.

Id., Comment 4: Fidelity & Casualty Co. v. First City Bank of Dallas, 675 S.W.2d 316, 318 (Tex.App.--Dallas [5th Dist.] 1984) writ ref'd n.r.e.; Clinton Weilbacher Builder, Inc. v. Kirby State Bank, 643 S.W.2d 473, 476 (Tex.App.--San Antonio 1982). Whenever section 3.405 makes a forged endorsement effective, sections 4.207 and 4.401 preclude recovery against the collecting, depositary, or drawee bank. Fidelity & Casualty Co., 675 S.W.2d at 318.

However, a bank cannot shelter behind section 3.405 if it does not meet the general U.C.C. requirement of "good faith," defined as "honesty in fact in the conduct or transaction concerned." Tex.U.C.C. Secs. 1.203, 1.201(19). The district court held that Bedford Bank would be in good faith, despite any proof of negligence in cashing the $116,000 check, unless Bedford Bank actually knew that the endorsement was forged. British Caledonian argues that the district court forced it to meet too stringent a legal standard: proof that Bedford Bank should have known, from suspicious circumstances surrounding the check, is enough.

British Caledonian's position is contrary to Texas precedent. In a 1984 case, the Texas Supreme Court considered whether a bank acted in "good faith" in making payment on corporate checks bearing only one officer's signature, despite the fact that the corporation had filed with the bank a corporate resolution requiring two signatures. La Sara Grain Co. v. First National Bank of Mercedes, 673 S.W.2d 558 (Tex.1984). The court held: "The test for good faith is the actual belief of the party in question, not the reasonableness of that belief." Id. at 563 (emphasis added). The bank was found liable. British Caledonian argues that La Sara Grain actually establishes a "should have known" test, since the plaintiffs never proved that any of the employees of First National Bank of Mercedes (Mercedes Bank) actually looked up the corporate resolution before honoring the checks. However, Mercedes Bank's president testified "that the bank would know of anything that was in the files." Id. at 563 (emphasis added). The two pieces of information which Mercedes Bank did know--that two signatures were required and that the checks bore only one signature--added up to knowledge that the checks were...