Canfield v. Bank One

Decision Date07 August 2001
Docket NumberNo. 06-00-00149-CV,06-00-00149-CV
Parties(Tex.App.-Texarkana 2001) HENRY A. CANFIELD, ET AL., Appellants v. BANK ONE, TEXAS, N.A., Appellee
CourtTexas Court of Appeals

On Appeal from the 221st Judicial District Court Montgomery County, Texas Trial Court No. 95-04-01185-CV

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[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Before Cornelius, C.J., Grant and Ross, JJ.

OPINION

Opinion by Justice Ross

Henry A. Canfield, Canfield Enterprises, Inc., and Canfield Enterprises Employee Pension Trust (Canfield) brought suit against Bank One, Texas, N.A. (Bank One) to recover for 213 wrongfully paid items, including forged checks and cashed-out certificates of deposit, that were charged against Canfield's account. Canfield alleged breach of contract, negligence, and violations of the Texas Deceptive Trade Practices Act (DTPA). Bank One moved for summary judgment based on the failure to perform an enforceable condition precedent contained in Tex. Bus. & Com. Code Ann. § 4.406 (Vernon 1994), amended by Act of May 28, 1995, 74th Leg., R.S., ch. 921, § 4, 1995 Tex. Gen. Laws 4582, 4639.1 The trial court granted summary judgment, and Canfield appeals.

Bank One was the depository bank for Canfield's personal account, business account, and individual retirement account, which consisted of three certificates of deposit (accounts). The accounts were governed by a written deposit agreement. Pursuant to this agreement, Bank One sent Canfield monthly statements2 on each of his accounts containing the account statement, processed checks, and deposits.

During 1990, Dorothy Canfield, Henry Canfield's ex-wife, began forging Henry Canfield's signature on his individual account and on the accounts for Canfield Enterprises, Inc. and Canfield Enterprises Employee Pension Trust. Canfield did not authorize his ex-wife to sign his name to any of the accounts, although Canfield did allow her to endorse checks for deposit and handle the statements on the accounts. Over a two- and one-half- year period, Canfield claims that 213 items were wrongfully paid by Bank One as a result of the forgeries. There were 79 teller transactions included within this total. The total amount of items purported to be wrongfully paid was up to $165,000.00. Canfield first discovered the contested transactions and questioned Bank One in April 1993. He did not allege that Bank One had wrongfully disbursed the items and challenge the payments until May 11, 1993.

Canfield sued Bank One, alleging liability for payment of checks based on forged signatures. Canfield asserts that Bank One had either ineffective or no procedures to protect against wrongful disbursements, or if such procedures were in place, they were inadequate. Bank One moved for summary judgment on the basis of Tex. Bus. & Com. Code Ann. § 4.406(b), which provides a fourteen-day limitations period to contest questionable disbursements, and Tex. Bus. & Com. Code Ann. § 4.406(d), which provides a one-year limitations period from the time account statements were sent. The trial court granted Bank One's motion for summary judgment.

Canfield contends that the fourteen-day requirement of Section 4.406(b) requires the exercise of ordinary care that Bank One did not fulfill; that Section 4.406(b), (d) requires Bank One to establish its good faith in payment, which has not been shown; that the DTPA claims are an independent cause of action from the Texas Business and Commerce Code (sometimes Business Code) and were wrongfully subsumed in the summary judgment; that Bank One's duties of ordinary care and good faith under the depository agreement and the Business Code are the same; and that, at least to some contested disbursements, no limitations period asserted by Bank One should apply.

Summary judgment is proper when the movant establishes that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c); City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671 (Tex. 1979); Baubles & Beads v. Louis Vuitton, S.A., 766 S.W.2d 377 (Tex. App. Texarkana 1989, no writ). The question on appeal is not whether the summary judgment proof raises a fact issue with reference to the essential elements of the plaintiff's cause of action, but whether the summary judgment proof establishes that the movant is entitled to summary judgment as a matter of law. Gonzalez v. Mission Am. Ins. Co., 795 S.W.2d 734, 736 (Tex. 1990). A movant without the burden of proof is entitled to summary judgment if the evidence disproves as a matter of law at least one element of the claim. Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex. 1991). When the movant moves for summary judgment on reliance of an affirmative defense, the motion shall be granted on proving each element of the defense as a matter of law. Randall's Food Mkts., Inc. v. Johnson, 891 S.W.2d 640, 644 (Tex. 1995). Because the movant bears the burden of proof, all conflicts in the evidence are disregarded, evidence favorable to the nonmovant is taken as true, and all doubts as to the genuine issue of material fact are resolved in favor of the nonmovant. Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985).

A bank is conclusively presumed to know the signature of a depositor and may not charge that depositor's account with the amounts of any checks not signed by the depositor, no matter how artistic the forgery and regardless of whether the bank was negligent. Hatcher Cleaning Co. v. Comerica Bank-Texas, 995 S.W.2d 933, 937 (Tex. App. Fort Worth 1999, no pet.); Oak Cliff Bank & Trust Co. v. Aetna Cas. & Sur. Co., 436 S.W.2d 165, 168 (Tex. Civ. App. Dallas 1968, no writ). When a customer deposits funds with a bank, the bank impliedly agrees to disburse those funds only in accordance with the depositor's instructions. La Sara Grain Co. v. First Nat'l Bank, 673 S.W.2d 558, 564 (Tex. 1984). Where the drawer's signature is forged, the drawer cannot be liable since his valid signature does not appear on the instrument. Hatcher Cleaning Co., 995 S.W.2d at 937; see Tex. Bus. & Com. Code Ann. § 3.401 (Vernon Supp. 2001). A bank may only charge against a customer's account any item properly payable from that account. Tex. Bus. & Com. Code Ann. § 4.401 (Vernon Supp. 2001); Hatcher Cleaning Co., 995 S.W.2d at 937.

However, a depositor is under a duty to examine his or her statements within a reasonable time (fourteen days under the statute discussed below) and notify the bank of any forgeries. Oak Cliff Bank & Trust Co., 436 S.W.2d at 168. If the bank proves that the depositor failed to exercise ordinary care to examine or that the depositor's negligence prevented the bank from promptly and effectively exercising its right to seek and compel restoration from the person committing the forgeries, or from otherwise avoiding or mitigating its loss, then the depositor may be said to have acquiesced to the correctness of the statement rendered by the bank and of charging the checks to that depositor's account. Id.

A customer cannot assert his or her unauthorized signature against a bank when one wrongdoer makes a series of unauthorized transactions, on the same account, if the customer fails to discover and report the first unauthorized transaction within fourteen days.3 Tex. Bus. & Com. Code Ann. § 4.406(b)(2); Am. Airlines Employees Fed. Credit Union v. Martin, 29 S.W.3d 86, 91 (Tex. 2000). This defense is not available when the bank has failed to exercise ordinary care in paying the items. Tex. Bus. & Com. Code Ann. § 4.406(c); Martin, 29 S.W.3d at 91. Since this case is an appeal of a summary judgment, this Court will view the evidence in favor of Canfield, and we will assume that the acceptance of purportedly forged documents rendered Bank One in violation of its duty to exercise ordinary care.

However, a bank has a second defense in that a customer is absolutely precluded from asserting his or her unauthorized signature on an item against the bank if the customer fails to discover and report the unauthorized signature within a year from the time the bank makes the item available and the account statement showing the transaction. Tex. Bus. & Com. Code Ann. § 4.406(d); Martin, 29 S.W.3d at 91. The Business Code places a duty on a depositor to promptly examine his or her bank statement and report to the bank the discovery of any "unauthorized signature or any alteration . . . ." Tex. Bus. & Com. Code Ann. § 4.406(a); La Sara Grain Co., 673 S.W.2d at 561. There is an absolute time limit of one year for a customer to assert his or her right to make a claim for payment on a forged paper without regard to the care, or lack thereof, of either the customer or the bank. Tex. Bus. & Com. Code Ann. § 4.406(d); La Sara Grain Co., 673 S.W.2d at 562; Hatcher Cleaning Co., 995 S.W.2d at 937. At this time, the customer's only claim is that the items were not paid in good faith. La Sara Grain Co., 673 S.W.2d at 562. The time limits of Section 4.406 apply only to items paid in good faith. See Tex. Bus. & Com. Code Ann. § 4.406(c); La Sara Grain Co., 673 S.W.2d at 562. The test for good faith is the actual belief of the party in question, not the reasonableness of that belief. La Sara Grain Co., 673 S.W.2d at 563.

This statutory scheme reflects an underlying policy decision that promotes the Uniform Commercial Code's (UCC) "objective of promoting certainty and predictability in commercial transactions." Martin, 29 S.W.3d at 92; see also Tex. Bus. & Com. Code Ann. § 1.101 (Vernon 1994). The UCC facilitates financial transactions, to the benefit of both consumers and financial institutions, by allocating responsibility among the parties according to whoever is best able to prevent a loss. Martin, 29 S.W.3d at 92. The customer is most familiar with his or her own signature and should...

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