Conoco, Inc. v. Amarillo Nat. Bank, 07-96-0036-CV

• Decision Date: 26 August 1997
• Docket Number: No. 07-96-0036-CV,07-96-0036-CV
• Citation: 950 S.W.2d 790
• Parties: CONOCO, INC., Appellant, v. AMARILLO NATIONAL BANK, Appellee.
• Court: Texas Court of Appeals

Page 790

950 S.W.2d 790

CONOCO, INC., Appellant, v. AMARILLO NATIONAL BANK, Appellee.

No. 07-96-0036-CV.

Court of Appeals of Texas,

Amarillo.

Aug. 26, 1997.

Rehearing Overruled Sept. 29, 1997.

Gibson, Ochsner & Adkins, L.L.P., Michael G. Smith, Amarillo, for appellant.

Mullin, Hoard & Brown, L.L.P., Steven L. Hoard and Jeanette Ahlenius, Amarillo, for appellee.

Before BOYD, C.J. and DODSON and QUINN, JJ.

DODSON, Justice.

Amarillo National Bank (the Bank) sued Conoco Incorporated (Conoco) for conversion of accounts receivable in the form of credit card proceeds generated by Centergas Incorporated (Centergas). Conoco denied the conversion claim and asserted affirmative defenses of set-off, consent, waiver and statute of limitations. Both parties moved for summary judgment. The trial court denied Conoco's motion and granted the Bank's motion except as to the issues of limitations and discovery. These issues were tried to a jury. Conoco moved for an instructed verdict, which was denied by the trial court. The jury returned a verdict for the Bank. Conoco appeals the trial court's rulings. Concluding, among other things, that the Bank failed to conclusively negate an essential element of each of Conoco's consent and waiver defenses, we reverse and remand.

Centergas, a wholesaler and retailer of petroleum products, was a debtor and customer of the Bank. Beginning in June of 1983, the Bank took various security interests in Centergas's inventory and accounts receivable, which were duly perfected and continued. In April of 1990, Centergas entered into a Jobber Franchise Agreement with Conoco regarding the purchase and resale of Conoco's products. This Jobber Agreement granted Conoco the right to set-off any credit card sales generated by Centergas through its retail outlets against amounts owed by Centergas to Conoco for the purchase of inventory. When these amounts did not fully satisfy the amount owed by Centergas, Conoco would draft on Centergas's account at the Bank to make up the difference. These drafts were authorized according to the terms of a Preauthorized Payment Agreement between Centergas, the Bank and Conoco.

Centergas experienced substantial losses from its retail locations. In September of 1991, Centergas defaulted on $2,000,000.00 worth of notes held by the Bank. The Bank then extended the notes to November of 1991. Centergas again defaulted on its obligations to the Bank in December of 1991. The Bank then charged off $500,000.00 of Centergas overdrafts.

Despite these defaults, the Bank allowed Centergas to continue to operate its business. Nevertheless, in January of 1992, the Bank turned down several drafts drawn by Conoco on the Centergas account totaling $293,136.04. Thereafter, Conoco required Center gas to pay cash for new purchases and continued to set-off credit card sales against the balance of Centergas's account with Conoco.

On May 20, 1994, the Bank filed suit against Conoco. The Bank alleged that from late 1991 to February 20, 1992, Conoco converted the Bank's collateral by its set-offs of Centergas credit card sales against the balance of Centergas's account with Conoco. In response, Conoco asserted defenses of waiver, consent and statute of limitations. The Bank then asserted the discovery rule in response to Conoco's limitations defense. Both parties moved for summary judgment. In its motion for summary judgment, the Bank did not challenge Conoco's defenses of consent and waiver. The trial court denied Conoco's motion, rendered partial summary judgment on behalf of the Bank, and submitted the discovery rule issue to the jury, which returned a verdict for the Bank.

Conoco asserts six points of error. First, Conoco asserts that the trial court erred in granting the Bank's motion for summary judgment because: 1) as a matter of law, Conoco did not convert the Bank's collateral and Conoco had a right of set-off which was superior to the Bank's perfected security interest; 2) Conoco established the defenses of consent and waiver as a matter of law; and 3) as a matter of law, the Bank's claim was barred by the statute of limitations, which could not be avoided by the discovery rule. Second, and in the alternative, Conoco asserts that the trial court erred in granting the Bank's motion for summary judgment because fact issues exist regarding the conversion and set-off issues and Conoco's affirmative defenses of consent and waiver. Third, Conoco asserts that the trial court erred in overruling its motion for instructed verdict on the limitation and discovery rule issue.

Fourth, Conoco asserts that the trial court erred in refusing to submit the discovery rule issue to the jury in terms of "could have discovered," rather than "should have discovered." Fifth, Conoco asserts that the trial court erred in permitting the Bank's trial amendment which changed the Bank's live pleading from "could" have discovered to "should" have discovered. Sixth, Conoco asserts that the trial court erred in permitting the Bank's counsel to advise the jury that the court had previously ruled that Conoco's acts of set-off constituted conversion of the Bank's collateral.

We consider the first two points of error within the framework of established principles of summary judgment law. When, as here, both parties to a lawsuit move for summary judgment and the trial court grants one of the motions and denies the other, we consider all the issues presented and may reverse the judgment of the trial court and render such judgment as the trial court should have rendered. Jones v. Strauss, 745 S.W.2d 898, 900 (Tex.1988); Fort Bend Cent. Appraisal Dist. v. Hines Wholesale Nurseries, 844 S.W.2d 857, 859 (Tex.App.--Texarkana 1992, writ denied).

To obtain summary judgment in its favor, the movant must conclusively establish, by competent summary judgment evidence, every element of its cause of action or its affirmative defense, or conclusively negate at least one of the essential elements of the opposing party's cause of action or affirmative defense, as a matter of law. See, Thompson v. Chrysler First Business Credit Corp., 840 S.W.2d 25, 28 (Tex.App.--Dallas 1992, no writ); Bryant v. Gulf Oil Corp., 694 S.W.2d 443, 445 (Tex.App.--Amarillo 1985, writ ref'd n.r.e.); Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex.1991). Each party must carry its own burden, and neither can prevail due to the other's failure to meet its own burden. Farmers Texas County Mut. Ins. Co. v. Griffin, 868 S.W.2d 861, 863 (Tex.App.--Dallas 1993, writ denied) (citing Cove Invs., Inc. v. Manges, 602 S.W.2d 512, 514 (Tex.1980)).

Consent and Waiver

In the second subpart of Conoco's first point of error, Conoco asserts that the trial court erred in denying its motion for summary judgment because its affirmative defenses of consent and waiver were established as a matter of law. We disagree with this assertion. Nevertheless, we agree with Conoco's alternative assertion in their second point of error that the trial court erred in rendering summary judgment for the Bank on Conoco's defenses of consent and waiver, because the Bank did not assert the negation of these defenses as grounds for summary judgment.

Conoco amended its answer on September 29, 1994, in which it added the affirmative defense of waiver to the already pleaded defense of consent. The Bank, in its amended motion for summary judgment filed on September 23, 1994, did not assert as grounds for summary judgment that it conclusively negated Conoco's pleaded affirmative defense of consent, and did not further amend its motion after the Bank amended its answer to address either the defense of consent or waiver.

It is reversible error to grant a motion for summary judgment on a cause of action or affirmative defense not addressed in the motion for summary judgment. Smith v. Atlantic Richfield Co., 927 S.W.2d 85, 88 (Tex.App.--Houston [1st Dist.] 1996, writ denied). Accordingly, we conclude that the trial court erred in rendering summary judgment for the Bank on the consent and waiver issues, and sustain Conoco's second point of error as it applies to consent and waiver.

We now turn to Conoco's assertion that it established consent and waiver as a matter of law. Conoco asserts that the Bank, by its actions or lack thereof, implicitly consented to the set-offs of the collateral and implicitly waived its lien. Although Conoco pleaded consent and waiver as separate defenses, our research reveals that, where one party has a secured claim in property, Texas courts have historically concluded that consent to the disposition of collateral results in waiver of a secured interest in the collateral, thereby treating consent and waiver as a "cause and effect" defense. "A mortgage lien may be waived by either express, implied, or conditional consent." Daggett v. Corn, 54 S.W.2d 1098, 1099 (Tex.Civ.App.--Amarillo 1932, no writ).

Accordingly, the well established rule in Texas may be stated as follows: if a transfer of collateral is consented to by a party holding a secured claim in the collateral, the secured party waives his security interest, the transferee takes free and clear of such interest, and the secured party may neither foreclose nor bring an action for conversion. Sechrist-Hall Co. v. Harlingen National Bank, 368 S.W.2d 155, 159 (Tex.Civ.App.--Austin 1963, writ ref'd n.r.e.); Cartwright v. Flatt, 244 S.W.2d 523, 525 (Tex.Civ.App.--Waco 1951, no writ); Oats v. Dublin National Bank, 127 Tex. 2, 90 S.W.2d 824, 827 (1936); Lumberman's National Bank v. Bush & Witherspoon Co., 247 S.W. 295, 299 (Tex.Civ.App.--Galveston 1922, writ ref'd); Rusk County Lumber Co. v. Meyer, 126 S.W. 317, 319 (Tex.Civ.App.1910, writ dism'd); see, Tex. Bus. & Com.Code Ann. § 9.306(b) (Vernon 1991).

Waiver occurs when a person, who has full knowledge of the material facts, acts or fails to act upon a right which he legally holds, and such act or failure to act is inconsistent with that right or the...