Estrada v. River Oaks Bank & Trust Co.

• Decision Date: 23 March 1977
• Docket Number: No. 1494,1494
• Citation: 550 S.W.2d 719
• Parties: 22 UCC Rep.Serv. 83 William J. ESTRADA, Appellant, v. RIVER OAKS BANK & TRUST COMPANY, Appellee. (14th Dist.)
• Court: Texas Court of Appeals

Page 719

550 S.W.2d 719

22 UCC Rep.Serv. 83

William J. ESTRADA, Appellant, v. RIVER OAKS BANK & TRUST COMPANY, Appellee.

No. 1494.

Court of Civil Appeals of Texas, Houston (14th Dist.).

March 23, 1977.

Rehearing Denied May 11, 1977.

William P. Pannill, Houston, for appellant.

Mike A. Pohl, Bracewell & Patterson, Houston, for appellee.

COULSON, Justice.

River Oaks Bank & Trust Co. sued George J. Lewis on a promissory note secured by a collateral assignment of four unindorsed promissory notes executed by Dr. William J. Estrada payable to the order of Lewis. River Oaks joined Dr. Estrada as a defendant to recover on the four notes held as collateral. Summary judgment was granted River Oaks against Lewis on the principal obligation, and Lewis is not a party to this appeal. River Oaks and Estrada filed opposing motions for summary judgment; River Oaks claiming it was entitled to recover on the four notes as a holder in due course, and Estrada contesting River Oaks' holder in due course status, and asserting a complete offset by virtue of an unsatisfied judgment awarded Estrada against Lewis on another note. The trial court granted summary judgment for River Oaks and Dr. Estrada perfected this appeal. Having determined that neither party was entitled to summary judgment, we reverse and remand.

On February 25, 1970 Estrada executed four promissory notes (the Estrada notes) totalling $21,936.05 to Lewis to acquire part interest in four parcels of Harris County real estate. The notes were made payable to the order of Lewis in installments due each six months, the final installments due February 25, 1973. Estrada, in a memorandum in the trial court, asserted that payments made on the notes reduced the principal sum owed Lewis to $13,161.55, but Estrada did not plead payment in his answer or in his motion for summary judgment, and no evidence of the alleged payments appears in the record.

On December 15, 1971 George Lewis, William Estrada, and GEM Motors executed a promissory note to the order of Jacinto City Bank for the principal sum of $20,000.00 (the 1971 note), due on or before March 14, 1972. Upon default, Estrada paid the amount owed on the note to Jacinto City Bank, and Jacinto City Bank indorsed the note, without recourse, to Estrada.

The 1971 note bears Estrada's signature as a comaker, but Estrada contends that he signed the note merely as a surety. Accordingly, Estrada sued George Lewis and GEM Motors on the 1971 note. On January 16, 1975, final judgment was entered for Estrada against Lewis for $26,715.27 plus interest and attorney's fees. It is this judgment that Estrada contends is a complete offset to the four notes assigned by Lewis to River Oaks.

River Oaks loaned Lewis $15,000.00 on August 8, 1972. In connection with this loan, Lewis executed a promissory note to River Oaks (the original Lewis note), secured by a collateral assignment of the four promissory notes executed by Estrada to Lewis in 1970 (the Estrada notes). Although it is undisputed that ample space existed on the front and back of the Estrada notes, ¹ Lewis did not indorse any of the Estrada notes to River Oaks. Lewis did sign a single collateral assignment, expressly referring to the Estrada notes, which was stapled by River Oaks to the Estrada notes. Lewis made regular loan reductions on the original note, and a renewal note for $6,000.00 was executed by Lewis on January 2, 1975 (the Lewis renewal note).

Lewis ultimately defaulted on the $6,000.00 renewal note, prompting River Oaks to sue Lewis and Estrada on August 25, 1975. River Oaks sought to recover $6,000.00 plus interest and attorney's fees from Lewis on the renewal note; $21,936.05 plus interest and attorney's fees from Estrada on the Estrada notes.

Estrada filed a motion for summary judgment supported by a record consisting of River Oaks' original petition, Estrada's first amended original answer, Estrada's request for admissions and answers thereto, and a sworn "Memorandum of Points and Authorities in Support of Motion for Summary Judgment" which was attached to the motion for summary judgment. River Oaks filed separate motions for summary judgment against Lewis and against Estrada. River Oaks' motion against Estrada, supported by the attached affidavit of River Oaks vice president Kim D. Wheless, sought recovery of $21,936.05 plus interest and attorney's fees.

An interlocutory judgment for $6,000.00 plus interest and attorney's fees was entered for River Oaks against Lewis. On May 13, 1976 summary judgment was granted for River Oaks against Lewis and Estrada, jointly and severally, for $6,000.00 plus interest and attorney's fees. This judgment became final when a cross-action by Lewis against Estrada was severed from the main suit. Estrada has perfected an appeal from the granting of River Oaks' motion for summary judgment and from the overruling of Estrada's motion for summary judgment.

When both parties file motions for summary judgment and one motion is granted and the other is overruled, the trial court's judgment becomes final and appealable. On appeal the court of civil appeals should determine all questions presented, including the propriety of the order overruling the losing party's motion for summary judgment. Tobin v. Garcia, 159 Tex. 58, 316 S.W.2d 396, 400 (1958). Therefore, it is proper for this court to consider the decision of the trial court in overruling Estrada's motion for summary judgment.

Estrada claims the trial court erred in granting summary judgment for River Oaks because its moving papers were either conclusory or presented without notice to Estrada. River Oaks contends that Estrada's sworn brief was not competent summary judgment evidence. Both parties rely on the two supreme court decisions in Hidalgo v. Surety Sav. & Loan Ass'n, 462 S.W.2d 540, 545 (Tex.1971) (pleadings are not summary judgment evidence) and 487 S.W.2d 702, 703 (Tex.1972) (conclusory affidavits will not support summary judgment). We need not decide these procedural issues. Even if we were to assume that both parties submitted proper summary judgment evidence to the trial court, our interpretation of the Uniform Commercial Code would still preclude summary judgment for either movant.

I.

This appeal presents the question of whether the transferee of four unindorsed promissory notes stapled to a single collateral assignment is a holder in due course.

A "holder in due course" is defined in section 3.302 of the Texas Business and Commerce Code. ² A holder in due course must meet five conditions set forth in the statute. He must be: (1) a holder (2) of a negotiable instrument who took it (3) for value (4) in good faith (5) without notice that it was overdue or had been dishonored or of any defense against or claim to it on the part of any person. Failure to meet any of these conditions prevents a party from qualifying as a holder in due course. J. White & R. Summers, Uniform Commercial Code § 14-2 (1972) (hereinafter cited as White & Summers). Therefore, only a "holder," as defined in the Code, ³ can be a holder in due course. White & Summers, supra, at § 14-3.

The Code definition of a holder applies to payees and transferees of negotiable instruments. A transferee, however, must also meet the negotiation requirements of section 3.202:

(a) Negotiation is the transfer of an instrument in such form that the transferee becomes a holder. If the instrument is payable to order it is negotiated by delivery with any necessary indorsement if payable to bearer it is negotiated by delivery.

(b) An indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to become a part thereof.

The Estrada notes were payable to the order of Lewis and, as order instruments, could be negotiated to River Oaks only by delivery with Lewis' indorsement. Lawson v. Finance America Private Brands, 537 S.W.2d 483, 485 (Tex.Civ.App., El Paso 1976, no writ). River Oaks is not in possession of instruments indorsed to it or its order unless the indorsement on the collateral assignment stapled to the notes is so firmly affixed thereto as to become a part thereof. If the signature on the collateral assignment is not an indorsement of the notes, River Oaks is neither a holder nor a holder in due course. Tex.Bus. & Comm.Code Ann. §§ 3.302, 1.201(20), and 3.202(a).

Comment 3 to section 3.202 is the only Code explanation of when an indorsement on a separate instrument is sufficient for negotiation:

3. Subsection (2) follows decisions holding that a purported indorsement on a mortgage or other separate paper pinned or clipped to an instrument is not sufficient for negotiation. The indorsement must be on the instrument itself or on a paper intended for the purpose which is so firmly affixed to the instrument as to become an extension or part of it. Such a paper is called an allonge.

An allonge has been defined as: "(a) piece of paper annexed to a bill of exchange or promissory note, on which to write endorsements for which there is no room on the instrument itself." Black's Law Dictionary (rev. 4th ed. 1968). Historically, when a promissory note was so covered with prior indorsements that no space remained for the indorsement of the last holder, a piece of paper was pasted or fastened by wafer to the bottom of the note to provide space for additional indorsements. E. g., Bishop v. Chase, 156 Mo. 158, 56 S.W. 1080 (1900). The majority of decisions under the Uniform Negotiable Instruments Act (N.I.L.), ⁴ the forerunner of the U.C.C., held that lack of space on the instrument for further indorsements was a necessary predicate for use of an allonge. See Annot., 56 A.L.R. 923-24 (1928). There is some authority for the proposition that the Code permits indorsement by allonge only if the instrument is so covered with previous indorsements that convenience or necessity requires additional space for further indorsements. Tallahassee Bank & Trust...