Hidalgo v. Surety Sav. & Loan Ass'n

• Decision Date: 03 February 1971
• Docket Number: No. B--2366,B--2366
• Citation: 8 UCCRep.Serv. 879,462 S.W.2d 540
• Parties: 8 UCC Rep.Serv. 879 Carolina E. HIDALGO, a femme sole, Petitioner, v. SURETY SAVINGS AND LOAN ASSOCIATION, a corporation, Respondent.
• Court: Texas Supreme Court

Page 540

462 S.W.2d 540

8 UCC Rep.Serv. 879

Carolina E. HIDALGO, a femme sole, Petitioner, v. SURETY SAVINGS AND LOAN ASSOCIATION, a corporation, Respondent.

No. B--2366.

Supreme Court of Texas.

Feb. 3, 1971.

Armendariz & Armendariz, Albert Armendariz, Sr., El Paso, for petitioner.

Arturo R. Aguirre, El Paso, for respondent.

CALVERT, Chief Justice.

In this suit brought by Surety Savings and Loan Association against Mrs. Carolina E. Hidalgo to recover on a promissory note and to foreclose a lien on real property securing the note, the trial court rendered a summary judgment awarding Surety the relief sought, and the court of civil appeals has affirmed. 457 S.W.2d 341. We reverse the judgments of both courts and remand the cause to the trial court.

The note, dated June 13, 1967, in the principal sum of $3,283.20, and payable in monthly installments of $54.72, was signed and delivered by Mrs. Hidalgo to Western States Improvement Co., Inc., the payee. If the judgment on the note cannot stand, the judgment foreclosing the lien must fall.

Surety's live pleading at the time of the summary judgment hearing was its First Amended Petition. Surety alleged that the defendant executed and delivered the note to Western States; that 'the Plaintiff, for a valuable consideration, became the legal owner and holder of said promissory note by written endorsement' from Western, and that 'at the time of paying the consideration therefor' the 'note had not been matured or dishonored and no notice of any infirmity in said note was given to Plaintiff, constituting Plaintiff a holder in due course of said promissory note.' The petition was sworn to by Surety's attorney who on oath stated that 'the foregoing petition and pleadings therein and all allegations therein contained are true and correct within his knowledge.'

Mrs. Hidalgo had on file a Second Amended Original Answer and a First Supplement to her Answer and a Cross Action at the time of the hearing. She alleged in substance that Surety was not a holder in due course; and among her pleaded defenses to liability on the note were (1) that she was fraudulently induced to execute and deliver the same by false representations as to the nature, extent and quality of certain repairs to be made to her home, and (2) failure of consideration.

In moving for summary judgment, Surety assumed the burden of establishing that 'there (was) no genuine issue as to any material fact' and that it was 'entitled to a judgment as a matter of law.' Rule 166--A(c), Texas Rules of Civil Procedure; Gibbs v. General Motors Corporation, 450 S.W.2d 827 (Tex.Sup.1970), at 828; Torres v. Western Casualty and Surety Co., 457 S.W.2d 50 (Tex.Sup.1970). Compare Glenn v. Prestegord, 456 S.W.2d 901 (Tex.Sup.1970) with Prestegord v. Glenn, 441 S.W.2d 185 (Tex.Sup.1969).

At the time of the hearing, the trial court also had before it an affidavit by Mrs. Hidalgo and her deposition. In her deposition Mrs. Hidalgo admitted the execution and delivery of the note to Western States in payment for certain repairs to be made to her home and the execution of the lien instrument to secure payment of the note. She also admitted the signing of a completion certificate directed to Surety. Copies of the note, lien instrument and completion certificate were attached to the deposition. The copy of the note shows that the same had been transferred and assigned by Western States to Surety. From this summary judgment proof we may assume that Surety established conclusively that Mrs. Hidalgo executed and delivered the note in question to Western States; that at the time of hearing a balance thereon was due and unpaid, and that Surety was the legal owner and holder. If this had been all of the evidence, the judgment would have been proper; but it is not all of the evidence.

There was also summary judgment evidence supporting Mrs. Hidalgo's affirmative defense of failure of consideration as required by Rule 166--A if the motion was to be overruled. See Gulf, Colorado & Santa Fe Railway Co. v. McBride, 159 Tex. 442, 322 S.W.2d 492, 500 (1959). Mrs. Hidalgo's affidavit contains this statement:

'Defendant states as a fact that the work called for in the contract was never substantially performed in that the job called for a plastering of the home with a new product and the same was only painted.'

Mrs. Hidalgo gave testimony to the same effect in her deposition. She testified: 'I made payments but as soon as I noticed the house was cracking and also that the paint was fading then I will not (make payments) because the job isn't any good and I will have to repaint the house because it looks bad.' Again: 'I did it voluntarily yes (signed the papers) in order to fix my house but something that is not worth it I can't pay for it. It is all cracked and the paint is faded. The man promised me that it would be free of cracks and of blemishes or fading.' The quoted testimony is obviously in the language of one who does not express herself too well in English, but we are satisfied that it is adequate to raise a fact issue of failure of consideration.

With the record as here outlined, Surety filed and presented its Amended Motion for Summary Judgment. The judgment was sought on the ground that Mrs. Hidalgo did not set up in her pleading, affidavit and deposition a valid defense to Surety's cause of action. The theory of the motion was that the summary judgment record established conclusively that Surety was a 'holder in due course,' and that the defenses of fraud in the inducement and failure of consideration are not valid defenses to a suit on a negotiable instrument by such a holder. This, by virtue of certain provisions of Acts 1965, 59th Leg., ch. 721, the Uniform Commercial Code, which was in effect at the time of the transaction.

§ 3--302 provided:

'(1) A holder in due course is a holder who takes the instrument

(a) for value; and

(b) in good faith; and

(c) without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person. * * *'

§ 3--305 of the same act provided:

'To the extent that a holder is a holder in due course he takes the instrument free from

(1) (not applicable)

(2) all defenses of any party to the instrument with whom the holder has not dealt except

(a), (b), (c), (d), (e) (none applicable).'

§ 3--306 provided:

'Unless he has the rights of a holder in due course any person takes the instrument subject to

(a) (not applicable)

(b) all defenses of any party which would be available in an action on a simple contract; and

(c) the defenses of failure of consideration * * * etc. (See also § 3--408)

(d) (not applicable)'

The court of civil appeals seems to have been of the view that Surety's status as a holder in due course was conclusively established by the excerpts we have quoted from Surety's verified First Amended Petition and from recitations in the completion certificate. We are not convinced that these instruments have the controlling effect ascribed to them.

The allegations in Surety's petition, although sworn to, do not constitute summary judgment proof. Pleadings simply outline the issues; they are not evidence, even for summary judgment purposes. ¹ See Stayton, 29 Texas L.Rev. 688; LeMond and Kreager, The Scope of Pleading as Proof in Summary Judgment Procedure, 30 Texas L.Rev. 613, 618; McDonald, Summary Judgments, 30 Texas L.Rev. 285, 297.

Stayton's writing is a very brief casenote on Haley v. Nickels, 235 S.W.2d 683 (Tex.Civ.App.--Austin 1950, no writ). In that case, both parties presented affidavits at the hearing on the motion for summary judgment. Neither party verified his pleadings. It is obvious that the case did not involve sworn pleadings. Professor Stayton's comment on the use of pleadings in summary judgment proceedings, however, is not limited to unsworn pleadings. He stated that authorities interpreting the Federal rule 'indicate that the office of the pleadings in this kind of proceeding is to show what the Alleged ² issues are'; and continued:

'If controversy in the pleading were alone enough to prevent summary judgment this practice would ordinarily be useless, for there is no effective constraint upon what may be asserted or denied in the pleadings and there are many generalities which are good pleading but, to the full extent of their application in a particular case, bad truth. In any state like Texas, where the general denial can be and is used in practically every civil case, summary judgment would be almost always ineffective, and that in many situations where it would be useful and just.'

There are a number of cases which pick up Professor Stayton's general statement that pleadings will not constitute summary judgment evidence. See Turinsky v. Turinsky, 359 S.W.2d 114, 116 (Tex.Civ.App.--Dallas 1962, no writ); Hansen v. Eagle Mountain, etc., School District, 373 S.W.2d 817, 820 (Tex.Civ.App.--Fort Worth 1963, ref'd n.r.e.); Blount v. Westinghouse Credit Corp., 432 S.W.2d 549, 554 (Tex.Civ.App.--Dallas 1968, no writ).

LeMond and Kreager note that there have been differing views in different jurisdictions concerning the place of sworn pleadings in summary judgment proceedings and...