McDowell v. Dallas Teachers Credit Union, 05-88-00652-CV
| Citation | 772 S.W.2d 183 |
| Decision Date | 28 April 1989 |
| Docket Number | No. 05-88-00652-CV,05-88-00652-CV |
| Parties | 9 UCC Rep.Serv.2d 996 Jerry & Peggy McDOWELL, Appellant, v. DALLAS TEACHERS CREDIT UNION, Appellee. |
| Court | Court of Appeals of Texas |
John D. Exline, Lawrence W. Bailey, Dallas, for appellant.
Stephen L. Baskind, Dallas, for appellee.
Before HOWELL, LAGARDE and WHITTINGTON, JJ.
Appellants, Jerry and Peggy McDowell, appeal from a take nothing judgment in favor of appellee, Dallas Teacher's Credit Union (D.T.C.U.). We hold that, under the admitted facts of this record, D.T.C.U. is liable to the McDowells for amounts paid on forged share drafts. 1 We reverse and render.
In the trial below, the McDowells alleged that D.T.C.U. breached its duties under the Texas Business and Commerce Code by paying forged share drafts, charging the share drafts against the McDowells' account, and then refusing to reimburse the McDowells for those payments. In six points of error, the McDowells assert that the trial court erred in: (1) denying their Motion for Judgment Notwithstanding the Verdict (J.N.O.V.) and denying their Motion to Disregard the Answer to Jury Question number three because there was no evidence that D.T.C.U. made available to the McDowells, in a reasonable manner, the share drafts charged against their account; (2) denying the McDowells' Motion for New Trial since there was insufficient evidence to support the jury's answer to jury question number three in which the jury found that D.T.C.U. made available to the McDowells, in a reasonable manner, the share drafts charged against their account; (3) denying the McDowells' Motion for J.N.O.V., denying the McDowells' Motion to Disregard the Jury's Answer to Question number four, and granting judgment for D.T.C.U. because the evidence established, as a matter of law, that D.T.C.U. failed to use ordinary care in its treatment of the forged share drafts; (4) denying the McDowells' Motion for New Trial because the jury's answer to jury question number four that D.T.C.U. did not fail to exercise ordinary care in its treatment of the forged share drafts was against the great weight and preponderance of the evidence; (5) denying the McDowells' Motion for J.N.O.V., denying the McDowells' Motion to Disregard the Jury's Answer to Jury Question number five, and granting judgment for D.T.C.U. because there was no evidence that D.T.C.U. acted in accordance with reasonable commercial standards in cashing the forged share drafts; and (6) denying the McDowells' Motion for New Trial because there was insufficient evidence to support the jury's answer to jury question number five stating that D.T.C.U. acted in accordance with reasonable commercial standards in cashing the forged share drafts. We agree with points of error three and five; consequently, we reverse the trial court's judgment and render judgment for the McDowells in the amount of $51,937.75 and award reasonable attorney fees of $26,700 for the trial below, $15,000 for appeal to this Court, and $10,000 if appealed to the Texas Supreme Court.
At the outset of our discussion, we note that the parties have not cited and we have not found any occasion when a Texas court has ruled on the particular issues presented in this case. This case, therefore, presents a question of first impression under Texas law.
The McDowells had several accounts at D.T.C.U. They used one of these accounts, called a share draft account, for their fund raising business. This share draft account was set up to function in a manner similar to a bank's checking account.
At the time that the McDowells established the account, the share draft agreement stated, in pertinent part:
I/We, hereinafter called "Undersigned" whether one or more, do hereby authorize the DALLAS TEACHERS CREDIT UNION, hereinafter called "Credit Union" to establish a special share account for the Undersigned to be known as a "ShareDraft Account". The Credit Union is authorized to pay drafts signed by me or by any of us, if this Agreement is signed by more than one person, and to charge the payments against this ShareDraft Account.
The agreement then went on to state:
The Credit Union shall be authorized to pay a draft presented for payment even though the signature or signatures thereon do not correspond exactly with that set forth below.
Although the McDowells did not remember reading these specific provisions when they opened the account, Mrs. McDowell testified that she believed that the share draft account functioned in the same manner as a regular bank checking account. A brochure attached to the share draft agreement did, in fact, state that "[s]hare drafts function in every way just like checks...."
In line with the theory that the share draft account functioned like a checking account, the McDowells could write out share drafts just like checks. Furthermore, the parties to whom the share drafts were made out could present those share drafts for payment at one of the offices of the credit union or send them through normal banking channels for presentment to the credit union.
During at least a portion of the time that the McDowells maintained their share draft account at D.T.C.U., the McDowells' bookkeeper was Pat Mitchell. In late July and early August 1984, the McDowells discovered that, over the previous several months, Mitchell had forged Peggy McDowell's signature on fifty-five share drafts. The total amount of those share drafts was allegedly $52,255.02. D.T.C.U. charged all of those drafts against the McDowells' share draft account and, once the forgeries were discovered, refused to reimburse the McDowells.
The McDowells testified that Mitchell's signature was not on the signature card and that they did not authorize Mitchell to sign any share drafts. D.T.C.U. produced evidence that the McDowells requested that D.T.C.U. treat Mitchell as they would treat the McDowells and to provide Mitchell with information necessary to balance and reconcile the share draft statements; however, the evidence also showed that the McDowells never told D.T.C.U. that Mitchell had authorization to sign share drafts or make withdrawals from the share draft account.
During the course of the trial, D.T.C.U. called two witnesses to testify as to the general industry usage in regard to share draft accounts. Both witnesses, one an officer from D.T.C.U. and one an officer from the Texas Credit Union League (T.C.U.L.), testified that the vast majority of credit unions operated their share draft accounts in the same manner as D.T.C.U.
Consistent with the procedure used by a majority of Texas credit unions, the share drafts involved here were paid in one of two ways. First, T.C.U.L. acted as a clearinghouse and processor for share drafts that were deposited or cashed at other institutions. T.C.U.L. recorded certain information from the share drafts onto a magnetic tape, and the tape was then forwarded to D.T.C.U. Unless the share draft was drawn against insufficient funds, payment had been stopped on the share draft, or the account was closed, D.T.C.U. paid the share draft. Neither D.T.C.U. nor T.C.U.L. had any procedure for verifying the depositor's signature on any of the share drafts that were paid in this manner. Indeed, as one of D.T.C.U.'s experts explained, the general industry usage did not even require that share drafts be signed before they were paid.
Additionally, even when share drafts were paid in the second manner, i.e., presented directly to a D.T.C.U. branch office for payment, D.T.C.U. did not verify the depositor's signature. Branch offices had no way to verify signatures because signature cards were only kept at the main office. While there was evidence that the main office had a policy at one time to verify signatures on checks presented for cash at the main office, there was no evidence that the policy was ever followed. Additionally, in this instance, there was no evidence that the main office processed any of the McDowells' share drafts. As a result, it is undisputed that D.T.C.U. did not verify the signature on any share drafts involved in this case. Although it could have adopted procedures to signature-verify share drafts, D.T.C.U. admitted that, for economic and other reasons, it chose not to adopt such procedures. Although the McDowells did not prevail at trial on the liability issues, the jury found that $51,937.75 would compensate the McDowells for their damages. Additionally, the jury found that the McDowells incurred reasonable attorney fees of $26,700 through the trial of this case and would incur $15,000 in reasonable attorney fees for an appeal to the Court of Appeals, and $10,000 in reasonable attorney fees for an appeal to the Texas Supreme Court. With these facts in mind, we now address points of error three and five.
The third and fifth points of error concern sections 4.406 and 3.406, respectively, of the Texas Business and Commerce Code. Before engaging in a lengthy discussion of these two sections, we will first set out some general legal principles to place the two sections into perspective.
Historically, Texas courts have charged banks with knowledge of the signature of a depositor, and a bank would generally be liable to the depositor for any amount of money paid out on a forged check. 2 See American Indem. Co. v. First National Bank, 94 S.W.2d 1258, 1261 (Tex.Civ.App.--Austin 1936, no writ); See also First State Bank v. Oak Cliff Sav. & Loan Assoc., 387 S.W.2d 369, 372 (Tex.1965); Massachusetts Bonding & Ins. Co. v. Pittsburg Pipe & Supply Co., 135 S.W.2d 818, 822 (). This fundamental rule has survived and is now codified in the Texas Business and Commerce Code. See TEX.BUS. & COM.CODE ANN. §§ 3.401, 3.418, 4.401 (Vernon 1968).
Section 4.401 of the Texas Business and Commerce Code sets forth the general rule that a bank may only charge against a...
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