NationsBank, N.A. v. Dilling

• Decision Date: 10 May 1996
• Docket Number: No. 95-0605,95-0605
• Citation: 922 S.W.2d 950
• Parties: 39 Tex. Sup. Ct. J. 618 NATIONSBANK, N.A. f/k/a NCNB National Bank, Petitioner, v. Harry DILLING, Respondent.
• Court: Texas Supreme Court

Page 950

922 S.W.2d 950

39 Tex. Sup. Ct. J. 618

NATIONSBANK, N.A. f/k/a NCNB National Bank, Petitioner, v. Harry DILLING, Respondent.

No. 95-0605.

Supreme Court of Texas.

May 10, 1996.

Carlyle H. Chapman, Jr., John H. McElhaney, Julia A. Simon, Dallas, for Petitioner.

Samuel M. Stricklin, George H. Tarpley, Robert J. Taylor, Dallas, for Respondent.

PER CURIAM.

We must determine whether a bank is vicariously liable for the fraudulent acts of a bank teller whose participation in an investment scheme caused damages to a third party. We also must decide whether the bank is directly liable to the third party for negligently employing the teller, who improperly issued cashier's checks that the bank honored. We hold that vicarious liability does not attach to an employer in the absence of evidence that its employee was acting within the scope of her actual or apparent authority, and that a bank owes no duty to protect a third party from making investment decisions in reliance on cashier's checks that were improperly issued by a bank teller but were honored by the bank. We reverse the judgment of the court of appeals, 897 S.W.2d 451, and render judgment for NationsBank.

After serving time in federal prison for bank fraud, Fritz McMillon formed McMillon Enterprises, Ltd. (MEL), a business purportedly organized to buy and sell rental cars. Carolyn Price, a NationsBank teller, was also involved in MEL's operations. Price herself had previous criminal convictions for theft and welfare fraud.

McMillon met Harry Dilling and offered Dilling an opportunity to invest in MEL. This "opportunity" was nothing but a scheme concocted by McMillon, Price, and others to defraud Dilling. Although Dilling knew that McMillon had served time in federal prison for bank fraud, he nevertheless made an initial investment in MEL.

In furtherance of the scheme to defraud Dilling, Price took a number of actions that her employer NationsBank did not authorize. Price accepted an MEL check from McMillon against which she issued several cashier's checks in amounts exceeding the value of the MEL check. NationsBank's internal policy required employees to obtain supervisory approval before issuing cashier's checks in amounts greater than $2,500. Although the value of the cashier's checks Price issued exceeded $2,500, Price did not seek approval. Price also fabricated deposit slips reflecting amounts deposited in MEL's account.

McMillon showed Dilling the deposit slips as evidence that MEL was a legitimate company with assets. In an effort to gain Dilling's confidence, McMillon repaid Dilling's initial investment plus a return on that investment with the cashier's checks issued by NationsBank. Satisfied by his initial "profit," Dilling made several larger investments in MEL. Dilling was not a NationsBank customer and never met with Price or any other NationsBank representative.

The fraudulent investment scheme succeeded for a time: Dilling invested an additional $595,000 in MEL. None of this amount was repaid. Dilling ultimately realized that he had been deceived and filed suit against McMillon, Price, and MEL for fraud and conspiracy, and against NationsBank for fraud, conspiracy, and negligence. The trial court rendered judgment against Price, McMillon, and MEL, but rendered a take-nothing summary judgment in favor of NationsBank. Dilling appealed the judgment for NationsBank on two grounds, arguing that (1) NationsBank, as Price's employer, is vicariously liable for Price's fraudulent acts under an agency theory based on apparent authority and (2) NationsBank is liable for negligently employing Price as a teller because she had prior criminal convictions. The court of appeals agreed, reversed the trial court's judgment, and remanded these issues for disposition. 897 S.W.2d at 458.

NationsBank contends that the court of appeals erred in holding it vicariously liable for Price's fraudulent conduct because NationsBank did nothing that would allow Dilling to conclude that Price was acting with NationsBank's apparent authority in committing her fraudulent acts. NationsBank also argues that it owed no duty to Dilling as a matter of law because Dilling was not a NationsBank customer and it was not foreseeable that Dilling would rely on cashier's checks issued by NationsBank in making an investment decision.

The court of appeals incorrectly framed the issue of vicarious liability as whether Price, "clothed with [NationsBank's] apparent authority," could bind NationsBank for her fraudulent acts committed within the scope of her employment. 897 S.W.2d at 454. This question presupposes that Price, by issuing cashier's checks, had apparent authority to make representations about the soundness of Dilling's investment.

To establish apparent authority, one must show that a principal either knowingly permitted an agent to hold itself out as having authority or showed such lack of ordinary care as to clothe the agent with indicia of authority. Ames v. Great S. Bank, 672 S.W.2d 447, 450 (Tex.1984). A court may consider only the conduct of the principal leading a third party to believe that the agent has authority in determining whether an agent has apparent authority. Southwest Title Ins. Co. v. Northland Bldg. Corp., 552 S.W.2d 425, 428 (Tex.1977). See also Trahan v. Southland Life Ins. Co., 155 Tex. 548, 289 S.W.2d 753, 755 (1956) (holding that it is the principal's conduct, attitude, and knowledge that determines whether an...