State Through McNamara v. New Orleans Auto Title Co., Inc.

• Decision Date: 22 December 1987
• Docket Number: No. CA,CA
• Citation: State Through McNamara v. New Orleans Auto Title Co., Inc., 519 So.2d 810 (La. App. 1987)
• Parties: 5 UCC Rep.Serv.2d 1420 STATE of Louisiana Through Shirley McNAMARA, Secretary of the Department of Revenue and Taxation, et al. v. NEW ORLEANS AUTO TITLE COMPANY, INC., et al. 86 1575.
• Court: Court of Appeal of Louisiana — District of US

Page 810

519 So.2d 810

5 UCC Rep.Serv.2d 1420

STATE of Louisiana Through Shirley McNAMARA, Secretary of the Department of Revenue and Taxation, et al. v. NEW ORLEANS AUTO TITLE COMPANY, INC., et al.

No. CA 86 1575.

Court of Appeal of Louisiana First Circuit.

Dec. 22, 1987.

Rehearing Denied Feb. 24, 1988.

Denied April 29, 1988.

James Dixon, Baton Rouge, for plaintiffs-appellees State, et al., Dept. of Public Safety-Legal Section.

Richard Bates, Jr., Harry T. Widmann, New Orleans, for defendants-appellants New Orleans Auto Title Co., Inc., et al.

Before SHORTESS, LANIER and CRAIN, JJ.

LANIER, Judge.

This action commenced as a suit by the Secretaries of the Departments of Revenue and Taxation and Public Safety (hereinafter sometimes called the State) for collection of taxes, license and other fees, penalties, interest and amounts due on dishonored checks, totaling $129,379.39. Made defendants were the New Orleans Auto Title Company, Inc. (NOAT) and five automobile dealers ¹ from the New Orleans area (dealers). The dealers answered and filed third party demands against NOAT contending the money claimed by the State had been paid by them to NOAT. NOAT answered and filed a reconventional demand against the State for $287,000 contending that State employees improperly diverted that amount of NOAT money and the State was liable for this conduct. Prior to trial, the State and the dealers settled their portion of the suit with oral stipulations that the State was entitled to judgments against the dealers ² and with assignments by the dealers to the State of all of their rights in a certificate of deposit pledged by NOAT to the dealers. However, there is no formal judgment to this effect in the record before us. After hearing the merits, the trial court rendered judgment on the main demand in favor of the State against NOAT for $129,379.39 and rendered judgment on the reconventional demand in favor of NOAT against the State for $77,470.00. This judgment does not rule on the third party demands by the dealers against NOAT. NOAT took this devolutive appeal. The State has not appealed or answered the appeal.

FACTS

NOAT is an automobile title transfer company doing business primarily in the New Orleans area. NOAT business is conducted principally by Jerome W. LaGrange, its president. NOAT would provide whatever notarial work its customers required for the sale of automobiles and would receive the license and transfer fees and taxes collected by its customers for these transactions. NOAT would deposit the fees and taxes in its account. NOAT would then take the pertinent documents (depending on the nature of the transaction) to the Office of Motor Vehicles of the Department of Public Safety (Office) and pay the Office with a NOAT check. The Office would give the appropriate documentation to NOAT, and NOAT would give these documents to its customers. NOAT charged various fees for these services. On occasion, NOAT would take hundreds of these transactions to the Office for processing.

In 1977 or 1978, a backlog of work developed in the New Orleans Office. In an attempt to alleviate this backlog, the Office instituted an unofficial policy of allowing NOAT, and some others, to tender checks payable to the Department of Public Safety (DPS), signed by NOAT, but with the amount remaining blank. The Office employees would process the transactions submitted, calculate the amount of fees and taxes due, fill out the proper amount on the checks tendered and put the license plate numbers of the automobiles involved in the transactions on the back of the checks. A copy of the front and back of each check was made and returned to NOAT.

In 1981, NOAT's bank informed it that its checking account was over $100,000 overdrawn. In his testimony, LaGrange described what happened next, as follows:

I called the motor vehicle. I asked for Ruby Davis. Ruby Davis came on the phone and I said, 'Ruby, something is seriously wrong, somebody is stealing from us.' She broke crying on the phone and she said, 'I am.' She said, 'I've been embezzling your account.' And then she asked me would I give her a few days to get the money--I don't know where she would have got it--and would I give her a few days so she could put it all back in there again, and I said, 'No, Ruby, I'm calling the police right now.'

LaGrange notified the appropriate authorities and ordered NOAT's bank to stop payment on all outstanding checks payable to DPS. The total amount of these checks was $214,970.98.

This suit followed.

SUFFICIENCY OF THE STATE'S EVIDENCE ON THE STOP PAYMENT CHECKS

(Assignment of Error Number 1)

NOAT contends the trial court committed error by rendering judgment in favor of the State "despite the fact that the State offered no evidence on the essential allegations of its petition." NOAT asserts the State failed to prove by competent evidence "that title transactions occurred which gave rise [to] a tax obligation." Specifically, NOAT argues as follows:

Since the State had the burden of proof it was obliged to prove defendant's indebtedness for each and every transaction. Yet it failed to offer any proof whatsoever that defendant was indebted on even a single transaction. Indeed with regard to the fees alleged due on non-title transactions the State had no evidence whatsoever connecting defendant with these transactions other than the fact that the State itself had listed them on the back of defendant's checks.

At the trial, Richard L. Clousing testified he was the Assistant Receipts Officer in charge of the audit staff for DPS. He further testified without objection that DPS received $214,970.98 in stop payment checks from NOAT. Clousing produced the checks in court, and they were filed in evidence. NOAT objected to the admission of the checks into evidence because the underlying obligation for the checks (the fees and taxes due) had not been proven and because the checks were hearsay. Subsequently, NOAT objected to the checks on the following grounds:

MR. BATES: Well, he's made his proffer now--his proffer now, your Honor, and I'd like to object to the checks, based upon hearsay on the grounds that he has not brought the declarant in, the declarant is available, and further, you know, that those are printed checks, your Honor. It is hearsay and the people who have now filled out the amounts of the checks are not here, nor is the endorser.

LaGrange did not deny his signature on the NOAT checks, either in the NOAT pleadings or in his trial testimony. In fact, LaGrange identified his signature on several NOAT checks. A check is a negotiable instrument for purposes of Louisiana's Commercial Laws. La.R.S. 10:1-101 and 10:3-104. La.R.S. 10:3-307 provides, in pertinent part, as follows:

(1) Unless specifically denied in the pleadings each signature on an instrument is admitted. When the effectiveness of a signature is put in issue

(a) the burden of establishing it is on the party claiming under the signature; but

(b) the signature is presumed to be genuine or authorized except where the action is to enforce the obligation of a purported signer who has died or become incompetent before proof is required.

(2) When signatures are admitted or established, production of the instrument entitles a holder to recover on it unless the defendant establishes a defense. [Emphasis added.]

The signatures on the NOAT checks are admitted because NOAT failed to deny them in its pleadings. Calcasieu Marine National Bank of Lake Charles v. Greene's Marine Products, Inc., 386 So.2d 926 (La.App. 3rd Cir.), writ denied, 390 So.2d 202 (La.1980). The checks, on their faces, are payable by NOAT to the order of the "La. Dept. of Public Safety" at NOAT's bank. Clousing, as the representative of DPS, presented these checks in court. This is sufficient authentication to make the checks admissible into evidence. Citizens Bank & Trust Co. v. Consolidated Terminal Warehouse, Inc., 460 So.2d 663 (La.App. 1st Cir.1984). The checks themselves are written evidence of the debt owed by NOAT to DPS and constitute a prima facie case for the State. Pierce v. Thompson, 468 So.2d 1379 (La.App. 1st Cir.1985).

Even though the State proved a prima facie case for a $214,970.98 debt owed by NOAT to it, the State proceeded to show the following credits on this debt in favor of NOAT:

(1)  payment to DPS by NOAT on
                     April 2, 1981                           $28,888.04
                (2)  payments made by NOAT in stop
                     payment checks for persons 3
                     other than dealers in this suit          47,075.43
                (3)  payments made by NOAT in
                     checks that cleared for a dealer 4
                     not a party to this suit                 19,855.88
                                                             ----------
                       TOTAL                                 $95,819.35
                

Thus, after applying these credits, the State proved a debt by NOAT on the stop payment checks of $119,151.63 ($214,970.98 less $95,819.35).

At this point, the burden of proof on these checks shifted to NOAT. NOAT's principal defenses are that Ruby Davis completed NOAT checks for unauthorized amounts and/or altered them to make them payable to herself. La.R.S. 10:3-407 provides, in pertinent part, as follows:

(1) Any alteration of an instrument is material which changes the contract of any party thereto in any respect, including any such change in

(a) the number or relations of the parties; or

(b) an incomplete instrument, by completing it otherwise than as authorized; or

(c) the writing as signed, by adding to it or by removing any part of it.

(2) As against any person other than a subsequent holder in due course

(a) alteration by the holder which is both fraudulent and material discharges any party whose contract is thereby changed unless that party assents or is precluded from asserting the defense;

(b) no other alteration discharges any party and the instrument may be enforced according to its original tenor, or as to incomplete instruments according to the...