Texas Stadium Corp. v. Savings of America

Decision Date28 August 1996
Docket NumberNo. 05-95-00229-CV,05-95-00229-CV
Citation933 S.W.2d 616
Parties32 UCC Rep.Serv.2d 490 TEXAS STADIUM CORPORATION, Appellant, v. SAVINGS OF AMERICA, Appellee.
CourtTexas Court of Appeals

Harvey G. Joseph, Donald E. Godwin, David J. White, Godwin & Carlton, P.C., Dallas, for appellant.

Jim Moore, Moore & Gunter, Dallas, Bernard Lilse Mathews, III, Hocker, Morrow, Boyd & Matthews, Spring, for appellee.

Before KINKEADE, WHITTINGTON and HANKINSON, JJ.

OPINION

WHITTINGTON, Justice.

Texas Stadium Corporation ("TSC") appeals a summary judgment granted in favor of Savings of America ("SOA") in a suit arising from a fraudulent check scheme. In ten points of error, TSC contends the trial judge erred in granting summary judgment because: (1) SOA did not address each of the 206 checks as a separate transaction; (2) a fact issue exists on the applicability of the final payment rule; (3) SOA failed to establish conclusively its right to judgment on TSC's causes of action for negligence, conversion, breach of warranty, and money had and received; (4) Texas law allows TSC to pursue a direct action against SOA for breach of warranty; (5) fact issues exist on SOA's intended payee defense; and (6) SOA did not establish a statute of limitations defense with respect to each of the checks. We affirm the trial court's judgment.

BACKGROUND

TSC is the lessee of Texas Stadium in Irving, Texas. Candace Pratt worked as an accounts payable clerk for TSC from late 1988 until August 1993. As part of her job, Pratt prepared TSC checks, which were later signed by authorized officers of TSC.

While employed at TSC, Pratt embezzled money from TSC. As part of her embezzlement scheme, Pratt established a d/b/a account at SOA in the name of Candace A. Pratt d/b/a AAA Lawn Maintenance Service and Repair ("AAA"). To effect her embezzlement scheme, Pratt would prepare a check for an actual vendor, and after having the check signed by an authorized officer of TSC, Pratt would alter the check by either changing the payee name to a version of the AAA name or by adding the AAA name above the original payee name. Pratt also used other methods to embezzle money from TSC. One such method was to prepare a TSC check in a version of the AAA name and then deposit it into her account once it was signed. Once Pratt obtained the appropriate signatures and deposited the checks in her d/b/a account, SOA then forwarded the checks to TSC's bank, and the checks were paid in due course. In all, Pratt deposited 206 checks in her account, totalling $1,060,052.10.

After discovering Pratt's scheme, TSC filed suit against Pratt and SOA to recover the money Pratt embezzled. TSC alleged causes of action against Pratt and SOA for negligence, conversion, money had and received, and breach of warranty. In July 1994, SOA moved for summary judgment on all of TSC's claims. In its motion, SOA asserted it was entitled to judgment as a matter of law because: (1) Texas law is well settled that losses resulting from a faithless employee are the burden of the employer; (2) TSC did not have standing to assert warranty claims against SOA; (3) the final payment rule precluded TSC's common law causes of action; and (4) the statute of limitations barred TSC's claims. After hearing the evidence and arguments of counsel, the trial judge granted summary judgment in favor of SOA without specifying the basis for his ruling. TSC and Pratt then entered into an agreed judgment. TSC appeals the summary judgment granted in favor of SOA.

STANDARD OF REVIEW

The standard of review in a summary judgment case is well established. See TEX.R. CIV. P. 166a(c); Wornick Co. v. Casas, 856 S.W.2d 732, 733 (Tex.1993). When the trial court does not specify the grounds upon which it grants summary judgment, we affirm the trial court's judgment if any of the movant's grounds support the summary judgment. Carr v. Brasher, 776 S.W.2d 567, 569 (Tex.1989). If a movant does not show its entitlement to judgment as a matter of law, we must remand the case for trial on the merits. Gibbs v. General Motors Corp., 450 S.W.2d 827, 828 (Tex.1970).

206 CHECKS

In its second point of error, TSC contends the trial judge erred in granting summary judgment because SOA failed to address all 206 checks separately in its summary judgment motion. 1 TSC argues that each check constituted a separate transaction that should have been addressed separately with respect to each cause of action. We disagree. TSC's sole authority for its argument under this point is Zambia National Commercial Bank Ltd. v. Fidelity International Bank, 855 F.Supp. 1377 (S.D.N.Y.1994). We conclude TSC's reliance on Zambia is misplaced. In Zambia, Zambia Bank sought to recover damages from Fidelity Bank based on two forged checks. In a trial to the court, Fidelity Bank argued that Zambia Bank could not recover because its negligence enabled the forger to obtain payment by way of an unauthorized signature. Although the two checks were examined separately for purposes of determining Zambia Bank's negligence, this fact alone does not support TSC's argument that SOA had to address each check separately in its summary judgment motion. Zambia is not controlling.

In this case, TSC did not sue on each check individually. Rather, TSC sued on legal theories that applied to all 206 checks. SOA's motion addressed all of TSC's legal theories. We overrule TSC's second point of error.

FINAL PAYMENT RULE

In its third point of error, TSC contends the trial judge erred in granting summary judgment because fact issues exist on the applicability of the final payment rule. TSC specifically contends that fact issues exist on whether SOA (1) was a holder in due course and (2) acted in good faith in accepting the checks. On the record before us, we cannot agree.

Under the final payment rule, payment or acceptance of any instrument is final if made in favor of (1) a holder in due course or (2) a person who has in good faith changed his position in reliance on the payment. Act of May 24, 1967, 60th Leg., R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2429, amended by Act of May 28, 1995, 74th Leg., R.S., ch. 921, § 1, 1995 Tex. Gen. Laws 4582, 4602 (current version at TEX. BUS. & COM.CODE ANN. § 3.418(c) (Tex.UCC) (Vernon Supp.1996)). The final payment rule only becomes operative once an item is finally paid. Final payment occurs when a payor bank pays the item or settles for the item and the time frame for revoking that settlement has expired. Act of May 25, 1985, 69th Leg., R.S., ch. 621, § 1, 1985 Tex. Gen. Laws 2307, 2308, amended by Act of May 28, 1995, 74th Leg., R.S., ch. 921, § 4, 1995 Tex. Gen. Laws 4582, 4636 (current version at TEX. BUS. & COM.CODE ANN. § 4.215(a)(1)-(3) (Tex.UCC) (Vernon Supp.1996)). If the final payment rule applies, common law causes of action for negligence, conversion, and money had and received are barred. Fidelity & Casualty Co. v. First City Bank of Dallas, 675 S.W.2d 316, 319 (Tex.App.--Dallas 1984, writ ref'd n.r.e.); Aetna Life & Casualty Co. v. Hampton State Bank, 497 S.W.2d 80, 85-6 (Tex.Civ.App.--Dallas 1973, writ ref'd n.r.e.).

Good Faith Change of Position

TSC contends summary judgment was improper because SOA did not act in good faith in depositing and crediting the checks. According to TSC, SOA had actual knowledge that the indorsements were not proper, and SOA could therefore not have acted in good faith. We cannot agree with TSC's contentions.

" 'Good faith' means honesty in fact in the conduct or transaction concerned." TEX. BUS. & COM.CODE ANN. § 1.201(19) (Tex.UCC) (Vernon 1994). Negligence is not the test of good faith. Riley v. First State Bank, Spearman, 469 S.W.2d 812, 816 (Tex.Civ.App.--Amarillo 1971, writ ref'd n.r.e.). Lack of good faith requires actual knowledge of the wrongdoing, not merely notice of suspicious facts. British Caledonian Airways, Ltd. v. First State Bank of Bedford, Texas, 819 F.2d 593, 596-97 (5th Cir.1987).

To support its position that SOA did not act in good faith, TSC relies on La Sara Grain Co. v. First National Bank of Mercedes, 673 S.W.2d 558 (Tex.1984). In that case, La Sara Grain had opened an account at the First National Bank of Mercedes. When it did, it filed a corporate resolution with the bank providing that any two of four authorized signatories could sign checks for the corporation. Jones was one of the authorized signatories on the account. The bank subsequently honored checks signed by only Jones. After La Sara Grain fired Jones, it discovered he had embezzled over $300,000. Id. at 561. The bank president testified at trial that the bank would know of anything it had in its files. Id. at 563. Based on this testimony, the Court concluded the bank did not act in good faith in accepting the checks with only one authorized signature. Id. at 563. In reaching this conclusion, the court relied on the fact that the bank knew that two signatures were required and that the checks bore only one signature. Id. According to the court, these two facts amounted to knowledge that the checks were unauthorized. We do not consider La Sara Grain controlling.

In contrast to La Sara Grain, the checks at issue in this case did have the required number of signatures. In addition, it is undisputed that the checks in question were signed by authorized representatives of TSC. Nevertheless, TSC relies on the deposition testimony of several SOA clerks to raise a fact issue on SOA's knowledge. The SOA clerks admitted that they were aware that some of the indorsements were not in compliance with SOA's internal indorsement policies. We do not believe this fact alone raises a fact issue on SOA's good faith.

Although SOA clerks accepted the checks knowing the indorsements were not in compliance with SOA guidelines, they nevertheless stated they had no knowledge of Pratt's embezzlement. While SOA's acceptance of the nonconforming checks may have been negligence, such negligence does not mean SOA acted in bad...

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