Viewpoint Bank v. Allied Prop. & Cas. Ins. Co.

• Decision Date: 07 August 2014
• Docket Number: No. 05–12–01370–CV.,05–12–01370–CV.
• Citation: 439 S.W.3d 626
• Parties: VIEWPOINT BANK, Appellant v. ALLIED PROPERTY AND CASUALTY INSURANCE COMPANY, Appellee.
• Court: Texas Court of Appeals

439 S.W.3d 626

VIEWPOINT BANK, Appellant

v.ALLIED PROPERTY AND CASUALTY INSURANCE COMPANY, Appellee.

No. 05–12–01370–CV.

Court of Appeals of Texas, Dallas.

Aug. 7, 2014.

James M. McCown, Patrick Sicotte, Addison, for Appellant.

Michael A. Yanof, Timothy Eric Headley, George Arnold, Travis Brown, Dallas, for Appellee.

Before Justices MOSELEY, FRANCIS, and LANG.

OPINION

Opinion by Justice MOSELEY.

In settlement of an insurance claim, Allied Property and Casualty Insurance Company issued checks jointly payable to its insured, Optimum Deerbrook, LLC, and Optimum's mortgagee, ViewPoint Bank.¹ Without ViewPoint's endorsement or consent, Optimum deposited the checks and obtained payment. ViewPoint did not receive the proceeds of the checks. ViewPoint sued Allied and several others to obtain payment on the checks or on the underlying insurance obligation. Allied and ViewPoint filed cross-motions for summary judgment. The trial court granted Allied's motion and denied ViewPoint's. The trial court severed ViewPoint's claims against Allied from the claims against the other parties and rendered a final summary judgment in favor of Allied.

We conclude Allied was not discharged from its liability on the underlying obligation or the checks and ViewPoint is entitled to summary judgment on the checks under article 3 of the UCC. We reverse the trial court's judgment, render judgment for ViewPoint, and remand this case to the trial court to determine the amount of prejudgment interest, reasonable attorney's fees, and postjudgment interest.

Background

The facts are undisputed. ViewPoint was a mortgage holder on Optimum's property and was a loss payee on Optimum's property insurance policy issued by Allied. The property was damaged when Hurricane Ike struck the Texas coast in 2008. Optimum submitted claims to Allied for the damage. Allied approved the claims and tendered insurance checks jointly payable to Optimum and ViewPoint. Optimum endorsed the checks and deposited them in its bank without ViewPoint's endorsement. ViewPoint did not consent to Optimum's negotiation of the checks and did not receive any of the proceeds. ViewPoint sued Allied for breach of the insurance policy and later added a claim under article 3 of the UCC to recover on the checks. See Tex. Bus. & Com.Code Ann. §§ 3.101 –.605 (West 2002 & Supp.2013).

ViewPoint raises two issues on appeal: (1) the trial court erred by granting summary judgment for Allied and denying ViewPoint's motion for summary judgment; and (2) the checks were lost, destroyed, or stolen under UCC section 3.309 rendering Allied liable on the instruments.

Standard of Review

We review the trial court's summary judgment de novo. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex.2003). The standards for reviewing summary judgments are well established and we follow them in reviewing this appeal.See Tex.R. Civ. P. 166a(c) ; Nixon v. Mr. Property Mgmt. Co., 690 S.W.2d 546, 548–49 (Tex.1985) (traditional summary judgment standards of review). In a traditional motion for summary judgment, the party moving for summary judgment has the burden of showing no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. See Tex.R. Civ. P. 166a(c) ; Nixon, 690 S.W.2d at 548.

When both parties move for summary judgment, each party bears the burden of establishing it is entitled to judgment as a matter of law. City of Garland v. Dallas Morning News, 22 S.W.3d 351, 356 (Tex.2000). When the trial court grants one motion and denies the other, we review the summary judgment evidence presented by both parties and determine all questions presented. Id. The reviewing court should render the judgment the trial court should have rendered or reverse and remand if neither party has met its summary judgment burden. Id.; Employers Reinsurance Corp. v. Am. Sw. Ins. Managers, Inc., 261 S.W.3d 432, 435–36 (Tex.App.-Dallas 2008, pet. denied).

Discussion

A. Allied's Motion

Relying on this Court's decision in Benchmark Bank v. State Farm Lloyds, 893 S.W.2d 649 (Tex.App.-Dallas 1994, no writ), Allied moved for summary judgment on ViewPoint's breach of contract and UCC article 3 claims. Allied argued it satisfied its obligation under the insurance contract by making the checks payable jointly² to Optimum and ViewPoint and delivering them to Optimum. Allied argued an insurer discharges its obligations to pay a mortgagee when it delivers a check to the insured which is made out jointly to the insured and mortgagee, notwithstanding the mortgagee's claim that the insured wrongfully converted the funds. See Benchmark, 893 S.W.2d at 651.

The Texas Supreme Court recently addressed the Benchmark decision in McAllen Hospitals, LP v. State Farm Mutual Insurance Company of Texas, 433 S.W.3d 535 (Tex.2014). The issue in McAllen Hospitals was whether the hospital's statutory lien against proceeds of a personal injury settlement was paid where the settlement checks payable to the patients and the hospital jointly were delivered to the patients and the patients presented the checks for payment without the hospital's endorsement or knowledge. McAllen Hosps., 433 S.W.3d 535, 538. The supreme court recognized the UCC applied to resolving the dispute: “Because this case involves State Farm's use of negotiable instruments to satisfy its underlying obligations, we turn to the Uniform Commercial Code (UCC), as codified in the Texas Business and Commerce Code, to evaluate the parties' dispute.” Id. Then the court framed the issue as: “whether issuance of a draft made out jointly to two nonalternative payees, one of whom presented the draft for payment without the endorsement of the other, discharges the drawer's obligation to the payee whose endorsement was not obtained.” Id.

In resolving this issue, the court discussed the holding in Benchmark:

The court of appeals [in Benchmark ] held that (1) possession of the draft by one joint payee constitutes constructive possession by the other, and (2) Benchmark had no further recourse against the drawer after the drafts were honored and paid. As discussed below, while we agree with the court's first holding, we disagree with its conclusion that the copayee had no further recourse against the drawer.

McAllen Hosps., 433 S.W.3d at 539.

The supreme court held delivery of a check to one of the joint payees is constructive delivery to all.Id.;see also Tex. Bus. & Com.Code Ann. § 3.420 cmt. 1 (West 2002) (“If a check is payable to more than one payee, delivery to one of the payees is deemed to be delivery to all of the payees.”). However, this does not end the analysis. Under the UCC, “an instrument is paid to the extent payment is made by or on behalf of a party obliged to pay the instrument, and to a person entitled to enforce the instrument.” McAllen Hosps., 433 S.W.3d at 539 (quoting Tex. Bus. & Com.Code Ann. § 3.602(a) ). When a check is payable to nonalternative joint payees, one payee “acting alone is not entitled to enforce, and thus may not discharge, the instrument.” Id.;see Tex. Bus. & Com.Code Ann. § 3.110(d) (“If an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them.”); id. § 3.301 (defining persons entitled to enforce an instrument are holders, persons with the rights of a holder, or persons entitled to enforce under section 3.309 or 3.418(d) ).

Thus, one of the joint payees, “acting alone, cannot be the holder or the person entitled to enforce or negotiate the instrument because neither, acting alone, is the identified person stated in the instrument.” Tex. Bus. & Com.Code Ann. § 3.110(d) cmt. 4; see id. § 1.201(b)(21) (defining holder). Because a joint payee acting alone is not a person entitled to enforce the instrument, payment to that person does not discharge the obligation to pay the instrument. See Tex. Bus. & Com.Code Ann. § 3.602(a) ; McAllen Hosps., 433 S.W.3d at 538–39.

The Supreme Judicial Court of Massachusetts applying these principles reached the opposite conclusion from Benchmark. See McAllen Hosps., 433 S.W.3d at 539 (discussing Gen. Motors Acceptance Corp. v. Abington Cas. Ins. Co., 413 Mass. 583, 602 N.E.2d 1085 (1992) (GMAC )). The Massachusetts court recognized that holding otherwise would result in “ ‘no assurance that all the joint payees would receive payment’ and would dissolve any distinction between drafts made out to alternative copayees and drafts made out to nonalternative copayees.” McAllen Hosps., 433 S.W.3d at 540 (quoting GMAC, 602 N.E.2d at 1088 ). The Texas Supreme Court adopted the approach in GMAC as “representative of the better view.” Id.

Thus, the supreme court in McAllen Hospitals rejected Benchmark's conclusion that the non-endorsing copayee (like ViewPoint) has no further recourse against the drawer (like Allied):

Other jurisdictions have cited GMAC with approval and adopted its reasoning. See State ex rel. N.D. Housing Fin. Agency v. Ctr. Mut. Ins. Co., 720 N.W.2d 425, 429–30 (N.D.2006) (holding that forged endorsement by nonalternative copayee did not discharge drawer's obligation to other copayee); Crystaplex Plastics, Ltd. v. Redevelopment Agency of City of Barstow, 77 Cal.App.4th 990, 92 Cal.Rptr.2d 197, 203–04 (2000) (payee could maintain cause of action against drawer under UCC after copayee cashed check with forged endorsement). We join these jurisdictions and hold that delivery of a check to one copayee constitutes constructive delivery to all. However, because payment to one nonalternative copayee without the endorsement of the other is not payment to a “holder,” it does not discharge the drawer of either his liability on the instrument or his underlying obligation.

McAllen Hosps., 433 S.W.3d at 540.

Allied relies on section 3.310(b)(1) and contends its obligation was discharged because the checks were “paid.” Tex. Bus. & Com.Code Ann. § 3.310(b)(1).³ However, section 3.602(a) defines payment: an instrument...