Summary
explaining that a person who presented altered checks to be cashed “undoubtedly” committed fraud
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No. 14-06-00853-CV
Opinion filed September 27, 2007.
On Appeal from the 281st District Court Harris County, Texas, Trial Court Cause No. 06-06386.
Panel consists of Chief Justice HEDGES and Justices HUDSON and GUZMAN.
MEMORANDUM OPINION
Appellant E.W. "Bill" Barrick, d/b/a Barrick Enterprises and d/b/a Barrick Insurance Agency, ("Barrick"), appeals the granting of summary judgment in favor of CRT Disaster Services, Inc., ("CRT"). In two issues Barrick argues the trial court erred (1) in granting summary judgment in favor of CRT, and (2) in denying Barrick's motion for a new trial. We affirm, in part, and reverse and remand, in part, for further proceedings.
Statement of Facts
Suzette Gregory was employed as a bookkeeper by CRT. As part of her duties, Ms. Gregory submitted checks to Stephen Grove, president of CRT, for approval and signing. Gregory prepared some checks, payable to her, with large blank areas in both the numeric and text fields of the checks. After the checks were signed, Gregory allegedly added additional numbers and text in the blank areas to make the checks payable for sums greater than that for which they were originally written. Gregory took these altered checks to Barrick Enterprises, a cash checking business, where she converted them into cash. Because Gregory was responsible for reconciling CRT's bank statements, her thefts remained undetected for over four months.
In total, Gregory altered thirty-five checks. Grove discovered the thefts after he received a call from Sterling Bank that a check could not be drawn on CRT's account due to insufficient funds. Grove inspected the bank statements and discovered that Gregory had been altering the amounts of her checks.
At the time the thefts were discovered, Barrick's check cashing business had cashed seventeen checks presented by Gregory, for a total of $56,724. Sterling Bank dishonored several of the checks. Moreover, Barrick's bank, Washington Mutual, debited Barrick's account, removing monies that had been deposited from CRT's account at Sterling Bank, and returning the deposited monies into CRT's account for the total of $56,724. Criminal charges were filed against Gregory, and she pleaded guilty to fraud. CRT agreed to accept restitution of $86,000 from Gregory.
Barrick brought a lawsuit to enforce the checks, and claimed that CRT committed negligence, or in the alternative, fraud. CRT moved for summary judgment, and the trial court granted the motion on unspecified grounds. Barrick brings this appeal.
CRT urges we dismiss this appeal for Barrick's failure to cite to the record. However, Barrick's brief, while perhaps not as detailed and organized as others, cites to relevant portions of the record, statutes, and case law, which are sufficient to entertain this appeal. TEX. R. APP. P. 38.9.
Standard of Review
CRT's motion for summary judgment appears to by a hybrid motion in that it is partly a traditional motion for summary judgment and partly a no-evidence motion for summary judgment. 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). To prevail on a traditional motion for summary judgment, the movant must establish there is no genuine issue as to any material fact and he is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c). When reviewing a summary judgment, we take as true all evidence favorable to the nonmovant, indulge every reasonable inference and resolve any doubts in his favor. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). A defendant, as movant, is entitled to summary judgment if he either disproves at least one essential element of each of the plaintiff's causes of action or establishes all the elements of an affirmative defense. Am. Tobacco Co. v. Grinnell, 951 S.W.2d 420, 425 (Tex. 1997).
In reviewing a no-evidence summary judgment, we review the record in the light most favorable to the nonmovant. Wal-Mart Stores, Inc. v. Rodriguez, 92 S.W.3d 502, 506 (Tex. 2002). A party may move for summary judgment on the ground that there is no evidence of one or more essential elements of a claim or defense on which an adverse party would have the burden of proof at trial. TEX. R. CIV. P. 166a(i). A no-evidence summary judgment is improperly granted when the respondent brings forth more than a scintilla of probative evidence raising a genuine issue of material fact. Coastal Conduit Ditching, Inc. v. Noram Energy Corp., 29 S.W.3d 282, 284 (Tex. App-Houston [14th Dist.] 2000, no pet.). Because the trial court did not specify the grounds for its ruling, we will affirm if any of the grounds advanced in the motion has merit. Carr v. Brasher, 776 S.W.2d 567, 569 (Tex. 1989).
Propriety of the Summary Judgment
In his first issue, Barrick argues the trial court improperly granted CRT's motion for summary judgment. CRT moved for summary judgment on the following grounds: (1) Barrick's common law claims of negligence and fraud are preempted by the Texas Business and Commerce Code; (2) there is no evidence to support Barrick's common law claims for negligence or fraud; (3) the checks were altered and, therefore, are not enforceable by Barrick; and (4) Barrick's injury was caused by Gregory, not CRT. We address grounds one and three together because both fall under the Code.
Hereinafter referred to as "the Code."
Texas Business and Commerce Code
In his original pleading, Barrick asserted he had a right to enforce the checks due to CRT's negligence and fraud. CRT argues Barrick's common law negligence and fraud claims are barred by the Code. However, the Code preempts only those claims which are in conflict with its provisions.
While principles of common law and equity may supplement provisions of the Uniform Commercial Code, they may not be used to supplant its provisions, or the purposes and policies those provisions reflect, unless a specific provision of the Uniform Commercial Code provides otherwise. In the absence of such a provision, the Uniform Commercial Code preempts principles of common law and equity that are inconsistent with either its provisions or its purposes and policies.
TEX. BUS. COM. CODE ANN. § 1.103, cmt. 2 (Vernon Supp. 2006) (emphasis added). Additionally, the Code explicitly states the principles of law and equity shall supplement its provisions. Id. § 1.103(3)(b). Thus, the Code coexists with the common law unless there is a conflict, then the Code preempts the common law. Barrick's common law claims do not conflict with the Code and, therefore, are not barred by the Code.
Section 1.103 states in its entirety:
(a) This title must be liberally construed and applied to promote its underlying purposes and policies, which are:
(1) to simplify, clarify and modernize the law governing commercial transactions;
(2) to permit the continued expansion of commercial practices through custom, usage and agreement of the parties; and
(3) to make uniform the law among the various jurisdictions.
(b) Unless displaced by the particular provisions of this title, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.
TEX. BUS. COM. CODE ANN. § 1.103.
Barrick pleaded, as a holder in due course, for the enforcement of the checks. TEX. BUS. COM. CODE ANN. § 3.302 (Vernon 2002). CRT, in its motion for summary judgment, raised alteration of the checks by a third party as an affirmative defense discharging its duty to pay the checks. TEX. BUS. COM. CODE ANN. § 3.407(b) (Vernon 2002). Section 3.407 provides that an "alteration" occurs when there is "an unauthorized change in an instrument that purports to modify in any respect the obligation of the party" or "an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party." TEX. BUS. COM. CODE ANN. § 3.407(a). Such an alteration "discharges a party whose obligation is affected by the alteration." TEX. BUS. COM. CODE ANN. § 3.407(b).
Barrick first responds by asserting that the checks were not altered because a CRT employee, namely, its bookkeeper, made all the changes about which it presently complains. However, this argument was not presented in the trial court and is not properly before us on appeal.
In his second argument, Barrick contends CRT is precluded from raising the affirmative defense of alteration because it failed to exercise ordinary care when it issued the checks. Under section 3.406, "A person whose failure to exercise ordinary care substantially contributes to an alteration of an instrument . . . is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection." TEX. BUS. COM. CODE ANN. § 3.406(a) (Vernon 2002).
It is undisputed Barrick is a holder in due course. Upon pleading section 3.406, the burden was on Barrick to present some evidence showing Grove, as CRT's president, substantially contributed to the alteration due to his negligence. Attached to CRT's motion for summary judgment was a certified copy of the Humble Police Department offense report. It is undisputed that Gregory presented checks to Grove, which contained large blanks in front of the words and numbers. Grove admits in his affidavit that the numbers and words were written before he signed the checks, and that before cashing them, Gregory altered the checks by adding words and numbers to increase the amount. This constitutes some evidence that Grove and CRT substantially contributed to the alteration of the checks. In fact, Comment 3 of section 3.406 demonstrates the Code anticipated the exact type of situation presented here. Comment 3 states, in pertinent part:
3. The following cases illustrate the kind of conduct that can be the basis of a preclusion under Section 3-406(a):
. . .
Case #3. A company writes a check for $10. The figure "10" and the word "ten" are typewritten in the appropriate spaces on the check form. A large blank space is left after the figure and the word. The payee of the check, using a typewriter with a typeface similar to that used on the check, writes the word "thousand" after the word "ten" and a comma and three zeros after the figure "10." The drawee bank in good faith pays $10,000 when the check is presented for payment and debits the account of the drawer in that amount. The trier of fact could find that the drawer failed to exercise ordinary care in writing the check and that the failure substantially contributed to the alteration. In that case the drawer is precluded from asserting the alteration against the drawee if the check was paid in good faith.
TEX. BUS. COM. CODE ANN. § 3.406 cmt. 3.
Moreover, Grove admitted he never looked at the bank statements, allowing Gregory to be the only person responsible for the checkbook and the reconciliation of the bank statements. Courts have found this act alone constitutes negligence by the employer that substantially contributes to the alteration and, therefore, section 3.406 precludes the employer from asserting alteration as a defense. Burns Parks Painting Co. v. Bank One, 1996 WL 200947, at *4 (Tex.App.-Dallas Apr. 26, 1996, writ denied) (not designated for publication). Where the maker so negligently draws the instrument that his negligence facilitates the material alteration, the rule of estoppel by negligence is imposed to enforce the payment of the checks in their altered form. Commercial Credit Corp. v. Bryant, 490 S.W.2d 644, 648 (Tex.Civ.App.-Amarillo 1973, no writ). Thus, Barrick presented some evidence to show CRT was precluded from asserting alteration as a defense to the enforcement of the checks and he is entitled to payment of the checks in the altered form.
Negligence
Barrick presented a common law claim for negligence. CRT argues there is no evidence to support this claim with respect to the element of duty. However, CRT undoubtedly had a duty to subsequent holders of Gregory's checks:
By issuing the instrument and "setting it afloat upon a sea of strangers" the maker or drawer voluntarily enters into a relation with later holders which justifies imposition of a duty of care. In this respect an instrument so negligently drawn as to facilitate alteration does not differ in principle from an instrument containing blanks which may be filled.
TEX. BUS. COM. CODE ANN. § 3.406 cmt. 1. The summary judgment evidence shows Gregory prepared checks that contained significant empty space both in the numeric and text areas of the checks so as to make them easier to alter after they were signed by Grove. Whether Grove's signing of checks with large blank spaces "substantially contributed" to Gregory's subsequent alteration is a fact issue for the trier-of-fact. Thus, it was not appropriate for this issue to be decided by summary judgment.
CRT contends it is not liable for the criminal conduct of its employee. Indeed, the act of a third person in committing an intentional tort or crime is generally a superseding cause of harm to another. RESTATEMENT (SECOND) OF TORTS § 448 (1965). However, if the likelihood that a third person may act in a particular manner is the hazard or one of the hazards that makes the actor negligent, such an act whether innocent, negligent, intentionally tortious, or criminal does not prevent the actor from being liable for harm caused thereby. RESTATEMENT (SECOND) OF TORTS § 449 (1965).
CRT looks to Glasscock v. First Natl. Bank, 114 Tex. 207, 266 S.W. 393, 395-96 (1924) to support its contention that it is not liable for the criminal acts of Gregory. However, this 1924 case was decided well before the adoption of the Code. As stated above, the Code preempts the common law when there is a conflict. TEX. BUS. COM. CODE ANN. § 1.103. Moreover, under the Code, it is the employer's duty to detect checks altered by its employees. TEX. BUS. COM. CODE ANN. § 3.405 (Vernon 2002); Sw. Bank v. Info. Support Concepts, Inc., 149 S.W.3d 104, 108-09 (Tex. 2004). The Code concludes the drawer/employer would be in the best position to detect any alteration or forgery, "based on the belief that the employer is in a far better position to avoid the loss by care in choosing employees, in supervising them, and in adopting other measures to prevent . . . fraud in the issuance of instruments in the name of the employer.'" Sw. Bank, 149 S.W.3d at 108 (quoting TEX. BUS. COM. CODE ANN. § 3.405 cmt. 1)
While there may have been a time in our nation's history when theft by a trusted employee was not foreseeable, such is not the case today. Over thirty percent of current business failures are directly due to employee theft. In fact, studies have estimated that employee theft costs companies $15-25 billion a year. It is not necessary that the conduct should be negligent solely because of its tendency to afford an opportunity for a third person to commit the crime. It is enough that the actor should have realized the likelihood that his conduct would create a temptation which would be likely to lead to its commission. RESTATEMENT (SECOND) OF TORTS § 448 cmt. c (1965). Thus, a fact issue was raised as to whether Grove's conduct may have been negligent because he should have recognized that it would expose another to an unreasonable risk of criminal activity.
Michael D. Mayfield, Revisiting Expungement: Concealing Information in the Information Age, UTAH L. REV. 1057, 1070 (1997).
Larry R. Seegull Emily J. Caputo, When a Test Turns Into a Trial, BUS. L. TODAY 13, 14 (2006).
Fraud
Barrick also sought recovery on an alternative claim of fraud. At common law, the term "fraud" means an act, omission, or concealment in breach of a legal duty, trust, or confidence justly imposed when the breach causes injury to another or the taking of an undue and unconscientious advantage. Flanary v. Mills, 150 S.W.3d 785, 795 (Tex.App.-Austin 2004, pet. denied). Thus, to recover on a claim of fraud, a plaintiff must show: (1) a material misrepresentation was made; (2) the representation was false; (3) when the representation was made the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation intending that the other party act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury. Formosa Plastics Corp. USA v. Presidio Eng'rs Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998). Gregory undoubtedly defrauded Barrick when she presented the altered checks to him to be cashed.
However, Barrick contends CRT is vicariously liable for the acts of its agent. An "agent" is any person or entity who (1) is authorized to act for another and (2) is subject to the control of the other. Gonzales v. American Title Co. of Houston, 104 S.W.3d 588, 593 (Tex.App.-Houston [1st Dist.] 2003, pet. denied). There is no question Gregory was an agent of CRT. In addressing whether an employer can be held liable for the acts of its employee, we must go beyond the question of whether the employee was acting within the scope of her general authority. We must also examine whether the employee's conduct occurred in furtherance of the employer's business, and for the accomplishment of the object for which the employee was employed. Minyard Food Stores, Inc. v. Goodman, 80 S.W.3d 573, 577 (Tex. 2002); Zarzana v. Ashley, 218 S.W.3d 152, 159 (Tex.App.-Houston [14th Dist.] 2007, pet. stricken).
An employer is liable for an employee's tort only when the tortious act falls within the scope of the employee's general authority in furtherance of the employer's business and for the accomplishment of the object for which the employee was hired. Minyard, 80 S.W.3d at 577. If an employee deviates from the performance of his duties for his own purposes, the employer is not responsible for what occurs during that deviation. Goodyear Tire and Rubber Co. v. Mayes, ___ S.W.3d ___, 2007 WL 1713400, at *3, 50 Tex. Sup. Ct. J. 886, (Tex. June 15, 2007). In this case, although Gregory was acting within the scope of her general authority in that she was writing checks, she deviated from the performance of her duties by altering those checks to embezzle from CRT. When Gregory devised a plan to alter checks in order to embezzle money from her employer, she was not acting in the furtherance of her employer's business. "It is inconceivable that an employee could plan and execute a fraud upon his employer and be in the furtherance of his employment." ITT Consumer Fin. Corp. v. Tovar, 932 S.W.2d 147, 158 (Tex.App.-El Paso 1996, writ denied) (quoting Saenz v. Family Sec. Ins. Co. of Am., 786 S.W.2d 110, 111 (Tex.App.-San Antonio 1990, no writ)).
Because Gregory was not acting in furtherance of CRT's business when she embezzled money from her employer, her employer cannot be held vicariously liable for her actions. Thus, Barrick failed to raise a fact issue with regard to CRT's vicarious liability for fraud arising from the acts of its employee, Suzette Gregory.
Unjust Enrichment
Additionally, Barrick argues that because CRT received restitution of $86,000 for $56,724 in checks that went through Barrick's check-cashing service, CRT has been unjustly enriched. However, Barrick did not plead unjust enrichment in the trial court. He raised it for the first time in his response to the motion for summary judgment. In the summary judgment context, pleadings set the limits on which the trial court may grant relief. Lampasas v. Spring Ctr., Inc., 988 S.W.2d 428, 436 (Tex.App.-Houston [14th Dist.] 1999, no pet.). Because the issue of unjust enrichment was not raised in Barrick's petition, it was not before the trial court and is not properly before this court.
Motion For New Trial
In his second issue, Barrick argues the trial court erred in its denial of his motion for a new trial. The resolution of a motion for new trial is left up to the trial court's discretion. Strackbein v. Prewitt, 671 S.W.2d 37, 38 (Tex. 1984). The trial court's denial of such a motion is not to be disturbed on appeal unless there is an abuse of that discretion. Id. Because we sustain Barrick's issue concerning the trial court's granting of summary judgment pertaining to his negligence claims, we find the trial court abused its discretion in denying Barrick's motion for a new trial concerning those claims.
Accordingly, the judgment of the trial court is affirmed, in part, and reversed in part, and the cause is remanded for further proceedings consistent with this opinion.