Reversed=20
and Remanded, in Part; Affirmed, in Part; and Memorandum Opinion filed September =
27,=20
2007.
In The
Fourteenth=20
Court of Appeals
____________
NO. 14-06-00853-CV
____________
E.W.=20
ABILL@ BARRICK ET=20
AL,=20
Appellant
V.
CRT DISASTER=20
SERVICES, =
Appellee
On Appeal from the =
281st District Court
Harris County, =
Texas
Trial Court Cause =
No. 06-06386
M E M O R=20
A N D U M O P I N I O N
Appellant=20
E.W. ABill@ =
Barrick,=20
d/b/a Barrick Enterprises and d/b/a Barrick Insurance Agency,=20
(ABarrick@), appeals=20
the granting of summary judgment in favor of CRT Disaster =
Services, Inc.,=20
(ACRT@). =20
In two issues Barrick argues the trial court erred (1) in granting =
summary=20
judgment in favor of CRT, and (2) in denying Barrick=3Ds motion=20
for a new trial. We affirm, in part, and reverse and remand, =
in=20
part, for further proceedings.
Statement=20
of Facts
Suzette=20
Gregory was employed as a bookkeeper by CRT. As part of her =
duties,=20
Ms. Gregory submitted checks to Stephen Grove, president of CRT, =
for=20
approval and signing. Gregory prepared some checks, payable =
to her,=20
with large blank areas in both the numeric and text fields of the=20
checks. After the checks were signed, Gregory allegedly =
added=20
additional numbers and text in the blank areas to make the checks =
payable=20
for sums greater than that for which they were originally =
written. =20
Gregory took these altered checks to Barrick Enterprises, a cash =
checking=20
business, where she converted them into cash. Because =
Gregory was=20
responsible for reconciling CRT=3Ds bank=20
statements, her thefts remained undetected for over four=20
months.
In total,=20
Gregory altered thirty-five checks. Grove discovered the =
thefts=20
after he received a call from Sterling Bank that a check could not =
be=20
drawn on CRT=3Ds account=20
due to insufficient funds. Grove inspected the bank =
statements and=20
discovered that Gregory had been altering the amounts of her=20
checks.
At the=20
time the thefts were discovered, Barrick=3Ds check=20
cashing business had cashed seventeen checks presented by Gregory, =
for a=20
total of $56,724. Sterling Bank dishonored several of the=20
checks. Moreover, Barrick=3Ds bank,=20
Washington Mutual, debited Barrick=3Ds account,=20
removing monies that had been deposited from CRT=3Ds account=20
at Sterling Bank, and returning the deposited monies into =
CRT=3Ds account=20
for the total of $56,724. Criminal charges were filed =
against=20
Gregory, and she pleaded guilty to fraud. CRT agreed to =
accept=20
restitution of $86,000 from Gregory.
Barrick=20
brought a lawsuit to enforce the checks, and claimed that CRT =
committed=20
negligence, or in the alternative, fraud. CRT moved for =
summary=20
judgment, and the trial court granted the motion on unspecified=20
grounds. Barrick brings this appeal. <=
SPAN=20
style=3D"FONT-SIZE: 13pt; LINE-HEIGHT: 200%; FONT-FAMILY: =
Shruti">
Standard=20
of Review
CRT=3Ds motion=20
for summary judgment appears to by a hybrid motion in that it is =
partly a=20
traditional motion for summary judgment and partly a no-evidence =
motion=20
for summary judgment. We review the trial=20
court=3Ds summary judgment de =
novo. Provident Life & Accident Ins. Co. v. =
Knott, 128=20
S.W.3d 211, 215 (Tex. 2003). To prevail on a traditional =
motion for=20
summary judgment, the movant must establish there is no genuine =
issue as=20
to any material fact and he is entitled to judgment as a matter of =
law. Tex. R. Civ. =
P.=20
166a(c). When reviewing a summary judgment, we take =
as true=20
all evidence favorable to the nonmovant, indulge every reasonable=20
inference and resolve any doubts in his favor. Valence =
Operating=20
Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). A =
defendant, as=20
movant, is entitled to summary judgment if he either disproves at =
least=20
one essential element of each of the plaintiff=3Ds causes of action or =
establishes all the elements of an affirmative defense. =
Am.=20
Tobacco Co. v. Grinnell, 951 S.W.2d 420, 425 (Tex. 1997). =
In=20
reviewing a no‑evidence summary judgment, we review the =
record in the=20
light most favorable to the nonmovant. Wal‑Mart =
Stores, Inc. v.=20
Rodriguez, 92 S.W.3d 502, 506 (Tex. 2002). A party may =
move for=20
summary judgment on the ground that there is no evidence of one or =
more=20
essential elements of a claim or defense on which an adverse party =
would=20
have the burden of proof at trial. Tex. R. Civ. P. =
166a(i). A=20
no‑evidence summary judgment is improperly granted when the =
respondent=20
brings forth more than a scintilla of probative evidence raising a =
genuine=20
issue of material fact. Coastal Conduit & Ditching, =
Inc. v.=20
Noram Energy Corp., 29 S.W.3d 282, 284 (Tex. AppCHouston=20
[14th Dist.] 2000, no pet.). Because the trial court did not =
specify=20
the grounds for its ruling, we will affirm if any of the grounds =
advanced=20
in the motion has merit. Carr v. Brasher, 776 S.W.2d 567, =
569 (Tex.=20
1989).
Propriety=20
of the Summary Judgment
In his=20
first issue, Barrick argues the trial court improperly granted=20
CRT=3Ds motion=20
for summary judgment. CRT moved for summary judgment on the=20
following grounds: (1) Barrick=3Ds common=20
law claims of negligence and fraud are preempted by the Texas =
Business and=20
Commerce Code;=20
(2) there is no evidence to support Barrick=3Ds common=20
law claims for negligence or fraud; (3) the checks were altered =
and,=20
therefore, are not enforceable by Barrick; and (4) =
Barrick=3Ds injury=20
was caused by Gregory, not CRT. We address grounds one and =
three=20
together because both fall under the Code.
Texas=20
Business and Commerce Code
In his=20
original pleading, Barrick asserted he had a right to enforce the =
checks=20
due to CRT=3Ds=20
negligence and fraud. CRT argues Barrick=3Ds common=20
law negligence and fraud claims are barred by the Code. =
However, the=20
Code preempts only those claims which are in conflict with its=20
provisions.
While=20
principles of common law and equity may supplement =
provisions of=20
the Uniform Commercial Code, they may not be used to supplant =
its=20
provisions, or the purposes and policies those provisions reflect, =
unless=20
a specific provision of the Uniform Commercial Code provides=20
otherwise. In the absence of such a provision, the Uniform=20
Commercial Code preempts principles of common law and equity that =
are=20
inconsistent with either its provisions or its purposes and=20
policies.
Tex.=20
Bus. & Com. Code Ann. =
' =
1.103,=20
cmt. 2 (Vernon Supp. 2006) (emphasis added). Additionally, =
the Code=20
explicitly states the principles of law and equity shall =
supplement its=20
provisions. Id.=20
' =
1.103(3)(b). =20
Thus, the Code coexists with the common law unless there is a=20
conflict, then the Code preempts the common law. =20
Barrick=3Ds common=20
law claims do not conflict with the Code and, therefore, are not =
barred by=20
the Code.
Barrick=20
pleaded, as a holder in due course, for the enforcement of the=20
checks. Tex. Bus. =
& Com.=20
Code Ann. ' =
3.302=20
(Vernon 2002). CRT, in its motion for summary judgment, =
raised=20
alteration of the checks by a third party as an affirmative =
defense=20
discharging its duty to pay the checks. Tex. Bus. & Com. Code =
Ann.=20
' =
3.407(b)=20
(Vernon 2002). Section 3.407 provides that an Aalteration@ =
occurs=20
when there is Aan=20
unauthorized change in an instrument that purports to modify in =
any=20
respect the obligation of the party@ =
or=20
Aan=20
unauthorized addition of words or numbers or other change to an =
incomplete=20
instrument relating to the obligation of a party.@ =20
Tex. Bus. & Com. =
Code=20
Ann. ' =
3.407(a). Such an alteration Adischarges=20
a party whose obligation is affected by the =
alteration.@ =20
Tex. Bus. & =
Com. Code=20
Ann. ' =
3.407(b).
Barrick=20
first responds by asserting that the checks were not altered =
because a CRT=20
employee, namely, its bookkeeper, made all the changes about which =
it=20
presently complains. However, this argument was not =
presented in the=20
trial court and is not properly before us on =
appeal.
In his=20
second argument, Barrick contends CRT is precluded from raising =
the=20
affirmative defense of alteration because it failed to exercise =
ordinary=20
care when it issued the checks. Under section 3.406, =
AA person=20
whose failure to exercise ordinary care substantially contributes =
to an=20
alteration of an instrument . . . is precluded from asserting the=20
alteration or the forgery against a person who, in good faith, =
pays the=20
instrument or takes it for value or for collection.@ =20
Tex. Bus. & Com. =
Code=20
Ann. ' =
3.406(a)=20
(Vernon 2002).
It is=20
undisputed Barrick is a holder in due course. Upon pleading =
section=20
3.406, the burden was on Barrick to present some evidence showing =
Grove,=20
as CRT=3Ds=20
president, substantially contributed to the alteration due to his=20
negligence. Attached to CRT=3Ds motion=20
for summary judgment was a certified copy of the Humble Police =
Department=20
offense report. It is undisputed that Gregory presented =
checks to=20
Grove, which contained large blanks in front of the words and=20
numbers. Grove admits in his affidavit that the numbers and =
words=20
were written before he signed the checks, and that before cashing =
them,=20
Gregory altered the checks by adding words and numbers to increase =
the=20
amount. This constitutes some evidence that Grove and CRT=20
substantially contributed to the alteration of the checks. =
In fact,=20
Comment 3 of section 3.406 demonstrates the Code anticipated the =
exact=20
type of situation presented here. Comment 3 states, in =
pertinent=20
part:
3. The following =
cases=20
illustrate the kind of conduct that can be the basis of a =
preclusion under=20
Section 3‑406(a):
. . .
Case =
#3. A=20
company writes a check for $10. The figure A10@ and the word =
Aten@ are typewritten in =
the=20
appropriate spaces on the check form. A large blank space is =
left=20
after the figure and the word. The payee of the check, using =
a=20
typewriter with a typeface similar to that used on the check, =
writes the=20
word Athousand@ after the word =
Aten@ and a comma and =
three zeros=20
after the figure A10.@ The drawee =
bank in=20
good faith pays $10,000 when the check is presented for payment =
and debits=20
the account of the drawer in that amount. The trier of fact =
could=20
find that the drawer failed to exercise ordinary care in writing =
the check=20
and that the failure substantially contributed to the =
alteration. In=20
that case the drawer is precluded from asserting the alteration =
against=20
the drawee if the check was paid in good =
faith.
Tex.=20
Bus. & Com. Code Ann. =
' =
3.406=20
cmt. 3.
Moreover,=20
Grove admitted he never looked at the bank statements, allowing =
Gregory to=20
be the only person responsible for the checkbook and the =
reconciliation of=20
the bank statements. Courts have found this act alone =
constitutes=20
negligence by the employer that substantially contributes to the=20
alteration and, therefore, section 3.406 precludes the employer =
from=20
asserting alteration as a defense. Burns & Parks =
Painting Co.=20
v. Bank One, 1996 WL 200947, at *4 (Tex. App.CDallas=20
Apr. 26, 1996, writ denied) (not designated for =
publication). Where=20
the maker so negligently draws the instrument that his negligence=20
facilitates the material alteration, the rule of estoppel by =
negligence is=20
imposed to enforce the payment of the checks in their altered =
form. =20
Commercial Credit Corp. v. Bryant, 490 S.W.2d 644, 648 =
(Tex. Civ.=20
App.CAmarillo=20
1973, no writ). Thus, Barrick presented some evidence to =
show CRT=20
was precluded from asserting alteration as a defense to the =
enforcement of=20
the checks and he is entitled to payment of the checks in the =
altered=20
form.
Negligence
Barrick=20
presented a common law claim for negligence. CRT argues =
there is no=20
evidence to support this claim with respect to the element of =
duty. =20
However, CRT undoubtedly had a duty to subsequent holders of=20
Gregory=3Ds=20
checks:
By issuing=20
the instrument and Asetting it=20
afloat upon a sea of strangers@ =
the maker=20
or drawer voluntarily enters into a relation with later holders =
which=20
justifies imposition of a duty of care. In this respect an=20
instrument so negligently drawn as to facilitate alteration does =
not=20
differ in principle from an instrument containing blanks which may =
be=20
filled.
Tex.=20
Bus. & Com. Code Ann. =
' =
3.406=20
cmt. 1. The summary judgment evidence shows Gregory prepared =
checks=20
that contained significant empty space both in the numeric and =
text areas=20
of the checks so as to make them easier to alter after they were =
signed by=20
Grove. Whether Grove=3Ds signing=20
of checks with large blank spaces Asubstantially=20
contributed@ =
to=20
Gregory=3Ds=20
subsequent alteration is a fact issue for the trier-of-fact. =
Thus,=20
it was not appropriate for this issue to be decided by summary=20
judgment.
CRT=20
contends it is not liable for the criminal conduct of its =
employee. =20
Indeed, the act of a third person in committing an intentional =
tort or=20
crime is generally a superseding cause of harm to another. =
Restatement (Second) of Torts=20
' =
448=20
(1965). However, if the likelihood that a third person may =
act in a=20
particular manner is the hazard or one of the hazards that makes =
the actor=20
negligent, such an act whether innocent, negligent, intentionally=20
tortious, or criminal does not prevent the actor from being liable =
for=20
harm caused thereby. Restatement (Second) of Torts=20
' =
449=20
(1965).
CRT looks=20
to Glasscock v. First Natl. Bank, 114 Tex. 207, 266 S.W. =
393,=20
395B96 (1924)=20
to support its contention that it is not liable for the criminal =
acts of=20
Gregory. However, this 1924 case was decided well before the =
adoption of the Code. As stated above, the Code preempts the =
common=20
law when there is a conflict. Tex. Bus. & Com. Code =
Ann.=20
' =
1.103. Moreover, under the Code, it is the =
employer=3Ds duty to=20
detect checks altered by its employees. Tex. Bus. & Com. Code =
Ann.=20
' =
3.405=20
(Vernon 2002); Sw. Bank v. Info. Support Concepts, Inc., =
149 S.W.3d=20
104, 108B09 (Tex.=20
2004). The Code concludes the drawer/employer would be in =
the best=20
position to detect any alteration or forgery, A>based on=20
the belief that the employer is in a far better position to avoid =
the loss=20
by care in choosing employees, in supervising them, and in =
adopting other=20
measures to prevent . . . fraud in the issuance of instruments in =
the name=20
of the employer.=3D@ =20
Sw. Bank, 149 S.W.3d at 108 (quoting Tex. Bus. & Com. Code =
Ann.=20
' =
3.405=20
cmt. 1)
While=20
there may have been a time in our nation=3Ds history=20
when theft by a trusted employee was not foreseeable, such is not =
the case=20
today. Over thirty percent of current business failures are =
directly=20
due to employee theft. =20
In fact, studies have estimated that employee theft costs =
companies $15‑25=20
billion a year. =20
It is not necessary that the conduct should be negligent solely =
because of=20
its tendency to afford an opportunity for a third person to commit =
the=20
crime. It is enough that the actor should have realized the=20
likelihood that his conduct would create a temptation which would =
be=20
likely to lead to its commission. Restatement (Second) of Torts=20
' =
448 cmt.=20
c (1965). Thus, a fact issue was raised as to whether =
Grove=3Ds conduct=20
may have been negligent because he should have recognized that it =
would=20
expose another to an unreasonable risk of criminal =
activity.
Fraud
Barrick=20
also sought recovery on an alternative claim of fraud. At =
common=20
law, the term "fraud" means an act, omission, or concealment in =
breach of=20
a legal duty, trust, or confidence justly imposed when the breach =
causes=20
injury to another or the taking of an undue and unconscientious=20
advantage. Flanary v. Mills, 150 S.W.3d 785, 795 =
(Tex.=20
App.CAustin=20
2004, pet. denied). Thus, to recover on a claim of fraud, a =
plaintiff must=20
show: (1) a material misrepresentation was made; (2) the =
representation=20
was false; (3) when the representation was made the speaker knew =
it was=20
false or made it recklessly without any knowledge of the truth and =
as a=20
positive assertion; (4) the speaker made the representation =
intending that=20
the other party act upon it; (5) the party acted in reliance on =
the=20
representation; and (6) the party thereby suffered injury. =20
Formosa Plastics Corp. USA v. Presidio Eng=3Drs &=20
Contractors, Inc., 960=20
S.W.2d 41, 47 (Tex. 1998). Gregory undoubtedly defrauded =
Barrick=20
when she presented the altered checks to him to be=20
cashed.
However,=20
Barrick contends CRT is vicariously liable for the acts of its=20
agent. An Aagent@ =
is any=20
person or entity who (1) is authorized to act for another and (2) =
is=20
subject to the control of the other. Gonzales v. American =
Title=20
Co. of Houston, 104 S.W.3d 588, 593 (Tex. App.CHouston=20
[1st Dist.] 2003, pet. denied). There is no question Gregory =
was an=20
agent of CRT. In addressing whether an employer can be held =
liable=20
for the acts of its employee, we must go beyond the question of =
whether=20
the employee was acting within the scope of her general =
authority. =20
We must also examine whether the employee=3Ds conduct=20
occurred in furtherance of the employer=3Ds=20
business, and for the accomplishment of the object for which the =
employee=20
was employed. Minyard Food Stores, Inc. v. Goodman, =
80 S.W.3d=20
573, 577 (Tex. 2002); Zarzana v. Ashley, 218 S.W.3d =
152, 159=20
(Tex. App.CHouston=20
[14th Dist.] 2007, pet. stricken).
An=20
employer is liable for an employee=3Ds tort=20
only when the tortious act falls within the scope of the=20
employee=3Ds general=20
authority in furtherance of the employer=3Ds business=20
and for the accomplishment of the object for which the employee =
was=20
hired. Minyard, 80 S.W.3d at 577. If an =
employee=20
deviates from the performance of his duties for his own purposes, =
the=20
employer is not responsible for what occurs during that =
deviation. =20
Goodyear Tire and Rubber Co. v. Mayes, ___ S.W.3d ___, 2007 =
WL=20
1713400, at *3, 50 Tex. Sup. Ct. J. 886, (Tex. June 15, =
2007). In=20
this case, although Gregory was acting within the scope of her =
general=20
authority in that she was writing checks, she deviated from the=20
performance of her duties by altering those checks to embezzle =
from =20
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=20
her employer=3Ds=20
business. AIt is=20
inconceivable that an employee could plan and execute a fraud upon =
his=20
employer and be in the furtherance of his employment.@ =20
ITT Consumer Fin. Corp. v. Tovar, 932 S.W.2d 147, 158 (Tex. =
App.CEl Paso=20
1996, writ denied) (quoting Saenz v. Family Sec. Ins. Co. of =
Am.,=20
786 S.W.2d 110, 111 (Tex. App.CSan=20
Antonio 1990, no writ)).
Because=20
Gregory was not acting in furtherance of CRT=3Ds business=20
when she embezzled money from her employer, her employer cannot be =
held=20
vicariously liable for her actions. Thus, Barrick failed to =
raise a=20
fact issue with regard to CRT=3Ds=20
vicarious liability for fraud arising from the acts of its =
employee,=20
Suzette Gregory.
Unjust=20
Enrichment
Additionally,=20
Barrick argues that because CRT received restitution of $86,000 =
for=20
$56,724 in checks that went through Barrick=3Ds=20
check-cashing service, CRT has been unjustly enriched. =
However,=20
Barrick did not plead unjust enrichment in the trial court. =
He=20
raised it for the first time in his response to the motion for =
summary=20
judgment. In the summary judgment context, pleadings set the =
limits=20
on which the trial court may grant relief. Lampasas v. =
Spring=20
Ctr., Inc., 988 S.W.2d 428, 436 (Tex. App.CHouston=20
[14th Dist.] 1999, no pet.). Because the issue of unjust =
enrichment=20
was not raised in Barrick=3Ds=20
petition, it was not before the trial court and is not properly =
before=20
this court.
Motion For=20
New Trial
In his=20
second issue, Barrick argues the trial court erred in its denial =
of his=20
motion for a new trial. The resolution of a motion for new =
trial is=20
left up to the trial court=3Ds=20
discretion. Strackbein v. Prewitt, 671 S.W.2d 37, 38 =
(Tex.=20
1984). The trial court=3Ds denial=20
of such a motion is not to be disturbed on appeal unless there is =
an abuse=20
of that discretion. Id. Because we sustain=20
Barrick=3Ds issue=20
concerning the trial court=3Ds granting=20
of summary judgment pertaining to his negligence claims, we find =
the trial=20
court abused its discretion in denying Barrick=3Ds motion=20
for a new trial concerning those claims.
Accordingly,=20
the judgment of the trial court is affirmed, in part, and reversed =
in=20
part, and the cause is remanded for further proceedings consistent =
with=20
this opinion.
/s/ =20
J. Harvey Hudson
Justice
Judgment=20
rendered and Memorandum Opinion filed September 27, =
2007.
Panel=20
consists of Chief Justice Hedges and Justices Hudson and=20
Guzman.
CRT urges we dismiss this appeal =
for=20
Barrick=3Ds failure to cite to the record. =
However,=20
Barrick=3Ds brief, while perhaps not as detailed =
and=20
organized as others, cites to relevant portions of the record, =
statutes,=20
and case law, which are sufficient to entertain this appeal. =
Tex. R. App. P.=20
38.9.
Hereinafter referred to as =
Athe Code.@
Section 1.103 states in its=20
entirety:
(a) This title must be liberally =
construed and=20
applied to promote its underlying purposes and policies, which=20
are:
(1) to simplify, clarify and modernize =
the law=20
governing commercial transactions;
(2) to permit the continued expansion of =
commercial practices through custom, usage and agreement of the =
parties;=20
and
(3) to make uniform the law among the =
various=20
jurisdictions.
(b) Unless displaced by the particular =
provisions=20
of this title, the principles of law and equity, including the law =
merchant and the law relative to capacity to contract, principal =
and=20
agent, estoppel, fraud, misrepresentation, duress, coercion, =
mistake,=20
bankruptcy, or other validating or invalidating cause shall =
supplement its=20
provisions.
Tex. Bus. =
& Com.=20
Code Ann. ' 1.103.
Michael D. Mayfield, =
Revisiting=20
Expungement: Concealing Information in the Information Age, =
Utah L. Rev. =
1057, 1070=20
(1997).
Larry R. Seegull & Emily J. =
Caputo,=20
When a Test Turns Into a Trial, Bus. L. Today 13, 14=20
=
(2006). |