Bank of Texas, NA v. V R Electric, (Tex.App.- Houston [1st Dist.] Sep, 4, 2008)(Alcala)
(liability for payment of forged check, breach of contract, damages, contributory negligence of bank
customer, apportionment of damages, reasonableness of amount of attorney's fees, Business and
Commercial Code)
We conclude that VR's claim for breach of contract was conclusively proved and did not need to
be submitted to the jury.
The Bank paid an instrument without an authorized signature, in direct contravention of the terms
of the agreement. Fedigan, a vice president of the Bank, admitted that the Bank's paying of the
altered check was in violation of the agreement. Further, the parties agree that VR suffered
liquidated damages in the amount of the check based on the Bank's payment of the check. All
elements of breach of contract were proven conclusively in the record. Therefore, the trial court
properly did not submit to the jury questions concerning the undisputed elements for breach of
contract.
Concerning whether VR met the requirements in the Business and Commerce Code, we
conclude that (1) the trial court erred by disregarding the jury's finding that the Bank acted in good
faith; (2) the Bank established that VR's failure to exercise ordinary care substantially contributed
to the alteration of the check; and (3) the evidence is legally sufficient to uphold the jury's verdict
that the Bank failed to exercise ordinary care in paying the check under section 3.406(b). See
Tex. Bus. & Com. Code Ann. § 3.406(a),(b). We also conclude that Chapter 33 of the Texas Civil
Practice and Remedies Code cannot be used to hold the Bank jointly and severally liable in this
situation in which the Business and Commerce Code provides the mechanism for apportionment
of damages, and that the amount of the award for attorney's fees is not excessive. We therefore
affirm the judgment against the Bank.
AFFIRM TC JUDGMENT: Opinion by Justice Alcala
Before Justices Nuchia, Alcala and Hanks
01-07-00308-CV Bank of Texas, NA v. V R Electric
Appeal from County Court at Law No 1 of Fort Bend County
Trial Court Judge: The Honorable David Hunter
O P I N I O N
This is a dispute about payment of a forged check for $8,276. Appellant, Bank of Texas ("Bank"),
appeals from the trial court's judgment awarding appellee, VR Electric ("VR"), damages for
paying VR's check that was forged. The judgment against the Bank was for breach of contract and
the judgment against the co-defendant, Frank C. Mata, was for negligence. (1) The two
defendants were found jointly and severally liable for their payment of the forged check.
The Bank's first five issues concern the application of the law as stated in section 3.406(a) the
Business and Commerce Code. Tex. Bus. & Com. Code Ann. § 3.406(a) (Vernon 2002). In its
first issue, the Bank asserts that the trial court erred by disregarding the jury's determination that
the Bank met its duty of good faith and fair dealing to VR. In its second, third, fourth and fifth
issues, the Bank contends that it cannot be found liable for the check because, in addition to the
jury's finding that the Bank acted in good faith, the Bank proved that VR failed to exercise ordinary
care that substantially contributed to the alteration of the check by leaving the check unattended
and by not issuing a stop payment on the check. In response to this challenge by the Bank, VR
presents a conditional cross-point that contends the trial court erred by "allowing a partial
affirmative defense of negligence after ruling that the Bank failed to act in good faith as a matter of
law."
The Business and Commerce Code is also the subject of the Bank's sixth issue. The Bank
maintains that VR does not meet the terms of section 3.406(b) because VR "failed to meet its
burden of proof" to show that the Bank failed to exercise ordinary care, which contributed to VR's
loss. See Tex. Bus. & Com. Code Ann. § 3.406(b).
The Bank's remaining three issues pertain to damages and attorney's fees. In its seventh issue,
the Bank challenges the apportionment of damages under section 33.013 of the Texas Civil
Practice and Remedies Code. See Tex. Civ. Prac. & Rem. Code Ann. § 33.013(b) (Vernon
2003). In its eighth issue, the Bank contends that the judgment cannot properly include any award
for breach of contract because no element of the claim was submitted to the jury. In its ninth issue,
the Bank challenges the amount of the attorney's fees. (2)
We conclude that VR's claim for breach of contract was conclusively proved and did not need to
be submitted to the jury. Concerning whether VR met the requirements in the Business and
Commerce Code, we conclude that (1) the trial court erred by disregarding the jury's finding that
the Bank acted in good faith; (2) the Bank established that VR's failure to exercise ordinary care
substantially contributed to the alteration of the check; and (3) the evidence is legally sufficient to
uphold the jury's verdict that the Bank failed to exercise ordinary care in paying the check under
section 3.406(b). See Tex. Bus. & Com. Code Ann. § 3.406(a),(b). We also conclude that
Chapter 33 of the Texas Civil Practice and Remedies Code cannot be used to hold the Bank
jointly and severally liable in this situation in which the Business and Commerce Code provides
the mechanism for apportionment of damages, and that the amount of the award for attorney's
fees is not excessive. We therefore affirm the judgment against the Bank.
Background
VR had a depositary checking account with the Bank. In October 2003, Beverly Pennington, a
bookkeeper for VR, placed an unsigned check from VR's account with the Bank for $8276 on the
counter in front of the office of Terry Viohl, VR's president. Pennington often placed checks in this
location for Viohl's signature because Viohl's office was very disorganized, and there was
concern that the check would be lost if placed in his office. The counter on which the check was
placed is next to the front entrance and accessible to anyone who enters VR's offices.
On the day Pennington placed the check, which was made out to Viohl Electric, on the counter,
Anthony Burlew, an employee of a contractor working with VR, walked into VR's office and took
the unsigned check. Burlew signed Viohl's name to the front of the check and endorsed the check
to himself. Burlew then took the check to Mata, a used car dealer, and endorsed the check to
Mata in exchange for a car and cash. Mata accepted the check and deposited it into his account.
Pennington and Viohl noticed the check was missing but did not request a stop payment order
because they thought the check was lost in Viohl's office.
The Bank processed the check through its automated system and paid the check without verifying
the signature of Viohl because the amount was less than $100,000. According to Jean Fedigan,
Vice President of Operations for Bank of Texas, the Bank had a verbal policy that it did not
manually review the signature on checks that were processed through automated means if the
amount was less than $100,000. However, Fedigan was inconsistent in referring to the amount,
also stating the policy was only effective with respect to checks over $250,000. Because the
check here was for $8276, under either amount, the signature on the check at issue would not
have been verified manually.
The following month, when VR received its statement for October, it immediately notified the Bank
that the check had been forged and asked that its account be credited for the amount of the
check. The Bank decided it would not reimburse VR for the amount of the check because it
determined VR acted negligently and it was unable to be reimbursed by Mata's bank.
VR brought suit against the Bank and Mata in January 2004. In its petition, VR asserted that the
Bank breached its account agreement by paying an item that was not properly payable and that
the Bank failed to exercise due care in the processing of the check. VR also sued Mata for
accepting the check from Burlew. VR requested liquidated damages in the amount of the check
as well as attorney's fees.
At the jury trial, three of the four questions given to the jury concerned negligence under the
Business and Commerce Code. The jury's answer to the first question was in favor of the Bank,
finding that the Bank complied with its duty of good faith and fair dealing. The second question
asked the jury to determine whether "the negligence, if any, of [Bank, Mata, and VR Electric]
substantially contribute[d] to the occurrence," which the jury answered in the affirmative as to all
three parties. Question three asked the jury to attribute a percentage of negligence to each of the
parties based on its answer in question two. The jury responded that VR Electric and the Bank
were both 15% responsible and Mata was 70% responsible.
At the jury trial, only the fourth question pertained to the attorney's fees for breach of contract.
Question four asked the jury to determine reasonable attorney's fees for VR's attorneys. The jury
answered with totals of $30,000 for preparation and trial, $12,000 for an appeal to the Court of
Appeals, and $10,000 for an appeal to the Texas Supreme Court.
After receiving the jury's answers, VR filed a motion to disregard the jury's finding on question one,
which the trial court granted. The Bank filed a motion to disregard the jury's finding on question
two, which the trial court denied. The trial court then issued its final judgment, which stated,
The Court grants Plaintiff's Motion to Disregard Jury Question One and finds that the Defendant,
Bank of Texas, NA, failed to act in good faith, as a matter of law. The Court finds that Plaintiff, VR
Electric, is entitled to judgment against Defendant, Bank of Texas, NA, on Plaintiff's claim of
breach of contract for liquidated damages for the amount of the check, $8,276.78. The Court finds
that Plaintiff, VR Electric, is entitled to judgment against Defendant, Frank C. Mata, d/b/a Tex Car
Motors, on Plaintiff's claim under the Texas Business and Commerce Code, Section 3.406, for
liquidated damages, subject to such Defendant's right to offset damages in the amount of 15%,
for negligence attributed to Plaintiff, VR Electric, under the jury verdict, for a net amount of
$7,035.26. The Court finds that Frank C. Mata, d/b/a Tex Car Motors, and Bank of Texas, NA, are
jointly and severally liable for that portion of the judgment together with prejudgment interest and
attorney's fees.
. . . .
Based on the jury's verdict, and the rulings and findings of the Court, it is ADJUDGED that:
1. Plaintiff, VR Electric is awarded judgment against Defendants, Bank of Texas, NA and Frank
C. Mata, d/b/a Tex Car Motors, jointly and severally, in the amount of $7,035.26 . . . .
The judgment further awarded prejudgment interest, postjudgment interest and attorney's fees
against the Bank and Mata, jointly and severally.
The Jury Charge for Breach of Contract
In its eighth issue, the Bank contends that VR never asked for or obtained a jury question on
breach of contract and therefore waived any right to recover on that ground under Rule 279. The
Bank asserts that the trial court erred by awarding VR attorney's fees because attorney's fees
could only be recovered for breach of contract, and no instruction was submitted to the jury on the
breach of contract claim.
A. Rule 279
Rule 279 provides that any issues excluded from the charge that are "not conclusively established
under the evidence and no element of which is submitted or requested are waived." See Tex. R.
Civ. P. 279. Under Rule 279, if a ground is not conclusively established and a submitted ground of
recovery consists of more than one element, and at least one element is submitted to and found
by the jury, the parties are considered to have agreed to waive a jury trial on the elements that
were not submitted, and to have submitted those issues to the trial court for resolution. In re J.F.C.,
96 S.W.3d 256, 262-63 (Tex. 2002); Country Village Homes v. Patterson, 236 S.W.3d 413,
431-32 (Tex. App.-- Houston [1st Dist.] 2007, no pet.).
A claim is not waived under Rule 279 when the evidence conclusively establishes the elements of
the offense, even if none of the elements of the offense is submitted to the jury for consideration.
See Tex. R. Civ. P. 279. If a claim is established as a matter of law, no question must be
submitted to the jury for consideration. Brown v. Bank of Galveston, 963 S.W.2d 511, 515 (Tex.
1998); see also City of Keller v. Wilson, 168 S.W.3d 802, 814-15 (Tex. 2005) ("Jurors are not free
to reach a verdict contrary to [the] evidence; indeed uncontroverted issues need not be submitted
to a jury at all."). Thus, when the evidence conclusively establishes a claim, the claim may be part
of the judgment, even if no jury question on the claim was submitted. See Brown, 963 S.W.2d at
515.
B. The Elements of Beach of Contract
The essential elements in a suit for breach of contract are: (1) the existence of a valid contract; (2)
the plaintiff performed or tendered performance; (3) the defendant breached the contract; and (4)
the plaintiff was damaged as a result of the breach. Hussong v. Schwan's Sales Enters., Inc., 896
S.W.2d 320, 326 (Tex. App.--Houston [1st Dist.] 1995, no pet.). (3)
C. The Evidence
According to VR, the "existence of the contract, and the Bank's breach were not in dispute" and
therefore the jury was not asked to determine these elements because they were conclusively
established. The evidence of breach of contract was undisputed. The only dispute arose on the
issue of whether the Bank could prevail on its defense under section 3.406 of the Business and
Commerce Code and the amount of attorney's fees. The record contains a copy of the
agreement, which was never disputed by the Bank. Further, the record shows that VR performed
its duties under the contract, including those related to reporting a forgery or alteration within 30
days of receiving a statement, and that the Bank agrees that VR satisfied its duties under the
contract. The Bank paid an instrument without an authorized signature, in direct contravention of
the terms of the agreement. Fedigan, a vice president of the Bank, admitted that the Bank's
paying of the altered check was in violation of the agreement. Further, the parties agree that VR
suffered liquidated damages in the amount of the check based on the Bank's payment of the
check. All elements of breach of contract were proven conclusively in the record. Therefore, the
trial court properly did not submit to the jury questions concerning the undisputed elements for
breach of contract. See Brown, 963 S.W.2d at 515.
We overrule appellant's eighth issue.
Section 3.406 of the Business and Commerce Code
Because we hold that the evidence conclusively established the elements of breach of contract,
we must next address the Bank's contention that section 3.406 of the Business and Commerce
Code precludes or reduces VR's recovery.
A. Applicability of the Business and Commerce Code to Breach of Contract
Section 3.406 of the Business and Commerce Code applies to a claim for breach of contract
when, as here, the claim is based on an agreement concerning negotiable instruments. See
Behring Int'l, Inc. v. Greater Houston Bank, 662 S.W.2d 642, 652 (Tex. App.--Houston [1st Dist.]
1983, no writ) (stating that section 3.406 applies to breach of contract claim, not comparative
negligence defense under common law negligence); see also Burns & Parks Painting Co. v. Bank
One, No. 05-95-00342-CV, 1996 WL 200947, at *4 (Tex. App.--Dallas Apr. 26, 1996, no writ)
(mem. op.) (applying section 3.406 to breach of contract claim on depositary agreement); Weafri
Well Servs. Co. v. Fleet Bank, No. 98 Civ. 888(JSM), 2000 WL 1472724, at *4 (S.D.N.Y. Sept.
29, 2000).
B. The Business and Commerce Code
Section 3.406 provides,
(a) A person whose failure to exercise ordinary care substantially contributes to an alteration of an
instrument or to the making of a forged signature on 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.
(b) Under Subsection (a), if the person asserting the preclusion fails to exercise ordinary care in
paying or taking the instrument and that failure contributes to loss, the loss is allocated between
the person precluded and the person asserting the preclusion according to the extent to which the
failure of each to exercise ordinary care contributed to the loss.
(c) Under Subsection (a), the burden of proving failure to exercise ordinary care is on the person
asserting the preclusion. Under Subsection (b), the burden of proving failure to exercise ordinary
care is on the person precluded.
Tex. Bus. & Comm. Code Ann. § 3.406.
C. The Bank's Proof of Two Elements
Under Section 3.406(a)
As shown above, the Bank must prove that (1) VR failed to exercise ordinary care that
substantially contributed to the alteration of the check and (2) it paid the check in good faith. See
id. § 3.406(a), (c). Because the Bank presents the matter of good faith in its first appellate issue,
we begin with the element of good faith.
1. The First Element: The Bank Must Prove it Acted in Good Faith
The Bank's first issue asserts that the "Court erred by disregarding the jury's response to question
one," the question in which the jury determined that the Bank met its duty of good faith and fair
dealing to VR Electric. The Bank challenges the trial court's ruling that, as a matter of law, the
Bank did not act in good faith. VR responds that the Bank's failure to have prescribed procedures
regarding signature verification shows that, as a matter of law, the Bank failed to exercise
ordinary care. VR's response does not address the issue of whether the Bank acted in good faith
as separately from the issue of whether the Bank failed to exercise ordinary care.
a. Standard of Review
A challenge to a trial court's decision to disregard the jury's finding on an issue is reviewed as a
legal sufficiency challenge. Brown v. Bank of Galveston, 930 S.W.2d 140, 145 (Tex.
App.--Houston [14th Dist.] 1996), aff'd, 963 S.W.2d 511 (Tex. 1998). In reviewing the legal
sufficiency of the evidence, we view the evidence in the light most favorable to the verdict,
crediting favorable evidence if reasonable jurors could, and disregarding contrary evidence
unless reasonable jurors could not. City of Keller, 168 S.W.3d at 807, 822. There is legally
insufficient evidence of a vital fact when (a) there is a complete absence of evidence of a vital fact;
(b) the court is barred by rules of law or of evidence from giving weight to the only evidence
offered to prove a vital fact; (c) the evidence offered to prove a vital fact is no more than a mere
scintilla; or (d) the evidence conclusively establishes the opposite of the vital fact. Merrell Dow
Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997).
b. Jury Question One Concerning Good Faith
Jury Question One states:
Did Bank of Texas, NA, fail to comply with its duty of good faith and fair dealing to VR Electric?
"Good faith," means honesty in fact and the observance of reasonable commercial standards of
fair dealing. The procedure a bank uses to process checks must reasonably relate to the duty the
bank has to detect unauthorized signatures. In the case of a bank that takes an instrument for
processing for collection or payment by automated means, reasonable commercial standards do
not require the bank to examine the instrument if the failure to examine does not violate the bank's
prescribed procedures and the bank's procedures do not vary unreasonably from general banking
usage. A bank's failure to adopt any procedures is a failure to act in accordance with reasonable
commercial standards.
The jury answered question number one "no," which was in favor of the Bank. The trial court
decided to disregard the jury's answer by determining that the evidence showed as a matter of
law that the Bank did not act in good faith.
c. Analysis
In their briefs, both the Bank and VR conflate the concepts of good faith and ordinary care.
However, the two standards have different meanings. "Good faith," as defined by the Business
and Commerce Code, means "honesty in fact and the observance of reasonable commercial
standards of fair dealing." Tex. Bus. & Comm. Code Ann. § 1.201(b)(20) (Vernon 2005). Fair
dealing concerns the fairness of the conduct of a party rather than the care with which that party
performed an act. See U.C.C. § 3-103, cmt. 4 (2007).
On the other hand, "ordinary care" is defined as
the observance of reasonable commercial standards, prevailing in the area in which the person is
located, with respect to the business in which the person is engaged. In the case of a bank that
takes an instrument for processing for collection or payment by automated means, reasonable
commercial standards do not require the bank to examine the instrument if the failure to examine
does not violate the bank's prescribed procedures and the bank's procedures do not vary
unreasonably from general banking usage not disapproved by this chapter or Chapter 4.
Tex. Bus. & Comm. Code Ann. § 3.103(a)(9) (Vernon 2005). "Both fair dealing and ordinary care .
. . are to be judged in the light of reasonable commercial standards, but those standards in each
case are directed to different aspects of commercial conduct." U.C.C. § 3-103, cmt. (2007).
There are no Texas cases that give further detail on the meaning of good faith in the context of
section 3.406. However, in Aetna Life & Casualty Co. v. Hampton State Bank, the Dallas Court of
Appeals stated, in deciding a breach of warranty claim under the Business and Commerce Code,
that neither "failure to exercise ordinary care [n]or even gross negligence is equivalent to lack of
good faith." 497 S.W.2d 80, 87 (Tex. Civ. App.--Dallas 1973, no pet.). In Aetna, the court
continued that the record "failed to show any lack of honesty in this respect, since it contains no
evidence tending to show that [the] employee who handled the transaction connived with the
forger or had any reason to believe that the check was not genuine." Id. at 88. The case however
reflects an analysis under the old definition of "good faith," which makes no mention of the
objective fair-dealing aspect now required under the Code. (4)
We conclude that some evidence supports the jury's finding that the Bank acted in good faith. The
check was processed through a widely-used automated system of the Federal Reserve. No
evidence was developed at trial suggesting the Bank knew of the forgery or had reason to believe
it was not genuine. Testimony by Pennington suggested that she contacted Lou Lawsen, a Bank
employee, about the check to see if it had been cashed. However, Pennington did not request a
stop-payment order on the check. Nothing in the record suggests she requested any other
notation on the check or told the Bank she suspected it would be forged. Rather, Penington stated
at trial that her conversation with Lawsen led her to believe the check was simply lost in Viohl's
office. Lawsen, the person Pennington contacted at the Bank, was no longer employed at the
branch of the Bank where VR did its business, so there is no evidence to suggest that anyone at
that branch was aware of any problem with the check prior to Pennington's request to them to see
the check after it had been cashed. We hold that the trial court erred by disregarding the jury's
finding that the Bank acted in good faith because some evidence supports the jury's verdict. The
Bank thus prevailed in establishing the first required element in Section 3.406(a).
We sustain the Bank's first issue.
2. The Second Element: The Bank Must Prove VR Failed to Exercise Ordinary Care that
Substantially Contributed to Alteration of Check
Having determined that we must uphold the jury's finding that the Bank did not fail to comply with
its duty of good faith and fair dealing with VR, our next task is to determine whether the Bank
proved that VR failed to exercise ordinary care that substantially contributed to the alteration of the
check, because that determination would mean that the Bank met the second required element in
Section 3.406(a). See Tex. Bus. & Comm. Code Ann. § 3.406(a). In its second, third, fourth and
fifth issues, the Bank contends that it cannot be found liable for the check because, in addition to
the finding that the Bank acted in good faith, the Bank proved that VR failed to exercise ordinary
care that substantially contributed to the alteration of the check by leaving the check unattended
and by not issuing a stop payment on the check.
Specifically, it its second issue, the Bank, asserts that it "established its 3.406(a) affirmative
defense." The Bank explains that VR should be barred from recovery based upon its
carelessness in handling the check. In its third issue, the Bank contends VR failed to exercise
ordinary care with regard to the placement and safekeeping of the check by leaving the unsigned
check unattended out in the open on a counter by the glass front entrance of its premises. In its
fourth issue, the Bank asserts alternatively that VR failed to exercise ordinary care by failing to
place a stop payment on the check when it knew about the disappearance of the check soon after
the occurrence. In its fifth issue, the Bank asserts that VR's failure to exercise ordinary care
substantially contributed to the forged check. The Bank contends that if VR had properly
maintained the check and placed a stop payment on the check, the cashing of the check would
never have occurred and therefore the evidence shows that VR's failure to exercise ordinary care
substantially contributed to the forged check.
Here, the jury determined that VR failed to use ordinary care and that failure substantially
contributed to the alteration of the check, finding VR 15 percent responsible. VR has not appealed
that determination against it by the jury. Accordingly, we must defer to the jury's determination that
the Bank proved that VR's negligence substantially contributed to the alteration of the check.
Therefore, the Bank prevailed in proving the two elements in section 3.406(a) of the Business and
Commerce Code.
We sustain the Bank's issues two through five to the extent that they concern the proof of VR's
negligence under section 3.406(a).
D. VR's Proof that the Bank was Negligent
We have determined that the Bank met its burden of showing that it acted in good faith and that
VR failed to use ordinary care under section 3.406(a). Our next task is to determine whether VR
proved that the Bank was liable under section 3.406(b). See Tex. Bus. & Comm. Code Ann. §
3.406(a), (b). In its sixth issue, the Bank claims that VR "failed to meet its burden of proof under §
3.406(b)." See id. § 3.406(b). The Bank states that VR "did not elicit any evidence about general
banking usage of automatically processed checks" and that without that evidence, "there was no
basis for the jury to conclude, given [VR's] burden of proof under question two, that [the Bank]
failed to exercise ordinary care." The Bank claims there was no basis for the jury to find 15
percent liability against it. The Bank maintains that no case law under the revised Uniform Code
supports the proposition that a bank fails to "exercise ordinary care in processing a check by
automated means." The Bank concludes, "Accordingly, the Court of Appeals should disregard the
finding by the jury that [the Bank] was contributorily negligent under Question Two."
1. Jury Question Two Concerning Negligence
Question two states:
Did the negligence, if any, of those named below substantially contribute to the occurrence in
question? With respect to the conduct of VR Electric, consider only that conduct which contributed
to the alteration of the check, or to the making of a forged signature on the check. With respect to
the conduct of Bank of Texas, NA, and Frank C. Mata d/b/a/ Tex Car Motors, consider only that
conduct in paying the check or taking the check.
The jury answered question number two against the Bank, as well as against VR and Mata. The
jury charge also included instructions that defined certain terms. The charge says, "Negligence"
means "failure to use ordinary care, that is, failing to do that which a person of ordinary prudence
would have done under the same or similar circumstances or doing that which a person or
ordinary prudence would not have done under the same or similar circumstances." The charge
defines "ordinary care" by stating, "In the case of a person engaged in business means
observance of reasonable commercial standards, prevailing in the area in which the person is
located, with respect to the business in which the person is engaged." The charge further tracks
statutory language, stating, "In the case of a bank that takes an instrument for processing for
collection or payment by automated means, reasonable commercial standards do not require the
bank to examine the instrument if failure to examine does not violate the bank's prescribed
procedures and the bank's procedures do not vary unreasonably from general banking usage."
The jury charge specifically instructs that "a bank may not require a customer to execute a stop
payment order." Furthermore, the jury is told that the definition of "substantially contributes" is
"conduct which is a contributing cause and a substantial factor in bringing about the alteration of
the check, or to the making of a forged signature on the check, with respect to VR Electric, or to
the paying of the check, or the taking of the check with respect to the Bank of Texas, NA, or Frank
C. Mata d/b/a Tex Car Motors."
2. Applicable Law
As stated above, in determining whether the court erred by denying a motion to disregard jury
findings, we view the evidence in the light most favorable to the verdict, crediting favorable
evidence if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors
could not. City of Keller, 168 S.W.3d at 822.
3. Analysis
Bank of Texas stated that, although it had verbal policies, there were no written procedures to
guide its employees on when the signature of a check should be manually verified. At trial,
Fedigan stated that she was unsure of what the verbal policy was, even at the time of trial.
Conflicting testimony was given by Bank employees regarding whether the policy was to review
checks over $100,000 or over $250,000. However, Fedigan testified that the average amount of
checks processed during the time VR's forged check was processed was just over $1000. Even if
the Bank had procedures, "the procedures used . . . to process checks and review signatures
must have reasonably related to the detection of unauthorized signatures in order to have been in
accordance with reasonable commercial banking standards." McDowell v. Dallas Teachers
Credit Union, 772 S.W.2d 183, 193 (Tex. App.-- Dallas 1989, no pet.) (citing Medford Irrigation
Dist. v. Western Bank, 676 P.2d 329, 332 (Or. 1984)). The Bank's policy was to review signatures
only on checks that were 100 times that of the average check that is processed. Based on the
evidence presented at trial, the jury could have found that the Bank's verbal policy was not
reasonably related to the detection of unauthorized signatures, which would be a failure to
exercise ordinary care. See id. We hold that the evidence is legally sufficient to support the jury's
finding that the Bank failed to exercise ordinary care.
We overrule the Bank's sixth issue.
In summary, we uphold the jury's determination that the Bank met the evidentiary requirements in
3.406(a) and VR met the evidentiary requirements in 3.406(b). See Tex. Bus. & Comm. Code
Ann. § 3.406(a), (b). The consequence of this determination is that "the loss is allocated between
the person precluded and the person asserting the preclusion according to the extent to which the
failure of each to exercise ordinary care contributed to the loss." See id.
E. Apportionment of Damages
In its seventh issue, the Bank asserts the trial court incorrectly aggregated damages and
attorney's fees to the Bank and Mata. (5) Specifically, the Bank contends (1) that Chapter 33 of
the Texas Civil Practice and Remedies Code applies to this case and (2) that, under that chapter,
the trial court could not aggregate the Bank's 15% liability with Mata's 70% in assessing damages
against Bank of Texas. We disagree with the Bank's assertion that Chapter 33 of the Civil
Practice and Remedies Code applies to this case.
Chapter 33 governs only tort claims, and this case involves a breach of contract claim against the
Bank. See Tex. Civ. Prac. & Rem. Code Ann. § 33.002 (Vernon 2005). Although it made no
objection or exception to VR's characterization of this claim as a breach of contract claim in its
pleading, the Bank, in its brief, refers to VR's claim as a "tort related" claim. However, even if we
were to characterize VR's claim as a tort claim against the Bank, Chapter 33 would not apply
because Article 3 of the UCC (as codified in the Texas Business and Commerce Code) was
recently revised to create a discrete fault scheme, specifically allocating responsibility among
parties to a banking relationship. See Tex. Bus. & Comm. Code Ann. § 3.406; see also Sw. Bank
v. Info. Support Concepts, Inc., 149 S.W.3d 104, 107 (Tex. 2004) (holding that fault of third-party
defendants cannot be considered in UCC conversion actions under section 3.420 of Texas
Business and Commerce Code). "Applying Chapter 33's proportionate responsibility framework
to claims involving Revised Article 3, therefore, could disrupt the UCC's carefully allocated liability
scheme." Sw. Bank, 149 S.W.3d at 108. Both parties agree that section 3.406 of the Business
and Commerce Code governs the present case. To the extent any proportionate responsibility
provisions apply to VR's breach of contract claim against the Bank, it is section 3.406 that
applies, not the general statute in Chapter 33. Id.
We do not reach the issue of whether the damages were properly apportioned under section
3.406 or whether the trial court properly found the Bank jointly and severally liable with Mata under
section 3.406 because the Bank makes no challenge to the aggregation of liability under that
section.
Nowhere in its brief does the Bank request a reduction of damages under section 3.406. Rather,
the Bank asks only that this Court enter a take-nothing judgment in its favor. Based on our above
holding that the evidence was sufficient to support the jury's findings, the Bank is not entitled to a
take-nothing judgment in its favor under section 3.406. See Tex. Bus. & Comm. Code Ann. §
3.406(b).
Furthermore, the Bank has not challenged the apportionment of damages under section 3.406,
and consequently we do not address that matter. See id.; see also Tex. R. App. P. 38.1(e).
Therefore, we must uphold the trial court's determination under the proportionate responsibility
framework of section 3.406 because the Business and Commerce Code undisputedly applies to
this case, and no challenge to the allocation of damages under the Code is presented to us in this
appeal.
We overrule the Bank's seventh issue.
The Amount of Attorney's Fees
In its ninth issue, the Bank asserts that the award of attorney's fees was unreasonable because
they were excessive with respect to the amount in controversy. (6)
In USAA County Mut. Ins. Co. v. Cook, this Court stated,
Factors that a factfinder should consider when determining the reasonableness of a fee include:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill
required to perform the legal service properly; (2) the likelihood that the acceptance of the
particular employment will preclude other employment by the lawyer; (3) the fee customarily
charged in the locality for similar legal services; (4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of
the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer
or lawyers performing the services; and (8) whether the fee is fixed or contingent on results
obtained or uncertainty of collection before the legal services have been rendered. Arthur
Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818 (Tex. 1997) (citing Tex. Disciplinary
R. Prof'l Conduct 1.04). Attorney's fees must bear some reasonable relationship to the amount in
controversy. Cordova v. Southwestern Bell Yellow Pages, Inc., 148 S.W.3d 441, 448 (Tex. App.--
El Paso 2004, no pet.). But, the amount of damages awarded is only one factor in determining the
reasonableness of a fee award. Id.
241 S.W.3d 93, 102-03 (Tex. App.-- Houston [1st Dist.] 2007, no pet.). In the present case, the
Bank challenges only the amount of attorney's fees in relation to the amount in controversy, which
is only one of several factors to be considered. However, we address the evidence presented in
light of each of the factors.
1. Time and Labor Required, Novelty and Difficulty of Questions Involved, and Skill
Required to Perform Legal Service Properly
At trial, Douglas Sandvig, VR's attorney testified about his legal services. He provided invoices
for many of the services provided to VR, as well as a summary of the fees and expenses billed to
VR, which reflected that he spent roughly 84 hours on the case. The Bank does not challenge any
of the evidence presented under this factor.
2. Likelihood that the Acceptance of Employment Will Preclude Other Employment by the
Lawyer
No evidence admitted at trial addressed this factor.
3. Fee Customarily Charged for Similar Legal Services
Sandvig testified that his hourly fee of $250 was common in the industry and in line with what is
charged locally for such services. The Bank agreed with this assertion and does not challenge the
reasonableness of the hourly rate charged.
4. Amount Involved and Results Obtained
The present case involves a loss of $8,276 to VR and the amount awarded for attorney's fees is
about four times that amount, including provisions for appeal to this Court and to the Texas
Supreme Court.
5. Time Limitations Imposed by Client or by Circumstances
No evidence admitted at trial addressed this factor.
6. Nature and Length of Professional Relationship with Client
No evidence admitted at trial addressed this factor.
7. Experience, Reputation, and Ability of Lawyers
Sandvig admitted that he did not specialize in the area of law at issue in the present case.
However, he did state that he has 25 years of experience as a practicing attorney, is Board
certified as a civil trial attorney, and has handled cases involving forged instruments previously.
VR presented no evidence disputing this.
8. Whether Fee is Fixed or Contingent, or Uncertainty of Collection Before Legal
Services Rendered
The evidence presented at trial showed that Sandvig was paid a fixed rate of $250 per hour, on
an hourly basis. Sandvig testified that VR had paid all invoices he had issued them.
Although the Bank contends that the amount of attorney's fees awarded is excessive, it presented
no evidence that a rate of $250 per hour for a Houston attorney is unreasonable or that the amount
of time dedicated to the case was unreasonable. Given the amount of time invested in the case by
VR's attorney, charged at a reasonable rate for this area for an attorney with the experience of
Sandvig, the attorney's fees awarded are not excessive or unreasonable. Accordingly, we hold
that the evidence is sufficient to support the jury's award of trial and appellate attorney's fees.
We overrule appellant's ninth issue.
VR's Cross-Appeal
In its sole issue in its cross-appeal, VR asserts that the trial court erred by "allowing a partial
affirmative defense of negligence after ruling that the bank failed to act in good faith as a matter of
law." In light of our above holding that the Bank did act in good faith, we overrule VR's issue on
cross-appeal as moot.
Conclusion
We conclude that the trial court erred by disregarding the jury's finding that Bank of Texas failed to
act in good faith. The trial court's error does not merit a take-nothing judgment, which is the only
relief sought by the Bank on appeal. We affirm the judgment of the trial court.
Elsa Alcala
Justice
Panel consists of Justices Nuchia, Alcala, and Hanks.
1. Mata is not a party to this appeal. Mata answered the petition but did not appear at trial. The trial court entered a
post-answer default judgment against him.
2. Although the Bank lists 11 issues in its "issues presented," the argument portion of its brief discusses nine issues that
do not directly correlate to the 11 issues in the issues presented. For purposes of clarity, we describe the nine issues
developed in the argument portion of the brief.
3. Attorney's fees are not considered to be an element of a breach of contract claim. A party is not entitled to attorney's fees
incident to recovery unless the party independently recovers actual damages. Gulf States Utilities Co. v. Low, 79 S.W.3d
561, 567 (Tex. 2002); see, e.g., Green Int'l, Inc. v. Solis, 951 S.W.2d 384, 390 (Tex. 1997) (holding that party must prevail on
underlying claim for breach of contract in order to be entitled to attorney's fees pursuant to section 38.001(8) of Texas Civil
Practice and Remedies Code). Attorney's fees are ordinarily not recoverable, therefore, as actual damages in and of
themselves. See Qwest Commc'ns Int'l, Inc. v. AT&T Corp., 114 S.W.3d 15, 32-33 (Tex. App.--Austin 2003), rev'd in part on
other grounds, 167 S.W.3d 324 (Tex. 2005) (holding that evidence of attorney's fees was not evidence of consequential
damages stemming from breach).
4. Other state courts have similar holdings that acting negligently is not equivalent to acting in bad faith. The Tennessee
Supreme Court has required that in order to show bad faith, there must be "a knowing or reckless disregard of a
customer's rights." Bank/First Citizens Bank v. Citizens & Associates, 82 S.W.3d 259, 263-65 (Tenn. 2002) (internal
quotation marks omitted).
5. We do not address the issue of whether Mata was properly included as a responsible third-party under section 3.406
because neither party makes such a challenge on appeal nor did either party challenge his inclusion in the charge.
6. The Bank does not challenge the appropriateness of attorney's fees in a breach of contract claim governed by section
3.406.