GUARANTY FEDERAL SAVINGS BANK, Petitioner, v. The HORSESHOE OPERATING COMPANY, Respondent. INTERCONTINENTAL CONSOLIDATED COMPANIES, INC., Petitioner, v. UNIVERSITY SAVINGS ASSOCIATION and Petrolife, Inc., Respondents.
Nos. C-7559, C-7720.
Supreme Court of Texas.
May 9, 1990.
Rehearing Overruled May 9, 1990.
Marvin Thomas, Nathan K. Griffin, Dallas, for Horseshoe Operating Co.
James W. Kronzer, Michael Hendryx, Houston, Dalton L. Jones, League City, for Intercontinental Consol. Companies, Inc.
James H. Leeland, W. David East, Mark K. Glasser, John E. Nelson, III, Houston, for University Sav. Ass‘n and Petrolife, Inc.
ON MOTION FOR REHEARING
HIGHTOWER, Justice.
Petitioners’ and Respondent The Horseshoe Operating Company‘s motions for rehearing are overruled. The opinion of January 3, 1990 is withdrawn and the following is substituted.
These consolidated cases concern a savings and loan association‘s liability on its so-called “teller‘s check.” A “teller‘s check” is a check drawn by a savings association on its account at another financial institution and made payable to the person designated by the customer purchasing the check. In each case, the customer delivered the teller‘s check to the designated payee, but later sought to stop payment. The savings association, as drawer of the check, timely requested its drawee institution to stop payment. The payee brought suit, not against the customer who remitted the check or against the drawee that refused payment, but against the savings association. In each case, the trial court
In Guaranty Federal Savings & Loan Association v. The Horseshoe Operating Co., 748 S.W.2d 519 (Tex. App.—Dallas 1988), the Fifth Court of Appeals affirmed, holding that such checks are equivalent to cashier‘s checks or cash, and therefore not subject to countermand. As a result of this analysis, the court of appeals apparently deemed irrelevant all factual issues concerning the payee‘s possible status as a holder in due course and the savings association‘s possible defenses under the Texas Business and Commerce Code. 748 S.W.2d 519. In University Savings Association v. Intercontinental Consolidated Companies, 751 S.W.2d 657 (Tex. App.—Houston [1st Dist.] 1988), the First Court of Appeals rejected the “cash equivalent” analogy, and concluded that the savings association, as a “customer” of a “bank,” had a statutory right to stop payment on its check, and assert its own limited defenses to payment. Insofar as the savings association‘s customer intervened to assert its own claim to the instrument, its claims were also available as defenses to payment. Thus, the court of appeals held that there were relevant factual issues precluding summary judgment. 751 S.W.2d 657. For the reasons explained herein, we affirm the judgment of the First Court of Appeals in Intercontinental Consolidated Companies. We also affirm that portion of the judgment of the Fifth Court of Appeals in Guaranty Federal Savings & Loan Association concerning the severance of Horseshoe‘s action on the check against Guaranty Federal from Guaranty Federal‘s third party action, and otherwise reverse the judgment and remand the cause to the trial court.
The University Savings Case
Petrolife, Inc. (Petrolife) contracted to buy blending gasoline from Intercontinental Consolidated Companies, Inc. (ICC). Allegedly as part of an ongoing fraud, ICC promised to deliver the gasoline between November 7 and 10, 1986, if it received a check for $2,008,125, half the total purchase price. Petrolife purchased a check for that amount, payable to ICC, from University Savings Association (University Savings) by borrowing on the revolving line of credit Petrolife maintained at University Savings. University Savings drew the check on one of its accounts with the Federal Home Loan Bank of Little Rock (FHLB).1 Petrolife delivered the check to ICC, but ICC never delivered the gasoline.
On November 12, after investigating ICC‘s failure to deliver the gasoline and discovering its alleged fraud, Petrolife requested University Savings to stop payment. University Savings, the drawer of the check, contacted FHLB, the drawee, and requested that payment be stopped. FHLB honored the request to stop payment. Subsequently, University Savings credited Petrolife‘s line of credit for the amount of the check. ICC ultimately brought suit on the check, not against FHLB, but against University Savings. Petrolife filed a plea in intervention which the trial court struck.
The Guaranty Federal Case
Alan Parmet opened an account at Guaranty Federal Savings and Loan Association (Guaranty Federal).2 Later that day he used his new account to purchase a teller‘s check, referred to as an “official check” by Guaranty Federal, for $900,000. The payee on the check was designated as “Binion & Co.” Guaranty Federal drew the teller‘s check on its account at Citibank of New York. On the same day, Parmet cashed the check for gambling chips at “Binion‘s Horseshoe Casino” in Las Ve-
I.
The issues before this court are (1) whether a savings association which issues a teller‘s check may assert defenses (including its customers’ defenses) to payment, (2) whether issues of material fact preclude the summary judgments, (3) whether the trial court in the University Savings case abused its discretion in striking Petrolife‘s plea in intervention, and (4) whether the trial court in the Guaranty Federal case abused its discretion in severing Horseshoe‘s action on the check from Guaranty Federal‘s third party action.
II.
Teller‘s checks have been described as “checks drawn by ... savings and loan associations on commercial banks with which they maintain checking accounts.” Note, Personal Money Orders and Teller‘s Checks: Mavericks under the U.C.C., 67 COLUM.L.REV. 524, 540 (1967). A “teller‘s check” is an instrument used in the savings and loan industry and is analogous to a “bank draft” in the banking industry in which a “check” is drawn by a bank on an account maintained in another bank or financial institution. See Fulton Nat‘l Bank v. Delco Corp., 128 Ga.App. 16, 195 S.E.2d 455 (1973).
ICC and Horseshoe argue that teller‘s checks are not subject to a stop payment order. As described above, a teller‘s check is a “check” drawn by a savings association (University Savings and Guaranty Federal) upon an account maintained in another bank or financial institution (FHLB and Citibank). The savings association is the drawer of the check and the other bank or financial institution is the drawee of the check. Neither ICC nor Horseshoe (as payees) sued the drawee that refused payment of the check.
A stop payment order is an order to the drawee not to pay the check. See generally
Although University Savings and Guaranty Federal stopped payment of the teller‘s checks, they remain liable on the checks and ICC and Horseshoe may pursue an action on the checks against them. See First National Bank v. McKay, 521 S.W.2d 661 (Tex.Civ.App.—Houston [1st Dist.] 1975, no writ);
Obviously, the status of ICC and Horseshoe as holders in due course determines the applicable defenses which University Savings and Guaranty Federal may assert to payment of the teller‘s checks. The trial courts granted motions for summary judgment in favor of ICC and Horseshoe. University Savings and Guaranty Federal argue that there are genuine issues of material fact concerning the status of ICC and Horseshoe as holders in due course which preclude the summary judgments. We agree.
The standards for reviewing a motion for summary judgment are well established.
In response to ICC‘s motion for summary judgment, University Savings pleaded, among other things, that ICC was not a holder in due course and submitted affidavits raising a fact issue concerning ICC‘s status as a holder in due course. In response to Horseshoe‘s motion for summary judgment, Guaranty Federal pleaded, among other things, that Horseshoe was not a holder in due course. Guaranty Federal submitted summary judgment evidence raising a fact issue concerning Horseshoe‘s status as a holder in due course. Because there are issues of material fact,10 we hold that the granting of summary judgments was error.
IV.
Early in the case, Petrolife filed a plea in intervention setting forth certain defenses to ICC‘s cause of action, offering to defend University Savings and cross-filing against ICC. Without a motion to strike, the trial court struck Petrolife‘s plea in intervention. Petrolife and University Savings argue that the trial court abused its discretion in striking the plea in intervention. We agree.
Furthermore, under
Under the facts alleged in Petrolife‘s plea in intervention and counterclaim and University Savings’ response to ICC‘s motions for partial summary judgment, Petrolife meets the above test. Furthermore, the intervention will not complicate the
V.
After Guaranty Federal brought a third party action against Parmet and his alleged co-conspirators, the trial court severed Horseshoe‘s action on the check against Guaranty Federal from Guaranty Federal‘s third party action. Guaranty Federal argues that the trail court abused its discretion in granting the severance. We disagree.
Horseshoe‘s action against Guaranty Federal was based upon wrongful dishonor of an official check and debt. Guaranty Federal did not file a counterclaim against Horseshoe.11 Guaranty Federal‘s third party action asserted (1) that Parmet and his alleged co-conspirators engaged in a plot and scheme to defraud Guaranty Federal and (2) that Guaranty Federal was a holder or holder in due course with respect to the check from Royall Chevrolet & Buick Company and demanded payment on the check from Parmet, Leo Merkow and Royall Chevrolet & Buick Company. Horseshoe‘s action on the check against Guaranty Federal was severed from Guaranty Federal‘s third party action.
As described above, the “controversy” involved more than one cause of action: Horseshoe‘s actions for wrongful dishonor and debt and Guaranty Federal‘s actions for conspiracy to defraud and payment of the original check from Royall Chevrolet & Buick Company. The severed claim, Horseshoe‘s action for wrongful dishonor and debt against Guaranty Federal, is the proper subject of an independently asserted lawsuit. Further, Horseshoe‘s action for wrongful dishonor and debt against Guaranty Federal, is not so interwoven with Guaranty Federal‘s third party action that they involve the same facts and issues. Horseshoe‘s action concerns wrongful dishonor and Guaranty Federal‘s action concerns conspiracy to defraud.12 Therefore, we hold that the trial court did not abuse its discretion in severing Horseshoe‘s action on the check from Guaranty Federal‘s third party action.
Concurring and dissenting opinion by MAUZY, J., joined by RAY and GONZALEZ, JJ.
MAUZY, Justice, concurring and dissenting.
I concur with the majority‘s disposition of University Savings, but I respectfully dissent from the decision in Guaranty Federal. In my view, the record in Guaranty Federal shows plainly that the “official check” involved there was an executed sale of credit and was not subject to rescission and countermand under the facts presented. I agree with the court of appeals that it blinks reality for the courts not to treat ... an “official check” [sold for a two-dollar fee] of a savings and loan association in Texas as the equivalent of cash. Too much of the personal and commercial business of this State is transacted with such checks with the expectation that they do represent cash. Certainly Guaranty considered that this “official check” was the equivalent of a cashier‘s check and thus was delivered as the equivalent of cash. In this connection, the record contains various evidence indicating that Guaranty treated its “official check” as analogous to a cashier‘s check. [One of Guaranty‘s vice presidents, David] Liner repeatedly referred to the “official check” as a cashier‘s check and a bank money order. On deposition, Liner testified as follows:
[Horseshoe‘s Attorney]: Would you tell the Court and the jury just what the purpose is for an official check application?
[Liner]: It‘s where the person comes in and gives us cash or good funds to issue a check to someone in their behalf. We use these as official checks or money orders instead of issuing a regular check.
Further, the record contains a computer printout regarding the $900,000.00 check which specifically refers to the check as a “money order writer.” The record also contains a copy of the debit/credit transfer form used by Guaranty, which bears the notation, “Stop pmt on cashiers check.” Harold Ruyle, Guaranty‘s vice president in charge of security and regulations compliance, testified that the official check “could probably be categorized as a cashier‘s check.” Ruyle referred to the check as a cashier‘s check when asked whether he had discussed this particular check with anyone. 748 S.W.2d 525-526.
Again, it must be emphasized that the record reflects that Guaranty charged Parmet a two-dollar fee for issuance of its “official check“, just as any bank would charge for the issuance of a cashier‘s check. See J. Reitman, et al., Banking Law § 133.10 (1988). Plainly, both Parmet and Horseshoe had sufficient reason to rely on the savings and loan‘s check being the equivalent of cash. Accordingly, I dissent. I would affirm the Court of Appeals in Guaranty Federal.
RAY and GONZALEZ, JJ., join in this concurring and dissenting opinion.