Bank of Texas, NA v. v. R Electric

Opinion issued December 31, 2008

In The

Court of Appeals

For The

First District of Texas

NO. 01-07-00308-CV

BANK OF TEXAS, Appellant

V.

VR ELECTRIC, INC., Appellee

On Appeal from County Civil Court at Law No. 1

Fort Bend County, Texas

Trial Court Cause No. 24561

OPINION ON REHEARING

This is a dispute about payment of a forged check for $8,276. Appellant, Bank

of Texas (“Bank”), filed a motion for rehearing. We received a response from VR

Electric (“VR”). We grant rehearing and withdraw our opinion and judgment issued

on September 4, 2008.

The Bank appeals from the trial court’s judgment awarding appellee, VR,

damages for paying VR’s check that was forged. The judgme nt against the Bank was

for breach of contract and the judgment against the co-defendant, Frank C. Mata, was

for negligence.

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) of the Business and Commerce Code. Tex. Bus. & Com. Code Ann.

§ 3.406(a) (Vernon 2002). In its first issue, the Bank asserts that the tr ial 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 .

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 was

next to the front entrance and accessible to anyone who entered VR’s office.

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. 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 each 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 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.).

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 record shows 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.” In question one, 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.

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.

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 soon after it was missing.

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 Under Section 3.406(b)

We have determined that the Bank met its burden under section 3.406(a) to

show that it acted in good faith and that VR failed to use ordinary care. 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 of ordinary prudence would not

have done under the same or similar circumstances.” The charge tracks the statutory

language defining “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.” See Tex. Bus. & Comm. Code Ann. § 3.103(a)(9) (Vernon 2005). 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.” See id . 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

The Bank claims in its motion for rehearing that it “conclusively establishes

that the Bank of Texas met the commercial standards in § 3.103(a)(9).” But the

evidence shows the Bank did not use ordinary care, as that term is defined in the

charge, which tracks the statutory language in section 3.103(a)(9). See Tex. Bus. &

Comm. Code Ann. § 3.103(a)(9) (Vernon 2005). Section 3.103(a)(9) provides that

reasonable commercial standards do not require the Bank to examine the instrument

paid by automated means if two prongs are met: (1) the failure to examine must not

violate the bank’s prescribed procedures and (2) the bank’s procedures must not vary

unreasonably from general banking usage. See id. Viewing the evidence in a light

favorable to the jury’s verdict, the first prong is not met, and therefore the Bank is not

excused from examining the instrument. See id. ; City of Keller , 168 S.W.3d at 822 .

There were no written procedures concerning when the signature of a check should

be manually verified. The Bank claimed to have verbal policies concerning when the

signature of a check should be manually verified, but Fedigan testified she was unsure

what the verbal policy was. 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. Based on the lack of a

written policy and the inconsistency in the description of the verbal policy, the jury

could rationally determine that the Bank did not have prescribed procedures for

examining checks and therefore the evidence did not establish the first prong under

section 3.103(a)(9), which requires proof that the failure to examine does not violate

the bank’s prescribed procedures. See Tex. Bus. & Comm. Code Ann. § 3.103(a)(9).

Since the evidence is legally sufficient to show that the Bank did not meet the first

prong of section 3.103(a)(9), we do not reach the second prong that asks whether the

Bank’s procedures varied unreasonably from general banking usage, because both

prongs must be proven for the Bank not to be required to examine the instrument paid

by automated means. See id.

In this appeal, the Bank maintains that the evidence is legally insufficient to

show that VR proved that the Bank failed to exercise ordinary care. The Bank

focuses on the portion of the definition of ordinary care that refers to “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.” The Bank

contends VR did not introduce evidence of reasonable commercial standards

prevailing in the area. As noted above, VR introduced evidence that the Bank had no

written policy and only an unclear, inconsistent, verbal policy to review signatures.

This evidence, viewed in a light favorable to the jury’s verdict, is sufficient to uphold

the jury’s finding that the Bank did not exercise ordinary care. See McDowell v.

Dallas Teachers Credit Union , 772 S.W.2d 183, 193 (Tex. App.—Dallas 1989, no

pet.).

In McDowell v. Dallas Teachers Credit Union , the court held that the credit

union was liable for the amounts paid on forged share drafts because the evidence

established, as a matter of law, that the credit union failed to use ordinary care in its

treatment of the forged share drafts. Id. The evidence showed the credit union did

not have any procedure for verifying the depositor’s signature on any of the share

drafts that were paid. Id . McDowell applied former sections 3.401, 3.1418, and 4.401

of the Texas Business and Commerce Code. Id. (citing Tex. Bus. & Com. Code

Ann . §§ 3.401, 3.418, 4.401 (Vernon 1968)). Then section 4.406 placed a duty on

a depositor to promptly examine his bank statement and report to the bank the

discovery of any unauthorized signature or any alteration. Id. If the depositor failed

to comply with this duty, the bank was protected from loss so long as it exercised

ordinary care and paid the item in good faith. Id. The court held that, as a matter of

law, the credit union’s failure to establish any process to signature-verify any share

drafts was unreasonable, arbitrary, and unfair. Id. The McDowell court stated, “If the

procedure does not reasonably relate to the bank’s duty to verify signatures, the

procedure can not be considered an exercise of ordinary care or an act in accordance

with reasonable commercial standards.” Id.

Although McDowell involved an earlier version of the code, it is similar to the

present code’s section 3.103(a)(9) in that both codes examine whether the bank used

ordinary care in handling the check or share, and it is therefore instructive to our

analysis. Id . We conclude the Bank’s failure to have a written policy and to have

only an unclear, inconsistent, verbal policy to review signatures is some evidence of

a failure to exercise ordinary care. See id. We hold the evidence is legally sufficient

to uphold the jury’s finding that 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.

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.

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 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 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.