In the

Court of Appeals

Second Appellate District of Texas

at Fort Worth

___________________________

No. 02-17-00425-CV

___________________________

On Appeal from the 89th District Court

Wichita County, Texas

Trial Court No. 180,335-C

Before Sudderth, C.J.; Gabriel and Birdwell, JJ.

Memorandum Opinion by Justice Gabriel

DONALD DUNN AND JACKEY DUNN D/B/A DOUBLE D LIQUOR, 

Appellants

V.

MENGTAI PETROLEUM MACHINERY, CO., LTD., Appellee
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MEMORANDUM OPINION

Appellant Donald Dunn and Jackey Dunn d/b/a Double D Liquor is in the 

business of selling liquor and cashing checks. W. R. Walls utilized the latter services, 

cashing $90,254.58 worth of checks made payable to his employer, appellee Mengtai 

Petroleum Machinery, Co., Ltd. Walls indorsed the checks himself, and Double D 

Liquor paid him the cash and deposited the checks into its account at First Bank. The 

police eventually presented First Bank with forgery affidavits executed by Xiaoing Jin, 

a representative of Mengtai, who averred that Walls had not been authorized to cash 

the company’s checks and had absconded with the money. In response, First Bank

froze a sufficient amount of funds in Double D Liquor’s account to cover the missing 

money and, unable to determine who was entitled to have it, filed an interpleader 

action, naming Double D Liquor and Mengtai as defendants. The trial court 

conducted a bench trial, found that Walls was not authorized to cash the checks at 

issue and that Double D Liquor was therefore liable to Mengtai for conversion of the 

checks, and rendered judgment awarding the interpleaded funds to Mengtai. 

Its spirits thus shaken, Double D Liquor appealed. We affirm.

I. WALLS’S AUTHORITY TO INDORSE MENGTAI’S CHECKS

As we construe its first of three issues, Double D Liquor argues the evidence is 

legally insufficient to support the trial court’s failure to find that Walls was authorized 
3

to indorse the company checks at issue here.

1

 As we understand its brief, Double D 

Liquor raises two arguments. First, it argues the evidence conclusively establishes that 

 

1Double D Liquor’s brief is no model of clarity. It is somewhat unclear from 

Double D Liquor’s brief whether its sufficiency challenge is based on legal

insufficiency, factual insufficiency, or both. While Double D Liquor contends in the

summary-of-argument portion of its brief that the asserted failure to find “was against 

the great weight and preponderance of the evidence and is clearly wrong and 

manifestly unjust,” which is the standard for a factual-sufficiency challenge, the only 

relief it requested in its brief is that we render judgment in its favor, which is the 

appropriate relief for legal, not factual insufficiency. See Dow Chemical Co. v. Francis, 

46 S.W.3d 237, 241–42 (Tex. 2001) (explaining that if a party challenges the legal 

sufficiency of an adverse finding on an issue on which the party had the burden of 

proof, the party must demonstrate on appeal the evidence establishes, as a matter of 

law, all vital facts in support of the issue, whereas if a party challenges the factual 

sufficiency of an adverse finding on such an issue, an appellate court may set aside the 

finding “only if the evidence is so weak or if the finding is so against the great weight 

and preponderance of the evidence that it is clearly wrong and unjust”). Compare 

Wright Way Spraying Serv. v. Butler, 690 S.W.2d 897, 898 (Tex. 1985) (noting that a court 

of appeals must reverse the trial court’s judgment and remand for a new trial if it finds 

the evidence is factually insufficient and that it has no jurisdiction to render based on 

a factual-sufficiency challenge), with Vista Chevrolet, Inc. v. Lewis, 709 S.W.2d 176, 176 

(Tex. 1986) (reiterating the well-settled rule that “no evidence” points require 

rendition in favor of the appealing party). 

Further, just before the argument portion of its brief concerning its first issue, 

Double D Liquor restates that issue as “W.R. Walls did have the authority or apparent 

authority to indorse checks made to Mengtai Petroleum,” and in the argument portion 

of its brief related to this issue, it merely argues that the evidence established Walls

had the authority to indorse the checks at issue. Those are legal-sufficiency 

arguments. See Dow Chemical, 46 S.W.3d at 241. Thus, because Double D Liquor only

raises arguments relating to legal insufficiency in its briefing of its first issue and 

requests only that we reverse and render judgment in its favor, we construe its first 

issue as raising only a legal-sufficiency challenge. See Maynard v. Booth, 421 S.W.3d 182, 

183 (Tex. App.—San Antonio 2013, pet. denied) (addressing only the legal sufficiency 

of the evidence where appellant cited both legal- and factual-sufficiency standards of 

review but only requested the court reverse the trial court’s judgment and render 

judgment in her favor).
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Walls was authorized to make deposits for Mengtai and that it “naturally follows that 

[he] had to be able to indorse [Mengtai’s] checks.” Second, Double D Liquor 

borrows from section 3.405(a)(3) of the business and commerce code, arguing that 

because the evidence establishes Walls had “responsibility” with respect to the checks

within the meaning of that provision, he necessarily had the authority to indorse the 

checks. We are not persuaded by either of these arguments.

A. STANDARD OF REVIEW

We may sustain a legal-sufficiency challenge—that is, a no-evidence 

challenge—only when (1) the record discloses a complete absence of evidence of a 

vital fact, (2) the rules of law or of evidence bar the court from giving weight to the 

only evidence offered to prove a vital fact, (3) the evidence offered to prove a vital 

fact is no more than a mere scintilla, or (4) the evidence establishes conclusively the 

opposite of a vital fact. Ford Motor Co. v. Castillo, 444 S.W.3d 616, 620 (Tex. 2014) (op. 

on reh’g); Uniroyal Goodrich Tire Co. v. Martinez, 977 S.W.2d 328, 334 (Tex. 1998) (op. 

on reh’g). In determining whether legally sufficient evidence supports the finding 

under review, we must consider evidence favorable to the finding if a reasonable 

factfinder could and must disregard contrary evidence unless a reasonable factfinder 

could not. Cent. Ready Mix Concrete Co. v. Islas, 228 S.W.3d 649, 651 (Tex. 2007); City of 

Keller v. Wilson, 168 S.W.3d 802, 807, 827 (Tex. 2005). 

If a party is attacking the legal sufficiency of an adverse finding on an issue on 

which the party had the burden of proof, and if no evidence supports the finding, we 
5

review all the evidence to determine whether the contrary proposition is established as 

a matter of law. Dow Chem. Co., 46 S.W.3d at 241; Sterner v. Marathon Oil Co., 

767 S.W.2d 686, 690 (Tex. 1989).

B. APPLICABLE LAW

If an instrument is payable to an identified person, negotiation requires transfer 

of possession of the instrument and its indorsement by the holder. Tex. Bus. & Com. 

Code Ann. § 3.201(b). As relevant here, an indorsement is a signature, other than that 

of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is 

made on an instrument for the purpose of negotiating the instrument. Id. § 3.204(a). 

Generally, an unauthorized signature is ineffective except as the signature of the 

unauthorized signer in favor of a person who in good faith pays the instrument or 

takes it for value. Id. § 3.403(a). An unauthorized signature is one that was made 

without actual, implied, or apparent authority. Id. § 1.201(41).

C. ANALYSIS

We begin with Double D Liquor’s first issue. Mengtai concedes Walls had 

responsibility for the checks within the meaning of section 3.405(a)(3), but it denies 

this necessarily established he had authority to indorse them. In relevant part, section 

3.405(a)(3) provides,

“Responsibility” with respect to instruments means authority (i) to sign 

or indorse instruments on behalf of the employer, (ii) to process 

instruments received by the employer for bookkeeping purposes, for 

deposit to an account, or for other disposition, (iii) to prepare or process 

instruments for issue in the name of the employer, (iv) to supply 
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information determining the names or addresses of payees of 

instruments to be issued in the name of the employer, (v) to control the 

disposition of instruments to be issued in the name of the employer, or 

(vi) to act otherwise with respect to instruments in a responsible 

capacity. 

Id. § 3.405(a)(3). This statute enumerates an itemized list of areas of authority with 

respect to instruments and provides that if an employee has authority in those areas, 

then the employee has “‘Responsibility’ with respect to instruments” within the 

meaning of section 3.405. Id. One such area of authority is the authority to sign or 

indorse instruments on behalf of the employer. Id. § 3.405(a)(3)(i). And this seems to 

be the basis of Double D Liquor’s contention that establishing Walls had 

responsibility with respect to the checks at issue here necessarily means he had 

authority to indorse those checks. 

But this is a misreading of the statute. The statute’s text sets forth the itemized 

list of areas of authority using the disjunctive “or,” meaning that if an employee has 

authority over any one of the enumerated areas, then the employee has “responsibility 

with respect to instruments.” See Webster’s Third Int’l Dictionary 1585 (2002) (stating

that “or” is used as a function word to indicate an alternative between different or 

unlike things, states, or actions); see also Antonin Scalia & Bryan A. Garner, Reading 

Law: The Interpretation of Legal Texts 116 (2012) (noting that disjunctive use of “or”

creates alternatives and that its use in a list indicates at least one item in the list is 

required, but any one or more of the items satisfies the requirement). Thus, it is 

possible for an employee to have responsibility with respect to checks under section 
7

3.405(a)(3) even if he does not have the authority to sign or indorse checks on behalf 

of his employer. Accordingly, contrary to Double D Liquor’s argument, showing 

Walls had responsibility with respect to Mengtai’s checks does not conclusively 

establish that he had authority to indorse them on Mengtai’s behalf.

We turn to Double D Liquor’s other argument, which is that the evidence 

conclusively shows that Walls had authority to deposit Mengtai’s checks, so it 

“naturally follows” that he had authority to indorse Mengtai’s checks. 

Jin testified that Walls was a manager of Mengtai. As Double D Liquor 

acknowledges, Jin testified that Walls did not have any authority to indorse checks 

that were payable to Mengtai. Jin also testified that Walls did not have authority to 

take the proceeds of checks payable to Mengtai. Rather, according to Jin, checks 

made payable to Mengtai were supposed to go into Mengtai’s bank account. Viewing 

the evidence in the light most favorable to the trial court’s findings, Jin’s testimony 

that Walls was not authorized to indorse Mengtai’s checks constitutes more than a 

scintilla of evidence supporting the trial court’s finding that Walls lacked authority to 

indorse the checks at issue here. Because the evidence is legally sufficient to support 

the trial court’s finding that Walls lacked authority to indorse the checks at issue here, 

we overrule Double D Liquor’s first issue.

II. ORDINARY CARE

As we understand its second issue, Double D Liquor challenges the trial court’s 

implied finding that it failed to exercise ordinary care in receiving from Walls checks
8

made payable to Mengtai, arguing that the evidence conclusively established the 

contrary.

2

 The same standard of review we applied to Double D Liquor’s first issue 

also applies to its second.

A. APPLICABLE LAW

Under the Texas Uniform Commercial Code (UCC), a person who receives a 

check, other than by negotiation, from a person who is not entitled to enforce it is 

liable for conversion of the check. Tex. Bus. Com. Code Ann. § 3.420(a). The

measure of liability for such a conversion is presumed to be the amount payable on 

the check. See id. § 3.420(b).

The UCC also contains certain comparative negligence provisions that apply to 

some, but not all, conversion claims. Sw. Bank v. Info. Support Concepts, Inc., 149 S.W.3d 

104, 107 (Tex. 2004). One such defense is the “faithless employee” defense found in 

section 3.405. See Tex. Bus. Com. Code Ann. § 3.405; Hanh H. Duong v. Bank One, 

N.A., 169 S.W.3d 246, 249 (Tex. App.—Fort Worth 2005, no pet) (referencing 

defense afforded by section 3.405 as the “faithless employee” defense). The faithless 

employee defense is as follows:

For the purpose of determining the rights and liabilities of a person who, 

in good faith, pays an instrument or takes it for value or for collection, if 

 

2As with its first issue, and for the same reasons, Double D Liquor’s brief is

unclear whether its second issue is based on legal insufficiency, factual insufficiency, 

or both. For the same reasons we articulated with respect to its first issue, we 

construe Double D Liquor’s second issue as presenting only a legal-sufficiency 

challenge.
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an employer entrusted an employee with responsibility with respect to 

the instrument and the employee or a person acting in concert with the 

employee makes a fraudulent indorsement of the instrument, the 

indorsement is effective as the indorsement of the person to whom the 

instrument is payable if it is made in the name of that person. If the 

person paying the instrument or taking it for value or for collection fails 

to exercise ordinary care in paying or taking the instrument and that 

failure contributes to loss resulting from the fraud, the person bearing 

the loss may recover from the person failing to exercise ordinary care to 

the extent the failure to exercise ordinary care contributed to the loss.

Tex. Bus. Com. Code Ann. § 3.405(b). In other words, as the Fifth Circuit has aptly 

summarized, under section 3.405, a person who converts a check nevertheless escapes 

liability for the conversion if (1) the person, in good faith, took the check for value, 

(2) the embezzler was an employee whose employer entrusted him with responsibility 

for the check, and (3) the employee fraudulently indorsed the check, but (4) with the 

proviso that the person remains liable for any loss to the extent that the person failed 

to exercise ordinary care. See Coastal Agric. Supply, Inc. v. JP Morgan Chase Bank, N.A., 

759 F.3d 498, 506 (5th Cir. 2014).

B. ANALYSIS

It is undisputed that the checks Double D Liquor received from Walls that are 

at issue here were payable to Mengtai. Additionally, the trial court found that Walls 

was not authorized to indorse those checks, and we have concluded that finding is 

supported by legally sufficient evidence. Thus, Double D Liquor received the checks 

from a person who was not entitled to enforce them. Consequently, Double D 

Liquor converted those checks and is presumptively liable for the full amount that is 
10

payable on them, see Tex. Bus. Com. Code Ann. § 3.420(a)–(b), unless it established a 

defense, and that is where section 3.405 comes in.

During trial, the parties did not dispute that Double D Liquor had taken the 

checks in good faith and for value. Nor did they dispute that Walls was an employee 

of Mengtai who was entrusted with responsibility for the checks. It also was 

undisputed that Walls had indorsed the checks “Mengtai Petroleum Machinery / W.R. 

Walls.” The extent of Double D Liquor’s liability, then, turns on whether it exercised 

ordinary care in taking the checks. See id. § 3.405. The trial court impliedly found it 

did not, and Double D Liquor challenges this finding.

However, before making that challenge, Double D Liquor seems to advance a

self-defeating argument on appeal: it contends section 3.405—the faithless employee 

defense—is inapplicable to this case because the checks in question were not

fraudulently indorsed. Because Double D Liquor is the party that converted those

checks, it is the party who stands to benefit from the faithless employee defense, and 

one requirement for that defense to apply is that the checks were fraudulently 

indorsed. See id. Thus, to accept Double D Liquor’s contention that the checks were 

not fraudulently indorsed would mean that the faithless employee defense is 

unavailable to it, rendering its argument that it exercised ordinary in receiving the 

checks from Walls moot.

But Double D Liquor also argues that if section 3.405 is applicable, the 

evidence conclusively shows it exercised ordinary care in receiving the checks from 
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Walls. In trying to reconcile Double D Liquor’s alternative arguments, we bear in 

mind that we are to “construe appellate briefs reasonably, yet liberally, so that the 

right to appellate review is not lost by waiver.” See Ho v. Saigon Nat’l Bank, 438 S.W.3d 

871, 873 (Tex. App.—Houston [14th Dist.] 2014, no pet.). Looking to Double D 

Liquor’s brief, we note that in both the issues-presented and summary-of-argument 

portions of its brief, Double D Liquor framed its second issue as whether it had used 

“due diligence” in receiving the checks from Walls. We also note that in its first issue, 

Double D Liquor maintained that Walls was not an imposter or fictitious payee under 

section 3.404 but rather was an employee with responsibility under section 3.405. We 

note again that neither party disputed at trial that Walls had indorsed the checks at 

issue here “Mengtai Petroleum Machinery / W.R. Walls.” And we note that Mengtai 

does not argue that section 3.405 is inapplicable and that it insists the checks were 

fraudulently indorsed. Given these facts, we do not construe Double D Liquor’s 

second issue as challenging the applicability of section 3.405’s faithless employee 

defense to this case. Accordingly, we will proceed to consider Double D Liquor’s

argument that the evidence conclusively establishes it exercised ordinary care in 

receiving the checks from Walls. 

The trial court made several findings relevant to Double D Liquor’s challenge 

to the trial court’s implied finding that Double D Liquor did not exercise ordinary 

care in receiving the checks from Walls:
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3. Donald Dunn and wife Jackey Dunn d/b/a/ Double D Liquor 

cashed checks which were payable to Mengtai, but which were endorsed 

by W.R. Walls. The cash proceeds for each check were then delivered 

by Donald Dunn and wife Jackey Dunn d/b/a/ Double D Liquor to 

W.R. Walls. (However, on at least one instance when Donald Dunn and 

wife Jackey Dunn d/b/a/ Double D Liquor cashed a check payable to 

Mengtai and endorsed by W.R. Walls, W.R. Walls was not even present. 

W.R. Walls’s spouse delivered the check to Donald Dunn and wife 

Jackey Dunn d/b/a/ Double D Liquor and was paid the proceeds 

thereof).

4. W.R. Walls provided no proof to Donald Dunn and wife Jackey Dunn 

d/b/a/ Double D Liquor that W.R. Walls ha[d] the authority to endorse 

check(s) payable to Mengtai.

5. Donald Dunn and wife Jackey Dunn d/b/a/ Double D Liquor took 

no action to determine if W.R. Walls had the authority to endorse checks 

which were payable only to Mengtai as the Payee.

Double D Liquor does not challenge these findings, and thus they are binding on us. 

See Inimitable Grp., L.P. v. Westwood Grp. Dev. II, Ltd., 264 S.W.3d 892, 902 & n.4 (Tex. 

App.—Fort Worth 2008, no pet.).

Under the UCC, in the case of a person engaged in business, “ordinary care” 

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.” Tex. Bus. Com. Code Ann. § 3.103(a)(9). Here, the trial court found that 

Walls never gave any proof to Double D Liquor verifying he was authorized to cash 

checks made payable to Mengtai and that Double D Liquor took no action to 

determine whether he was so authorized. From these facts, the trial court could 
13

reasonably have concluded that Double D Liquor failed to exercise ordinary care in 

cashing the checks. Accordingly, we overrule Double D Liquor’s second issue.

III. CONTRIBUTORY NEGLIGENCE

In its third issue, Double D Liquor argues that the evidence shows that 

Mengtai’s own negligence caused its losses and that consequently, it is precluded from 

recovery. Specifically, Double D Liquor argues that Mengtai failed to adequately 

examine its records, causing it not to discover that Walls was cashing its checks over a 

period of several months. Double D Liquor attempts to rely upon business and 

commerce code section 4.406(d)(2) to argue that Mengtai’s alleged failure to 

adequately examine its records was negligence that precludes it from recovery. 

Section 4.406(d)(2) generally provides that a customer of a bank who fails to 

exercise reasonable promptness in examining his bank statements for unauthorized

payments from his account is precluded from asserting against the bank

the customer’s unauthorized signature or alteration by the same 

wrongdoer on any other item paid in good faith by the bank if the 

payment was made before the bank received notice from the customer 

of the unauthorized signature or alteration and after the customer had 

been afforded a reasonable period of time, not exceeding 30 days, in 

which to examine the item or statement of account and notify the bank.

Tex. Bus. & Com. Code Ann. § 4.406(d)(2). As Double D Liquor admits, by its 

express terms, this statute does not apply to this case because it is not a bank. See id. 

§ 4.105(1). Nevertheless, on the simple, conclusory statement that this statute “can be 

used as a guiding principle for Mengtai’s negligence,” Double D Liquor invites us to 
14

apply its requirements to Mengtai’s alleged failures anyway. But Double D Liquor 

points us to nothing that would authorize us to do so, nor has it offered any cogent 

reason why a statute whose express terms it admits do not apply to Mengtai’s conduct

should nevertheless be applied to Mengtai’s conduct. We decline Double D Liquor’s

bare invitation to reverse the trial court’s judgment by applying the requirements of a 

statute to a situation outside of the statute’s scope. We overrule Double D Liquor’s 

third issue.

IV. CONCLUSION

Having overruled all of Double D Liquor’s issues, we affirm the trial court’s 

judgment. See Tex. R. App. P. 43.2(a).

/s/ Lee Gabriel

Lee Gabriel

Justice

Delivered: July 11, 2019