Opinion ID: 2543400
Heading Depth: 1
Heading Rank: 1

Heading: Accrual of Breach Action

Text: Guaranty Bank argues it did not breach the deposit agreement when Lenk demanded payment in 2005 because the agreement terminated when the account was closed in 2001. Guaranty Bank further asserts that any cause of action for a breach of the deposit agreement would have accrued in 2000 and early 2001 when the bank denied liability by providing statements to Spillman. Guaranty Bank maintains that Lenk filed a demand-based claim simply as a way to evade the applicable statutes of limitations or repose, which would have barred alternative claims, such as a wrongful payment claim, Lenk chose not to pursue. We disagree. It is well-settled that a general deposit, such as that at issue here, creates a debtor-creditor relationship between a bank and its customer. Sears v. Cont'l Bank & Trust Co., 562 S.W.2d 843, 844 (Tex.1977); Upper Valley Aviation, Inc. v. Mercantile Nat'l Bank, 656 S.W.2d 952, 955 (Tex.App.-Dallas 1983, writ ref'd n.r.e.); Meador v. Rudolph, 218 S.W. 520, 526 (Tex.Civ.App.-Amarillo 1919, writ dism'd w.o.j.) (describing the well-recognized principle of law that the deposit is a debt owing by the bank to the party in whose name the deposit is made). Given this relationship, a bank may only pay out money in accordance with a customer's order, and also bears the burden of demonstrating proper payment. Sears, 562 S.W.2d at 844 (The bank must justify its withdrawal from the depositor's account when the depositor proves the balance in his account and sues the bank for that amount.); Mesquite State Bank v. Prof'l Inv. Corp., 488 S.W.2d 73, 75 (Tex.1972) (observing that the burden of proving payment under authority from the depositor is on the bank (citing L.G. Balfour Co. v. State Trust & Sav. Bank of Dallas, 120 S.W.2d 477, 479 (Tex.Civ.App.-Waco 1938, no writ))); Peavy-Moore Lumber Co. v. First Nat'l Bank of Beaumont, 133 Tex. 467, 128 S.W.2d 1158, 1162 (Tex.Comm'n App.1939) (noting that when a person makes a deposit in the name of another, the bank becomes the debtor of the person for whom and in whose name the deposit is made, and the money cannot be withdrawn by him who made the deposit unless it is proven that he, rather than the person in whose name the deposit was made, is the true owner). While a bank's wrongful payment of a general deposit does not breach the deposit agreement, a bank's refusal to pay such funds to the rightful account holder will. Hodge v. N. Trust Bank of Tex., N.A., 54 S.W.3d 518, 525-26 (Tex.App.-Eastland 2001, pet. denied). Here, the bank refused to pay general deposit funds to the rightful account holder (Lenk), and so the bank breached the deposit agreement. Even if Lenk could have sued separately for wrongful payment, she was also entitled to sue for breach when the bank refused her demand for payment. See id.; see also Upper Valley Aviation, 656 S.W.2d at 955 (observing that a bank deposit creates a debtor/creditor relationship, and thus a person must sue for breach of the depository contract to recover the deposit); Canyon Lake Bank v. New Braunfels Utils., 638 S.W.2d 944, 949 (Tex.App.-Austin 1982, no writ) (discussing demand-based claim); Hinds v. Sw. Sav. Ass'n of Houston, 562 S.W.2d 4, 4-5 (Tex.Civ.App.-Beaumont 1977, writ ref'd n.r.e.) (same); First State Bank of Seminole v. Shannon, 159 S.W. 398, 401 (Tex.Civ.App.-Amarillo 1913, writ ref'd) (same). Given the debtor-creditor relationship between a bank and a customer and the corresponding requirement that the bank must repay any deposits to the customer, see Sears, 562 S.W.2d at 844, a breach action for such a refusal includes funds that were wrongfully paid out by a bank. A customer, after all, will always seek the funds that should be on deposit in an account. See Mesquite State Bank, 488 S.W.2d at 75 (In suits against a bank to recover deposits, the burden of proving payment under authority from the depositor is on the bank.). Indeed, Lenk sued for all funds on deposit since Thompson's death ( i.e., those funds wrongfully paid out by the bank), not merely for those nonexistent funds in the closed account at the time she made her demand. Thus, Lenk's claim for breach of the deposit agreement fairly encompasses any wrongful payment claim she may have had. See id. Because there was a breach, we must next determine when the breach accrued. A cause of action for denial of deposit liability on a deposit contract ... does not accrue until the bank has denied liability and given notice of the denial [by providing an account statement] to the account holder. TEX. FIN.CODE § 34.301(b). Thus, as a general matter, a bank's refusal to pay funds on a customer's demand commences the accrual of a demand-based cause of action. See Hodge, 54 S.W.3d at 525-26. But, importantly, section 34.301(b) goes on to state: A bank that provides an account statement ... to the account holder is considered to have denied liability and given the notice as to any amount not shown on the statement.... TEX. FIN.CODE § 34.301(b). Guaranty Bank urges us to hold that any cause of action for breach of the deposit agreement thus accrued when it denied liability by sending account statements to Spillman in 2000. Jefferson State Bank precludes this holding. In that case, we unconditionally rejected Jefferson State Bank's contention that it satisfied its burden of sending or making available statements when it sent them to the imposter Spillman. Jefferson State Bank, 323 S.W.3d at 149 (concluding that sending Spillman the statements could not fulfill the Bank's obligation to provide account statements `to a customer' (citing TEX. BUS. & COM.CODE § 4.406(a))). While Jefferson State Bank concerned the statute of repose under section 4.406 of the Business and Commerce Code, the rationale and logic of that opinion apply equally here. As we observed in Jefferson State Bank, any reliance Jefferson State Bank may have had on Spillman's fraudulent letters of administration would not have altered the fact that Spillman was not the bank's customer. See id.; see also TEX. BUS. & COM.CODE § 4.406(a), (f) (precluding a bank customer from asserting against the bank [an] unauthorized signature if the customer does not timely discover and report the customer's unauthorized signature after the bank sends or makes available to a customer a statement of account). Similarly, a bank may not deny liability by providing account statements to an imposter estate administrator when section 34.301(b) of the Finance Code specifically provides that a bank must provide account statements  to the account holder.  TEX. FIN.CODE § 34.301(b). Spillman, an imposter administrator, was not the account holder. Under Guaranty Bank's reasoning, Lenk's demand-based cause of action would have accrued when Guaranty Bank began sending statements to Spillman in 2000, three years before Lenkthe legitimate estate administratorwas even appointed. In Jefferson State Bank, we held that in the event of a customer's death, a bank satisfies its section 4.406 burden of making an account statement available by retaining statements at a bank, but that the customer's burden to report unauthorized signatures does not arise until an estate representative is appointed. Jefferson State Bank, 323 S.W.3d at 149-50. The same logic should apply when determining when a bank denies liability in the face of a demand-based claim. We thus conclude that Guaranty Bank denied liability once Lenk was appointed administrator in 2003. See id. [5] At that point, Lenk would have had the opportunity to review any statements for the account prior to its closing and bring a timely demand-based claim. Guaranty Bank's speculative argument that Lenk sued for breach of the deposit agreement in order to circumvent the applicable statute of repose under section 4.406 is also devoid of any merit. As mentioned previously, Lenk filed the exact same cause of actionon the same dayin this case as she did in Jefferson State Bank. In Jefferson State Bank, we held that the statute of repose barred Lenk's claim. Jefferson State Bank, 323 S.W.3d at 150. The statute of repose requires a person to report unauthorized transactions to a bank within one year of account statements being made available. See TEX. BUS. & COM.CODE § 4.406(f). If a person fails to report the unauthorized transaction, the person is barred from bringing a claim for payment. See id. The statute of repose demands that a person report unauthorized transactions as a condition precedent to bringing suit. See, e.g., Am. Airlines Emps. Fed. Credit Union v. Martin, 29 S.W.3d 86, 95 (Tex.2000) (observing that section 4.406 places a duty on bank customers to discover and report account irregularities and is similar to a condition precedent); Nat'l Title Ins. Corp. Agency v. First Union Nat'l Bank, 263 Va. 355, 559 S.E.2d 668, 671 (2002) (observing that the statute of repose constitutes a condition precedent to a customer's right to file claims against a bank). Unlike a statute of limitations, the statute of repose is an absolute bar to suit and runs from a specific date without regard to the accrual of a cause of action.  Jefferson State Bank, 323 S.W.3d at 147 n. 2 (emphasis added) (citing Holubec v. Brandenberger, 111 S.W.3d 32, 37 (Tex.2003) and Trinity River Auth. v. URS Consultants, Inc.-Tex., 889 S.W.2d 259, 261 (Tex.1994)); see Sandoe v. Lefta Assocs., 559 A.2d 732, 736 n. 5 (D.C.1989) (stating that [a] statute of repose ... establishes an absolute time period within which legal proceedings must be initiated, regardless of when a cause of action accrues  (emphasis added)). A statute of repose is therefore a substantive definition of rights, rather than a procedural limitation. Jefferson State Bank, 323 S.W.3d at 147 n. 2 (quoting Trinity River Auth., 889 S.W.2d at 261). As in Jefferson State Bank, the repose time period began to run when Lenk was appointed in 2003, regardless of the accrual date of her cause of action. [6] Lenk had one year from the date of her appointment to report the unauthorized transactions to the bank, and she failed to do so. See id. at 147. But Guaranty Bank failed to raise the statute of repose as an affirmative defense in the trial court, and, in this Court, the bank expressly disclaims reliance on the statutes of repose and limitations as independent grounds for summary judgment. It is settled that [a] court cannot grant summary judgment on grounds that were not presented. Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 204 (Tex.2002) (citing Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 912 (Tex.1997)). [7] Moreover, as an affirmative defense, the statute of repose is only available to parties that properly raise it in the trial court. See TEX.R. CIV. P. 94. When a defendant moves for summary judgment based on an affirmative defense, such as the statute of repose, the defendant, as movant, bears the burden of proving each essential element of that defense. Ryland Group, Inc. v. Hood, 924 S.W.2d 120, 121 (Tex.1996) (per curiam); see also Jefferson State Bank, 323 S.W.3d at 148-50 (explaining that, when raised as a defense, the statute of repose begins to run when an administrator is appointed). Thus, we will not analyze Guaranty Bank's petition in light of any such defenses. See TEX.R. CIV. P. 166a(c) (Issues not expressly presented to the trial court by written motion, answer or other response shall not be considered on appeal as grounds for reversal.). The dissent agrees that under section 34.301(b) of the Finance Code, Lenk's cause of action began to accrue in 2003. See 361 S.W.3d at 613 (Hecht, J., dissenting) (Lenk was appointed the representative of Thompson's estate in September 2003. Under Section 34.301(b), her action against the bank accrued then, not in June 2005.). The dissent parts company by believing that demand-based claims do not exist. Id. at 614 (The problem with the claim Lenk asserts is not that it is time-barred; the problem is that under Section 34.301(b), the claim does not exist, and for good reason.). This statement either ignores the fact that we have consistently recognized demand-based claims since 1913, see Shannon, 159 S.W. at 401, or that section 34.301(b) changed only when those demand-based claims begin to accrue for limitations purposes. Section 34.301(b) limits when demand-based claims may be brought but it does not eliminate them. Unlike limitations, repose does not depend on when a cause begins to accrue. Jefferson State Bank, 323 S.W.3d at 147 n. 2. Repose here required Lenk to sue within one year of being appointed administrator in 2003, TEX. BUS. & COM.CODE § 4.406(f); Jefferson State Bank, 323 S.W.3d at 147, rather than the limitations requirement of suing within four years of being appointed administrator in 2003, TEX. FIN.CODE § 34.301(b) (defining accrual as when bank denies liability by making account statements available); TEX. CIV. PRAC. & REM. CODE § 16.051 (establishing residual four-year limitations period). Because Lenk sued two years after being appointed administrator, limitations would not bar her claim and is not at issue in this case. TEX. FIN.CODE § 34.301(b); TEX. CIV. PRAC. & REM.CODE § 16.051. The dissent relies on a statute that is not relevant to Lenk's claim to attempt to explain that the claim never existed in the first place. The dissent also believes that our decision will be significant to the entire financial industry in Texas and will result in a windfall to the estate here. 361 S.W.3d at 614 (Hecht, J., dissenting). Banks have been on notice since at least 1913 that demand-based claims exist. Shannon, 159 S.W. at 401. And they also have the protection of various defenses. Our decision today gives full effect to these claims and defenses. Further, there is no evidence in the record identifying the source of the additional funds and there is certainly no evidence to suggest they came from somewhere other than the estate. Lenk's cause of action for breach of the deposit agreement began to accrue when she was appointed in 2003, and thus was able to access the estate's account statements for the first time. However, Guaranty Bank did not raise a viable defense that compels judgment in its favor. Accordingly, we hold that Guaranty Bank breached the deposit agreement and that it raised no defense that negates its liability.