Court Opinion

ID: 7799390
Source: CourtListenerOpinion
Date Created: 2022-08-10 06:12:27.655615+00
Date Added: 2024-06-11T16:28:56.809605
License: Public Domain

Affirmed and Opinion Filed August 2, 2022

                                      In The
                            Court of Appeals
                     Fifth District of Texas at Dallas
                               No. 05-20-01115-CV

          MINGTEL INC. D/B/A AZPEN INNOVATION, Appellant
                                V.
                    COMERICA BANK, Appellee

                On Appeal from the 68th Judicial District Court
                            Dallas County, Texas
                     Trial Court Cause No. DC-19-11481

                        MEMORANDUM OPINION
                   Before Justices Myers, Osborne, and Nowell
                           Opinion by Justice Osborne
      After a bench trial, the trial court rendered judgment for appellee Comerica

Bank on appellant Mingtel Inc. d/b/a Azpen Innovation’s claim for money had and

received. In one issue, Mingtel contends the trial court erred because Mingtel’s

interest in the proceeds from the sale of certain consigned goods was superior to

Comerica’s. We conclude that under Article 9 of the Uniform Commercial Code,

Comerica’s perfected security interest in the proceeds was superior to Mingtel’s

unperfected consignor’s interest. Accordingly, we affirm the trial court’s judgment.
                                           BACKGROUND

        Mingtel manufactures computer tablets for resale by consumer retailers. Some

of Mingtel’s products were sold on the Home Shopping Network under HSN’s

“Master Terms and Conditions for Drop Shipment Vendors” (“MTC”) agreement

that Mingtel signed in 2013. HSN required Mingtel to use an approved third party

to fulfill the orders made on HSN and ship the products to consumers. Mingtel

contracted with PCT Brands1 for this purpose, entering into a “Fulfillment Services

Agreement” (“FSA”) in 2014.

        Neither the MTC nor the FSA provided that title to the goods would pass to

PCT. The MTC agreement provided that “[t]itle to each item sold by HSN will pass

from [Mingtel] to HSN upon HSN’s receipt of the Shipping Confirmation to the

applicable customer.” The FSA provided that “Title to and ownership of all Products

in PCT’s possession shall remain in [Mingtel] at all times until such title passes

directly to HSN’s customers and shall not pass to PCT at any time.”

        Under the two agreements, HSN agreed to pay Mingtel for the products

shipped by PCT, and Mingtel in turn agreed to pay a fee to PCT for each product

shipped. In practice, however, HSN sent payment for the goods to PCT, not to

Mingtel. Mingtel’s chief executive officer, Jim Hu, testified that this was because

the MTC agreement required all communications with HSN, including electronic

    1
      Although the FSA admitted into evidence at trial reflected the contracting party as “PT Treasures,
Inc.,” Mingtel originally named “PCT Brands, LLC” as a party in this lawsuit. The record does not reflect
any issue, pertinent to this appeal or otherwise, about this discrepancy.
                                                  –2–
payments, to be in an approved electronic data format. As part of its services under

the FSA, PCT provided an electronic data interface for communications to and from

Mingtel in a format acceptable to HSN.

      It is undisputed that Mingtel did not perfect a security interest in any accounts

from HSN or PCT.

      Also in 2014, PCT borrowed money from Comerica Bank. PCT executed a

security agreement on November 21, 2014, granting Comerica a continuing security

interest and lien on PCT’s assets to secure payment of the loan. Some years later,

PCT defaulted on the loan and entered into a series of forbearance agreements with

the bank. Under these agreements, PCT surrendered all of its cash inflows to

Comerica, including a cash collateral account that Comerica maintained and

controlled.

      At issue in this case are 3,000 units of Mingtel’s products sold on HSN in June

2017. Mingtel alleged the gross revenue from the sale was $357,750. PCT shipped

the orders and HSN paid PCT in two payments. PCT never paid Mingtel, stopping

payment on one check for $150,000 and failing to make any other payments. Instead,

HSN’s funds were deposited into PCT’s cash collateral account at Comerica Bank

and applied to repayment of Comerica’s loans to PCT.

      Mingtel filed suit against Comerica and PCT in 2019 asserting multiple causes

of action. Comerica moved for summary judgment after Mingtel nonsuited its claims

against PCT, but its motion did not include Mingtel’s claim for money had and

                                         –3–
received. The trial court granted Comerica’s motion and proceeded to a bench trial

on Mingtel’s remaining claim. After hearing evidence and argument, the trial court

rendered judgment for Comerica, ordering that Mingtel take nothing on its claim.

The trial court denied Mingtel’s motion for new trial or for reconsideration. This

appeal followed.

                         ISSUE AND STANDARD OF REVIEW

      In its sole issue, Mingtel contends the trial court erred by ruling in favor of

Comerica on Mingtel’s claim for money had and received. This is a claim for

equitable relief. Edwards v. Mid-Continent Office Distribs., L.P., 252 S.W.3d 833,

836 (Tex. App.—Dallas 2008, pet. denied). A trial court exercises broad discretion

in balancing the equities involved in a case seeking equitable relief. Id. In reviewing

a trial court’s ruling on a claim for equitable relief, “we first determine whether the

evidence is sufficient to support the challenged findings and then determine whether

the trial court’s judgment—as a decision of a claim seeking equitable relief—is

arbitrary, unreasonable, or unsupported by guiding rules and principles.” Id. at 836.

      The trial court did not make findings of fact and conclusions of law.

Consequently, we imply all findings necessary to support the judgment, provided

the necessary findings are raised by the pleadings and supported by the evidence.

Hazzani, LLC v. Richardson Bus. Ctr., Ltd., No. 05-18-00346-CV, 2019 WL

3244175, at *4 (Tex. App.—Dallas July 19, 2019, no pet.) (mem. op.). When, as

here, the record on appeal contains the reporter’s record, the trial court’s implied

                                         –4–
findings may be challenged for legal and factual sufficiency under the same

standards that govern challenges to a jury’s findings. Id. That is,

      we must determine whether the evidence as a whole rises to a level that
      would enable reasonable and fair-minded people to differ in their
      conclusions. Anything more than a scintilla of evidence is legally
      sufficient to support a challenged finding. When we review a finding
      for factual sufficiency, we consider all of the evidence and will set aside
      a finding only if it is so contrary to the overwhelming weight of the
      evidence as to be clearly wrong and unjust.

Edwards, 252 S.W.3d at 836 (citations omitted).

      In a bench trial, the trial court is the sole judge of the credibility of the

witnesses and the evidence. Shaw v. County of Dallas, 251 S.W.3d 165, 169 (Tex.

App.—Dallas 2008, pet. denied). The trial court may believe one witness and

disbelieve others and may resolve any inconsistencies in a witness’s testimony. Id.

                                     DISCUSSION

      Although Mingtel’s claim was for money had and received, Mingtel explains

that “[t]he present case depends less on the elements of money had and received (as

neither party has denied the fact that the HSN checks were deposited into PCT’s

cash collateral account), but instead, hinges on whether the consignment between

Mingtel and PCT was a ‘true consignment’ or one governed by Article 9 of the

UCC.” Mingtel contends that “[t]his is important because under common law, the

consignee’s [PCT’s] rights in the consigned goods are limited and its creditors [e.g.,

Comerica] cannot assert claims against those goods.” Mingtel argues that if Article

9 does not apply, “[t]he funds sent by HSN to PCT were . . . never the ‘cashflow’ of

                                         –5–
PCT in which Comerica had a security interest.”2 But if Article 9 applies, as

Comerica contends, then Comerica’s perfected security interest has priority over

Mingtel’s unperfected interest. Accordingly, we first discuss the parties’ arguments

under Article 9 before considering Mingtel’s claim for equitable relief.

1. UCC Article 9

        UCC section 9.103(d) provides that “[t]he security interest of a consignor in

goods that are the subject of a consignment is a purchase-money security interest in

inventory.” TEX. BUS. & COM. CODE § 9.103(d). Accordingly, the perfection and

priority rules concerning competing security interests apply to consigned goods. Id.

§ 9.109(a)(4) (Article 9 applies to consignments); id. cmt. 6 (“This Article applies

to every ‘consignment’” and includes “many but not all ‘true’ consignments (i.e.,

bailments for the purpose of sale”)). With certain exceptions not applicable here, a

financing statement must be filed to perfect all security interests. Id. § 9.310(a).

        UCC section 9.319 sets forth when Article 9, rather than “law other than this

chapter,” applies to determine a consignee’s rights with respect to its creditors:

        § 9.319. Rights and Title of Consignee with Respect to Creditors and
        Purchasers

        (a) Except as otherwise provided in Subsection (b), for purposes of
        determining the rights of creditors of, and purchasers for value of goods
        from, a consignee, while the goods are in the possession of the

    2
     Mingtel concludes that because “PCT was only entitled to a service fee of $3.00 per unit sold by HSN,
which totaled $9,750.00 from the June sale[,]” “only $9,750.00 can be considered PCT ‘cashflow’ and
subject to seizure” by Comerica.
                                                  –6–
         consignee, the consignee is deemed to have rights and title to the goods
         identical to those the consignor had or had power to transfer.

         (b) For purposes of determining the rights of a creditor of a consignee,
         law other than this chapter determines the rights and title of a consignee
         while goods are in the consignee’s possession if, under this subchapter,
         a perfected security interest held by the consignor would have priority
         over the rights of the creditor.
TEX. BUS. & COM. CODE § 9.319.3

         If a consignee’s creditor has perfected its security interest but the consignor

has not, the creditor’s interest has priority, as explained in a comment to section

9.319:

         Example 1: SP-1 delivers goods to Debtor in a transaction constituting
         a “consignment” as defined in Section 9-102. SP-1 does not file a
         financing statement. Debtor then grants a security interest in the goods
         to SP-2. SP-2 files a proper financing statement. Assuming Debtor is a
         mere bailee, as in a “true” consignment, Debtor would not have any
         rights in the collateral (beyond those of a bailee) so as to permit SP-2’s
         security interest to attach to any greater rights. Nevertheless, under this
         section, for purposes of determining the rights of Debtor’s creditors,
         Debtor is deemed to acquire SP-1’s rights. Accordingly, SP-2’s security
         interest attaches, is perfected by the filing, and, under Section 9-322, is
         senior to SP-1’s interest.
TEX. BUS. & COM. CODE § 9.319 cmt. 2.

         The parties disagree whether Article 9 of the UCC applies to Mingtel’s claim.

Mingtel argues that Article 9 does not apply, and under common law, its interest as

consignor and owner of the goods prevails over Comerica’s interests as a creditor of

    3
      See also TEX. BUS. & COM. CODE § 9.103(d) (providing that “[t]he security interest of a consignor in
goods that are the subject of a consignment is a purchase-money security interest in inventory”); id.
§ 1.201(b)(35) defining “security interest” to include “any interest of a consignor . . . in a transaction that
is subject to Chapter 9”).
                                                     –7–
PCT. Comerica argues that Article 9 applies, and under section 9.319, its perfected

security interest in PCT’s accounts prevailed over Mingtel’s unperfected consignor’s

interest.

       The UCC defines “consignment” in section 9.102(a)(20):

       (20) “Consignment” means a transaction, regardless of its form, in
            which a person delivers goods to a merchant for the purpose of
            sale and:

             (A)   the merchant:

                   (i)     deals in goods of that kind under a name other than
                           the name of the person making delivery;
                   (ii)    is not an auctioneer; and

                   (iii)   is not generally known by its creditors to be
                           substantially engaged in selling the goods of others;

             (B)   with respect to each delivery, the aggregate value of the
                   goods is $1,000 or more at the time of delivery;
             (C)   the goods are not consumer goods immediately before
                   delivery; [and]
             (D)   the transaction does not create a security interest that
                   secures an obligation . . . .

TEX. BUS. & COM. CODE § 9.102(a)(20).

       Mingtel argues that under subsection 9.102(a)(20)(A)(iii), the evidence

showed that Comerica was “generally aware of PCT’s business ventures.”

Consequently, Article 9 did not apply, and Mingtel was not required to file a

financing statement to protect its interests. Comerica counters that PCT was not

“substantially engaged in selling the goods of others.”

                                         –8–
        Mingtel relies on the testimony of Patrick Michael O’Keefe,4 a financial

consultant hired by PCT, that “Comerica was intimately involved with issues of

[PCT’s] cash flow” in 2016. O’Keefe testified that “we would have a lot of detail as

to who was to be paid and why.” In response to the question whether Mingtel was

“the only vendor of this nature that PCT was working with, at least with HSN during

the time you were there,” O’Keefe responded, “No. There were several.” O’Keefe

also testified that “the business of PCT Brands” was that “[t]hey essentially sold

products primarily manufactured in China through two main channels, QVC and

HSN, so Home Shopping Network types of businesses.”

        Comerica responds that O’Keefe was PCT’s consultant, not Comerica’s, so

his knowledge was not attributable to Comerica. In any event, O’Keefe testified that

he had “no recollection of the arrangement between Mingtel and HSN,” and that

drop ship services “were not a big part” of PCT’s business. Comerica also argues

that, according to O’Keefe, PCT owned inventory purchased from third parties that

it would resell to its customers, in contrast to the consignment arrangement between

PCT and Mingtel.

    4
      Portions of O’Keefe’s deposition designated by each party were admitted into evidence at trial.
O’Keefe testified that he is the chief executive officer and managing member of O’Keefe and Associates
Consulting, LLC. PCT retained O’Keefe and Associates as a “turnaround consultant” in 2016, when “it was
apparent that there were some things that were broke with [PCT’s] business model and that they were going
to be in default or already [were] in default with Comerica Bank, their lender.” O’Keefe explained that
“turnaround consulting” includes “services provided to help the business turn around to profitability.
Typically we are brought in in situations where the company is losing money or is nonperforming.”
                                                  –9–
      Mingtel also relies on the FSA’s specific provisions revealing that PCT was

an approved drop ship vendor for HSN:

       “PCT is engaged in the business of, among other things, distributing
        consumer electronics devices and digital products to retail sales channels,
        including television-based retailers, for resale.”

       “PCT is also an authorized Drop Shipment Vendor partner of HSN, Inc.
        [Mingtel] is in the business of, among other things, manufacturing a line
        of digital cameras (the “Products”) for retail sale, including to HSN.
        [Mingtel] desires to engage PCT, and PCT is willing to accept such
        engagement, to assist [Mingtel] in warehousing the Products and fulfilling
        orders from HSN for the Products, all on the terms and conditions set forth
        herein.”

As Comerica argues, however, there is no evidence that Comerica was aware of the

FSA or its terms. Barbara Utterback, a special assets groups officer for Comerica,

testified that the FSA was not contained in Comerica’s files for PCT, and Hu testified

that Comerica did not know about the FSA.

      Mingtel also cites Utterback’s testimony that when a company requests a line

of credit, the bank “takes a look” at matters including “information on what the

business actually does.” In response, Comerica cites Utterback’s testimony that PCT

was in the business of selling “software bundling” and “providing warranty IT

support for products sold through other distributors such as HSN . . . that couldn’t

provide IT support.” Utterback added that PCT “was also selling phone accessories

such as bluetooth speakers.” Comerica concludes that “Mingtel did not introduce

any evidence that third parties were generally aware that PCT was a merchant in the

business of selling other people’s property on consignment.”

                                        –10–
      Mingtel relies on two opinions from a sister court to support its argument that

Article 9 does not apply. In Tri-State Chemicals, Inc. v. First State Bank, Stratford,

185 S.W.3d 519, 520 (Tex. App.—Amarillo 2005, no pet.), the more recent of the

two cases, Tri-State entered into a consignment agreement with Panhandle Agri-

Tech, Inc. Panhandle then sought a small business loan from First State Bank. Id. at

521. “Prior to its approval of the loan, [the] Bank was provided a copy of the

consignment agreement between Tri-State and Panhandle and even participated in

negotiations regarding the terms of this consignment agreement.” Id. The Bank

perfected a security interest in Panhandle’s “inventory, equipment, accounts or

contract rights, and cash or non-cash proceeds thereof,” but its financing statement

did not specifically address proceeds from the sale of the consigned goods. Id.

      Two years later, when “experiencing severe financial difficulties,” Panhandle

began commingling payments made on accounts created by the sale of Tri-State’s

consigned goods with its own resources. Id. “Although in dire financial

circumstances, of which [the] Bank was aware, Panhandle paid off the loan.” Id.

Contending that the loan payments came at least in part from payments made on

open accounts owned by Tri-State, Tri-State sued the bank alleging a claim for

money had and received, among other claims. Id.

      The bank sought summary judgment, arguing that it had a superior right to the

proceeds from the open accounts under former UCC section 2.326. See id. at 521–

22. The bank’s right to summary judgment turned on “whether Panhandle’s creditors

                                        –11–
generally knew that Panhandle was substantially engaged in selling the goods of

others” under former UCC section 2.326(c).5 Id. at 524. The trial court granted the

bank’s motion, but the court of appeals reversed, concluding that a genuine issue of

material fact existed on this question. See id. at 523–24. Similarly, in the older of the

two cases, the court construed the UCC’s pre-1999 consignment provisions and held

that fact issues existed precluding summary judgment on the plaintiff’s claim for

money had and received. Tri-State Chems., Inc. v. Western Organics, Inc., 83

S.W.3d 189, 196–98, 196 n.4 (Tex. App.—Amarillo 2002, pet. denied) (concluding

that former Article 9 did not apply, but noting that its analysis was restricted to

Article 9 as it existed “prior to the legislative changes of 1999”).6

        Here, however, even assuming an identical inquiry controls the application of

current UCC sections 9.102(a)(20) and 9.319,7 the trial court resolved all material

fact questions at the trial on the merits after hearing each party’s evidence. We

    5
      UCC section 2.326 no longer addresses consignments. The current comment 4 to section 2.326
explains that “[c]ertain true consignment transactions were dealt with in former Sections 2-326(3) and
9-114. These provisions have been deleted and have been replaced by new provisions in Article 9. See, e.g.,
Sections 9-109(a)(4); 9-103(b); 9-319.” TEX. BUS. & COM. CODE § 2.326 cmt. 4. These changes were made
as part of a comprehensive revision of UCC Article 9 in 1999. All of the states, including Texas, enacted
the 1999 revisions. See 4 White, Summers, & Hillman, UNIFORM COMMERCIAL CODE § 30:1 (6th ed.
2010); Act of May 12, 1999, 76th Leg., R.S., ch. 414, §1.01, 1999 Tex. Gen. Laws 2639–2750.
    6
       Among the issues in Western Organics were whether the contract at issue created a “true
consignment” or was “a mere security agreement,” and whether a purchaser of the consignee’s business
had the same priority as a creditor of the consignee. See Western Organics, 83 S.W.3d at 196–98. Neither
issue is presented here. Comerica did not purchase PCT’s business, and under the 1999 revisions to the
UCC, section 1-201(b)(35) now defines “security interest” to include “any interest of a consignor.” See
TEX. BUS. & COM. CODE § 9.319 cmt. 2, Example 1 (quoted in full above).
    7
      Comment 2 to current section 9.319 provides in part, “Insofar as creditors of the consignee are
concerned, this Article to a considerable extent reformulates the former law, which appeared in former
Sections 2-326 and 9-114, without changing the results.” TEX. BUS. & COM. CODE ANN. § 9.319 cmt. 2.

                                                  –12–
conclude there was legally and factually sufficient evidence to support the trial

court’s implied finding and conclusion that PCT was “not generally known by its

creditors to be substantially engaged in selling the goods of others,” and

consequently, that Article 9 applied in determining Comerica’s rights as PCT’s

creditor and Mingtel’s rights as consignor.8 See TEX. BUS. & COM. CODE

§ 9.102(a)(20)(A)(iii); Hazzani, LLC, 2019 WL 3244175, at *4. Because Mingtel

did not have a perfected security interest in the consigned goods, Comerica’s

perfected security interest in PCT’s accounts took priority. See TEX. BUS. & COM.

CODE § 9.319.9

2. Money had and received

         Mingtel argues that regardless of Article 9’s applicability, the equities lie in

its favor on its claim for money had and received.10 To prove this claim, Mingtel

must show that Comerica “holds money which in equity and good conscience

belongs to” Mingtel. See Edwards, 252 S.W.3d at 837. The claim “belongs

    8
      Given this conclusion, we need not consider Comerica’s alternative argument that Mingtel failed to
offer evidence that the HSN checks Mingtel relies on were actually payments for the tablets.
    9
      Mingtel argues in the alternative that the “consumer goods” exception of section 9.102(a)(20)(C)
applies because the tablets it manufactures “are sold primarily to individual purchasers, for person, family,
or household use.” Under this provision, Mingtel’s delivery of the tablets to PCT would not constitute a
consignment under Article 9. See TEX. BUS. & COM. CODE § 9.102(a)(20)(C). Comerica responds that the
tablets delivered by Mingtel to PCT were “inventory” as defined in UCC section 9.102(a)(48)(B), that is,
“goods, other than farm products, that . . . are held by a person for sale or lease or to be furnished under a
contract of service,” not “consumer goods.” See U.C.C. § 9.102 cmt. 4.a (Article 9’s four types of
collateral—“consumer goods,” “equipment,” “farm products,” and “inventory”—are “mutually
exclusive”). We conclude the “consumer goods” exception does not apply here, see id., and in any event,
Mingtel did not raise this argument in the trial court. See Mansions in the Forest, L.P. v. Montgomery Cty.,
365 S.W.3d 314, 317 (Tex. 2012) (per curiam) (complaint must be preserved for appellate review).
    10
      We assume without deciding that our conclusions regarding Article 9’s application do not preclude
consideration of Mingtel’s claim for money had and received.
                                                   –13–
conceptually to the doctrine of unjust enrichment.” Id. (internal quotation omitted).

As we explained in Edwards:

      The doctrine of unjust enrichment applies the principles of restitution
      to disputes that are not governed by a contract between the parties. It
      characterizes the result of a failure to make restitution under
      circumstances that give rise to an implied or quasi-contractual
      obligation to return those benefits.

Id. (internal citations and quotations omitted).

      In Edwards, we discussed the “general principles” governing these equitable

doctrines. See id. We explained that “courts have stated that a claim for money had

and received seeks to restore money where equity and good conscience require

restitution; it is not premised on wrongdoing, but seeks to determine to which party,

in equity, justice, and law, the money belongs; and it seeks to prevent

unconscionable loss to the payor and unjust enrichment to the payee.” Id. In sum, “a

cause of action for money had and received is less restricted and fettered by technical

rules and formalities than any other form of action. It aims at the abstract justice of

the case, and looks solely to the inquiry, whether the defendant holds money, which

belongs to the plaintiff.” Id. (citations and internal quotations omitted). A defendant

may present any facts or raise any defenses that would deny a claimant’s right to

recover under this theory. Id.

      Mingtel argues that as between “two innocent parties,” Comerica should

suffer the loss because it “created the situation and was in the best position to have

avoided it.” Comerica disagrees, contending that Mingtel was in the best position to

                                         –14–
have avoided the loss by (1) following the actual payment terms under the contracts

with HSN and PCT; (2) requesting that PCT hold the money it received for Mingtel’s

products in trust; or (3) providing specific measures for PCT to segregate funds and

put third parties on notice of Mingtel’s interest. Comerica argues that because it had

no knowledge of the FSA, it could not have remedied Mingtel’s loss.

       At the trial’s conclusion, the trial court took the case under advisement, but

commented, “And I would still—I’ll just say this. I think this is a tough call. The

farther I get into it, the tougher the call is. I think that the equities kind of balance in

both ways. I think that Mingtel could have easily protected themselves. But I also

think this was probably Mingtel’s money initially.” Because there was legally and

factually sufficient evidence to support the conclusion that Mingtel was in the best

position to have avoided the loss, we conclude the trial court’s ruling against Mingtel

on its claim for money had and received was not “arbitrary, unreasonable, [or]

unsupported by guiding rules and principles.” See Edwards, 252 S.W.3d at 836.

       We decide Mingtel’s sole issue against it.

                                      CONCLUSION

       The trial court’s judgment is affirmed.

                                              /Leslie Osborne//
                                              LESLIE OSBORNE
201115f.p05                                   JUSTICE

                                           –15–
                            Court of Appeals
                     Fifth District of Texas at Dallas
                                  JUDGMENT

MINGTEL INC. D/B/A AZPEN                       On Appeal from the 68th Judicial
INNOVATION, Appellant                          District Court, Dallas County, Texas
                                               Trial Court Cause No. DC-19-11481.
No. 05-20-01115-CV           V.                Opinion delivered by Justice
                                               Osborne. Justices Myers and Nowell
COMERICA BANK, Appellee                        participating.

       In accordance with this Court’s opinion of this date, the judgment of the trial
court is AFFIRMED.

      It is ORDERED that appellee Comerica Bank recover its costs of this appeal
from appellant Mingtel Inc. d/b/a Azpen Innovation.

Judgment entered this 2nd day of August, 2022.

                                        –16–