Court Opinion

ID: 3123666
Source: CourtListenerOpinion
Date Created: 2015-10-16 14:42:45.154365+00
Date Added: 2024-06-11T12:27:05.706338
License: Public Domain

MEMORANDUM OPINION
                                        No. 04-12-00036-CV

                          TRANSWORLD LEASING CORPORATION,
                                      Appellant

                                                  v.

                            WELLS FARGO AUTO FINANCE, LLC,
                                       Appellee

                     From the 285th Judicial District Court, Bexar County, Texas
                                  Trial Court No. 2010-CI-01956
                       Honorable David A. Berchelmann, Jr., Judge Presiding

Opinion by:      Catherine Stone, Chief Justice

Sitting:         Catherine Stone, Chief Justice
                 Karen Angelini, Justice
                 Marialyn Barnard, Justice

Delivered and Filed: October 3, 2012

AFFIRMED

           Transworld Leasing Corporation appeals a summary judgment granted in favor of Wells

Fargo Auto Finance, LLC in Wells Fargo’s suit for breach of contract. Transworld raises

numerous contentions regarding: (1) the sufficiency of the stated grounds for summary

judgment; (2) Transworld’s defenses to the breach of contract claim; and (3) the award of

damages and interest. Underlying the breach of contract claim is the question of which party to
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the contract must bear the loss caused by a third party’s fraudulent conduct involving identity

theft. We overrule Transworld’s contentions and affirm the trial court’s judgment.

                           FACTUAL AND PROCEDURAL BACKGROUND

       Transworld and Wells Fargo entered into a Master Dealer Agreement (“Agreement”) in

1997. The Agreement allows Transworld to assign vehicle leases and the leased vehicles to

Wells Fargo for a sum to be agreed upon by the parties.

       On May 15, 2007, Transworld entered into a lease agreement for a 2007 Cadillac

Escalade with a lessee purporting to be Petronila Tompong; however, the person who signed the

lease had fraudulently used Tompong’s identity and forged her name. Unaware of the identity

theft, Transworld assigned the lease to Wells Fargo. When the forgery was discovered, Wells

Fargo made a demand that Transworld repurchase the lease because Transworld breached its

contractual warranty that the lease was “executed by individuals duly authorized to do so by the

parties other than Dealer obligated thereunder, each of which is a competent adult, and constitute

the valid and binding obligations of the obligated parties.” When Transworld did not respond to

the demand, Wells Fargo filed the underlying lawsuit, claiming breach of contract. Transworld

answered, generally denying the allegations and asserting numerous defenses.

       Wells Fargo subsequently filed a motion for summary judgment. Transworld appeals the

trial court’s order granting the motion.

                                      STANDARD OF REVIEW

       We review a summary judgment de novo. Provident Life & Acc. Ins. Co. v. Knott, 128
S.W.3d 211, 215 (Tex. 2003). In reviewing the granting of a traditional summary judgment, we

consider all the evidence in the light most favorable to the respondent, indulging all reasonable

inferences in favor of the respondent, and determine whether the movant proved that there were

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no genuine issues of material fact and that it was entitled to judgment as a matter of law. Nixon

v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). In reviewing the granting of a no-

evidence summary judgment, we apply the same legal sufficiency standard as we apply in

reviewing a directed verdict. King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 750-51 (Tex.

2003). A no-evidence summary judgment is improperly granted if the respondent brings forth

more than a scintilla of probative evidence to raise a genuine issue of material fact. Id. at 751.

                              GROUNDS FOR SUMMARY JUDGMENT

       In its third issue, Transworld contends that Wells Fargo’s motion did not state the

grounds for judgment as a matter of law. In the alternative, Transworld contends the grounds are

unclear, and the trial court erred in denying its special exceptions to the motion.

       A motion for summary judgment must “state the specific grounds therefor.” TEX. R. CIV.

P. 166a(c). “[I]f the grounds for summary judgment are not expressly presented in the motion

for summary judgment itself, the motion is legally insufficient as a matter of law.” McConnell v.

Southside Ind. Sch. Dist., 858 S.W.2d 337, 342 (Tex. 1993). However, “[a]n exception is

required should a non-movant wish to complain on appeal that the grounds relied on by the

movant were unclear or ambiguous.” Id. We review a trial court’s ruling on special exceptions

under an abuse of discretion standard. Claxton v. (Upper) Lake Fork Water Control & Imp. Dist.

No. 1, 246 S.W.3d 381, 382 n.1 (Tex. App.—Texarkana 2008, pet. denied); Hefley v. Sentry Ins.

Co., 131 S.W.3d 63, 65 (Tex. App.—San Antonio 2003, pet. denied). Grounds are sufficiently

specific if they give ‘fair notice’ to the nonmovant. Beaver Properties, L.L.C. v. Jerry Huffman

Custom Builder, L.L.C., 355 S.W.3d 878, 889 (Tex. App.—Dallas 2011, no pet.); E.B.S. Enters.,

Inc. v. City of El Paso, 347 S.W.3d 404, 409 (Tex. App.—El Paso 2011, pet. denied).

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        The motion in this case must be read in its entirety to determine if it provides fair notice

of the grounds on which the motion is based. In this case, the motion states that Wells Fargo was

moving for a traditional summary judgment on its claim against Transworld. The motion also

states that Wells Fargo is entitled to summary judgment because it can prove each of the

following elements of its cause of action for breach of contract: (1) the existence of a valid

contract; (2) performance or tendered performance by the plaintiff; (3) breach of the contract by

the defendant; and (4) damages sustained by the plaintiff as a result of the breach. The motion

further states that each of the elements is conclusively established by the summary judgment

evidence.

        In the fact section of the motion, Wells Fargo ties the summary judgment evidence to the

elements of its claim, asserting: (1) Wells Fargo and Transworld entered into the Agreement,

attached to the motion as Exhibit A, to set forth the terms and conditions upon which Wells

Fargo would provide funding for a retail customer of Transworld to acquire a lease on a new

vehicle; (2) pursuant to the terms of the Agreement, Wells Fargo funded the lease between

Transworld and Tompong, attached to the motion as Exhibit B; (3) although Transworld

warranted the lease was executed by individuals duly authorized to execute the lease and the

lease constituted a valid and binding obligation of the obligated parties, the person who signed

the lease was not Tompong, and Transworld refused to repurchase the lease in accordance with

the terms of the Agreement after the forgery was discovered; and (4) Wells Fargo was owed

$72,638.04 under the lease, which was the amount Transworld was required to pay to repurchase

the lease.

        Having reviewed Wells Fargo’s motion as a whole, we hold the motion provided fair

notice to Transworld of the grounds on which Wells Fargo was seeking summary judgment.

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Accordingly, we hold the trial court did not abuse its discretion in denying Transworld’s special

exceptions to the motion. Transworld’s third issue is overruled.

                     EXISTENCE OF GENUINE ISSUES OF MATERIAL FACT

       In its fourth issue, Transworld contends that it raised genuine issues of material fact with

regard to Wells Fargo’s breach of contract claim. We construe Transworld’s seventh issue as a

contention that it produced more than a scintilla of evidence to raise genuine issues of material

fact with regard to its defenses. Wells Fargo contends the summary judgment was properly

granted.

A.     Breach of Contract Claim

       The elements in a claim for breach of contract are: (1) 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. Richter v. Wagner Oil Co., 90 S.W.3d 890, 898 (Tex.

App.—San Antonio 2002, no pet.). In its brief, Transworld does not challenge the evidence in

support of the second element.

       1.      Obligation Owed by Transworld

       Although Transworld does not deny the Agreement is a valid contract, Transworld

challenges the trial court’s determination of the obligation owed by Transworld under the

Agreement. The Agreement lists twenty-one specific warranties that Transworld made as to

“each Lease or Contract purchased by [Wells Fargo].” Transworld relies on the following five

warranties in making its argument:

              (M) the Lease or Contract and all related instruments under which [Wells
       Fargo] has rights in connection with the Lease or Contract have been executed by
       individuals duly authorized to do so by the parties other than Dealer obligated
       thereunder, each of which is a competent adult, and constitute the valid and
       binding obligations of the obligated parties;

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               (N) Dealer has verified the identity of each lessee or purchaser by use of a
       driver’s license or other identification document which contains lessee or
       purchaser’s photograph and is issued by such person’s state of residency;

              (O) Dealer does not know of any event which indicates or suggests the
       prospective uncollectibility of the Lease or Contract;

               (Q) all statements set forth in the Lease or Contract worksheet are true and
       correct;

              (T) to the best of Dealer’s knowledge, possession of the vehicle was not
       obtained by the lessee’s or purchaser’s use of a fraudulent scheme, trick or device
       not otherwise covered by these warranties;

       Transworld argues that the warranty in (M) must be read in connection with the other

warranties which only require Transworld to make a good faith effort to ascertain the identity of

the person signing the lease.      Transworld contends that because other warranties more

specifically address the use of forgery to fraudulently obtain a leased vehicle or require specific

actions to be taken to protect against forgery, the general warranty in (M) must be read more

narrowly so as not to “negate and strip of effect” the other warranties. We disagree.

       In construing a contract, we must “give effect to all the provisions of the contract so that

none will be rendered meaningless.” Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of

America, 341 S.W.3d 323, 333 (Tex. 2011). We are unaware of any case that holds that if a

contract contains twenty-one specific warranties, only the more specific warranties will control if

a situation arises in which more than one warranty could be breached. Construing a contract in

this manner would render the more general warranty provisions meaningless, which is contrary

to our rules of construction. See id. Moreover, the Agreement provides that Transworld agrees

to repurchase the lease if it breaches “any” warranty contained in the Agreement. Accordingly,

the summary judgment evidence conclusively established that Transworld warranted that the

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lease in question was executed by an individual duly authorized by Tompong and was the valid

and binding obligation of Tompong.

       2.      Breach by Transworld

       Tompong stated in her deposition that she did not sign the lease. Although Transworld’s

corporate representative may have testified in his deposition that he did not believe a breach

occurred, Tompong’s testimony conclusively establishes a breach of the warranty in paragraph

(M).

       3.      Damages as a Result of Breach

       The summary judgment evidence included the affidavit of Wells Fargo’s custodian of

record, Julie Underwood, calculating the amount owed to Wells Fargo in accordance with the

repurchase obligation. Transworld did not challenge these calculations or present evidence of a

different calculation. Accordingly, Underwood’s affidavit conclusively established the amount

of damages Wells Fargo was caused by Transworld’s breach.

       Because no genuine issues of material fact were raised with regard to Wells Fargo’s

breach of contract claim, Transworld’s fourth issue is overruled.

B.     Defenses

     1.        Waiver or Assumption of the Risk; Ratification; and Proximate Cause of
Damages

       Transworld asserts that the Agreement is evidence that Wells Fargo assumed the risk of

the forgery because the assignment of the lease was subject to Wells Fargo’s approval process

with regard to the lessee’s creditworthiness. We disagree. The Agreement is no evidence of any

assumption of the risk by Wells Fargo because the assignment to Wells Fargo is expressly

subject to the warranties made by Transworld in the Agreement. Any process undertaken by

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Wells Fargo would not preclude its enforcement of the warranties. Accordingly, the trial court

properly rejected this argument in granting summary judgment.

       2.      Failure to Mitigate

       Transworld asserts that Wells Fargo failed to mitigate its damages because it delayed in

contacting the police after discovering the forgery and failed to activate OnStar until six months

after the vehicle went missing. Transworld contends that under the terms of the Agreement, it

had no right or authority to independently seek recovery of the vehicle, and by the time the

vehicle was recovered, it was completely stripped of value.

       The doctrine of mitigation of damages prevents a party from recovering for damages

resulting from a breach of contract that could be avoided by reasonable efforts on the part of the

plaintiff. Great American Ins. Co. v. North Austin Mun. Util. Dist. No. 1, 908 S.W.2d 415, 426

(Tex. 1995). A defendant has the burden of proving two elements: (1) the plaintiff’s lack of

diligence; and (2) the amount by which the failure to mitigate increased damages.            U.S.

Restaurant Properties Operating L.P. v. Motel Enters., Inc., 104 S.W.3d 284, 293 (Tex. App.—

Beaumont 2003, pet. denied); City of San Antonio v. Guidry, 801 S.W.2d 142, 151 (Tex. App.—

San Antonio 1990, no writ).

       In its no-evidence motion for summary judgment, Wells Fargo specifically challenged

both elements of Transworld’s mitigation defense.             In its response, Transworld cited

Underwood’s deposition, in which she stated she was unsure why Wells Fargo did not contact

the police department until October of 2007 despite Tompong having filed a police report on

August 1, 2007. Underwood also stated she did not know why Wells Fargo waited six months to

contact OnStar. Although Underwood’s deposition testimony may have been sufficient to satisfy

Transworld’s burden in producing evidence regarding Wells Fargo’s lack of diligence,

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Transworld presented no evidence to establish the amount by which Wells Fargo’s failure to

mitigate increased damages. Accordingly, the trial court properly granted summary judgment on

this defense.

       3.       Contributory Negligence; Third Party Acts; Estoppel

       Transworld contends that the forgery of Tompong’s signature, a criminal act, “provides a

basis to preclude, estop, or defend against a claim by this Plaintiff, and raises an issue of fact for

a jury to determine what portion of recovery should be taxed by Plaintiff for its failure to

exercise ordinary care.” In support of this contention, Transworld cites section 3.406 of the

Texas Business and Commerce Code entitled “Negligence Contributing to Forged Signature or

Alteration of Instrument” and quotes the following sentence from Bank of Tex. v. VR Elec., Inc.,

276 S.W.3d 671, 677-78 (Tex. App.—Houston [1st Dist.] 2008, pet. denied), “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.” In Bank of Tex., the dispute

involved the payment of a forged check. 276 S.W.3d at 674; see also Behring Int’l, Inc. v.

Greater Houston Bank, 662 S.W.2d 642, 646 (Tex. App.—Houston [1st Dist.] 1983, writ

dism’d) (dispute involved check and bank’s contract of deposit).

       Section 3.104 of the Texas Business and Commerce Code defines a “negotiable

instrument” as “an unconditional promise or order to pay a fixed amount of money, with or

without interest or other charges described in the promise or order, if it: (1) is payable to bearer

or to order at the time it is issued or first comes into possession of a holder . . . .” TEX. BUS. &

COM. CODE ANN. § 3.104(a)(1) (West Supp. 2012). Reviewing the vehicle lease in light of the

definition, the lease clearly is not “payable to bearer or to order.” Accordingly, the case law

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cited by Transworld in support of this contention is inapplicable to the instant case, and the trial

court properly granted summary judgment with regard to this defense.

                                       MUTUAL MISTAKE

       In its first issue, Transworld contends that Wells Fargo’s motion for summary judgment

did not address its defense of mutual mistake which it added to an amended petition filed after

Wells Fargo filed its motion. Although summary judgment generally cannot be granted on a

ground not raised in a motion, Wells Fargo argues that an exception to that rule applies in the

instant case, and Wells Fargo was entitled to summary judgment under that exception because it

conclusively disproved the applicability of a mutual mistake defense.

       Summary judgment may be affirmed on a defense not specifically addressed in a

summary judgment motion if the elements urged in the motion and established by summary

judgment proof dispose of one or more elements of the unmentioned defense. Zarzosa v. Flynn,

266 S.W.3d 614, 621 (Tex. App.—El Paso 2008, no pet.); Quicksilver Resources, Inc. v. Reliant

Energy Servs, Inc., No. 2-02-249-CV, 2003 WL 22211521, at *4 (Tex. App.—Fort Worth Sept.

25, 2003, no pet.) (mem. op.). In such instances, reversal would be meaningless because the

defense is precluded as a matter of law. Zarzosa, 266 S.W.3d at 621; Vogel v. Travelers Indem.

Co., 966 S.W.2d 748, 754-55 (Tex. App.—San Antonio 1998, no pet.).

       In its motion, Wells Fargo urged the warranty as a basis for imposing liability on

Transworld. The defense of mutual mistake fails “as a matter of law” if the risk of mistake is

allocated to a party by agreement. Cherry v. McCall, 138 S.W.3d 35, 40 (Tex. App.—San

Antonio 2004, pet. denied). In its brief, Wells Fargo contends the risk of Tompong’s signature

being forged was allocated to Transworld by the Agreement because Transworld agreed to

warrant that the execution of the lease was by a duly authorized individual and constituted the

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valid and binding obligation of that individual. We agree. Because the Agreement contained a

warranty that allocated the risk that the lease was not executed by a duly authorized individual to

Transworld, Transworld’s defense of mutual mistake “fails as a matter of law.”                  Id.

Additionally, because the motion urged the warranty as a basis for summary judgment, and the

warranty is dispositive of Transworld’s defense of mutual mistake, reversal on the basis that

Wells Fargo did not specifically address the mutual mistake defense in its motion would be

meaningless. Zarzosa, 266 S.W.3d at 621; Vogel, 966 S.W.2d at 754-55. Transworld’s first

issue is overruled.

                            CONVERSION OF CORPORATION TO LLC

       In its second issue, Transworld contends the trial court erred in granting summary

judgment to Wells Fargo because the lawsuit was filed by Wells Fargo Auto Finance, Inc.;

however, Transworld asserts Wells Fargo Auto Finance, Inc. ceased to exist on January 31,

2010, before the lawsuit was filed on February 8, 2010. Transworld initially raised the issue

pertaining to the conversion of Wells Fargo from a corporation to a limited liability company in a

motion to abate. Wells Fargo responded to the motion to abate by filing a motion to substitute

true name of party, asserting the conversion had no effect on the corporate entity as a matter of

law. The trial court’s order denying Transworld’s motion to abate states, “On this date came on

to be heard the Defendant’s Motion to Abate.            The Court, having considered the record,

evidence, and argument of counsel, is of the opinion that said motion should be denied.” The

reporter’s record from the hearing on Transworld’s motion to abate, however, was not requested

and included in the record filed in this court. Therefore, we must presume the reporter’s record

contained all matters supporting the trial court’s order denying Transworld’s motion. Bullock v.

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American Heart Ass’n, 360 S.W.3d 661, 669-70 (Tex. App.—Dallas 2012, pet. denied).

Accordingly, Transworld’s second issue is overruled.

                        PRE-JUDGMENT AND POST-JUDGMENT INTEREST

       In its fifth issue, Transworld contends the trial court erred in awarding pre-judgment and

post-judgment interest at the rate of 12%. Wells Fargo responds that it was entitled to the

interest under the terms of the Agreement.

       In a breach of contract case, the pre-judgment interest rate is the same as the post-

judgment interest rate. See Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d
507, 532 (Tex. 1998); Meridien Hotels, Inc. v. LHO Fin. P’hip I, L.P., 255 S.W.3d 807, 823

(Tex. App.—Dallas 2008, no pet.). In a contract case where the contract provides for interest,

the pre-judgment and post-judgment interest rate is the lesser of the interest rate specified in the

contract or eighteen percent a year. TEX. FIN. CODE ANN. § 304.002 (West 1998); Meridien

Hotels, Inc., 255 S.W.3d at 823.

       Section 10 of the Agreement provides that the repurchase price for any lease that is

required to be repurchased shall be the sum of: (1) the estimated residual value of the vehicle; (2)

the total of all unpaid lease payments scheduled under the lease, less any unearned lease charges

calculated as provided in the lease; and (3) any amounts then due under the lease. The Tompong

lease states, “I understand and agree that if I do not pay you the amount of my liability on your

demand, you will assess interest on the amount unpaid at the rate of 12% per annum (or such

lesser maximum rate as may be set by law) until paid.” Because the Agreement required

Transworld to pay any amounts due under the lease and the lease provided for interest, the trial

court properly assessed pre-judgment and post-judgment interest at the rate of 12% per annum.

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TEX. FIN. CODE ANN. § 304.002 (West 1998); Meridien Hotels, Inc., 255 S.W.3d at 823.

Transworld’s fifth issue is overruled.

                                    ADMISSION OF AFFIDAVIT

       In its sixth issue, Transworld contends that the trial court erred in admitting Underwood’s

affidavit. This issue is related to Transworld’s second issue. Transworld contends the affidavit

was not admissible as an affidavit of Wells Fargo’s custodian of records because the affidavit

states that Underwood is the custodian of records of Wells Fargo Auto Finance, LLC, but the

record contained no evidence that the records of Wells Fargo Auto Finance, Inc. were transferred

to Wells Fargo Auto Finance, LLC.

       We review rulings concerning the admission and exclusion of summary judgment

evidence under an abuse of discretion standard. Polansky v. Southwest Airlines Co., 75 S.W.3d
99, 102 (Tex. App.—San Antonio 2002, no pet.). As previously noted, the reporter’s record of

the hearing at which the trial court heard evidence pertaining to the conversion of Wells Fargo

Auto Finance, Inc. into Wells Fargo Auto Finance, LLC is not included in the appellate record.

Accordingly, we must assume the trial court properly denied the motion to abate based on the

evidence presented. As a result, we cannot conclude the trial court abused its discretion in

admitting Underwood’s affidavit as the custodian of records of Wells Fargo. Transworld’s sixth

issue is overruled.

                                         CONCLUSION

       The trial court’s judgment is affirmed.

                                                          Catherine Stone, Chief Justice

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