Fact issues = Summary judgment reversal.

The issue in Tempay, Inc. v. Tanintco, Inc. was whether a notice of assignment, required to be sent to an account debtor as part of a factoring arrangement, satisfied section 9.406 of the UCC.  That provision requires that the notice “reasonably identify the rights assigned,” and courts have divided about exactly what it requires, and whether summary judgment is appropriate.  Here, in an analysis of broader interest about the appropriate standards for summary judgment, the Fifth Court found fact issues about the adequacy of the notice and whether it had been revoked.  No. 05-15-00130-CV (Jan. 15, 2016) (mem. op.)

Security Interest in Investment Account Trumps Judgment Lien

Wells Fargo obtained a judgment against Charles Paschall and then sought to collect by garnishing an investment account Paschall held at U.S. Trust. U.S. Trust opposed the garnishment, asserting that the funds it held were subject to a properly perfected security interest held by Inwood National Bank. Inwood then intervened to protect its lien interest in the account. The trial court ultimately ruled that Wells Fargo’s judgment lien trumped Inwood’s security interest and awarded the funds to Wells.

Inwood appealed. The issue before the Dallas Court of Appeals was whether Inwood lost its priority over Wells Fargo by executing a new promissory note with Paschall several months after Wells Fargo recorded its judgment lien. Under Texas law, if this new obligation were considered an “advance” as opposed to a renewal or extension of an existing indebtedness, then Inwood would lose its priority. Relying on several cases interpreting the UCC, the Court determined that the new promissory note was not an advance, reversed the trial court’s ruling, and held that Wells Fargo was not entitled to garnish the funds.

Inwood Nat’l Bank v. Wells Fargo Bank, N.A.

Chiropractor’s Collection Efforts Rejected

A chiropractor provided treatment to a patient injured in a car accident and, in return, the patient assigned her right to any proceeds from a settlement, judgment, or verdict.  The patient settled her claim with the other driver’s insurance company, but, instead of sending the payment directly to the chiropractor, the insurance company paid the patient.  The chiropractor then sued the insurance company directly, seeking the amount it had paid to the patient.   The trial court granted summary judgment in favor of the insurance company and the chiropractor appealed.

The Court of Appeals affirmed, rejecting the chiropractor’s argument that it was an “account debtor” under the UCC because there had been no finding of liability.  Rather, the parties had settled and therefore there had been no determination of liability, so the chiropractor was not an account debtor.

Pain Control Institute, Inc. v. GEICO Gen. Ins. Co.

Negotiable Instruments Opinion/Future Bar Exam Fact Pattern

Hurricane Ike damaged property owned by Optimum Deerbrook LLC. Optimum’s lender, ViewPoint Bank, was a loss payee on Optimum’s property insurance policy with Allied Property & Casualty. Allied paid the claim, issuing checks jointly to Optimum and ViewPoint, but Optimum endorsed and deposited the checks in its own account. As a result, ViewPoint never received any of the insurance funds. ViewPoint sued Allied for breach of the insurance contract and a claim under article 3 of the UCC. The trial court granted summary judgment for the insurer, but the Court of Appeals reversed. Citing the Texas Supreme Court’s recent decision in McAllen Hospitals, LP v. State Farm, the Court held that the insurer had not fulfilled its payment obligation by delivering the checks only to the insured, and that delivery to both payees is required because neither of them, acting alone, could enforce or negotiate the instrument. The Court also held that summary judgment should have been granted in favor of the bank on its UCC claim because the drawer of a check is not discharged from its obligation when the check is issued to nonalternative copayees and is paid without one of their necessary endorsements. However, the Court held that the bank’s attorney fees affidavit was not sufficiently detailed to support summary judgment and remanded the case for further consideration of an award of attorney fees.

ViewPoint Bank v. Allied Prop. & Cas. Ins. Co., No. 05-12-01370-CV

Unsettled Setoff

The Court of Appeals has reversed and remanded a summary judgment ruling obtained by Minyard Food Stores. The trial court ruled that Minyard was entitled to a setoff against North Central Distributors’ receivable. The receivable was originally owned by NCD Acquisition, an entity formed by members of the Minyard family to acquire the assets of North Central. After NCD Acquisition defaulted on its note, North Central foreclosed on NCD’s assets, including the Minyard Food Stores receivable. But in the meanwhile, NCD Acquisition also breached a sublease agreement with Minyard. NCD and Minyard settled that dispute with the lessor, but reserved its right of offset against NCD. Minyard contended that it was a buyer in the ordinary course of business for the goods underlying the NCD Acquisition receivable, but the evidence on that point was disputed. There was also conflicting evidence as to the proper date for the offset, as some of the unpaid rent may have accrued after Minyard received notice of North Central’s foreclosure on NCD’s receivable, and much of the claimed offset appeared to be for future rent payments. In light of these disputed fact issues, the Court of Appeals reversed and remanded the case to the trial court.

N. Central Distribs., Inc. v. Minyard Food Stores, Inc., No. 05-12-00418-CV

Good Faith in the Sale of a Noble Gas

Regency Gas Services owns a natural gas processing facility in the Hugoton Basin. One of the byproducts of natural gas is crude helium.  In 1996, Regency entered into a 12-year contract with Keyes Helium Co., which owned a helium processing facility in Oklahoma.  Under the agreement, Keyes agreed to purchase all of the crude helium produced by Regency’s facility.  But in 2003, Regency found out that one of its biggest customers was unlikely to renew its contracts, which would deprive Regency of the volumes of natural gas needed to make helium production possible.  As a result, Regency decided to shut down its plant and move its processing to a nearby facility owned by another company.  Keyes sued for breach of contract, contending that Regency had not acted in good faith when it decided to eliminate its production of crude helium.  The jury returned a verdict in favor of Regency.

On appeal, Keyes claimed jury charge error in the trial court’s definition of “good faith” under the UCC.  Keyes contended that the trial court should have limited its instruction to the one found in the U.C.C., which simply states that good faith means “honesty in fact and the observance of reasonable commercial standards standards in the trade.”  The trial court had expanded on that definition by adding the phrase “including whether Regency had a legitimate business reason for eliminating its output under the Contract, as opposed to a desire to avoid the contract.”  The court of appeals rejected that argument, concluding that the additional language could not have caused the rendition of an improper verdict because Keyes had failed to submit any evidence that Regency’s decision to shut down its plant had been made in bad faith.  The court of appeals also affirmed the trial court’s grant of a directed verdict against Keyes on its claim that the UCC prevented Regency from reducing its output below the estimates stated in the contract, ruling that section 2-306(1) of the UCC did not such reductions if they were made in good faith.

Keyes Helium Co. v. Regency Gas Services, LP, No. 05-10-00929-CV