LaGrange State Bank v. Numeritech, Inc.--Appeal from 167th District Court of Travis County

La Grange State Bank v. Numeritech IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-91-452-CV
LA GRANGE STATE BANK,

APPELLANT

 
vs.
NUMERITECH, INC.,

APPELLEE

 
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 167TH JUDICIAL DISTRICT
NO. 493,609A, HONORABLE JOHN K. DIETZ, JUDGE PRESIDING

This case involves a contest over funds interpleaded into the district court by Houston Instrument, a division of Summagraphics Corporation (Houston Instrument). The interpleaded funds represented payment for completed purchase orders for goods Numeritech, Inc. (Numeritech) manufactured and invoiced to Houston Instrument. These purchase orders had been transferred to Numeritech from financially-troubled La Grange Machine Works, Inc. (Machine Works). La Grange State Bank (the Bank), as a creditor of Machine Works, sought to impose a security interest on the interpleaded funds. The Bank and Numeritech each filed cross-motions for partial summary judgment alleging rights to the funds. (1) The district court granted summary judgment for Numeritech, thus denying the Bank's motion, and this appeal followed. We will affirm the summary judgment of the district court.

 
BACKGROUND

During the Spring of 1990, Houston Instrument sent purchase orders to Machine Works for various machined parts. When Machine Works received these purchase orders, it was in the midst of financial difficulties which prevented it from filling the orders. Instead, Machine Works transferred the purchase orders to Numeritech. Numeritech then filled the orders, delivered the parts to Houston Instrument, and sent invoices to Houston Instrument for the amount due for the parts. After Numeritech had filled and invoiced several of Houston Instrument's purchase orders, Houston Instrument ceased sending purchase orders to Machine Works, and began sending them directly to Numeritech.

The Bank and Numeritech have different views of the nature of Machine Works's transfer of the Houston Instrument purchase orders to Numeritech. The Bank argues that Machine Works subcontracted the manufacture of the parts to Numeritech. Numeritech argues that the purchase orders were merely referred to Numeritech because they had no business value to Machine Works since Machine Works was going out of business.

Meanwhile, Machine Works' financial difficulties caused it to default on a promissory note held by the Bank. On May 23, 1990, the Bank gave notice that it was accelerating the amounts due on the note and demanded full payment. To secure the note, Machine Works had given the Bank a security interest in all of its "accounts receivable, now on hand and hereafter acquired and the proceeds thereof, contract rights, chattel paper, instruments, general intangibles and rights to payment of every kind now or at any time rising out of the business of debtor." On July 3, 1990, the Bank purchased Machine Works' assets in a foreclosure sale.

By letter dated June 14, 1990, the Bank notified Houston Instrument that the Bank was claiming an interest in all of Machine Works' accounts receivable, which the Bank considered to include all purchase orders Numeritech filled. At this time, Houston Instrument's outstanding accounts payable for the machine parts it had received from Numeritech totaled approximately $18,000. Shortly after receipt of the Bank's letter, Numeritech demanded payment from Houston Instrument of the entire amount of its accounts payable. Houston Instrument paid neither the Bank nor Numeritech, due to the conflicting demands for payment.

After negotiations between Houston Instrument, the Bank, and Numeritech, the Bank abandoned its claim to any interest in the accounts stemming from the purchase orders Houston Instrument had sent directly to Numeritech. The parties agreed that Houston Instrument could release $6033 to Numeritech for parts delivered from these purchase orders. Houston Instrument's remaining accounts payable were $12,549.22, representing the goods supplied by Numeritech but originally ordered from Machine Works. The Bank did not abandon its claim to these accounts.

On November 9, 1990, Houston Instrument interpleaded $12,549.22 into the registry of the district court, naming Numeritech and the Bank as defendants. The Bank and Numeritech filed cross-claims and counterclaims. On February 13, 1991, the court ordered, upon agreed motion of the parties, that $2500 of the interpleaded funds be released to Houston Instrument for its attorney's fees. The Bank sought the release of the funds remaining in the registry of the court and reasonable fees and expenses from Numeritech. Numeritech also sought the remaining interpleaded funds, and claimed tortious interference with contractual relationships by the Bank.

Both the Bank and Numeritech each then filed motions for summary judgment on their cross-claims. The district court granted Numeritech's summary judgment motion for its claim on the interpleaded funds, and severed the order from the remaining claims. The Bank now appeals.

 
DISCUSSION

The standards for reviewing a motion for summary judgment are well settled: (1) the movant for summary judgment has the burden of showing that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law; (2) in deciding whether there is a disputed material fact issue precluding summary judgment, evidence favorable to the nonmovant will be taken as true; and (3) every reasonable inference must be indulged in favor of the nonmovant and any doubts resolved in its favor. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex. 1985); United States Fidelity and Guar. Co. v. Travis Eckert Agency, Inc., 824 S.W.2d 628, 630 (Tex. App. 1991, writ denied).

The Bank contends that the district court erred in granting Numeritech's motion for partial summary judgment because the purchase orders, sent by Houston Instrument to Machine Works but filled by Numeritech, created a financial interest held by Machine Works which the Bank's security interest reached. We disagree.

The Bank argues primarily that the purchase orders Machine Works transferred to Numeritech constituted an accounts receivable of Machine Works. The Texas Uniform Commercial Code defines an "account" as "any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper, whether or not it has been earned by performance." Tex. Bus. & Com. Code. Ann. 9.106(b) (1991). When Machine Works defaulted on its note held by the Bank, the Bank became an assignee to any right to payment Machine Works possessed. The statutory definition of "account" further narrows the issue to whether the purchase orders, standing alone, gave Machine Works, and the Bank as its assignee, a right to payment. We hold that they did not.

There is no evidence in the summary judgment record that indicates Machine Works either filled, or promised to fill, the purchase orders. The summary judgment record in its entirety consists of the affidavit of Mrs. Donna Maas, owner and president of Numeritech, and the affidavit of Mario Scamardo, vice president of the Bank. The affidavit of Mrs. Maas states that Numeritech "filled those orders and submitted an invoice for each order filled in accordance with the usual, customary and reasonable price charged by Numeritech, and in accordance with the price agreed [to] by Houston's purchasing representative." The affidavit of Mr. Scamardo does not dispute that Numeritech filled the orders and invoiced Houston Instrument for them. Therefore Numeritech, not Machine Works, had the right to payment for the goods it delivered.

Since Machine Works had no right to payment, it likewise had no accounts receivable. An assignee of a perfected security interest cannot take greater rights than the assignor. Tex. Bus. & Com. Code Ann. 9.106, 9.318(a); Interfirst Bank Dallas v. United States Fidelity & Guar. Co., 774 S.W.2d 391, 397 (Tex. App. 1989, writ denied). The Bank, as Machine Works' assignee, does not have a right to payment based on the purchase orders because Machine Works never had a right to payment.

This conclusion, of course, does not end the inquiry; we must also determine the legal effect of the purchase orders. The Bank contends it is entitled to the interpleaded funds as proceeds due on a "contract right" or "general intangible" of Machine Works. Under the Uniform Commercial Code, "the submission of a purchase order is viewed as an offer which may then be accepted or rejected by the seller." BarclaysAmerican/Business Credit, Inc. v. E & E Enter. Inc., 697 S.W.2d 694, 698 (Tex. App. 1985, no writ). Since the purchase orders are mere offers, the Bank can only have a right to payment if Machine Works accepted these offers. "[A]n order . . . to buy goods . . . shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of . . . goods." Tex. Bus. & Com. Code. 2.206(a)(2) (1968). As mentioned above, Machine Works neither shipped the parts Houston Instrument had ordered nor promised to ship them. The mere transfer of the purchase orders to Numeritech fails as an acceptance of Houston Instrument's offer to buy under the definition of Section 2.206. Therefore, these purchase orders are not included within the security agreement, even under the broad "contract" or "general intangible" language. We hold that the district court's summary judgment order was correct because the Bank had no right to the interpleaded funds.

The Bank raises several additional arguments, but none alter the fact that Machine Works never obtained a right to payment based on the purchase orders.

First, the Bank argues that because Numeritech was not incorporated until May 30, 1990, it cannot have a right to payment for those purchase orders received or filled prior to the date of its incorporation. This, however, does not change the fact that Machine Works neither filled nor promised to fill the purchase orders. The legal date of Numeritech's incorporation cannot bestow on Machine Works a right to payment which it otherwise did not have.

Additionally, the Bank argues that Numeritech was either a subcontractor or an agent of Machine Works. However, the Bank points to no evidence in the record which counters Numeritech's evidence that there was not a legal relationship between Machine Works and Numeritech.

The Bank points to the following portion of the affidavit of Mario Scamardo, vice president of the Bank:

 

Machine Works received a total of 19 separate purchases [sic] orders from Houston Instruments [sic] from April 26, 1990 through May 24, 1990, for a total of $12,549.22. However, Machine Works subcontracted these purchase orders to Numeritech, who later invoiced Houston Instrument. Contrary to their "Agreement Concerning Indebtedness" to account for and assist and cooperate in LGSB's collection of these accounts, neither Machine Works nor Johnny Caswell revealed the receipt or the subsequent subcontracting of these purchase orders. Instead, LGSB learned of these purchase orders from Houston Instrument."

 

(Emphasis added). The statement of Mr. Scamardo concerning the alleged subcontractor relationship between Machine Works and Numeritech does not constitute summary judgment evidence as defined by Texas Rule of Civil Procedure 166a(f). Rule 166a(f) requires that affidavits submitted in support of, or in opposition to, a motion for summary judgment "shall be made on personal knowledge . . . and shall show affirmatively that the affiant is competent to testify to the matters stated therein." Tex. R. Civ. P. Ann. 166a(f) (Supp. 1992).

Mr. Scamardo's affidavit demonstrates that he lacks personal knowledge of any agency or contractual relationship between Machine Works and Numeritech. He asserts the existence of these relationships, but gives no indication of the basis for this assertion. Indeed, Mr. Scamardo states that he first learned of the purchase orders from Houston Instrument after their transfer. "Affidavits consisting only of conclusions are insufficient to raise an issue of fact." Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984). Because the affidavit fails to show that Mr. Scamardo's conclusions were based on personal knowledge, his affidavit provides inadequate summary judgment proof. See Radio Station KSCS v. Jennings, 750 S.W.2d 760, 761-62 (Tex. 1988) (holding that an affidavit making factual assertions about the internal business practices of a radio station was insufficient as summary judgment evidence where the affiant had never been an employee of the station).

"[S]ummary judgment may be based on the uncontroverted testimonial evidence of an interested party provided that the evidence is `clear, positive, direct, otherwise credible . . . and could have been readily controverted.'" Beaumont Enter. & Journal v. Smith, 687 S.W.2d 729, 730 (Tex. 1985) (quoting Tex. R. Civ. P. 166a). The evidence contained in Mrs. Maas' affidavit, who as owner and president of Numeritech would have had personal knowledge of any relationship between Machine Works and Numeritech, remains uncontroverted: "The $12,549.22 in accounts receivable that are still the subject of this litigation . . . were accounts receivable rightfully belonging to Numeritech, not to La Grange Machine. The two corporations are and always have been separate entities." (2)

We reject all of the Bank's points of error. The summary judgment of the district court is affirmed.

 

Mack Kidd, Justice

[Before Chief Justice Carroll, Justices Jones and Kidd]

Affirmed

Filed: July 8, 1992

[Do Not Publish]

1. In addition to seeking the interpleaded funds, the Bank has brought suit against Numeritech alleging fraudulent transfer, fraud, breach of contract, and conspiracy. Numeritech, on the other hand, has sued the Bank for tortious interference with a business relationship, i.e., its business with Houston Instrument, since, as a result of this lawsuit, Houston Instrument has not placed any further orders with Numeritech. These claims remain pending at the district court level. Only the interpleader action, which was severed from the main cause, is the subject of this appeal.

2. Since the Scamardo affidavit fails as competent summary judgment evidence under Rule 166a, there is no need to address Numeritech's additional challenge to that affidavit as an insufficient denial of a sworn account.