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2010 OK CIV APP 35
231 P.3d 761
Case Number: 107346
Decided: 01/13/2010
Mandate Issued: 04/02/2010

ACES A/C SUPPLY NORTH, a Texas Corporation, Plaintiff/Appellant,
SECURITY BANK, an Oklahoma Banking Corporation, Defendant/Appellee,
TERRELL HEATING & AIR CONDITIONING, INC., an Oklahoma Corporation, and BRENT TERRELL, Defendants.




Joe M. Fears, Richard D. White, Jr., BARBER & BARTZ, Tulsa, Oklahoma, for Plaintiff/Appellant
Barry G. Reynolds, Kelley G. Loud, TITUS HILLIS REYNOLDS LOVE, DICKMAN & MCCALMON, Tulsa, Oklahoma, for Defendant/Appellee


¶1 The trial court plaintiff, Aces A/C Supply North (Aces), appeals an order granting summary judgment to the defendant, Security Bank (Security). The trial court entered an order pursuant to


¶2 The defendant, Terrell Heating & Air Conditioning, Inc. (THAC), is owned and operated by the defendant, Brent Terrell (Terrell). THAC is an air conditioning subcontractor. THAC purchased supplies and equipment from Aces on account.

¶3 THAC had a subcontract for a project (Gemstar Project) where Gemstar Construction and Development, Inc. (Gemstar) served as the project construction manager. THAC purchased from Aces the supplies and equipment for the Gemstar Project. THAC had other projects and an account balance with Aces for purchases unrelated to the Gemstar Project.

¶4 In order to be paid, THAC had to submit to Gemstar documented applications for payment. In addition, Aces and THAC had an agreement whereby such payments would be made by joint checks, payable to Aces and THAC.

¶5 This case involves three of those joint payments. THAC submitted three payment applications: one for $92,753.25, one for $79,478.15, and one for $33,445.44. Gemstar made these three payments, totaling $334,454.44, between April 5, 2007 and May 25, 2007, by check jointly payable to THAC and Aces.

¶6 These payments exceeded the total of the underlying invoices from Aces included in the payment application document. Thus, Terrell and his bookkeeper discussed depositing the first check into THAC's operating account at Security and using the excess funds for another obligation.

¶7 The three Gemstar payments were deposited into THAC's operating account at Security and without an authorized endorsement by Aces.

¶8 THAC subsequently sent checks to Aces from its operating account. These checks identified the invoices being paid, which were the invoices attributed to the Gemstar Project and were the ones included in the three Gemstar payments involved here.

¶9 In its summary judgment motion, Security states that from April 2007 to October 2007, THAC paid Aces at least $430,000.00 from its operating account. Security further states as a fact that "at times" THAC directed the application of payments to specific invoices as reflected on the checks. On June 15, 2007, THAC paid $59,178.10, with direction to apply the payment to a specific Gemstar Project invoice.

¶10 Thus, Security maintains that Aces received all that it was due from the three checks in question. Security argues that it is exonerated from all liability to Aces for receiving and processing the three checks without an authorized endorsement because of these THAC payments.

¶11 Aces does not dispute that THAC paid it at least $430,000.00, or that THAC directed application in some cases. However, Aces states that not all of the $430,000.00 paid involved the Gemstar Project because there were other projects. Aces also states that the directions were ineffective for two reasons.

¶12 First, Aces asserts that its policy was to apply all payments to the oldest balance first, irrespective of THAC's designation of payment. Aces's representative testified that this policy was communicated to THAC.

¶13 Next, Aces states that THAC's balance due to Aces exceeds the three Gemstar checks after credit for all of THAC's payments. Aces argues that Security is therefore liable because Aces has not been paid the money from the checks. Alternatively, Aces argues that it was damaged by Security's acceptance of the checks because, otherwise, Aces would have received the entire proceeds, thereby reducing THAC's balance owed by the amount that the three Gemstar payments exceeded the total of the specific Aces's invoices attributed to those payments.

¶14 The trial court agreed with Security, finding that THAC's payments totally replaced the amount owed Aces from the three misdirected checks. After making extensive findings, the trial court ruled that Aces had received the amount it was due from the Gemstar checks, notwithstanding the diversion of the checks, and this fact relieved Security of liability. The trial court further found that Aces had not shown either that THAC would have paid the excess funds to its balance or that THAC's balance would have been reduced had the Gemstar checks not been diverted.

¶15 The trial court granted summary judgment to Security. Aces appeals.


¶16 The appellate standard of review in summary judgment is de novo. Kirkpatrick v. Chrysler Corp.,

¶17 One who defends against a claim and who does not bear the burden of proof is not required to negate the plaintiff's claims or theories in order to prevail on motion for summary judgment. When, a defendant moves for summary judgment without relying upon an affirmative defense, the defendant must show that: 1) no substantial factual controversy exists as to at least one fact essential to plaintiff's theory of the cause of action; and, 2) the fact is in defendant's favor. Once a defendant has introduced evidentiary materials to establish these points, the plaintiff then has the burden of showing that evidence is available which justifies a trial of the issue. Akin v. Missouri Pacific Railroad Co.,


¶18 A bank avoids liability for honoring a check with an unauthorized endorsement if the bank can prove that the intended payee received the proceeds of the check. O'Petro Energy Corp. v. Canadian St. Bank.,

¶19 Here, it is undisputed that THAC paid, through directed payments, sums equal to or in excess of the Aces's invoices attributed to the three Gemstar checks. Security's summary judgment singles out the element of damages and submits evidentiary materials to show that Aces cannot prove damages because it received its money. The burden then shifted to Aces to show that a question of fact exists and it failed to meet that burden on this point. Thus, the trial court correctly entered summary judgment.

¶20 Also, the trial court correctly awarded summary judgment against Aces's claim of damages premised upon a reduction of THAC's balance had the three checks been paid over. As the trial court observed, Aces has not demonstrated the fact of a reduction of the account balance. For summary judgment purposes, the fact that the total of the three Gemstar checks might exceed the Aces's associated invoices may be inferred from THAC's motivation for diverting the checks.

¶21 However, this does not suffice because Aces has not demonstrated any right to receive the excess proceeds. Although there is a rebuttable presumption that the measure of liability is the amount of the checks, Aces's recovery may not exceed the amount of its interest in the checks.

¶22 Therefore, the judgment of the trial court granting summary judgment to Security National Bank is affirmed.


GABBARD, P.J., WISEMAN, V.C.J. (sitting by designation), concur.


1 "The joint check rule reflects a widespread practice in the construction industry that allows owners and general contractors to protect themselves from lien foreclosure by materialmen whom subcontractors have failed to pay. The issuance of a check payable jointly to the subcontractor and the materialman enables the materialman to withhold endorsement until he is assured that the subcontractor's account with him is or will be satisfied from the proceeds of the check. This may be accomplished in various ways, including the use of gentlemen's agreements or more formal escrow arrangements. The practice of issuing joint checks protects both the owner/general contractor and the materialman, because each has an interest in ensuring that the materialman is paid." Brown Wholesale Elec. Co. v. Beztak of Scottsdale, Inc., 788 P.2d 73, 76 (Ariz. 1990).

2 It is undisputed that the Aces's endorsement was not an authorized signature. Seven other checks were properly endorsed and Aces received those checks. The record does not show whether any or all of those seven checks were for an amount over that which was due to Aces for the invoices covered by these payments. There is a dispute between THAC and Aces as to the balance THAC owes Aces. The summary judgment given to Security did not resolve that separate dispute, but the trial court authorized this appeal.