Reversed and Rendered in part and Reversed and Remanded in part and
Majority and Dissenting Opinions filed March 27, 2014.




                                        In The

                     Fourteenth Court of Appeals

                                NO. 14-13-00080-CV

                RR MALOAN INVESTMENTS, INC., Appellant
                                          V.

                            NEW HGE, INC., Appellee

              On Appeal from the County Civil Court at Law No. 4
                            Harris County, Texas
                       Trial Court Cause No. 1011775

                       MAJORITY OPINION
      A check cashing service, RR Maloan Investments, Inc. sued New Houston
Gold Exchange, Inc. to recover on a post-dated check upon which Houston Gold
Exchange stopped payment. The trial court signed a judgment in favor of Houston
Gold Exchange, and RR Maloan appealed. We reverse the trial court’s judgment;
render judgment in favor of RR Maloan for the amount of the check; and remand
to the trial court for computation of interest and court costs.
                                   BACKGROUND

      On September 23, 2011, Houston Gold Exchange issued a $3,500 check as
payor to Shelly McKee as payee to buy a purported Rolex watch from her. The
check was post-dated September 26, 2011. McKee properly endorsed the check
and presented it to RR Maloan, which cashed the check for her on September 24,
2011. On September 24, 2011, Houston Gold Exchange issued a stop payment
order on the check based on information that the watch was counterfeit. RR
Maloan presented the check to Houston Gold Exchange’s bank for payment.
Houston Gold Exchange’s bank refused to honor the check based on the stop
payment order.

      RR Maloan sued Houston Gold Exchange in small claims court to collect on
the check. RR Maloan filed a “Statement of Claim” asserting that it was a holder
in due course entitled to collect on the check. Houston Gold Exchange responded
by filing a letter detailing Houston Gold Exchange’s account of the transaction and
stating that the company placed a stop payment upon the check when it realized the
watch was counterfeit. Houston Gold Exchange was not present on the appearance
date, and the small claims court signed a default judgment in RR Maloan’s favor.

      Houston Gold Exchange appealed to the County Court at Law and filed a
general denial. Following a bench trial, the trial court signed a take-nothing
judgment in favor of Houston Gold Exchange on September 27, 2012. RR Maloan
filed a motion for new trial or for reconsideration, in which it argued: (1) the court
erred in failing to hold that RR Maloan was a holder in due course; (2) Houston
Gold Exchange’s defenses are inapplicable to RR Maloan and should be asserted
against McKee; and (3) Houston Gold Exchange failed to plead or prove fraud on
the part of RR Maloan. The motion for new trial or reconsideration was overruled
by operation of law. This appeal followed.

                                          2
                                     ANALYSIS

      In one issue on appeal, RR Maloan challenges the trial court’s failure to
grant its post-trial motion and render judgment in favor of RR Maloan. We
construe RR Maloan’s argument to assert that the trial court erred by failing to find
it was a holder in due course, and that no defenses apply to bar its recovery as a
holder in due course. At trial, Houston Gold Exchange argued that RR Maloan
was not a holder in due course because the check was not a negotiable instrument.
On appeal, Houston Gold Exchange alternatively argues that the defenses of fraud
and illegality bar RR Maloan from collecting on the check even if RR Maloan was
a holder in due course.

I.    Standard of Review

      When no findings of fact are filed, as here, the reviewing court implies all
necessary findings to support the judgment. Reservoir Sys., Inc. v. TGS-NOPEC
Geophysical Co., 335 S.W.3d 297, 303 (Tex. App.—Houston [14th Dist.] 2010,
pet. denied). Implied findings of fact are reviewable for legal sufficiency of the
evidence by the same standards as applied in reviewing the sufficiency of the
evidence supporting a jury’s findings or a trial court’s findings. See Harris Cnty.
Hosp. Dist. v. Textac Partners I, 257 S.W.3d 303, 311 (Tex. App.—Houston [14th
Dist.] 2008, no pet.); Curtis v. Comm’n for Lawyer Discipline, 20 S.W.3d 227, 231
(Tex. App.—Houston [14th Dist.] 2000, no pet.).

      Evidence is legally insufficient if: (1) there is a complete absence of
evidence of a vital fact; (2) the court is barred by rules of law or evidence from
giving weight to the only evidence offered to prove a vital fact; (3) the evidence
offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence
establishes conclusively the opposite of the vital fact. City of Keller v. Wilson, 168
S.W.3d 802, 810 (Tex. 2005).
                                          3
       We review the evidence in the light most favorable to the trial court’s
findings and assume that the court resolved all conflicts in accordance with its
judgment. See id. at 820. We credit evidence favorable to the trial court’s findings
if reasonable factfinders could, and we disregard contrary evidence unless
reasonable factfinders could not. See id. at 827. The ultimate test is whether the
evidence at trial would enable reasonable and fair-minded people to reach the
finding under review. Id.

       RR Maloan filed a motion for reconsideration, which stated: “Plaintiff
requests the court to reconsider its judgment and conform such judgment consistent
with the facts and law presented to the court; or alternatively, requests a new trial.”
We construe this as a request for rendition of judgment in RR Maloan’s favor
because the evidence at trial conclusively establishes its right to receive payment
on the disputed check.

II.    Holder in Due Course

       The holder of a negotiable instrument is a holder in due course if the holder
takes the instrument: (1) for value; (2) in good faith; and (3) without notice of any
claim or defense to the instrument. Tex. Bus. & Com. Code Ann. § 3.302(a)(2)
(Vernon 2002).

       At trial, Houston Gold Exchange argued that the check at issue was not a
negotiable instrument because it was post-dated. We reject this contention because
the negotiability of a check is not affected by post-dating. See Tex. Bus. & Com.
Code Ann. § 3.113; First Nat’l Bank of Trinity, Tex. v. McKay, 521 S.W.2d 661,
664 (Tex. Civ. App.—Houston [1st Dist.] 1975, no writ).1


       1
         The former version of section 3.113 of the Texas Business and Commerce Code stated:
“The negotiability of an instrument is not affected by the fact that it is undated, antedated or
postdated.” Act of May 24, 1967, 60th Leg., R.S., ch. 785, § 3.114, 1967 Tex. Gen. Laws 2343,
                                               4
       A holder is presumed to be a holder in due course unless there is evidence to
the contrary. Williams v. Stansbury, 649 S.W.2d 293, 295 (Tex. 1983); Max
Duncan Family Invs., Ltd. v. NTFN Inc., 267 S.W.3d 447, 452 (Tex. App.—Dallas
2008, pet. denied). “A holder in due course takes the instrument free from all
claims and all defenses of any party to the instrument with whom he has not dealt”
unless a defense that bars recovery by a holder in due course applies. Favors v.
Yaffe, 605 S.W.2d 342, 344 (Tex. Civ. App.—Houston [14th Dist.] 1980, writ ref’d
n.r.e.); Tex. Bus. & Com. Code Ann. §3.305(b) (Vernon Supp. 2013). When the
signatures on a check are admitted, as they are here, production of the check
entitles the holder to recover on it unless the defendant establishes a defense. See
Favors, 605 S.W.2d at 344; Tex. Bus. & Com. Code Ann. § 3.308(b) (Vernon
2002).

       The evidence adduced at trial conclusively establishes that RR Maloan was a
holder in due course. See Tex. Bus. & Com. Code Ann. § 3.302(a).

       Under section 3.302(a)(1), a holder of an instrument is a holder in due
course if “the instrument when issued or negotiated to the holder does not bear
such apparent evidence of forgery or alteration or is not otherwise so irregular or
incomplete as to call into question its authenticity.” Id. No evidence in this record
suggests that the check was forged, altered, or not authentic.

       There is no dispute on this record that RR Maloan took the check “for value”
as required under section 3.302(a)(2)(A).2


2414 (amended 1995) (current version at Tex. Bus. & Com. Code Ann. §3.113 (Vernon 2002)).
The comment to section 3.113 explains that this language was deleted as unnecessary. Tex. Bus.
& Com. Code Ann. § 3.113 cmt. (Vernon 2002). The relevant portion of the current version
states: “An instrument may be antedated or post-dated. The date stated determines the time of
payment if the instrument is payable at a fixed period after date.” Id. McKay applies the former
version of the statute.
       2
           Houston Gold Exchange does not contend that RR Maloan’s holder in due course status
                                               5
       With respect to good faith under section 1.201(b)(20), “good faith” is
defined as “honesty in fact and the observance of reasonable commercial standards
of fair dealing.” Tex. Bus. & Com. Code Ann. §1.201(b)(20) (Vernon 2009). The
record here conclusively establishes RR Maloan’s good faith as that concept is
defined for these purposes in the statute.

       RR Maloan’s owner testified that the company is a check cashing business.
The owner testified that an employee of RR Maloan took Houston Gold
Exchange’s check from McKee in exchange for cash in the normal course of
business. The owner testified that at the time the check was taken, he did not have
knowledge that the purported Rolex watch was not authentic and did not have
knowledge of any claims or defenses to the check. See Jones v. Mo. Sav. Ass’n,
756 S.W.2d 423, 425 (Tex. App.—Dallas, 1988 no pet.) (“The test for ‘good faith’
is whether the purchaser had actual knowledge of facts and circumstances
amounting to bad faith.”). No evidence was presented that the owner or any
employee of RR Maloan had knowledge at the time the check was accepted that
the watch was not authentic.

       As for “reasonable commercial standards,” Texas law holds that knowledge
of post-dating by itself does not (1) give notice of a defense or claim; or (2) impose
a duty to “make any investigation to ascertain whether or not the maker had any
defenses which would have justified him in refusing to pay the payee.” McKay,
521 S.W.2d at 663. Because the fact of post-dating did not impose a duty on RR
Maloan to investigate the surrounding circumstances, Houston Gold Exchange
cannot establish that RR Maloan failed to observe “reasonable commercial
standards of fair dealing” by failing to investigate based on the post-dating of the
check. See id.

is defeated by subsections (C), (D), or (E) of section 3.302(a)(2).

                                                 6
      The dissenting opinion urges a contrary conclusion because McKay
predicated its no-duty-to-investigate determination on former section 3.304(d)(1),
which stated:    “Knowledge of the following facts does not of itself give the
purchaser notice of a defense or claim . . . that the instrument is antedated or
postdated . . . . “ Act of May 24, 1967, 60th Leg., R.S., ch. 785, § 3.304(d)(1),
1967 Tex. Gen. Laws 2343, 2421 (amended 1995) (current version at Tex. Bus. &
Com. Code Ann. §3.302 (Vernon 2002)). Former section 3.304(d)(1) was deleted
as part of a wholesale revamp of Article 3 and other provisions in 1995. The
dissent contends that, notwithstanding McKay¸ this deletion means that Texas law
does indeed impose a duty to investigate a post-dated check.

      We reject this contention because the dissent points to nothing in the
statutory language of current Article 3, the case law, the legislative history, or in
legal commentary indicating that (1) the policy reflected in former section
3.304(d)(1) and McKay has ceased to reflect the policy of current Texas law; (2)
this policy was perceived by the Texas legislature to be an “evil” in need of
correction; (3) the Texas legislature had an identifiable reason for making a
substantive change to the policy reflected in former section 3.304(d)(1); (4) any
post-1995 provision in Article 3 conflicts with the policy reflected in former
section 3.304(d)(1); or (5) settled commercial practices and expectations under
these standards should be disturbed.       See Energy Serv. Co. of Bowie, Inc. v.
Superior Snubbing Servs., Inc. 236 S.W.3d 190, 194-95 (Tex. 2007) (Most
reasonable construction of individual statutory provision amended during 1989
overhaul of Texas Workers’ Compensation Act “is the same as its pre-1989
predecessors” in the absence of “any identifiable reason for a substantive change to
have been made in the statutory provision, or any extra-textual indication that one
was intended, or any resulting change in industry practice . . . .”).


                                           7
       The dissent identifies no specific connection to former section 3.304(d)(1)’s
policy when the dissent highlights Southwest Bank v. Information Support
Concepts, Inc., 149 S.W.3d 104, 105 (Tex. 2004), and the supreme court’s general
reference to accommodating “modern technologies and practices in payment
systems and with respect to negotiable instruments . . . . .” The dissent does not
contend that the statutory change here “admitted of but one meaning.” See Energy
Serv. Co. of Bowie, Inc., 236 S.W.3d at 195 (citing Fleming Foods of Tex., Inc. v.
Rylander, 6 S.W.3d 278, 283-84 (Tex. 1999)). The analysis here as to the deletion
of former section 3.304(d)(1) should track the analysis as to the deletion of former
section 3.113; as the dissent agrees, the deletion of former section 3.113 does not
compel a departure from McKay’s 1975 holding that a post-dated check is a
negotiable instrument. The same conclusion applies with respect to former section
3.304(d)(1).   The analysis here should not rest on the dissent’s erroneous
conclusion that the policy reflected in former section 3.304(d)(1) was significantly
altered by the Texas legislature “a generation ago” – and yet, no one noticed.

       In light of this record and the admitted validity of the signatures on the
check, production of the check entitled RR Maloan to recover unless Houston Gold
Exchange established a viable defense that would defeat holder in due course
status. See Tex. Bus. & Com. Code Ann. § 3.308(b).        An assertion that the sale
was conditioned on the watch’s authenticity, even if true, does not bar recovery by
RR Maloan; there is no evidence that it had knowledge of this asserted fact. See
Tex. Bus. & Com. Code Ann. §§ 3.302(a), 3.305(b).

III.   Defenses

       Houston Gold Exchange contends that RR Maloan’s status as a holder in due
course is defeated by fraud and illegality.



                                          8
        A.    Failure to Plead

        As a threshold matter, RR Maloan contends that Houston Gold Exchange
cannot rely on its asserted defenses of fraud and illegality because it failed to plead
them.

        Texas Rule of Civil Procedure 94 requires a party to plead all affirmative
defenses. Tex. R. Civ. P. 94; Hassell Constr. Co. v. Stature Commercial Co., 162
S.W.3d 664, 667 (Tex. App.—Houston [14th Dist.] 2005, no pet.). As a general
rule, an affirmative defense is waived if the defendant does not specifically plead
it. Hassell Constr. Co., 162 S.W.3d at 667. Fraud and illegality are affirmative
defenses. See Tex. R. Civ. P. 94. Because Houston Gold Exchange failed to plead
these defenses, they are waived unless an exception applies. Id.

        Houston Gold Exchange asserts that two exceptions to the general rule
apply. First, Houston Gold Exchange cites Phillips v. Phillips, 820 S.W.2d 785,
789 (Tex. 1991), to argue that it was entitled to rely on the defenses of fraud and
illegality because they were anticipated by RR Maloan’s pleadings. Phillips states
that “when a plaintiff in his pleadings anticipates defensive matters and pleads
them, the defendant may rely upon defenses though his only pleading is a general
denial.” Id. Phillips further explains that “pleading an agreement illegal on its
face in effect anticipates the defense.” Id. Thus, illegality does not need to be
specially pled “if the illegal nature of the document to be relied upon or sought to
be enforced is apparent from plaintiff’s pleadings.” Id.

        Here, RR Maloan pled in its “Statement of Claim” that “[p]laintiff has been
made aware that the [defendant] was sold an allegedly fake [R]olex watch by the
payee of their stop payment check. This is unproven, but, even if it is true, UCC
case law is very clear that fraud by the payee is not a defense against a holder in
due course in case after case.” Houston Gold Exchange contends that this pleading
                                          9
anticipates the defenses of fraud and illegality. At most, this pleading anticipates a
fraud defense. This pleading does not anticipate an illegality defense. Thus, we
conclude that Houston Gold Exchange may invoke the defense of fraud on appeal
but not the defense of illegality because RR Maloan’s “Statement of Claim” put the
defense of fraud at issue in the case.

       Houston Gold Exchange also argues that the defenses of fraud and illegality
were tried by consent.3 An unpleaded issue may be considered tried by consent
when evidence on the issue is developed under circumstances indicating that both
parties understood the issue was in the case, and the other party failed to make an
appropriate complaint. Tex. R. Civ. P. 67; Moore v. Altra Energy Techs., Inc., 321
S.W.3d 727, 734 (Tex. App.—Houston [14th Dist.] 2010, pet. denied); Emerson
Electric Co. v. Am. Permanent Ware Co., 201 S.W.3d 301, 309 (Tex. App.—
Dallas 2006, no pet.). Whether an issue was tried by consent is reviewed for abuse
of discretion. Compass Bank v. MFP Fin. Servs., Inc., 152 S.W.3d 844, 856 (Tex.
App.—Dallas 2005, pet. denied). To determine whether an issue was tried by
consent, the reviewing court must examine the record not merely for evidence of
the issue, but for evidence of trial of the issue. Moore, 321 S.W.3d at 734. A party
who allows an issue to be tried by consent and who fails to raise the lack of a
pleading before submission of the case cannot later raise the pleading deficiency
for the first time on appeal. See Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d
492, 495 (Tex. 1991).

       The issue of illegality arises under a variety of statutes and it accordingly is
a matter “left to the local law.” See Tex. Bus. & Com. Code Ann. § 3.305 cmt. 1.
Nevertheless, illegality under section 3.305 defeats a claim of a holder in due
       3
         Because we conclude Houston Gold Exchange was entitled to invoke the pleaded
defense of fraud on appeal, it is unnecessary to address whether the defense of fraud was tried by
consent.

                                               10
course only when an obligation is made “entirely null and void” under “local law.”
Id. If an obligation is merely voidable at the election of the payor, the defense is
unavailable against a holder in due course. Id. In Texas, the defense of illegality
has defeated the claims of holders in due course in cases involving retirement of
gambling debts and usury. See Carnival Leisure Indus., Ltd. v. Aubin, 53 F.3d
716, 719 (5th Cir. 1995) (Texas public policy bars enforcement of an instrument
issued to pay a gambling debt); Robinson v. Rudy, 666 S.W.2d 507, 509 (Tex.
App.—Houston [1st Dist.] 1983, writ ref’d n.r.e.) (“Usury, of course, is a complete
defense whether or not the appellee is a holder in due course.”).

      At trial, no testimony was elicited regarding the legality of the transaction.
RR Maloan’s owner testified that it was not apparent from the face of the check
that the watch was counterfeit.      No objections were made to this testimony.
Houston Gold Exchange’s owner testified that the watch was not an authentic
Rolex. He also testified that Houston Gold Exchange refused to honor the check
because the Rolex was not authentic.

      This testimony does not support a conclusion that the transaction was
entirely null and void on its face. We conclude that the trial court abused its
discretion to the extent it found that illegality was tried by consent. Even if the
issue had been tried by consent, there is no evidence of illegality that would
foreclose RR Maloan from recovering. Thus, Houston Gold Exchange may not
rely upon illegality as a defense.

      A.     Fraud

      Houston Gold Exchange argues on appeal that it was induced to issue the
check by McKee’s misrepresentation about the watch’s authenticity. Houston
Gold Exchange maintains that this situation involves “a classic case of fraud as
outlined in 3-305(a)(1).”
                                         11
      Section 3.305(a)(1) provides:

      (a) Except as otherwise provided in this section, the right to enforce
      the obligation of a party to pay an instrument is subject to the
      following:
            (1) a defense of the obligor based on:
                  (A) infancy of the obligor to the extent it is a defense to a
                  simple contract;
                  (B) duress, lack of legal capacity, or illegality of the
                  transaction that, under other law, nullifies the obligation
                  of the obligor;
                  (C) fraud that induced the obligor to sign the instrument
                  with neither knowledge nor reasonable opportunity to
                  learn of its character or its essential terms; or
                  (D) discharge of the obligor in insolvency proceedings.
Tex. Bus. & Com. Code Ann. § 3.305(a)(1).

      McKee’s asserted fraud in selling an allegedly fake Rolex to Houston Gold
Exchange does not foreclose RR Maloan’s status as a holder in due course or
defeat its ability to enforce Houston Gold Exchange’s obligation under section
3.305(a)(1). The fraud contemplated by section 3.305(c) addresses a situation in
which the maker has been deceived into signing a note based on a
misunderstanding that it was some other type of instrument, or a misunderstanding
as to the essential terms of the note. See Tex. Bus. & Com. Code Ann. § 3.305(c);
Favors, 605 S.W.2d at 345. Here, there was no testimony that Houston Gold
Exchange signed the check based on a misunderstanding about the type of
instrument at issue or its terms.     Houston Gold Exchange’s challenge to the
watch’s authenticity does not bar RR Maloan from collecting on the check as a
holder in due course. See Favors, 605 S.W.2d at 345.

      Accordingly, we reject Houston Gold Exchange’s defense of fraud.


                                        12
                                  CONCLUSION
      After reviewing the record and considering appellee’s responses, we
determine that the evidence conclusively establishes that RR Maloan was a holder
in due course and that Houston Gold Exchange’s defenses do not apply.
Accordingly, we reverse the trial court’s judgment; render judgment in favor of RR
Maloan for the amount of the check; and remand to the trial court for computation
of interest and court costs.



                                     /s/    William J. Boyce
                                            Justice



Panel consists of Justices Boyce, Christopher, and Brown. (Christopher, J.,
dissenting).




                                       13
