UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
_______________________
No. 97-50151 Summary Calendar _______________________
IN THE MATTER OF: BILLY R. SHURLEY; JANE BRYANT SHURLEY,
Debtors.
WILLIAM H. ARMSTRONG, II,
Appellant,
versus
TEXAS COMMERCE BANK, formerly known as Texas Commerce Bank - Austin, N.A.,
Appellee.
_________________________________________________________________
Appeal from the United States District Court for the Western District of Texas (MO-96-CV-141) _________________________________________________________________
March 11, 1998
Before JONES, SMITH, and STEWART, Circuit Judges.
EDITH H. JONES, Circuit Judge:*
Appellant William H. Armstrong, II trustee, represents a
creditor of the Estate of Billy R. and Jane Bryant Shurley, Chapter
7 debtors since 1992. Armstrong contested the claim of Texas
Commerce Bank N.A. (TCB) for a deficiency arising from their
* Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4. guarantees of promissory notes owed by EX-IM Freezer Joint Venture,
in which Billy R. Shurley had been a partner. After some
procedural ping-pong in the courts below, the district court
affirmed a bankruptcy court judgment overruling Armstrong’s
objections. On appeal in this court, Armstrong contends (1) that
the lower courts erred in their construction of the term “default”
in the underlying loan agreement between EX-IM and TCB; (2) that
even if default originally occurred on April 28, 1989, EX-IM’s late
payment of this installment cured any default; (3) that Mr. and
Mrs. Shurley did not effectively waive their right to notice of a
foreclosure sale pursuant to § 9.504(c) of the Texas Uniform
Commercial Code; and (4) that the Shurleys’ Chapter 7 trustee was
entitled to notice of the foreclosure sale. We affirm the
judgments of the district and bankruptcy courts.
The background facts, recited in the district court’s
opinion, may be briefly summarized. As of December, 1988, EX-IM
owed TCB $9 million principal, borrowed over a period of years but
evidenced by a loan agreement, security agreements, assignments and
the guarantees at issue here, dated December 1, 1988. No later
than May 31, 1989, the Shurleys executed guarantees which were made
“effective” as of December 1, 1988. EX-IM failed to make timely
monthly loan payments due on April 28 and May 28, 1989. Although
EX-IM caught up these payments in August, 1989, it never became
current on the obligations under the loan agreement.
On August 10, 1990, TCB sent written notice to Ex-Im that
it was behind in its payments. In 1992, the Shurleys filed a
2 Chapter 7 bankruptcy. In 1993, TCB foreclosed its lien on the
collateral for the obligation owed by EX-IM. While TCB gave the
Shurleys advance notice of this public foreclosure sale, it did not
so notify their Chapter 7 trustee.
Texas law provides that if a creditor undertakes to sell
collateral after default on a debt, he must reasonably notify any
debtor, including a guarantor, of the time and place of a sale or
the date after which sale may occur unless the debtor
“has . . . signed after default a statement renouncing or modifying
his right to notification of [a commercially reasonable] sale.”
Texas Bus. & Comm. Code § 9.504(c) (1991).1 Two assertions are
critical to Armstrong’s appeal. First, he contends that the TCB
loan was not in default because of EX-IM’s failure to make timely
payments on April 28 and May 28, 1989. Second, he asserts that the
Shurleys’ waiver was not effective after the dates of default
because it was made “effective” as of December 1, 1988, and it was
not sufficiently specific as a waiver.
The bankruptcy and district courts held against
Armstrong’s contentions, and we concur. The lower courts concluded
1 U.S.C. § 9.504(c). In pertinent part:
Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor, if he has not signed after default a statement renouncing or modifying his right to notification of sale.
3 that EX-IM defaulted in its payments on April 28 and May 28 and
that the guarantees, executed approximately May 31, post-dated the
default as required by § 9.504. These findings are correct.
Armstrong contends that the loan did not fall into
default for non-payment until ten days after a payment was due and
written notice was communicated from the lender to EX-IM. Although
the December 1, 1988 loan agreement describes a non-payment “event
of default” in the terms described by Armstrong, the loan agreement
specifically distinguishes between a default and an “event of
default.” Section 6.1(a) of the Loan Agreement. As explained in
the “definitions” section of the agreement, an event of default
means an event specified in § 6.1 “provided that there has been
satisfied or met any requirement or condition specified in this
agreement for the giving of notice . . .”, while “default shall
mean any of the events specified in such section, whether or not
any other requirement or condition has been satisfied or met.”
(emphasis added) Section 1.1 of Loan Agreement. The occurrence of
non-payment of an installment on its due date was thus a default
under the loan agreement.
Armstrong also contends that the April 28 and May 29
defaults were “cured” when EX-IM made late payments in August of
that year. Security Pacific National Bank v. Kirkland, 915 F.2d
1236, 1241 (9th Cir. 1990). If the made-up payments had actually
cured EX-IM’s default, this argument might be persuasive.
Armstrong does not, however, rebut the testimony of a TCB executive
4 that notwithstanding these payments, the default on the loan to EX-
IM was never again cured.
The lower courts also correctly rejected Armstrong’s
argument that the guarantees took effect pre-default. Because the
Texas U.C.C., at § 9.504(c), states only that debtors must sign the
waiver of notice of a foreclosure sale after default, the guaranty
executed on May 31, 1989 clearly fulfilled that requirement.
Armstrong would have this court hold that the “effective” date of
the guarantees (six months earlier) is controlling, but to do so
contradicts the express language of the statute. Further, as
appellee points out, if the statute said that a waiver need only be
“effective” after default, a lender could easily circumvent the
notice provision by requiring its borrower to agree prior to
default that a waiver would be “effective” at a later date.
Armstrong also contends that the Shurleys’ waiver of
§ 9.504(c) notification is not specifically contained in their
guarantees. On the contrary, we agree with the implicit findings
of the bankruptcy and district courts that the wording of the
guarantees is broad enough to have effected such a waiver. Texas
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UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
_______________________
No. 97-50151 Summary Calendar _______________________
IN THE MATTER OF: BILLY R. SHURLEY; JANE BRYANT SHURLEY,
Debtors.
WILLIAM H. ARMSTRONG, II,
Appellant,
versus
TEXAS COMMERCE BANK, formerly known as Texas Commerce Bank - Austin, N.A.,
Appellee.
_________________________________________________________________
Appeal from the United States District Court for the Western District of Texas (MO-96-CV-141) _________________________________________________________________
March 11, 1998
Before JONES, SMITH, and STEWART, Circuit Judges.
EDITH H. JONES, Circuit Judge:*
Appellant William H. Armstrong, II trustee, represents a
creditor of the Estate of Billy R. and Jane Bryant Shurley, Chapter
7 debtors since 1992. Armstrong contested the claim of Texas
Commerce Bank N.A. (TCB) for a deficiency arising from their
* Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4. guarantees of promissory notes owed by EX-IM Freezer Joint Venture,
in which Billy R. Shurley had been a partner. After some
procedural ping-pong in the courts below, the district court
affirmed a bankruptcy court judgment overruling Armstrong’s
objections. On appeal in this court, Armstrong contends (1) that
the lower courts erred in their construction of the term “default”
in the underlying loan agreement between EX-IM and TCB; (2) that
even if default originally occurred on April 28, 1989, EX-IM’s late
payment of this installment cured any default; (3) that Mr. and
Mrs. Shurley did not effectively waive their right to notice of a
foreclosure sale pursuant to § 9.504(c) of the Texas Uniform
Commercial Code; and (4) that the Shurleys’ Chapter 7 trustee was
entitled to notice of the foreclosure sale. We affirm the
judgments of the district and bankruptcy courts.
The background facts, recited in the district court’s
opinion, may be briefly summarized. As of December, 1988, EX-IM
owed TCB $9 million principal, borrowed over a period of years but
evidenced by a loan agreement, security agreements, assignments and
the guarantees at issue here, dated December 1, 1988. No later
than May 31, 1989, the Shurleys executed guarantees which were made
“effective” as of December 1, 1988. EX-IM failed to make timely
monthly loan payments due on April 28 and May 28, 1989. Although
EX-IM caught up these payments in August, 1989, it never became
current on the obligations under the loan agreement.
On August 10, 1990, TCB sent written notice to Ex-Im that
it was behind in its payments. In 1992, the Shurleys filed a
2 Chapter 7 bankruptcy. In 1993, TCB foreclosed its lien on the
collateral for the obligation owed by EX-IM. While TCB gave the
Shurleys advance notice of this public foreclosure sale, it did not
so notify their Chapter 7 trustee.
Texas law provides that if a creditor undertakes to sell
collateral after default on a debt, he must reasonably notify any
debtor, including a guarantor, of the time and place of a sale or
the date after which sale may occur unless the debtor
“has . . . signed after default a statement renouncing or modifying
his right to notification of [a commercially reasonable] sale.”
Texas Bus. & Comm. Code § 9.504(c) (1991).1 Two assertions are
critical to Armstrong’s appeal. First, he contends that the TCB
loan was not in default because of EX-IM’s failure to make timely
payments on April 28 and May 28, 1989. Second, he asserts that the
Shurleys’ waiver was not effective after the dates of default
because it was made “effective” as of December 1, 1988, and it was
not sufficiently specific as a waiver.
The bankruptcy and district courts held against
Armstrong’s contentions, and we concur. The lower courts concluded
1 U.S.C. § 9.504(c). In pertinent part:
Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor, if he has not signed after default a statement renouncing or modifying his right to notification of sale.
3 that EX-IM defaulted in its payments on April 28 and May 28 and
that the guarantees, executed approximately May 31, post-dated the
default as required by § 9.504. These findings are correct.
Armstrong contends that the loan did not fall into
default for non-payment until ten days after a payment was due and
written notice was communicated from the lender to EX-IM. Although
the December 1, 1988 loan agreement describes a non-payment “event
of default” in the terms described by Armstrong, the loan agreement
specifically distinguishes between a default and an “event of
default.” Section 6.1(a) of the Loan Agreement. As explained in
the “definitions” section of the agreement, an event of default
means an event specified in § 6.1 “provided that there has been
satisfied or met any requirement or condition specified in this
agreement for the giving of notice . . .”, while “default shall
mean any of the events specified in such section, whether or not
any other requirement or condition has been satisfied or met.”
(emphasis added) Section 1.1 of Loan Agreement. The occurrence of
non-payment of an installment on its due date was thus a default
under the loan agreement.
Armstrong also contends that the April 28 and May 29
defaults were “cured” when EX-IM made late payments in August of
that year. Security Pacific National Bank v. Kirkland, 915 F.2d
1236, 1241 (9th Cir. 1990). If the made-up payments had actually
cured EX-IM’s default, this argument might be persuasive.
Armstrong does not, however, rebut the testimony of a TCB executive
4 that notwithstanding these payments, the default on the loan to EX-
IM was never again cured.
The lower courts also correctly rejected Armstrong’s
argument that the guarantees took effect pre-default. Because the
Texas U.C.C., at § 9.504(c), states only that debtors must sign the
waiver of notice of a foreclosure sale after default, the guaranty
executed on May 31, 1989 clearly fulfilled that requirement.
Armstrong would have this court hold that the “effective” date of
the guarantees (six months earlier) is controlling, but to do so
contradicts the express language of the statute. Further, as
appellee points out, if the statute said that a waiver need only be
“effective” after default, a lender could easily circumvent the
notice provision by requiring its borrower to agree prior to
default that a waiver would be “effective” at a later date.
Armstrong also contends that the Shurleys’ waiver of
§ 9.504(c) notification is not specifically contained in their
guarantees. On the contrary, we agree with the implicit findings
of the bankruptcy and district courts that the wording of the
guarantees is broad enough to have effected such a waiver. Texas
law underscores that “[t]his provision of § 9.504(c) has been
strictly construed to require a specific, knowing waiver of the
right to notice.” All Valley Accept. Co. v. Durfey, 800 S.W.2d
672, 675 (Tex. Ct. App. - Austin 1990). One of the Shurleys’
guarantees stated:
[t]he obligations, covenants, agreements and duties of Guarantors under this Guaranty shall in no way be affected or impaired by reason of the happening from time to time of any of the
5 following with respect to the Loan Documents, without the necessity of any notices to, or further consent of, either Guarantor:
* * * * *
(g) The voluntary or involuntary liquidation, dissolution, sale of any collateral, . . .
* * * * * (emphasis added).
Although this language is embedded among several provisions
generally waiving or limiting the guarantors’ rights, it
specifically absolves the bank of providing notice of the sale of
any collateral. Because this guarantee was signed by the Shurleys
after EX-IM’s default, it was sufficient to conform to the
requirements of § 9.504(c).
Finally, because the Shurleys executed valid post-default
renunciations of their right to notice of foreclosure sale of TCB’s
collateral, they had no further interest in notification that could
be transferred to their Chapter 7 trustee nearly two years later.
The trustee, who steps into the shoes of the debtor, was bound by
the Shurleys’ pre-petition waiver of notice. See, e.g., In re:
Wey, 827 F.2d 140, 142 (7th Cir. 1987).
For the foregoing reasons, the judgments of the lower
courts are AFFIRMED.