OPINION
COHEN, Justice.
The primary issue before us is whether the Resolution Trust Corporation may assert on appeal for the first time that it is the holder in due course of a judgment and thus avoid its predecessor’s burden to prove that collateral was disposed of in a commercially reasonable manner. We hold that the holder in due course doctrine does not apply to judgments, and that the Resolution Trust Corporation cannot assert that doctrine on appeal for the first time.
This is an appeal from a deficiency judgment for $36,797.11 in favor of the Resolution Trust Corporation (“RTC”), as receiver for American Savings & Loan Association of Brazoria County, Texas (“American”), against Kenneth B. Beach (“Beach”). In 1983, Beach, Frank Lima, and A.J. Whipple, Jr. signed a wraparound promissory note for $298,000 payable to American. [243]*243The wraparound note included as part of its principal an underlying note for $155,-000 executed in 1978 by Beach, payable to Jack Chapman (“the Chapman note”), which was secured by a first lien on 90 acres of land. The wraparound note was secured by a second lien on the same land and by a $112,500 promissory note payable to Lima (“the Lima note”).
The makers defaulted, and American purchased the collateral on foreclosure. American bid $200,000 for the 90 acres and $20,000 for the Lima note. American credited $220,000 toward the balance of its $298,000 note. American settled with Lima and won a deficiency judgment against Whipple and Beach. Whipple has not appealed. The RTC first entered this lawsuit by substituting for American in December 1990, after the judgment for American was signed in August 1990.
Beach contends in his first point of error that there was no deficiency on the note to American.
The underlying Chapman note had a balance of $111,414.37 when American foreclosed on its note. American’s note had a balance then of $257,882.74. Beach contends that because American admitted at trial that it did not pay Chapman any of the foreclosure sale proceeds, his true debt to American was only the difference between the balances of the “wraparound” (American) note and the underlying (Chapman) note, or $146,468.37 (257,882.74- 111,-414.37 = $146,468.37). Because the foreclosure sale proceeds totalled $220,000, Beach contends there was no deficiency.
Beach calculates his debt according to the "true debt” method. See Summers v. Consol. Capital Special Trust, 783 S.W.2d 580, 582 (Tex.1989). The Summers court rejected the “true debt” approach and adopted the “outstanding balance” method of calculating the amount due on a wraparound note. Id. at 583. Under that method, when a wraparound note lien is foreclosed, the foreclosure sale proceeds are credited against the entire outstanding balance due. If the balance on the wraparound note exceeds the foreclosure sale proceeds, a deficiency results. Id. Under that method, there was a deficiency here.1
We overrule point of error one.
Beach contends in his fourth point of error there is no evidence he was given notice of the disposition of the personal property collateral, i.e., the Lima note, and there is no evidence the sale of the Lima note was commercially reasonable. Beach claims that lack of notice and commercial reasonableness preclude a judgment for the deficiency.
To recover a deficiency, a creditor must prove he sold the collateral in a commercially reasonable manner after notice to the debtor. Tanenbaum v. Economics Lab., Inc., 628 S.W.2d 769, 771 (Tex.1982); M.P. Crum Co. v. First Southwest Sav. & Loan Ass’n, 704 S.W.2d 925, 926 (Tex.App.—Tyler 1986, no writ). This Court has held that if the debtor pleads lack of commercial reasonableness in a deficiency action, the burden is on the creditor to prove the commercial reasonableness of the sale. Greathouse v. Charter Nat’l Bank, 795 S.W.2d 1, 2-3 (Tex.App.—Houston [1st Dist.] 1990, writ granted); see also Smith v. Federal Deposit Ins. Corp., 800 S.W.2d 648, 649 (Tex.App.—Houston [14th Dist.] 1990, writ dism’d). Other courts have held the burden is initially on the creditor to plead and prove a commercially reasonable sale was conducted. See Chase Commercial Corp. v. Datapoint Corp., 774 S.W.2d 359, 364 (Tex.App.—Dallas 1989, no writ); Hall v. Crocker Equip. Leasing, 737 S.W.2d 1, 3 (Tex.App.—Houston [14th Dist.] 1987, writ denied).
[244]*244Beach pled American failed to dispose of the Lima note in a commercially reasonable manner, and American offered no proof of notice or that the sale was commercially reasonable. Consequently, we hold American failed to prove its entitlement to a deficiency judgment.
Next, we must decide whether Beach can assert this error against the RTC, American’s successor in interest to this judgment.
When acting as a receiver, the RTC is a federal agency like the FDIC. 12 U.S.C.A. § 1441(b)(1)(B) (West Supp.1990). The RTC urges that, as a receiver of an insolvent bank, it can assert new federal law defenses for the first time on appeal, even though it became a receiver after judgment was rendered in the trial court. Specifically, the RTC claims the federal holder in due course doctrine applies when it becomes a holder of a negotiable instrument previously owned by the failed thrift and thus, it holds the note free from the notice and commercial reasonableness defenses of Beach.
We disagree with the RTC’s contentions for several reasons. First, the RTC is neither the holder nor the holder in due course of a negotiable instrument. When the RTC acquired American’s assets, it acquired a judgment, not a negotiable instrument. A state court judgment is not a negotiable instrument. Tex.Bus. & Com. Code Ann. § 3.104 (Vernon 1968). Nor did the RTC take a negotiable instrument without notice that it was overdue or had been dishonored. Tex.Bus. & Com.Code Ann. § 3.302 (Vernon 1968). Obviously, the RTC knew the note had been dishonored and was overdue; otherwise, there could not have been a deficiency judgment. There is no such thing as a holder in due course of a judgment.
Nor do we agree that the RTC can assert its holder in due course defense on appeal for the first time. We recognize that the Dallas Court of Appeals has allowed the federal banking agencies to assert such defenses for the first time on appeal. Federal Deposit Ins. Corp. v. F & A Equipment Leasing, 800 S.W.2d 231 (Tex.App.—Dallas 1990, writ filed); FDIC/Manager Fund v. Larsen, 793 S.W.2d 37, 42-43 (Tex.App.—Dallas 1990, writ granted); Federal Deposit Ins. Corp. v. Zoubi,
Free access — add to your briefcase to read the full text and ask questions with AI
OPINION
COHEN, Justice.
The primary issue before us is whether the Resolution Trust Corporation may assert on appeal for the first time that it is the holder in due course of a judgment and thus avoid its predecessor’s burden to prove that collateral was disposed of in a commercially reasonable manner. We hold that the holder in due course doctrine does not apply to judgments, and that the Resolution Trust Corporation cannot assert that doctrine on appeal for the first time.
This is an appeal from a deficiency judgment for $36,797.11 in favor of the Resolution Trust Corporation (“RTC”), as receiver for American Savings & Loan Association of Brazoria County, Texas (“American”), against Kenneth B. Beach (“Beach”). In 1983, Beach, Frank Lima, and A.J. Whipple, Jr. signed a wraparound promissory note for $298,000 payable to American. [243]*243The wraparound note included as part of its principal an underlying note for $155,-000 executed in 1978 by Beach, payable to Jack Chapman (“the Chapman note”), which was secured by a first lien on 90 acres of land. The wraparound note was secured by a second lien on the same land and by a $112,500 promissory note payable to Lima (“the Lima note”).
The makers defaulted, and American purchased the collateral on foreclosure. American bid $200,000 for the 90 acres and $20,000 for the Lima note. American credited $220,000 toward the balance of its $298,000 note. American settled with Lima and won a deficiency judgment against Whipple and Beach. Whipple has not appealed. The RTC first entered this lawsuit by substituting for American in December 1990, after the judgment for American was signed in August 1990.
Beach contends in his first point of error that there was no deficiency on the note to American.
The underlying Chapman note had a balance of $111,414.37 when American foreclosed on its note. American’s note had a balance then of $257,882.74. Beach contends that because American admitted at trial that it did not pay Chapman any of the foreclosure sale proceeds, his true debt to American was only the difference between the balances of the “wraparound” (American) note and the underlying (Chapman) note, or $146,468.37 (257,882.74- 111,-414.37 = $146,468.37). Because the foreclosure sale proceeds totalled $220,000, Beach contends there was no deficiency.
Beach calculates his debt according to the "true debt” method. See Summers v. Consol. Capital Special Trust, 783 S.W.2d 580, 582 (Tex.1989). The Summers court rejected the “true debt” approach and adopted the “outstanding balance” method of calculating the amount due on a wraparound note. Id. at 583. Under that method, when a wraparound note lien is foreclosed, the foreclosure sale proceeds are credited against the entire outstanding balance due. If the balance on the wraparound note exceeds the foreclosure sale proceeds, a deficiency results. Id. Under that method, there was a deficiency here.1
We overrule point of error one.
Beach contends in his fourth point of error there is no evidence he was given notice of the disposition of the personal property collateral, i.e., the Lima note, and there is no evidence the sale of the Lima note was commercially reasonable. Beach claims that lack of notice and commercial reasonableness preclude a judgment for the deficiency.
To recover a deficiency, a creditor must prove he sold the collateral in a commercially reasonable manner after notice to the debtor. Tanenbaum v. Economics Lab., Inc., 628 S.W.2d 769, 771 (Tex.1982); M.P. Crum Co. v. First Southwest Sav. & Loan Ass’n, 704 S.W.2d 925, 926 (Tex.App.—Tyler 1986, no writ). This Court has held that if the debtor pleads lack of commercial reasonableness in a deficiency action, the burden is on the creditor to prove the commercial reasonableness of the sale. Greathouse v. Charter Nat’l Bank, 795 S.W.2d 1, 2-3 (Tex.App.—Houston [1st Dist.] 1990, writ granted); see also Smith v. Federal Deposit Ins. Corp., 800 S.W.2d 648, 649 (Tex.App.—Houston [14th Dist.] 1990, writ dism’d). Other courts have held the burden is initially on the creditor to plead and prove a commercially reasonable sale was conducted. See Chase Commercial Corp. v. Datapoint Corp., 774 S.W.2d 359, 364 (Tex.App.—Dallas 1989, no writ); Hall v. Crocker Equip. Leasing, 737 S.W.2d 1, 3 (Tex.App.—Houston [14th Dist.] 1987, writ denied).
[244]*244Beach pled American failed to dispose of the Lima note in a commercially reasonable manner, and American offered no proof of notice or that the sale was commercially reasonable. Consequently, we hold American failed to prove its entitlement to a deficiency judgment.
Next, we must decide whether Beach can assert this error against the RTC, American’s successor in interest to this judgment.
When acting as a receiver, the RTC is a federal agency like the FDIC. 12 U.S.C.A. § 1441(b)(1)(B) (West Supp.1990). The RTC urges that, as a receiver of an insolvent bank, it can assert new federal law defenses for the first time on appeal, even though it became a receiver after judgment was rendered in the trial court. Specifically, the RTC claims the federal holder in due course doctrine applies when it becomes a holder of a negotiable instrument previously owned by the failed thrift and thus, it holds the note free from the notice and commercial reasonableness defenses of Beach.
We disagree with the RTC’s contentions for several reasons. First, the RTC is neither the holder nor the holder in due course of a negotiable instrument. When the RTC acquired American’s assets, it acquired a judgment, not a negotiable instrument. A state court judgment is not a negotiable instrument. Tex.Bus. & Com. Code Ann. § 3.104 (Vernon 1968). Nor did the RTC take a negotiable instrument without notice that it was overdue or had been dishonored. Tex.Bus. & Com.Code Ann. § 3.302 (Vernon 1968). Obviously, the RTC knew the note had been dishonored and was overdue; otherwise, there could not have been a deficiency judgment. There is no such thing as a holder in due course of a judgment.
Nor do we agree that the RTC can assert its holder in due course defense on appeal for the first time. We recognize that the Dallas Court of Appeals has allowed the federal banking agencies to assert such defenses for the first time on appeal. Federal Deposit Ins. Corp. v. F & A Equipment Leasing, 800 S.W.2d 231 (Tex.App.—Dallas 1990, writ filed); FDIC/Manager Fund v. Larsen, 793 S.W.2d 37, 42-43 (Tex.App.—Dallas 1990, writ granted); Federal Deposit Ins. Corp. v. Zoubi, 792 S.W.2d 825, 827 (Tex.App.—Dallas 1990, no writ); FSLIC v. T.F. Stone—Liberty Land Assoc., 787 S.W.2d 475, 479 (Tex.App.—Dallas 1990, writ granted). Curiously, that court has been more generous to federal agencies in this respect than have the federal courts in this circuit. The Fifth Circuit has twice unanimously refused to allow new federal defenses to be raised on appeal for the first time. Thurman v. Federal Deposit Ins. Corp. 889 F.2d 1441, 1446-47 (5th Cir.1989) (policy underlying D’Oench, Duhme doctrine would not be served and result would be unjust); Olney Sav. & Loan Ass’n v. Trinity Banc Sav. Ass’n, 885 F.2d 266, 274-75 (5th Cir.1989) (D’Oench, Duhme doctrine purposes would not be served, and 12 U.S.C. § 1821(d)(13)(b) (FIRREA) gives no new substantive rights on appeal.); First RepublicBank Fort Worth v. Norglass, Inc., 751 F.Supp. 1224, 1231-32 (N.D.Tex.1990) (criticizing the opinions in Larsen and Stone as “devoid of sound reasoning”). The rule followed in the Dallas court is under scrutiny by the Texas Supreme Court. Given the unsettled state of the law, we elect to follow the federal authorities, both because of their expertise in the application of federal law and because they have reached a fairer result. We are reluctant to affirm a judgment we would otherwise reverse on the basis of a defense not asserted by a party not present at trial. D’Oench, Duhme and federal statutes protect the government from secret agreements, but there are none in this case. Here, it is the debtor who needs protection from secret defenses first asserted by the RTC at a time when the debtor has no opportunity to respond.
American had the burden to prove commercial reasonableness. It admittedly failed to do so. Based on Olney and Thurman, we hold that the RTC may not raise on appeal the new defense that it is the holder in due course of a judgment.
We sustain point of error four.
[245]*245The RTC requests that we remand “in the interest of justice,” if we reverse the judgment. Justice does not require that the RTC receive a new trial to prove what American had the burden and the opportunity to prove at the first trial. When we find that a party has won a judgment even though it produced no evidence of an element of its cause of action, our normal remedy is to reverse and render. Nothing suggests that remedy is inappropriate here.
Beach waived point of error three during oral argument. We need not reach point of error two, given our decision to sustain point four.
The judgment is reversed, and judgment is rendered that the RTC take nothing.