AFFIRM; and Opinion Filed April 26, 2013.
In The Court of Appeals Fifth District of Texas at Dallas
No. 05-11-00665-CV
JOSIAH BRUCE CLEVELAND, Appellant
V.
LIVE OAK STATE BANK, Appellee
On Appeal from the 68th Judicial District Court Dallas County, Texas Trial Court Cause No. 10-03366-C
MEMORANDUM OPINION
Before Justices Lang-Miers, Myers, and Richter 1 Opinion By Justice Richter
Guarantor Josiah Bruce Cleveland (“Cleveland”) appeals from a summary
judgment rendered in favor of Live Oak State Bank (“Live Oak”) for a deficiency claim
after foreclosure on real property securing the repayment of a promissory note. In two
issues, Cleveland argues the trial court erred in granting summary judgment because (1)
he raised a question of fact regarding the fair market value of the property at the time of
1 The Honorable Martin E. Richter, Retired Justice, sitting by assignment. foreclosure and (2) the waiver in the guaranty that he signed did not waive his right to the
offset and if it did, the waiver was overbroad, unconscionable and unenforceable. We
decide Cleveland’s two issues against him and affirm the trial court’s judgment. The
background of the case is well known to the parties and we therefore, limit the recitation
of the facts. We issue this memorandum opinion pursuant to Texas Rule of Appellate
Procedure 47.4.
Background
In order to finance the purchase of an apartment building (the “Property”), on June
4, 2008 Cleveland Partners, L.P., borrowed $520,000 from Live Oak. The loan was
secured by a promissory note and deed of trust for the benefit of Live Oak. On June 24,
2009, Cleveland signed an extension of the original loan on the Property. At the same
time, Cleveland executed and delivered a deed of trust for the benefit of Live Oak as well
as a Guaranty agreement in which he “absolutely and unconditionally guarantees to [Live
Oak] the full and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of the debts, liabilities and obligations described . . . .” As part
of the guaranty agreement, Cleveland agreed to waive
any and all defenses, claims and discharges of Borrower, or any other obligor, pertaining to Indebtedness, except the defense of discharge by payment in full. Without limiting the generality of the foregoing, the Undersigned will not assert, plead or enforce against Lender any defense of waiver, release, statute of limitations, res judicata, statute of frauds, fraud, incapacity, minority, usury, illegality or unenforceability which may be available to Borrower or any other person liable in respect of any Indebtedness, or any setoff available against Lender to Borrower or any
-2- such other person, whether or not on account of a related transaction. The Undersigned expressly agrees that the Undersigned shall be and remain liable, to the fullest extent permitted by applicable law, for any deficiency remaining after foreclosure of any mortgage or security interest securing Indebtedness, whether or not the liability of Borrower or any other obligor for such deficiency is discharged pursuant to statute or judicial decision. The undersigned shall remain obligated, to the fullest extent permitted by law, to pay such amounts as though the Borrower’s obligations had not been discharged. (emphasis added)
Cleveland defaulted on his obligations under the note and Live Oak exercised its
right to sell the property at a public auction. Live Oak was the highest bidder and
purchased the property for $415,000. After the proceeds from the foreclosure sale were
applied to Cleveland’s indebtedness, a deficiency balance on the note remained due and
owing.
Live Oak then sued Cleveland to recover the deficiency and moved for summary
judgment. Live Oak alleged it was entitled to summary judgment because Cleveland had
waived all defenses to payment of the debt evidenced by the promissory note. In
response, Cleveland did not dispute he personally guaranteed the note or that he failed to
pay the deficiency that Live Oak alleged remained after the foreclosure sale. Rather, he
disputed the amount of the deficiency owed and the validity of the waiver of defenses
stating the waiver was “massively overbroad . . . unconscionable and unenforceable.” The
trial court granted Live Oak’s motion for summary judgment and awarded it the
outstanding amounts due plus interest and costs of court.
Standard of Review
We review the trial court’s decision to grant or deny a motion for summary
judgment de novo. See Tex. Mun. Power Agency v. Pub. Util. Comm’n of Tex., 253
-3- S.W.3d 184, 192 (Tex. 2007). For a traditional motion for summary judgment, the
movant has the burden to demonstrate that no genuine issue of material fact exists and he
is entitled to judgment as a matter of law. See TEX. R. CIV. P. 166a(c); Nixon v. Mr.
Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). All evidence favorable to the
non-movant will be taken as true when deciding whether there is a disputed material fact
issue precluding summary judgment. Nixon, 690 S.W.2d at 548. Every reasonable
inference must be indulged in favor of the non-movant and any doubts resolved in its
favor. Id. at 549.
Discussion
On appeal, Cleveland essentially raises the same arguments as he did in the trial
court. That is, he asserts (1) he raised a question of fact regarding the fair market value of
the property at the time of foreclosure and (2) the waiver in the guaranty that he signed
did not waive his right to the offset and if it did, the waiver was overbroad,
unconscionable and unenforceable.
We first address Cleveland’s second issue of whether the guaranty signed by
Cleveland waived his right to a setoff under chapter 51 of the property code. See TEX.
PROP. CODE ANN. § 51.003 (West 2007). Cleveland claims that if the waiver is found to
waive his right of a setoff, then the waiver must be unconscionable and unenforceable
because it waives “all defenses” and “any setoff available against the Lender.”
In three recent decisions, after this case was filed but prior to submission, this
Court has issued opinions relevant to Cleveland’s claims. This Court decided the question
-4- of whether the right of offset pursuant to § 51.003(c) could be waived by general terms in
a guaranty agreement. See Interstate 35/Chisam Road, L.P. v. Moayedi, 377 S.W.3d 791
(Tex. App.—Dallas 2012, pet. filed). In Moayedi, the guarantee agreement in question
stated Moayedi’s liability for indebtedness would not be discharged or affected by “any
defense” other than full payment of the indebtedness, and he waived “each and every
such defense” he might have as to his liabilities and obligations under the agreement. Id.
at 794. We concluded the waiver language of “any defense” and “each and every
defense” encompassed all possible defenses, statutory or otherwise, that might be
available to a guarantor. Id. at 801. Further, we rejected Moayedi’s contention that Texas
public policy prohibits waiver of § 51.003 rights observing that various courts have
concluded chapter 51 rights of offset may be contractually waived. See id.
Next we issued King v. Park Cities Bank, No. 05-11-00593-CV, 2012 WL
3144881 (Tex. App.—Dallas Aug. 3, 2012, no pet.) (mem.
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AFFIRM; and Opinion Filed April 26, 2013.
In The Court of Appeals Fifth District of Texas at Dallas
No. 05-11-00665-CV
JOSIAH BRUCE CLEVELAND, Appellant
V.
LIVE OAK STATE BANK, Appellee
On Appeal from the 68th Judicial District Court Dallas County, Texas Trial Court Cause No. 10-03366-C
MEMORANDUM OPINION
Before Justices Lang-Miers, Myers, and Richter 1 Opinion By Justice Richter
Guarantor Josiah Bruce Cleveland (“Cleveland”) appeals from a summary
judgment rendered in favor of Live Oak State Bank (“Live Oak”) for a deficiency claim
after foreclosure on real property securing the repayment of a promissory note. In two
issues, Cleveland argues the trial court erred in granting summary judgment because (1)
he raised a question of fact regarding the fair market value of the property at the time of
1 The Honorable Martin E. Richter, Retired Justice, sitting by assignment. foreclosure and (2) the waiver in the guaranty that he signed did not waive his right to the
offset and if it did, the waiver was overbroad, unconscionable and unenforceable. We
decide Cleveland’s two issues against him and affirm the trial court’s judgment. The
background of the case is well known to the parties and we therefore, limit the recitation
of the facts. We issue this memorandum opinion pursuant to Texas Rule of Appellate
Procedure 47.4.
Background
In order to finance the purchase of an apartment building (the “Property”), on June
4, 2008 Cleveland Partners, L.P., borrowed $520,000 from Live Oak. The loan was
secured by a promissory note and deed of trust for the benefit of Live Oak. On June 24,
2009, Cleveland signed an extension of the original loan on the Property. At the same
time, Cleveland executed and delivered a deed of trust for the benefit of Live Oak as well
as a Guaranty agreement in which he “absolutely and unconditionally guarantees to [Live
Oak] the full and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of the debts, liabilities and obligations described . . . .” As part
of the guaranty agreement, Cleveland agreed to waive
any and all defenses, claims and discharges of Borrower, or any other obligor, pertaining to Indebtedness, except the defense of discharge by payment in full. Without limiting the generality of the foregoing, the Undersigned will not assert, plead or enforce against Lender any defense of waiver, release, statute of limitations, res judicata, statute of frauds, fraud, incapacity, minority, usury, illegality or unenforceability which may be available to Borrower or any other person liable in respect of any Indebtedness, or any setoff available against Lender to Borrower or any
-2- such other person, whether or not on account of a related transaction. The Undersigned expressly agrees that the Undersigned shall be and remain liable, to the fullest extent permitted by applicable law, for any deficiency remaining after foreclosure of any mortgage or security interest securing Indebtedness, whether or not the liability of Borrower or any other obligor for such deficiency is discharged pursuant to statute or judicial decision. The undersigned shall remain obligated, to the fullest extent permitted by law, to pay such amounts as though the Borrower’s obligations had not been discharged. (emphasis added)
Cleveland defaulted on his obligations under the note and Live Oak exercised its
right to sell the property at a public auction. Live Oak was the highest bidder and
purchased the property for $415,000. After the proceeds from the foreclosure sale were
applied to Cleveland’s indebtedness, a deficiency balance on the note remained due and
owing.
Live Oak then sued Cleveland to recover the deficiency and moved for summary
judgment. Live Oak alleged it was entitled to summary judgment because Cleveland had
waived all defenses to payment of the debt evidenced by the promissory note. In
response, Cleveland did not dispute he personally guaranteed the note or that he failed to
pay the deficiency that Live Oak alleged remained after the foreclosure sale. Rather, he
disputed the amount of the deficiency owed and the validity of the waiver of defenses
stating the waiver was “massively overbroad . . . unconscionable and unenforceable.” The
trial court granted Live Oak’s motion for summary judgment and awarded it the
outstanding amounts due plus interest and costs of court.
Standard of Review
We review the trial court’s decision to grant or deny a motion for summary
judgment de novo. See Tex. Mun. Power Agency v. Pub. Util. Comm’n of Tex., 253
-3- S.W.3d 184, 192 (Tex. 2007). For a traditional motion for summary judgment, the
movant has the burden to demonstrate that no genuine issue of material fact exists and he
is entitled to judgment as a matter of law. See TEX. R. CIV. P. 166a(c); Nixon v. Mr.
Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). All evidence favorable to the
non-movant will be taken as true when deciding whether there is a disputed material fact
issue precluding summary judgment. Nixon, 690 S.W.2d at 548. Every reasonable
inference must be indulged in favor of the non-movant and any doubts resolved in its
favor. Id. at 549.
Discussion
On appeal, Cleveland essentially raises the same arguments as he did in the trial
court. That is, he asserts (1) he raised a question of fact regarding the fair market value of
the property at the time of foreclosure and (2) the waiver in the guaranty that he signed
did not waive his right to the offset and if it did, the waiver was overbroad,
unconscionable and unenforceable.
We first address Cleveland’s second issue of whether the guaranty signed by
Cleveland waived his right to a setoff under chapter 51 of the property code. See TEX.
PROP. CODE ANN. § 51.003 (West 2007). Cleveland claims that if the waiver is found to
waive his right of a setoff, then the waiver must be unconscionable and unenforceable
because it waives “all defenses” and “any setoff available against the Lender.”
In three recent decisions, after this case was filed but prior to submission, this
Court has issued opinions relevant to Cleveland’s claims. This Court decided the question
-4- of whether the right of offset pursuant to § 51.003(c) could be waived by general terms in
a guaranty agreement. See Interstate 35/Chisam Road, L.P. v. Moayedi, 377 S.W.3d 791
(Tex. App.—Dallas 2012, pet. filed). In Moayedi, the guarantee agreement in question
stated Moayedi’s liability for indebtedness would not be discharged or affected by “any
defense” other than full payment of the indebtedness, and he waived “each and every
such defense” he might have as to his liabilities and obligations under the agreement. Id.
at 794. We concluded the waiver language of “any defense” and “each and every
defense” encompassed all possible defenses, statutory or otherwise, that might be
available to a guarantor. Id. at 801. Further, we rejected Moayedi’s contention that Texas
public policy prohibits waiver of § 51.003 rights observing that various courts have
concluded chapter 51 rights of offset may be contractually waived. See id.
Next we issued King v. Park Cities Bank, No. 05-11-00593-CV, 2012 WL
3144881 (Tex. App.—Dallas Aug. 3, 2012, no pet.) (mem. op., not designated for
publication). King was a guarantor who claimed the right to offset under property code §
51.003 could not be contractually waived nor was the language of the waiver he signed
specific enough to effectuate the waiver of a right of offset. Id. at *2. We concluded a
guarantor could waive his right to an offset under property code § 51.003 through the
terms of the guaranty. Id. at *3. We also concluded the agreement, referring to “any claim
of setoff” along with language stating the Guarantors relinquished any rights or defenses
which may prevent the Bank from bringing a claim for deficiency and “any defenses
given to guarantors at law or in equity other than actual payment and performance of the
-5- Indebtedness,” was sufficient to waive the Guarantor’s right of offset under §51.003(c).
Id.
Finally, this Court held the statutory protections in chapter 51 of the property code
could be waived as a matter of law. See Toor v. PNC Bank, Nat’l Ass’n, No. 05-11-
00012-CV, 2012 WL 3637284, *4 (Tex. App.—Dallas Aug. 24, 2012, no pet.) (mem.
op., not designated for publication). In Toor, the language of the Guaranty stated the
“Guarantor further waives and agrees not to assert or claim at any time any deductions to
the amount guaranteed under this Guaranty for any claim of setoff, . . . .” Id. at *1.
Following our decision in Moayedi, we concluded a “guarantor may waive his right to an
offset under property code § 51.005 through the terms of the guaranty.” Id. at *4.
Cleveland fails to show us how the Guaranty in this case differs from these other
cases. 2 Following our decisions in Moayedi, King, and Toor, we conclude Cleveland
waived his right to “any defenses” or “any setoff” under the Guaranty which he signed.
See Moayedi, 377 S.W.3d at 801(concluding § 51.003 rights may be contractually
waived); King, 2012 WL 3144881 at *3 (concluding rights under property code § 51.003
may be waived through the terms of the guaranty); and Toor, 2012 WL 3637284 at *4
(rejecting the claim that the statutory protections of Chapter 51 could not be waived as a
matter of law based on public policy grounds). We are bound by decisions of the United
States Supreme Court, the Texas Supreme Court and prior decisions of this Court. See
2 Cleveland not only fails to differentiate his Guaranty but he fails to cite to our decisions in Moayedi, King, or Toor anywhere in his briefing.
-6- Owen v. Jim Allee Imports, Inc., 380 S.W.3d 276, 284 (Tex. App.—Dallas 2012, no pet.).
Accordingly, we overrule Cleveland’s second issue.
Conclusion
Because we conclude Cleveland waived his right of offset under § 51.003 of the
Texas Property Code, we need not address his first issue regarding the fair market value
of the property relevant to the offset. See TEX. R. APP. P. 47.1.
We affirm the judgment of the trial court.
/Martin Richter/ MARTIN RICHTER JUSTICE, ASSIGNED
Do Not Publish TEX. R. APP. P. 47
110665F.U05
-7- Court of Appeals Fifth District of Texas at Dallas JUDGMENT
JOSIAH BRUCE CLEVELAND, Appeal from the 68th Judicial District Appellant Court of Dallas County, Texas (Trial Court No. 10-03366-C). No. 05-11-00665-CV V. Opinion delivered by Justice Richter, Justices Lang-Miers and Myers LIVE OAK STATE BANK, Appellee participating.
Based on the Court’s opinion of this date, the judgment of the trial court is AFFIRMED. It is ORDERED that appellee LIVE OAK STATE BANK recover its costs of this appeal from appellant JOSIAH BRUCE CLEVELAND.
Judgment entered April 26, 2013.
-8-