Thomas, Larry W. and Marilyn F. v. Compass Bank, Successor by Merger to West University Bank, N.A., and Michael J. Smith

Opinion

Opinion issued June 20, 2002

In The

Court of Appeals

For The

First District of Texas

NO. 01-01-00467-CV

____________

LARRY W. THOMAS AND MARILYN F. THOMAS, Appellants

V.

COMPASS BANK, Appellee

On Appeal from the 270th District Court

Harris County, Texas

Trial Court Cause No. 2000-05613

O P I N I O N

In their suit for breach of contract and violations of the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA), appellants, Larry Thomas and Marilyn Thomas, appeal from the trial court's rendition of summary judgment in favor of appellee, Compass Bank (Compass). The case involves the Thomases' default on a commercial deed of trust and promissory note executed by the parties.

In three points of error, the Thomases argue the trial court erred in granting summary judgment against them because: (1) Compass violated the Texas Property Code by accelerating the deed of trust without giving the Thomases an opportunity to cure the default, (2) a material fact issue existed with respect to whether Compass waived its right to accelerate the deed of trust, and (3) a material fact issue existed with respect to the Thomases' claims under the DTPA and the Texas Debt Collection Act.

We affirm.

Facts and Procedural Background

In June 1995, the Thomases obtained a mortgage from West University Bank in the amount of $66,000. The mortgage was secured by the Thomases' residence, which is located at 3748 Bellaire Boulevard. Compass is the successor, by merger, to West University Bank. ⁽¹⁾

In the autumn of 1999, the Thomases became delinquent on their mortgage payments after failing to make the November and December payments. ⁽²⁾ On December 7, 1999, the Thomases received a letter from Compass's attorney notifying them, in part, as follows:

As a result of your failure to cure your default in the payment and performance under the Note and Deed of Trust, [Compass] has accelerated the maturity date of the Note and hereby demands payment in full of the entire outstanding and unpaid balance of principal and all accrued interest.

The outstanding amount of the mortgage totaled approximately $59,000. The letter also informed the Thomases they could dispute the validity of the debt, in whole or in part, within 30 days, and that Compass intended to pursue foreclosure on or before January 10, 2000 unless "the full amount due and owing is not paid . . . ."

On December 16, 1999, the Thomases received a letter from Robert Burger, a representative of Compass, notifying them that they were in breach of the mortgage note by their failure to make their monthly payments. Burger's letter gave the Thomases until January 5, 2000 to "cure this breach" by forwarding a payment of $2,156.25 to Compass at the address shown on the letter. The letter also informed the Thomases that, unless they cured their breach, all sums secured by the mortgage would then become "due and payable without further notice" and a foreclosure proceeding would be commenced on the property.

According to Larry Thomas, he was prepared to pay the amount indicated in Burger's letter and called Burger's office and the office of another representative of Compass, Carl Scott, but received no reply until after January 5, 2000. At that time, Scott told Thomas that Compass would no longer accept any partial payments.

On January 10, 2000, the Thomases received another letter from Compass's attorney, informing them again that, as a result of their default, Compass was accelerating the maturity date of the note and demanding payment of the entire outstanding debt. The letter also enclosed a notice of substitute trustee's sale, which stated that a public foreclosure auction of the property was scheduled for February 1, 2000.

On the day of the scheduled foreclosure, the Thomases brought suit against Compass to enjoin the bank from foreclosing on their home. Without hearing evidence on the matter, the trial court granted the Thomases a temporary restraining order. Compass did not contest that order. Subsequently, the Thomases obtained a new loan and repaid Compass, and no foreclosure ever occurred. The Thomases then sued Compass for breach of contract and violations of the DTPA and Debt Collection Act, on the grounds that Compass's original foreclosure notice was defective for failing to provide an opportunity to cure their default and alleging damages for having to refinance their home at a higher interest rate. ⁽³⁾ Compass denied the Thomases' allegations and subsequently filed "no evidence" motions for summary judgment which were granted by the trial court.

Standard of Review

Under rule 166a(i), a party is entitled to a no evidence summary judgment if, after adequate time for discovery, there is no evidence of one or more essential elements of a claim or defense on which an adverse party would have the burden of proof at trial. Tex. R. Civ. P. 166a(i). Thus, a no evidence summary judgment is similar to a directed verdict. Flameout Design & Fabrication, Inc. v. Pennzoil Caspian Corp., 994 S.W.2d 830, 834 (Tex. App.--Houston [1st Dist.] 1999, no pet.). The motion for summary judgment may not be general, but must state the elements on which there is no evidence. Tex. R. Civ. P. 166a(i). Upon a proper motion for summary judgment, the trial court must grant the motion unless the non-movant produces more than a scintilla of evidence raising a genuine issue of material fact on each of the challenged elements. See id.; Macias v. Fiesta Mart, Inc., 988 S.W.2d 316, 317 (Tex. App.--Houston [1st Dist.] 1999, no pet.). In reviewing a summary judgment, we must indulge every reasonable inference in favor of the non-movant and resolve any doubts in its favor. Flameout, 994 S.W.2d at 834.

Breach of Contract Claim

In their first issue, the Thomases contend the trial court erred in granting summary judgment in favor of Compass because Compass violated section 51.002(d) of the Property Code and breached its contract with the Thomases by accelerating the deed of trust and promissory note without providing the Thomases with an opportunity to cure their default.

Section 14(a) of the deed of trust executed by the Thomases reads, in relevant part, as follows:

[I]f default is made in the payment of any part of the Indebtedness secured hereby or in the performance of any of the convenants and agreements contained in this instrument or in the Note . . . then the entire Indebtedness secured hereby shall, at once or at any time thereafter while any part of said Indebtedness remains unpaid, at the option of any Beneficiary, become due and payable without demand or notice, except as otherwise provided by law (all rights to demand and notice not required by law being hereby expressly waived) . . . .

(Emphasis added.) The promissory note signed by the Thomases contains similar provisions and reads, in relevant part, as follows:

AT THE OPTION of the holder hereof, all unpaid amounts of principal and interest shall become immediately due and payable, without presentment or demand or notice to the undersigned . . . upon the occurrence of any of the following events: (i) default in the payment or performance of any liability, obligation or duty of the undersigned to the holder of this Note . . . .

EXCEPT AS OTHERWISE provided by applicable law, [the Thomases] . . . expressly waive notice of default and of intention to accelerate maturity or to foreclose . . . and shall be jointly, severally, directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder or in connection with any right, lien, interest or property at any and all times had or existing as security for any amount called for hereunder.

(Emphasis added.) Thus, by the express terms of the deed of trust and promissory note, the Thomases contractually waived a right to any notice of default and acceleration of the note, unless such notice is otherwise required by law.

Section 51.002(d) of the Property Code provides as follows:

Notwithstanding any agreement to the contrary, the holder of the debt shall serve a debtor in default under a deed of trust or other contract lien on real property used as the debtor's residence with written notice by certified mail stating that the debtor is in default under the deed of trust or other contract lien and giving the debtor at least 20 days to cure the default before notice of sale can be given under Subsection (b).

Tex. Prop. Code Ann. § 51.002(d) (Vernon 1995) (emphasis added). ⁽⁴⁾ Based on the record presented in this case, Compass was required to give the Thomases written notice of their default and at least 20 days to cure the default before giving notice of sale.

The Thomases contend the earlier December 7, 1999 letter from Compass's attorney did not meet the requirements of section 51.002(d) and that, in sending the letter, Compass breached its contract by failing to provide the Thomases 20 days to cure their default before accelerating the full amount of the note. Compass argues section 51.002(d) does not require it to provide 20 days notice before accelerating the full amount of the note; rather, the statute requires Compass to give the Thomases 20 days to cure their default before providing a notice of sale. In the present case, Compass contends "the default" was the accelerated full amount of the note.

In either case, we need not reach the issue. Burger's December 16, 1999 letter informed the Thomases they were in default on the mortgage note and instructed them they could cure their breach by forwarding $2156.25 to Compass by January 5, 2000 at an address explicitly set out in the letter. According to Burger's letter, only if they did not do so would all sums owing become "due and payable without further notice" and a foreclosure proceeding be commenced. Larry Thomas stated in his affidavit that, although he was prepared to pay this amount before the January 5, 2000 deadline, he did not do so.

We do not agree with the Thomases interpretation of section 51.002(d). Their interpretation ignores the 1993 amendment of the statute, which deleted the language providing a 20-day opportunity to cure any default before acceleration of the full amount could be made. The current version of the statute contains no requirement of written notice of acceleration. However, even if the Thomases' interpretation of section 51.002(d) was still correct, Compass complied with that interpretation in its December 16, 1999 letter. The Thomases did not cure their default by the terms set out in that letter within 20 days, and Compass then accelerated the full amount of the note. Based on the summary judgment evidence presented, we conclude the Thomases presented no evidence to raise a fact issue regarding a violation by Compass of the Property Code or a breach of the terms of the deed of trust or the promissory note. Accordingly, the trial court did not err in granting a no evidence summary judgment as to the Thomases' breach of contract claim.

We overrule the first issue.

Waiver

In their second issue, the Thomases argue summary judgment was improper because a material fact issue existed concerning whether Compass waived its rights under its initial notice of acceleration by its later correspondence and communications to the Thomases. They contend the inconsistencies between the December 7, 1999 letter from Compass's attorney and the December 16, 1999 letter from Burger resulted in a waiver of Compass's right to accelerate the full amount of the note.

Waiver is an affirmative defense, not a cause of action, and does not operate to create liability. Hruska v. First State Bank of Deanville, 747 S.W.2d 783, 785 (Tex. 1988). Because we hold the Thomases presented no evidence to support their claim that Compass breached the deed of trust or the promissory note, we overrule their second issue.

Debt Collection Act and DTPA Claims

In their third issue, the Thomases argue Compass violated the terms of the Debt Collection Act ⁽⁵⁾ and the DTPA ⁽⁶⁾ by sending a false foreclosure notice.

Because we hold the Thomases presented no evidence to support their claim for breach of contract against Compass, we overrule their third issue.

Conclusion

We affirm the judgment of the trial court.

Terry Jennings

Justice

Panel consists of Justices Jennings, Radack, and Smith. ⁽⁷⁾

Do not publish. Tex. R. App. P. 47.

1.

The Thomases also obtained a home equity loan from West University Bank in the amount of $99,000. That loan is not the subject of this suit.

2.

At the same time, the Thomases were five payments behind on their separate home equity loan.

3.

The Thomases refinanced their mortgage at a rate of 15.141%. Their original mortgage was financed at a rate of 8.875%.

4.

Before its amendment in 1993, section 51.002(d) read, in part, as follows: "The debtor must be given at least 20 days to cure the default before the entire debt is due and the notice of sale is given." (Emphasis added.)

5.

See Tex. Fin. Code Ann. § 392.001 (Vernon 1998 and Supp. 2002).

6.

See Tex. Bus. & Commerce Code Ann. § 17.41 (Vernon Supp. 2002).

7.

The Honorable Jackson B. Smith, Jr., retired Justice, Court of Appeals, First District of Texas at Houston, participating by assignment.