Moayedi v. Interstate 35/Chisam Rd., L.P.
| Decision Date | 22 August 2014 |
| Docket Number | No. 12–0937.,12–0937. |
| Citation | 438 S.W.3d 1,57 Tex. Sup. Ct. J. 724 |
| Parties | Mehrdad MOAYEDI, Petitioner, v. INTERSTATE 35/CHISAM ROAD, L.P. and Malachi Development Corporation, Respondents. |
| Court | Texas Supreme Court |
OPINION TEXT STARTS HERE
Robert H. Holmes, The Holmes Law Firm, Dallas, TX, Alexander N. Beard, Saunders, Walsh & Beard, PLLC, McKinney, TX, for Amicus Curiae.
C. Gregory Shamoun, Jonathan J. Cunningham, Shamoun & Norman, LLP, Dallas, TX, Dana Livingston, Alexander Dubose Jefferson & Townsend LLP, Austin, TX, for Petitioner Mehrdad Moayedi.
Fred Colin Durham, Key Harrington Barnes PC, Dallas, TX, for Respondent Interstate 35/Chisam Rd. L.P.
This dispute asks whether a party waives the statutory right of offset under section 51.003(c) of the Property Code by agreeing to a general waiver of defenses in a guaranty agreement. The court of appeals answered yes, holding that section 51.003 creates an affirmative defense and that the guaranty agreement waives all possible defenses against liability, including the offset provision at issue here. We affirm.
Villages of Sanger, Ltd. borrowed $696,000 from lenders I–35/Chisam Road, L.P. and Malachi Development Corporation. The three-year note was secured by a deed of trust covering real property in Denton County. Merhdad Moayedi, as president of Villages' general partner, Pars Investment, Inc., guaranteed the loan. The guaranty agreement provides that Moayedi's liability is limited to $196,000 plus accrued interest and collection costs. The agreement also includes the general waiver of defenses at issue here:
7. Guarantor further agrees that this Guaranty shall not be discharged, impaired or affected by (a) the transfer by the Borrower of all or any portion of the real estate or improvements thereon, or of any security or collateral described in the Deed of Trust or in any other security document, or (b) any defense (other than the full payment of the indebtedness hereby guaranteed in accordance with the terms hereof) that the Guarantor may or might have as to Guarantor's respective undertakings, liabilities and obligations hereunder, each and every such defense being hereby waived by the undersigned Guarantor.
After Villages defaulted on the loan, I–35 purchased the secured property in a nonjudicial foreclosure sale at which I–35 was the sole bidder. The parties agree that the fair market value of the property at the time of the foreclosure sale was $840,000. The purchase price at foreclosure, however, was $487,200. After applying all credits and the proceeds from the sale, I–35 sued Moayedi to recover the $266,748.84 balance remaining on the note.
Moayedi included in his answer that under Property Code section 51.003, any deficiency owed should be offset by the difference between the fair market value and the foreclosure price. Later he moved for summary judgment based on that same section, asking the trial court to apply the offset. Moayedi argued that because the difference between the fair market value and the foreclosure price exceeded the amount owed, his liability should be extinguished. I–35 did not contest the fair market value of the property, and argued instead that paragraphs 7 and 13 of the guaranty agreement waived section 51.003. Moayedi eventually filed two motions for summary judgment, and I–35 also moved for summary judgment. The trial court granted summary judgment for Moayedi.
The court of appeals reversed, holding that in paragraph 7, Moayedi waived his right to apply section 51.003.1 The court of appeals held that the offset is an affirmative defense. It concluded that the use of “any,” “each,” and “every” in the agreement encompassed all possible defenses and conveyed an intent that the guaranty would not be subject to any defense other than payment. It further concluded that at least three other provisions in the agreement indicated the same intent, including Moayedi's agreement that I–35 could enforce the guaranty without first resorting to or exhausting any security or collateral. According to the court, then, because Moayedi waived all defenses, he waived the right to avail himself of section 51.003's offset provision. The court also held that it could not address I–35's argument that Moayedi waived section 51.003 in paragraph 13 of the agreement.
Before this Court, Moayedi argues that section 51.003 should not be characterized as a defense and that the waiver in paragraph 7 is so lacking in specificity that Moayedi could not be said to have knowingly and intentionally waived his right to apply section 51.003. We disagree.
We review a trial court's grant of summary judgment de novo.2 When both partiesmove for summary judgment, each party bears the burden of establishing its entitlement to judgment as a matter of law.3
Deficiency judgments based on foreclosure proceeds have been statutorily provided for since 1846.4 The Court has always interpreted those provisions consistent with the understanding that a deficiency is premised on the concept of a foreclosure. For example, in the 1930s, the Legislature enacted a statute that allowed the debtor an offset for the actual value of the property.5 This Court held that because the statute acted retroactively to impair existing contract obligations, it was unconstitutional under article I, section 16 of the Texas Constitution.6 The Court stated, “It seems to us that the act before us does in fact operate upon and impair the ‘obligation’ of the contract, in that it nullifies that portion of the contract, read in the light of the then existing statute, which entitled the [creditor] to a deficiency judgment.” 7 Concluding that even if the statute were interpreted as merely operating on the remedy for the enforcement of the contract, the provision was nevertheless unconstitutional because it abridged the rights of the mortgagee so as to make the contract less valuable.8
In 1965, the Court again addressed, albeit indirectly, whether a deficiency judgment is based on the foreclosure proceeds.9 In that case, the debtor challenged the validity of the foreclosure sale, arguing that the property had been inaccurately described. The Court relied on the rule that a deficiency judgment is based on “the amount of the note, interest and attorney's fees, less the amount received at the trustee sale and other legitimate credits.” 10
Moreover, this Court's understanding is not unique; indeed, one of the very definitions of “deficiency” is the amount remaining on a debt after applying the proceeds realized at a foreclosure sale.11 In keeping with this understanding, the Court has concluded that mere inadequacy of consideration does not invalidate a foreclosure sale and open the door to a fair market value determination.12 Nor does a creditor need to “liquidate its security promptly ... to minimize the guarantor's liability for any deficiency.” 13
It was against that legal backdrop that section 51.003 was enacted. Section 51.003 was added to the Property Code in 1991. No doubt it is intended to protect borrowersand guarantors. When lenders are the sole bidders at a foreclosure sale, they can control the foreclosure sale price and by implication the deficiency judgment. There is little incentive for them to bid high when a low bid preserves the amount they might get in a judgment against the borrower. Thus, the nonjudicial foreclosure sale often does not directly represent what a buyer might pay in the market.
Under the new law, a deficiency judgment is still the amount by which the debt and foreclosure costs exceed the foreclosure sale price. But, that amount may be reduced if the borrower or guarantor files a motion under section 51.003. Section 51.003 provides that if the fact-finder determines that the fair market value is greater than the foreclosure sale price, the party obligated on the debt may ask the court to offset the deficiency owed by the difference between the fair market value and the foreclosure sale price:
(a) If the price at which real property is sold at a foreclosure sale under Section 51.002 is less than the unpaid balance of the indebtedness secured by the real property, resulting in a deficiency, any action brought to recover the deficiency must be brought within two years of the foreclosure sale and is governed by this section.
(b) Any person against whom such a recovery is sought by motion may request that the court in which the action is pending determine the fair market value of the real property as of the date of the foreclosure sale. The fair market value shall be determined by the finder of fact after the introduction by the parties of competent evidence....
(c) If the court determines that the fair market value is greater than the sale price of the real property at the foreclosure sale, the persons against whom recovery of the deficiency is sought are entitled to an offset against the deficiency in the amount by which the fair market value, less the amount of any claim, indebtedness, or obligation ... exceeds the sale price. If no party requests the determination of fair market value or if such a request is made and no competent evidence of fair market value is introduced, the sale price at the foreclosure sale shall be used to compute the deficiency.
(d) Any money received by a lender from a private mortgage guaranty insurer shall be credited to the account of the borrower prior to the lender bringing an action at law for any deficiency owed by the borrower. Notwithstanding the foregoing, the credit required by this subsection shall not apply to the exercise by a private mortgage guaranty insurer of its subrogation rights against a borrower or other person liable for any deficiency.14
As an example, imagine a debtor owes $100,000 secured by a piece of property. At the foreclosure...
To continue reading
Request your trial
-
Lalonde v. Gosnell
...Techs., Inc. , 156 S.W.3d 557, 559 (Tex. 2004) (forum selection).22 See Crosstex , 430 S.W.3d at 394.23 See Moayedi v. Interstate 35/Chisam Rd., L.P. , 438 S.W.3d 1, 6 (Tex. 2014) ("In general, parties may waive statutory and even constitutional rights."); Tenneco Inc. v. Enter. Prods. Co. ......
-
James Constr. Grp., LLC v. Westlake Chem. Corp.
...See City of Keller , 168 S.W.3d at 819, 822. We construe contracts as a matter of law, absent ambiguity. Moayedi v. Interstate 35/Chisam Rd., L.P. , 438 S.W.3d 1, 7 (Tex. 2014). Our primary concern is to ascertain and give effect to the parties' true intentions as expressed in the agreement......
-
State v. Am. Tobacco Co.
...chose." Plains Expl. & Prod. Co. v. Torch Energy Advisors Inc. , 473 S.W.3d 296, 305 (Tex. 2015) (citing Moayedi v. Interstate 35/Chisam Rd., L.P. , 438 S.W.3d 1, 7 (Tex. 2014) ). Since parties may make drafting choices in light of the circumstances under which a contract is reached, Texas ......
-
Banta Oilfield Servs., Inc. v. Mewbourne Oil Co.
...controlling effect; rather, each provision must be considered in the context of the instrument as a whole. Moayedi v. Interstate 35/Chisam Rd., L.P. , 438 S.W.3d 1, 7 (Tex. 2014). Here, Mewbourne discounts the language contained in paragraph 5E, which states:In the event this Agreement is s......