Holy Cross Church of God in Christ v. Wolf

• Decision Date: 21 June 2001
• Docket Number: No. 00-0250,00-0250
• Parties: (Tex. 2001) Holy Cross Church of God in Christ, Petitioner v. Johnny Wolf, Respondent
• Court: Texas Supreme Court

Page 562

44 S.W.3d 562 (Tex. 2001)

Holy Cross Church of God in Christ, Petitioner v. Johnny Wolf, Respondent

No. 00-0250

SUPREME COURT OF TEXAS

Argued on December 6, 2000

Decided April 12, 2001

Rehearing Overruled June 21, 2001.

On Petition for Review from the Court of Appeals for the Twelfth District of Texas. [Copyrighted Material Omitted]

Justice Baker delivered the opinion of the Court.

We decide two issues in this case: (1) whether a noteholder must take affirmative steps towards foreclosure, in addition to serving a debtor with notice of acceleration, to effectively accelerate a note secured by real property and thereby trigger limitations; and (2) whether the Texas four-year or the federal six-year statute of limitation applies to the noteholder's claim in this case.

Holy Cross Church of God in Christ sued Johnny Wolf seeking a declaratory judgment that the Texas four-year limitations statute barred Wolf's foreclosure of the Church's property. The trial court granted the Church summary judgment on that ground. The court of appeals held that an optional acceleration clause cannot be effectively exercised without the noteholder's taking specific affirmative steps towards foreclosure. Because the Church did not present summary-judgment evidence that Wolf's predecessor had taken these affirmative steps, the court of appeals reversed the summary judgment concluding that the Church did not carry its burden of proving conclusively when Wolf's cause of action accrued. For this reason, the court did not reach the question of whether the four-year or six-year statute of limitations applied.

We hold that, absent evidence of abandonment or a contrary agreement between the parties, a clear and unequivocal notice of intent to accelerate and a notice of acceleration is enough to conclusively establish acceleration and therefore accrual. Thus, we conclude the Church did conclusively prove when the Church's note was accelerated, and consequently, when Wolf's cause of action accrued. We also conclude that the Texas four-year limitations period applies here. We hold that the FDIC's six-year limitations period only enures to a subsequent noteholder's benefit if a claim accrues on the note before the FDIC transfers the note. Accordingly, we reverse the court of appeals' judgment and render judgment for the Church.

I. BACKGROUND

In June 1987, Holy Cross Church executed a $140,000, twenty-year promissory note payable to Wynnewood Bank and secured by a deed of trust on its South Dallas church property. Wynnewood Bank failed and Continental Bank succeeded it. Continental Bank also eventually failed and the Federal Deposit Insurance Corporation (FDIC) became its receiver and holder of the Church's note. While the FDIC held the Church's note, the Church could not make its $1,640.20 monthly payment but paid $500 a month to show good faith. The FDIC and the Church agreed to settle the note for $75,000. The Church was unable to pay this amount on the due date. However, even though the Church remained in default, the FDIC did not accelerate the note. The FDIC then sold the note to Mortgage Investment Trust Corporation (MITC).

On July 15, 1994, MITC sent the Church a notice of default and intent to accelerate. On August 15, and again on September 8, MITC sent the Church letters indicating it had accelerated the note. Both letters specified dates for nonjudicial foreclosure sales. But MITC never actually foreclosed and the Church did not resume payments. On August 1, 1995, MITC sold the note to Great Plains Capital Corporation. Finally, on February 2, 1998, Great Plains sold the note to Johnny Wolf.

On February 23, 1998, Wolf's attorney sent the Church a letter informing it that Wolf now owned the note and that the note was in default. On July 29, Wolf's attorney sent another letter stating that the "maturity of the aforesaid note has occurred and full payment of the balance of same is now due and owing." On September 11, Wolf's attorney sent a notice of foreclosure on the promissory note explaining a foreclosure sale was scheduled for October 6. On the sale date, a trial court granted the Church a temporary injunction to prevent the sale. Nevertheless, the trustee held the sale and Wolf purchased the property.

The Church sued Wolf for a declaratory judgment that the foreclosure sale was void because limitations barred Wolf's foreclosure. The Church also pleaded wrongful foreclosure, unjust enrichment, and constructive trust but later nonsuited these claims without prejudice. The parties then agreed to a temporary injunction. Subsequently, the Church moved for summary judgment, arguing that MITC's August 15, 1994, demand and acceleration triggered the limitations period on Wolf's claim. Thus, the Church argued, limitations had run on August 15, 1998, almost two months before the foreclosure sale.

In response, Wolf agreed that limitations began to run on August 15, 1994. However, he argued that because the FDIC had once owned the note, the six-year limitations period afforded federal receivers applied rather than the Texas four-year period. He filed a cross-motion for summary judgment, contending that limitations did not bar the foreclosure because the federal statute applied. He also argued the Church lacked standing to sue, but he abandons that argument here. See Tex. R. App. P. 74(f). The trial court granted the Church's summary-judgment motion on limitations grounds, declared the Church's obligations under the deed and note time-barred, declared the sale void, and ordered the Church vested with fee simple title to the property.

Wolf appealed, arguing that the six-year federal limitations period governed his claim. The court of appeals did not reach the limitations issue. Instead, the court concluded that a fact question existed about when Wolf's claim accrued. Thus, it held that the trial court erroneously granted the Church's motion and reversed and remanded the claims. ___ S.W.3d at ___, 1999 WL 33256589.

II. APPLICABLE LAW

A. Summary Judgment-standard of Review

A party moving for summary judgment must conclusively prove all elements of its cause of action or defense as a matter of law. Tex. R. Civ. P. 166a(c); Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex. 1999); Walker v. Harris, 924 S.W.2d 375, 377 (Tex. 1996). When both sides move for summary judgment and the trial court grants one motion but denies the other, the reviewing court should review both sides' summary judgment evidence, determine all questions presented, and render the judgment that the trial court should have rendered. FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000). A party moving for summary judgment on limitations grounds must prove when the cause of action accrued. Burns v. Thomas, 786 S.W.2d 266, 267 (Tex. 1990).

B. Accrual

By statute, if a series of notes or obligations or a note or obligation payable in installments is secured by a lien on real property, limitations does not begin to run until the maturity date of the last note, obligation, or installment. Tex. Civ. Prac. & Rem. Code 16.035(e); Swedlund v. Banner, 970 S.W.2d 107, 111 (Tex. App.-Corpus Christi 1998, pet. denied). Section 16.035 modifies the general rule that a claim accrues and limitations begins to run on each installment when it becomes due. See Palmer v. Palmer, 831 S.W.2d 479, 481 -82 (Tex. App.-Texarkana 1992, no writ).

If a note or deed of trust secured by real property contains an optional acceleration clause, default does not ipso facto start limitations running on the note. Rather, the action accrues only when the holder actually exercises its option to accelerate. Hammann v. H.J. McMullen & Co., 62 S.W.2d 59, 61 (Tex. 1933); Curtis v. Speck, 130 S.W.2d 348, 351 (Tex. Civ. App.-Galveston 1939, writ ref'd). Effective acceleration requires two acts: (1) notice of intent to accelerate, and (2) notice of acceleration. See Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 89 2 (Tex. 1991); Ogden v. Gibraltar Sav. Ass'n, 640 S.W.2d 232, 233 (Tex. 1982). Both notices must be "clear and unequivocal." Shumway, 801 S.W.2d at 893. Even when a noteholder has accelerated a note upon default, the holder can abandon acceleration if the holder continues to accept payments without exacting any remedies available to it upon declared maturity. City Nat'l Bank v. Pope, 260 S.W. 903, 90 5 (Tex. Civ. App.-San Antonio 1924, no writ); see also San Antonio Real Estate, Bldg. & Loan Ass'n v. Stewar t , 61 S.W. 386, 388 (Tex. 1901) (explaining that the parties' agreement or actions can "have the effect of obviating the default and restoring the contract to its original condition as if it had not been broken"); Denbina v. City of Hurst, 516 S.W.2d 460, 463 (Tex. Civ. App.-Tyler 1974, no writ) (explaining that an option to accelerate may be withdrawn or revoked after it is exercised by the noteholder, effectively restoring the note's original maturity date).

Federal law provides a different scheme for determining accrual of foreclosure actions brought by the FDIC. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) provides that limitations on FDIC claims begins to run on the later of (1) the date the FDIC is appointed receiver, or (2) the date the cause of action accrues. 12 U.S.C. 1821(d)(14)(B).

C. Limitations

Under state law, a sale of real property under a power of sale in a mortgage or deed of trust that creates a real-property lien must be made not later than four years after the day the cause of action accrues. Tex. Civ. Prac. & Rem. Code 16.035(b); McLemore v. Pacific Southwest Bank, 872 S.W.2d 286, 292 (Tex. App.-Texarkana 1994, writ dism'd by agr.). When this four-year period expires, the real-property lien and the power of sale to enforce the lien become void. Tex. Civ. Prac. & Rem. Code 16.035(d). This four-year limitations period can be suspended by filing a written agreement in the county clerk's office...