Smith v. Federal Deposit Ins. Corp., B14-90-00182-CV

• Decision Date: 21 November 1990
• Docket Number: No. B14-90-00182-CV,B14-90-00182-CV
• Citation: 800 S.W.2d 648
• Parties: 15 UCC Rep.Serv.2d 187 J. Mike SMITH, Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Appellee. (14th Dist.)
• Court: Texas Court of Appeals

Page 648

800 S.W.2d 648

15 UCC Rep.Serv.2d 187

J. Mike SMITH, Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Appellee.

No. B14-90-00182-CV.

Court of Appeals of Texas,

Houston (14th Dist.).

Nov. 21, 1990.

Rehearing Denied Dec. 20, 1990.

Jon Mercer, Houston, for appellant.

Alan H. Marks, Houston, for appellee.

Before ROBERTSON, SEARS and DRAUGHN, JJ.

OPINION

SEARS, Justice.

This is an appeal from a summary judgment granted in favor of the Federal Deposit Insurance Corporation [FDIC]. In two related points of error, appellant claims that the trial court erred in granting the FDIC's motion for summary judgment and in not granting appellant's cross-motion for summary judgment because the FDIC failed to plead and prove an essential element of its cause of action. We affirm.

Appellant executed a promissory note to the Bank of Brazoria in the amount of $45,358.07 which was secured by 25,000 shares of Liberty Bank stock. When appellant defaulted, Bank of Brazoria filed suit to recover on the note. Appellant answered and filed a counterclaim, asserting fraud, conspiracy, breach of fiduciary duty and violations of the Texas Business and Commerce Code and the Texas Securities Act. Subsequently, Bank of Brazoria filed a motion to dismiss without prejudice which was granted by the trial court. Bank of Brazoria sold the 25,000 shares of Liberty Bank stock for $4,500; however, the record is not clear on the date of the sale.

The Bank of Brazoria failed in July 1987 and the FDIC was appointed receiver. Certain assets of the bank were sold to the FDIC in its corporate capacity, including the note executed by appellant. The FDIC was substituted into this lawsuit in October 1987 and thereafter reasserted the claim for collection on the note.

On October 30, 1989, the FDIC filed its motion for summary judgment and supporting affidavits. However, the motion and supporting affidavits were silent as to the disposition of the 25,000 shares of Liberty Bank stock. Appellant filed a response and supporting affidavits, asserting that the FDIC failed to prove the collateral was disposed of in a commercially reasonable manner. Appellant then filed his second amended answer, claiming that the collateral was not of a type customarily sold in a recognized market nor of a type which was the subject of widely distributed standard price quotations. Appellant also contended that the FDIC's claim was barred because the Bank of Brazoria failed "to assure a commercially reasonable disposition of the collateral." The FDIC filed an amended motion for summary judgment and supporting affidavits which were likewise silent on the disposition of the collateral. Appellant then filed his cross-motion for summary judgment. The FDIC filed a supplemental affidavit to its amended motion for summary judgment, stating that the proceeds from the sale of the collateral were applied to the balance due on the note. On January 17, 1990, the trial judge granted the FDIC's motion for summary judgment.

Because appellant's two points of error assert essentially the same argument, we will address them both at once. Appellant claims the trial court erred in granting the FDIC's motion for summary judgment and in not granting his cross-motion for summary judgment because the FDIC failed to plead and prove that the collateral which secured the note was disposed of in a commercially reasonable manner. Thus, appellant is asserting that proof of a commercially reasonable disposition of collateral is an element of the FDIC's cause of action on the secured promissory note. The FDIC contends that the commercial reasonableness of the sale is an affirmative defense which cannot be asserted against it because it is a holder in due course under federal common law.

Under Texas law, before a creditor in a secured transaction can sue for a deficiency after disposition of collateral, the creditor must comply with the provisions of section 9.504 of the Texas Business and Commerce Code that require notice to the debtor and a commercially reasonable disposition of collateral. Tanenbaum v. Economics Laboratory, Inc., 628 S.W.2d 769, 772 (Tex.1982). There exists a conflict among the Texas courts as to whether notice and a commercially reasonable disposition of collateral are elements of a secured creditor's cause of action to recover a deficiency, or whether they are defenses which must be asserted by the debtor. In NCNB v. Campise, 788 S.W.2d 115 (Tex.App.--Houston [14th Dist.] 1990, writ denied), this court recognized that notice is a defense to be raised by the debtor. See also Greathouse v. Charter Nat'l Bank-Southwest, 795 S.W.2d 1, 2-3 (Tex.App.--Houston [1st Dist.] 1990, writ requested); Folkes v. Del Rio Bank and Trust Co., 747 S.W.2d 443, 445 (Tex.App.--San Antonio 1988, no writ); Stra, Inc. v. Seafirst Comm. Corp., 727 S.W.2d 591, 594 (Tex.App.--Houston [1st Dist.] 1987, no writ); Ward v. First State Bank, 605 S.W.2d 404, 407 (Tex.Civ.App.--Amarillo 1980, writ ref'd, n.r.e.); McCollum v. Parkdale State Bank, 566 S.W.2d 670, 674 (Tex.Civ.App.--Corpus Christi 1978, no writ). However, in Chase Comm. Corp. v. Datapoint Corp., 774 S.W.2d 359, 364 (Tex.App.--Dallas 1989, no writ), the court held that notice and disposition of collateral in a commercially reasonable manner are elements of a creditor's suit to recover a deficiency. See also Molyneaux v. MBank Corpus Christi, N.A., 776 S.W.2d 744, 746 (Tex.App.--Corpus Christi 1989, no writ); Daniell v. Citizens Bank, 754 S.W.2d 407, 409 (Tex.App.--Corpus Christi 1988, no writ); Whirlybirds Leasing Co. v. Aerospatiale Helicopter Corp., 749 S.W.2d 915, 918-19 (Tex.App.--Dallas 1988, no writ); FDIC v. Attayi, 745 S.W.2d 939, 948 (Tex.App.--Houston [1st Dist.] 1988, no writ); Commercial Credit Equipment Corp. v. West, 677 S.W.2d 669, 678 (Tex.App.--Amarillo 1984, writ ref'd n.r.e.).

We disagree with those cases holding that disposition of collateral in a commercially reasonable manner is an element of a secured creditor's cause of action. We think the better line of authority holds that commercial reasonableness is a defense to be raised by the debtor. Therefore, we hold that the commercial reasonableness of a sale of collateral is a defense which must be raised by the debtor to put the creditor to his proof.

Next we must determine whether the FDIC is a holder in due course. A holder in due course takes an instrument for value, in good faith, and without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person; provided, the holder does not purchase the instrument as part of a bulk transaction not in the regular course of business of the transferor. TEX.BUS. & COM.CODE ANN. § 3.302 (Vernon 1968). Further, a holder in due course takes the instrument free from:

(a) all claims to it on the part of any person; and

(b) all defenses of any party to the instrument with whom the holder has not dealt except

(1) infancy, to the extent...