Credit Card Debt and the Statute of Limitations in Texas

An action to collect on a credit card debt may be brought as an action on an “open account.” Eaves v. Unifund CCR Partners, 301 S.W.3d 402 (Tex. App.-El Paso 2009, no pet.).  The elements of an open account are: (1) transactions between the parties, (2) creating a creditor-debtor relationship through a general course of dealing, (3) with the account still being open, and (4) with the expectation of further dealing. Capital One Bank (USA), N.A. v. Conti, 345 S.W.3d 490 (Tex. App.-San Antonio 2011, no pet.), citing, Eaves v. Unifund CCR Partners, 301 S.W.3d 402 (Tex. App.-El Paso 2009, no pet.).

If your case meets the elements of an open account, there is also another tactical reason to allege a cause of action for an open account – the statute of limitations that governs an open account. Section 16.004(c) of the Texas Civil Practice and Remedies Code provides that “A person…must bring an action for an open or stated account…..not later than four years after the day that the cause of action accrues….The cause of action accrues on the day that the dealings in which the parties’ were interested together cease.”  The Conti opinion provides an excellent illustration of the benefits of the statute and advice for credit card issuers.

In Capital One Bank (USA), N.A. v. Conti, 345 S.W.3d 490 (Tex. App.-San Antonio 2011, no pet.), Capital One sued Conti for breach of a credit card contract and for accounts owed pursuant to the account. Conti asserted a claim of limitations and counterclaimed for violations of various debt collection statutes because more than four years had passed since Conti made his last payment.  Conti filed a motion for summary judgment alleging that because the lawsuit was filed more than four years after the last payment and the last payment date is a definite and objective date to determine when the statute of limitations begins to run, the claim was barred by the applicable four year statute of limitations.  Capital One alleged that summary judgment was improper because the date of the last payment does not determine when the parties dealings ceased under Section 16.004(c) of the Texas Civil Practice and Remedies Code.

The trial court agreed with Conti and granted summary judgment.  However, on appeal, the San Antonio Court of Appeals reversed. In reversing the trial court, the San Antonio Court of Appeals held that a typical credit card agreement requires the credit card holder to make payments at regular intervals. Merely establishing the last date of payment is not sufficient to establish, as a matter of law, that the parties’ relationship also ceased on that date. Capital One Bank (USA), N.A. v. Conti, 345 S.W.3d 490, 492 (Tex. App.-San Antonio 2011, no pet.). Because Conti only provided the date of last payment without anything else to establish that the relationship had ceased, Conti did not conclusively establish the date the cause of action accrued and summary judgment was improper.

The lessons of Conti and other cases that have followed it are worth noting. When a creditor brings a lawsuit on a credit card debt, bring a claim for an open account along with the traditional breach of contract claim. Also, some thought should be given to when the parties’ relationship and dealings cease.  The opinions in this blog are the author’s and any suggestions, replies or comments should be sent to the author at john@jrjoneslaw.com.

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General Waiver of Defenses in Guaranty Trumps Statutory Right of Offset

On June 13, 2014, the Supreme Court of Texas issued its opinion in Mehrdad Moayedi v. Interstate 35/Chisum Road, L.P. ___S.W.3d ____(Tex. 2014)(Case No. 12-0937). The issue before the Supreme Court was whether a party waives the statutory right of offset under section 51.003(c) of the Texas Property Code by agreeing to a general waiver of defenses in a guaranty agreement. The facts of the case are not unusual.

A company borrowed money from two lenders and the note was secured by a deed of trust on the property. Mehradad Moayedi, guaranteed the loan. The guaranty agreement provided that Moayedi’s liability would be limited to $196,000 plus accrued interest and collection costs and contained a general waiver of defense stating that this “Guaranty shall not be discharged, impaired or affected by…..(b) any defense (other than 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 waived by the undersigned Guarantor.” The borrower defaulted on the loan and the secured party purchased the property at a nonjudicial foreclosure sale in which Interstate 35 was the sole bidder. After applying all credits and proceeds from the sale, Interstate 35 sued Moayedi to recover the deficiency balance of $266,748.84.

Moayedi alleged in his answer that under Texas Property Code section 51.003(c), any deficiency owed should be offset by the difference between the fair market price and the foreclosure price. Because the foreclosure price ($487,200) exceeded the amount owed, he argued that his liability should be extinguished. In response, Interstate 35 did not contest the fair market value but instead argued that the guaranty agreement waived section 51.003.  Both parties filed for summary judgment and the trial court found for Moayedi and against the lender Interstate 35. The court of appeals reversed and held that Moayedi waived his right to apply section 51.003 of the Texas Property Code because the use of the language in the defense waiver of “any,” “each,” and “every” in the guaranty agreement encompassed all possible defenses and conveyed an intent that the guaranty would not be subject to any defenses other than payment. On petition for review to the Supreme Court, Moayedi argued that section 51.003 should not be characterized as a defense and that the waiver in the guaranty agreement lacked specificity so that Moayedi could not have been said to have knowingly and intentionally waived his right to apply section 51.003.

Rejecting Moayedi’s argument, the Supreme Court of Texas held that Texans have long embraced the principle of freedom of contract. See Tex. Const. art. I, Section 16. In addition, there is a strong public policy of respecting parties’ freedom to design contracts according to their wishes. More importantly, parties in general may waive statutory and even constitutional rights. Mehrdad Moayedi v. Interstate 35/Chisum Road, L.P. ___S.W.3d ____(Tex. 2014)(Case No. 12-0937), citing, In re Prudential Ins. Co., 148 S.W.3d 124 (Tex. 2004). The Supreme Court went further and held the Texas legislature here did not clearly prohibit waiver while other provisions of the Property Code did include anti-waiver language. To be effective, a waiver must be clear and specific and determining whether there is a waiver depends on the circumstances of the case. While noting that waiver is a matter of intent and there can be no waiver unless intended by one party and understood by the other party, the Supreme Court found that waiver had in fact occurred.

The Supreme Court notably rejected Moayedi’s reliance on Shumway v. Horizon Credit Corp., 801 S.W.2d 890 (Tex. 1991) (case requiring specific waiver of notice of intent to accelerate and notice of acceleration because they are separate rights) because the waiver of section 51.003 was not expressed specifically in writing. The Supreme Court held that it could not see a difference between waiving common law defenses and the specific defense in section 51.003. Just because a waiver is all encompassing, the Supreme Court held that the fact that it is an all encompassing waiver does not make it unclear or vague. According to the Supreme Court, the waiver of all possible defenses seemed to clearly indicate what defenses it included: “all of them.” That description was more descriptive than a waiver referencing a specific Property Code Section. Mehrdad Moayedi v. Interstate 35/Chisum Road, L.P. ___S.W.3d ____(Tex. 2014)(Case No. 12-0937). More importantly, the guaranty agreement yielded just one conclusion. Moayedi waived his statutory right to an offset and as a result, the Supreme Court affirmed the court of appeals judgment upholding the lender’s position.

The Supreme Court’s opinion is, in my opinion, a very common sense and practical (and long overdue) decision on waiver and guaranty agreements. I encourage you to read the full opinion.  The opinions in this blog are solely the author’s and any comments, suggestions or replies can be sent to john@jrjoneslaw.com.