Ellen Foley v. Capital One Bank, N.A.

Reversed and Rendered and Opinion filed September 6, 2012.

In The

Fourteenth Court of Appeals

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NO. 14-11-00998-CV

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ELLEN FOLEY, Appellant

V.

CAPITAL ONE BANK, N.A., Appellee

On Appeal from the County Civil Court at Law No. 4

Harris County, Texas

Trial Court Cause No. 986143

OPINION

Ellen Foley appeals from a deficiency judgment rendered in favor of Capital One

Bank, N.A. (“Capital One”), which repossessed and sold a vehicle that Foley had

purchased with proceeds of a loan from Capital One. Because there is legally insufficient

evidence that Capital One disposed of the vehicle in a commercially reasonable manner,

we reverse the judgment of the trial court and render judgment that Capital One take

nothing on its claim against Foley.

BACKGROUND

In 2006, Foley executed a motor vehicle sales installment contract with Capital One

for the purchase of a Chevrolet Silverado truck. After Foley failed to make payments on

the loan, Capital One repossessed and sold the vehicle. In 2011, Capital One sued Foley

in Harris County Civil Court at Law No. 4 for the remaining balance due on the loan.

Capital One pleaded that “all conditions precedent to Plaintiff’s right of recovery have

been fulfilled.” Capital One filed a business records affidavit indicating the vehicle was

sold sometime after December 26, 2009 and prior to February 16, 2010.

In her second amended answer, Foley alleged Capital One “failed to dispose of the

collateral in a commercially reasonable manner and, therefore, is not entitled to recover a

deficiency judgment.” At the brief bench trial, no testimony was presented regarding the

commercial reasonableness of the sale. Foley’s attorney moved for a take-nothing

judgment, explaining that Capital One had the burden of proof on the reasonableness issue

and that it failed to offer any evidence to meet its burden. The judge noted that no parties

or other witnesses were present to testify and stated, “since we don’t have any live

witnesses here today except for the business record affidavit, the Court finds as follows:

The Court will award judgment in the amount of $18,011.37.”

Foley requested findings of fact and conclusions of law. Capital One submitted

proposed findings, but it did not specifically request a finding on commercial

reasonableness. The court signed Capital One’s proposed findings, and Foley filed a

timely notice of appeal.

ANALYSIS

Foley presents two issues on appeal: (1) whether Capital One had the burden to

prove commercial reasonableness; and (2) whether the trial judge erred by rendering

judgment for Capital One absent legally sufficient evidence of commercial reasonableness.

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I. Standard of review

Findings of fact of fact “have the same force and dignity” as a jury’s verdict and are

reviewable under the same standards of legal and factual sufficiency. Anderson v. City of

Seven Points, 806 S.W.2d 791, 794 (Tex. 1991). When a legal sufficiency challenge

concerns an issue on which the appellant does not bear the burden of proof, the court of

appeals reviews it under a “no evidence” standard:

“No evidence” points must, and may only, be sustained when the record

discloses one of the following situations: (a) a complete absence of evidence

of a vital fact; (b) the court is barred by rules of law or of evidence from

giving weight to the only evidence offered to prove a vital fact; (c) the

evidence offered to prove a vital fact is no more than a mere scintilla; (d) the

evidence establishes conclusively the opposite of the vital fact.

City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex. 2005). Evidence does not exceed a

scintilla if jurors “would have to guess whether a vital fact exists.” Id. at 813. The “final

test” for legal sufficiency is “whether the evidence at trial would enable reasonable and

fair-minded people to reach the verdict under review.” Id. at 827. Generally, the proper

remedy for legal insufficiency is rendition of judgment for the appellant. Vista Chevrolet,

Inc. v. Lewis, 709 S.W.2d 176 (Tex. 1986).

When an appellant challenges the trial court’s construction of a statute or

application of the law, the standard of review is de novo. City of San Antonio v. City of

Boerne, 111 S.W.3d 22, 25 (Tex. 2003); El Paso Natural Gas Co. v. Minco Oil & Gas,

Inc., 8 S.W.3d 309, 312–13 (Tex. 1999).

II. The evidence is legally insufficient to establish the essential element that

Capital One disposed of the vehicle in a commercially reasonable manner.

Article 9 of the Texas Uniform Commercial Code provides that when a debtor

defaults on an obligation, a secured party may take possession of collateral, dispose of it,

and apply the proceeds to help satisfy the obligation. Tex. Bus. & Com. Code Ann.

§§ 9.609, 9.610, 9.615 (West 2011). If the proceeds are insufficient to satisfy the

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obligation, and the secured party wishes to obtain a deficiency judgment for the amount

still owing on the obligation, “[e]very aspect of [the] disposition of collateral, including the

method, manner, time, place and other terms, must be commercially reasonable.” Id.

§ 9.610; see Regal Fin. Co. v. Tex Star Motors, Inc., 355 S.W.3d 595, 599 (Tex. 2010).

Under the common law, a creditor seeking a deficiency judgment has the burden of

pleading that disposition of the collateral was commercially reasonable. Greathouse v.

Charter Nat’l Bank-Sw., 851 S.W.2d 173, 177 (Tex. 1992). A creditor can meet this

burden by pleading specifically that disposition was reasonable, or by pleading generally

that “all conditions precedent have been performed or have occurred.” Id. If the debtor

responds to a general pleading with a specific denial, the burden shifts back to the creditor

to prove reasonableness at trial. Id. For non-consumer transactions, this burden has been

further developed in Article 9. See Tex. Bus. & Com. Code Ann. § 9.626(a). For

consumer transactions, however, the statute provides that it “is intended to leave to the

court the determination of the proper rules,” and that the court “may continue to apply

established approaches.” Id. § 9.626(b).

The parties do not dispute that the purchase was a consumer transaction, and the

evidence shows Foley purchased the vehicle for personal, family, or household use. See

Tex. Bus. & Com. Code Ann. § 9.102(26) (defining “consumer transaction”). We

therefore apply the common-law rule of Greathouse, which places the burden of pleading

commercial reasonableness on the creditor. Capital One met its initial burden by stating

in its petition, “All conditions precedent to Plaintiff’s right of recovery have been

fulfilled.” Foley specifically denied that Capital One disposed of the vehicle in a

commercially reasonable manner. As Capital One now concedes, Foley’s denial shifted

the burden to Capital One to prove this essential element of its claim. We sustain Foley’s

first issue.

In her second issue, Foley contends that Capital One offered legally insufficient

evidence of commercial reasonableness and urges us to render judgment in her favor.

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Capital One responds that “there is no ‘finding’ by the Court that Foley may challenge

based on a lack of support thereof in evidence.” Omitted findings are governed by Texas

Rule of Civil Procedure 299. On appeal, an omitted element of a ground of recovery will

be presumptively found in support of the judgment if three conditions are met: “(1) an

element of the ground of recovery was included in the findings of fact; (2) the omitted

element has not been properly requested; and (3) the omitted finding is supported by the

evidence.” Am. Nat’l Ins. Co. v. Paul, 927 S.W.2d 239, 245 (Tex. App.—Austin 1996,

writ denied); see also Tex. R. Civ. P. 299; Crithfield v. Boothe, 343 S.W.3d 274, 285 (Tex.

App.—Dallas 2011, no pet.).

In this case, the first condition for a presumed finding of commercial reasonableness

is satisfied, because the trial court found all the other elements of Capital One’s claim.

The second condition is also satisfied, because neither party requested a finding of

reasonableness. Vickery v. Comm’n for Lawyer Discipline, 5 S.W.3d 241, 253 (Tex.

App.—Houston [14th Dist.] 1999, pet. denied) (holding that “requested” under Rule 299

refers to a request for “a finding on specific elements” and not a general request for

findings under Rule 296). The third condition is not satisfied, however, because Capital

One did not offer legally sufficient evidence of commercial reasonableness, as explained

below. Warren Petroleum Corp. v. Martin, 271 S.W.2d 410, 412 (Tex. 1954) (“The court

cannot presume a finding unless the evidence supports such a finding.”); Am. Indus. Life

Ins. Co. v. Ruvalcaba, 64 S.W.3d 126, 137 (Tex. App.—Houston [14th Dist.] 2001, pet.

denied) (“Before this court can presume findings of fact in support of the trial court’s

judgment, the presumed findings must be supported by the evidence.”).

At trial, the only evidence offered regarding the sale of the truck consisted of

business records indicating it was sold for $4,700 sometime between December 26, 2009

and February 16, 2010. The record does not indicate how it was sold; one pre-sale notice

mentioned a “private sale” while another mentioned an “auction.” Capital One offered no

evidence that “the method, manner, time, place and other terms” of the sale were

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commercially reasonable. Tex. Bus. & Com. Code Ann. § 9.610; see Regal, 355 S.W.3d

at 601-02 (listing various factors courts have considered when examining the commercial

reasonableness of secured creditors’ sales of collateral); see also Havins v. First Nat’l Bank

of Paducah, 919 S.W.2d 177, 181 (Tex. App.—Amarillo 1996, no writ) (“[A]t the very

least, and irrespective of what factors are considered, the evidence presented at trial must

describe the method, manner, time, place and terms of the sale.”).1 Nor did Capital One

offer evidence of any of the reasonableness “safe harbors” that Article 9 provides, such as a

sale “in the usual manner on any recognized market.” Tex. Bus. & Com. Code Ann.

§ 9.627(b)(1); see Regal, 355 S.W.3d at 599 (listing some Article 9 “safe harbors”).

Capital One therefore failed to offer legally sufficient evidence of commercial

reasonableness. Accordingly, the Court may not presume a finding in Capital One’s favor

on this essential element of its claim.

Capital One argues that this legal sufficiency analysis is misplaced, and that a

remand is required, because the trial court made a legal error and did not “believe”

commercial reasonableness was even an element of Capital One’s claim. It is not clear

from the record that the trial court held such a belief. Yet even if the court had

deliberately omitted a finding of commercial reasonableness, and Capital One had objected

to that omission below (which it did not),2 the omission would be harmless because there is

no evidence in this record that could support a reasonableness finding. See Zieba v.

Martin, 928 S.W.2d 782, 786 (Tex. App.—Houston [14th Dist.] 1996, no pet.) (failure to

1

In Regal, the Supreme Court determined that the secured creditor’s “testimony on the method and

manner of its sales coupled with the loan files evidencing time, place, and other terms creates more than a

suspicion or surmise that at least a portion of Regal’s sales were commercially reasonable.” 355 S.W.3d at

603. The court went on to conclude that the court of appeals erred when it reversed the trial court’s

judgment based on a legal sufficiency challenge because the conflicting evidence on commercial

reasonableness “created a fact issue upon which reasonable minds could differ.” Id. In this case,

however, there is no fact issue because Capital One introduced no evidence regarding the method, manner,

time, place, and other terms of the sale.

2

Cf. Buckeye Ret. Co. v. Bank of Am., 239 S.W.3d 394, 405 (Tex. App.—Dallas 2007, no pet.)

(party waives right to complain on appeal about deliberately omitted findings by failing to either object or

request additional findings).

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file findings is harmful if the record shows “two or more possible grounds on which the

court could have ruled and the appellant is left to guess the basis for the trial court’s

ruling”). Therefore, remanding for the trial court to make a finding on reasonableness

would be futile.

Capital One also requests that we remand and direct the trial court to reopen the

record for a limited hearing on reasonableness. It relies on Havins, a case that was

remanded for a new trial on grounds of factually insufficient evidence of reasonableness.

In that case, the record included testimony that repossessed cattle were sold at a certain

large cattle auction that handled similar cattle, and that the bank received a certain amount

of the proceeds. Havins, 919 S.W.2d at 181–82. The court of appeals concluded the

testimony “constitutes some evidence of commercial reasonableness, but it is too weak to

survive scrutiny under the microscope of factual sufficiency.” Id. at 182.

In contrast, Capital One did not produce any evidence at trial about the disposition

of the vehicle, other than business records stating that it had been sold. This evidence is

legally, as well as factually, insufficient as explained above. Because commercial

reasonableness is an essential element of Capital One’s claim that has not been found and

cannot be presumed on this record, we sustain Foley’s second issue, and we reverse and

render judgment for Foley. See Beach v. Resolution Trust Corp., 821 S.W.2d 241, 245

(Tex. App.—Houston [1st Dist.] 1991, no writ) (“Justice does not require that the [creditor]

receive a new trial to prove what [it] had the burden and the opportunity to prove at the first

trial. When we find that a party has won a judgment even though it produced no evidence

of an element of its cause of action, our normal remedy is to reverse and render.”).

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CONCLUSION

Having held that the evidence is legally insufficient to establish an essential element

of Capital One’s deficiency claim against Foley, we reverse the judgment of the trial court

and render judgment that Capital One take nothing on its claim against Foley.

/s/ J. Brett Busby

Justice

Panel consists of Justices Frost, McCally, and Busby.

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