please the court this is a breach of contract case regarding the purchase and sale of consumer debt accounts the resolution of which principally involves the interpretation of a texas statute section thirteen to four point  or not true and correct because both the statute and the retail installment contracts require a con to refund to the account debt at issue in this case the pro rata purchase price of extended warranty products that were cancelled by com when the deal when the consumers defaulted on the account however the district court below held that neither the statutes nor the retail installment contracts required contemn make these refunds because the statute and the contracts only apply when a consumer pays for these extended warranty products up front not when the warranty products are financed by consumers and so first i want to address the district holding what is your bottom line here is here is here bottom line here that the that page your bottom line is not that they should have given money back to the consumer before they charged off and sold you the loan but that the amount should have been credited against the loan balances that you received right  thought they agreed to that that's not my understanding my understanding is they will if you should ask them what they agreed to but my understanding of what they there was at the trial court there was no dispute that original approximate twenty four thousand accounts that they did not make this credit what judge clark held was that well you didn't purchase the consumers didn't purchase those products upfront  financed and so what we did was we stipulated at trial that if we're right about the statute in the contracts then we purchased those contracts at issues twenty six thousand approximately three point three million dollars that was our stipulation and that would be our recovery if also section nine point four which are so which is our sole exclusive remedy says that we get the cut we get our money back they get the contracts b there was a second stipulation that ok if the if the contracts are excuse me if if the contract situation were did not require con to pay us back our money section one point four and rather there was another remedy which would be this adjust adjustment  damages would be approximately three hundred thousand dollars well so i didn't see anything in your briefing that directly address the consequences of two point seven adjustment yes ma'am and partially because that issue was not raised in judge clark's findings of facts and conclusions of law but it was raised obviously in the party's brief and i'll address it in two regards you lied so i'm telling you i thought i didn't i saw them raise it i didn't see you address it in your the appellant well of course you want that remedy so i guess that right well and there an argument is two fold on the first and foremost is we have a provision in the p s a that says what our sole and exclusive remedy is in that section nine point four now even if that was not our sole and exclusive remedy opposition is what we can elect whatever limited we want but even beyond that section two point seven just simply doesn't apply to this case and the reason is that two point seven applies in two instances the first is when payments have been made by or on behalf of an obligation or received by cons owner prior to the cut off date but that did not make it into the reflected account balances well what the cutoff account balance but subsequently a check or other form of payment made by a consumer would have been this on leading up to close and so those are the only two situations where two point seven applies and and it just simply doesn't apply in this context of this case again we say that the benefit of our bargain was to purchase accounts that complied with cons representations and warranties and if the accounts did not comply then we just give them back we get our money back and a promise compliance again goes back to the first question you were asked not that money gets paid back that the customer had never paid but the accounts are adjusted so then when you come in to look at them they reflect that reduction right and if in of cons would have made that reduction on the front end we would have paid less for the accounts than what we actually did and the problem is now that we have  accounts that don't have accurate and correct balances and we didn't bargain for the ability to have to go in and clean those up ourselves klon it's why you refused most  my guess is they would have had to write in so far as one cons places these accounts and collection so i'm taking a hypothetical of cons is going to go sue the consumer for failure to to put and most of these are going to be in just a school it is their small coin that's fine just get to the point the claim i'm absolutely the consumer can show up in court and say hold on judge yes i owe some money but i o action because the language of their channel four point one five nine says that a consumer is intitled to a refund but that's really beyond beside the point because it really doesn't matter what the consumer has all that matters it so you you claimed that your contract the contract promised you more than the consumers would have the contract provided us that we would get clean accounts with correct account balance let's say we have those accounts now the state if they're right that there's not a private cause of action under section point one five nine we're still holding those accounts we're still holding the bag what do you do with cons argument that under the consumer finance contract which was not the same as the service agreement under the consumer finance contract they specifically  cited the correct sentence but they didn't they didn't go on to cite the very next sentence in the contract and in the very next sentence so what they cited was in the event of an insurance policy the repair  no refund of any amounts paid by purchaser for any such policy or agreement will be due to purchaser rather here's the next sentence refunds will be applied to the balance of the defaulted account that language is consistent with our reading of the statu and so you send out your validation have you sent out any validation notices i do not know well if you could send out the validation notices such abilities and whatever and the consumer came back and said wait a minute i bought a five year service agreement and i and i defaulted after one year then you'd have to respond to that right that's correct and why doesn't the principle i mean so you know that there could be errors in any account the cons gave you for any reason right the could certainly be errors for any reason but this one particular reason is a is a big one and you know why is it big it's how many of these people are getting service agreements service agreements you know most people say are not worth the money they were written with but twenty six thousand counts out of the fifty four that we purchased had them but that doesn't mean they're all in default  the reason that it's placed to those who are sold us those accounts is because they were in default i understand that but that doesn't mean that all of the service agreements are in default no because cons cancel the service agreements upon  six thousand four hundred and hundred eighteen total turns and we use we use the hypothetical in our brief about someone buying a t v in the buying a three year service warranty and financing it all and then we just kept it easy and said assume that the consumer never wants paid a single dime of cons but in reality and in this is why we really came together at trial and came up with our damaged appeal ation because there were there were a lot of accounts where consumers had paid money on the account but then at some point defaulted cons cancelled the r s a repair service agreement and then put that put that account into whether a consumer pays for an extended warranty product in cash or credit but gets the species of the result you just get that windfall circumstance their arguments a windfall for the customer i think you're suggesting it's actually a windfall for concrete it yes it is you know how do you look at the windfall that in fact i would direct the court to khans brief on page six and seven and it's and they explain it very very well they specifically said that they are made whole when they cancel the extended warranties because con warranties to the consumers but the warranties are administered by a company called assured so every time cons cancels a warranty it goes back to assure and gets the fool refund yet they're still trying to record reflect that they did try to collect ever i do not believe the record reflects well the i don't know if the record reflects that but there's no doubt that that when they visit or if they were if they did collect then the account balance that you were given would have been an accurate one it would be the same one they would have been using to collect assuming you're not in the picture but i don't believe there's evidence that they collected on accounts after the ourselves we're worried that if there were no texas that you thirteen zero four point one fifty nine would you still have an argument yes we would your honor because of the conflicts and specifically timing the consumer retail installment contracts into section eight point three of the p s a which is a representation of warranty that khan's performance under the agreement would not breach moments made a mistake in these accounts let's say with regard to the interest at the time or something like that of ten dollars a year saw an exclusive remedy would be to break the whole contract and materiality of the breach of warranty whatsoever and what's your best texas case for that on the the issue of breach of the warranty reach of the warranty if it if it's in consequential to believe that a dollar or two dollar would make it an express breach of morning you know whether a breach is material or not only relates to whether it excuses a party from performance if a breach crime or material breach defense to excuse our performance but i think the judge jones is is asking put aside your affirmative defense you're looking just directly a at the elements of a breach of contract case in texas five factors to be considered to determine whether a breach of contract is material and even as even to the extent materiality concerns conditions proceed and we have case all not only for this court in the south texas electric co op case from two thousand and nine but also from the texarkana court of appeals in the salmon's case for the court of appeals in the less a court case where with regard to conditions we would argue there was not a breach of the condition proceeding or breach of the contract itself but to the extent there is a materiality analysis which we think is not only required under texas law but is also required to purchase and sale agreement which is fifty three thousand accounts a big account and they're looking for an entire forfeiture of the entire contract as opposed to the roomie that's provided to the purchase and sale agreement under two point seven which is look when you have a when you have a mass transaction like this and numerous accounts there just no doubt and that certainly counts are going to slip through despite everything to do diligence i have to agree with them the way i mean i've got a copy of se two point seven here because you know i don't think you ever quoted in you and they and it does seem to have just two conditions and one is if the consumer had made a payment before closing and the other one is if they the consumer tried to make a payment before closing but it was stopped payment it was you know and as a first time and those seem to be the only basis for making an adjustment they said and i think maybe you said to but assurance somehow it doesn't make any anomic sense to me but somehow assurant refund money to you if you have a charge back on the consumer if you have to cancel that contract that's correct and that's because cons so how do you ever lose from refinancing warranty well so when we pay the entire cost of the repair service agreement to assure it right and then it at the point of charge off because there is still an amount of time left on the service contract assurance pays us back for the for the amount of the service contract that has been stopped there's been cancelled if we were there and if cantor was in required to repay the consumer for them out that they never paid then the consumer would be getting reimbursed for something that they never paid for and then in the re would be a windfall to the consumer that now they are not arguing for that a repayment the argument they're saying is you can't get from assurant and then turn around and separately collect again and yet the debt package you offered them would allow that double recovery i understand in in the point with with regard to in this kind of gets into the fact we're talking about how when you have a transaction this big there are certain can there's no doubt there's been a certain account of slip through that ha seized and in this particular case if there is a deficiency such as there has been an amount sold to t f alone though that they can collect on that we could not collect on the amount the earned amount on that or i say question it was first asked of opposing counsel did you or didn't you adjust the total amount down reduced by amounts that hadn't paid did you agree to credit the account with who did you agree to did it happen to the consumer did their accounts get credited that those accounts did not get credited and that amount was sold to t of loco and that would then get us into the second issue which is what the remedy is if there is a material breach and the remedy being instead of a complete forfeiture of this entire transaction we go to two point seven which which we would argue allows for an adjustment of those accounts because certain accounts are going to slip  them the appropriate amounts that they can collect on our year are you saying that in the instances when the account was not credited with the unexpired service agreement  to have won't go i'm sorry i made a mistake there so when they get the materials related to these accounts they can see from those account how certain things are treated they can see how the forest ses are treated they can see how a finance charges are treated and they've got all the material to determine to to see how kong has treated these unexpired or a ses with regard to these accounts and when the ones that you require you the statute deals with when there has been a purchase for the entire essay so first since in a transaction where a consumer as a consumer product and they they do have it under retail installment contract in the plight paying instalments for that at the beginning of that contract they can either purchase up front the entire mouth of the artist or they can finance that or us and so what the trial judge in this case  concluded was that if the if the consumer hasn't paid for the entire oral say then there's nothing to refund back to them at the time of charge off and that's the point we're getting here is that the statute doesn't apply in this case because it only deals with the consumer has paid for the entire a say up front you should not a purchase unless it's a cash transaction well you have installment purchases so to the extent that the consumer has made installment payments throughout the contract  rethink your collecting on your account which says as their hypothetical chose three hundred dollars for no that can't be right because you're saying constance not collect that's correct ok fine but you sold accounts to them that looked as if there was an amount owing on the our on the service agreement to i mean suppose you're wrong about the statute only applying to a cash purchase of an r s a is it not also is it not correct in any event that there is no private right of action in the flows from action they ought to be able to pursue here is for a breach of the p s a that's correct ok in the under in if a material breach was found out of the p s a then we would amount right that's true but but are they correct that the following sentence says that we will apply the honor and amount to the default balance that's why we argued that there is no requirement for a refund for amounts of having already been paid and their reply brief they said no no we're talking about a credit to balance and in making that argument in the reply brief i think that they're mixing two different concepts which are distinct important and one reason they're distinctive because if adjustments to accounts or appropriate they can and that's a good point it happened it's not uncommon in the industry particular when you're dealing with fifty thousand i'm sorry lower some of these are lower income people you're going to come across somebody who's a miner occasionally  why in this due diligence process at the beginning of this transaction cards provides t f alone with all this data and information and while they were being knows that information they have an opportunity to contact cards and say wait a minute we've got a question about how this is handled or we have a question about this or that throughout the entire negotiations never once contacted comes to ask about this or a say refund or this or a say accounting issue they never contact them the no one found the contract you're ambiguous so their position is that they assumed those accounts had been credited according to their or i see in the or i say why would they ask any questions they just assumed that it was the representation then then the representation is not it's not and material misrepresentation ok these numbers maybe i'm not i thought they're saying this is twenty six thousand and it was your practice as to every single default that one that you find this wasn't slip throw this was the practice of yours you know what i'm what i'm saying is with regard to each one of the accounts it's a small small amount with regard to count now when you look at the accounts as a whole yes there were fifty three thousand in actually the tarp would have covered close to seventy something thousand character ever solve this you could have resolved this without a law suit if they'd said hey what's gone on here and he said we screwed up you need to adjust your collection credit payments from the customer how does two point seven help at all and this is this theory that you did pay for the customer by paying a shirt that's that's your that's how two point seven works here that's correct and then also  everly who was an expert testifying in this case she discussed how two point seven is more appropriate for remedy in this case as opposed to the buyback remedy and explained that the buy family partnership that as a very fair family partnership i do recall that there was a discussion about whether the whether a case deal with an insurance contract actually applied and in this particular contract i believe the trial judge side of the prodigy case which was an insurance contract which the trial judge recognized but then the trial judge also in his findings of facts and conclusion the law cited this court's opinion in cor health which were the court stated that applying texas law insurance contracts are subject to the same rules of construction generally political to contracts oh well let me just ask you one other question if the if the stipulated amount here or the value of the difference in the value of the contract is three realize that's a face value that's and they purchased them for six seven million that's correct they person about roughly seven percent of the face value right and so if you divide three million into twenty six million that's about at  nine dollars per account discrepancy affected or error affected twenty six thousand accounts and if you divide i think the proper deal is three million off figured out like him off figure it out there  to clarify we're not seeking to forfeit the entire portfolio we're only seeking to get a human back in the accounts back on on just twenty six thousand of the fifty four thousand accounts well get i mean you're you're you're also seeking the not have to close on the other two truncheons right that as well so that's what you call it in contract law you're breaking the whole contract basically a work well you still own another twenty six thousand accounts that what we're not sitting yeah understand we're collecting this is it the other thing you know we did argue in our in our brief that cons should have made credit refunds it's never been our position ever that cons has to pay consumers cash you could have fooled me i read this very carefully and i you know it wasn't until your reply brief that that it said well of course they can give them an offset to go at it and quite frankly the specific interpretation issue that we're dealing with cons never even raised in the trial court this was also a sponsor by the district court came up this week with this theory that theory the theory that the con the contracts can see the retail contracts and the texas service contract regulatory act only apply when a consumer pays up front in cash and therefore only cash refunds can be made because consumers have to pay for the week for that want to call it in cash and and that was the first time we've ever heard of that theory and so we were trying to address that in our brief to say look a refund is refund whether it's a cash refund or a credit refund when i checked in my hotel this week and yesterday the the clerk told me of a you knew that when the district court twenty some thousand accounts so i think that's about a half and what was the average value the account all fifty four thousand accounts had a value of one hundred million dollars we purchased those accounts for approximately sixty idea that ts longto failed during due diligence to identify this the r s a issue and our position it is as a matter of law that a party is not required to do due diligence on a express warranty and representation representation made in the contract we are entitled to rely on that representation warranty especially when there's a comment section very significant it may be commercially reasonable but it's a very significant discount because you know you're not going to get back all you expect very interesting case o