Court Opinion

ID: 15782
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:48:17+00
Date Added: 2024-06-11T08:14:31.367041
License: Public Domain

UNITED STATES COURT OF APPEALS
                       FOR THE FIFTH CIRCUIT

                     _______________________

                           No. 97-50151
                         Summary Calendar
                     _______________________

IN THE MATTER OF: BILLY R. SHURLEY;
JANE BRYANT SHURLEY,

                                                          Debtors.

WILLIAM H. ARMSTRONG, II,

                                                        Appellant,

                                versus

TEXAS COMMERCE BANK, formerly known as
Texas Commerce Bank - Austin, N.A.,

                                                         Appellee.

_________________________________________________________________

           Appeal from the United States District Court
                 for the Western District of Texas
                           (MO-96-CV-141)
_________________________________________________________________

                            March 11, 1998

Before JONES, SMITH, and STEWART, Circuit Judges.

EDITH H. JONES, Circuit Judge:*

          Appellant William H. Armstrong, II trustee, represents a

creditor of the Estate of Billy R. and Jane Bryant Shurley, Chapter

7 debtors since 1992.       Armstrong contested the claim of Texas

Commerce Bank N.A. (TCB) for a deficiency arising from their

     *
      Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
guarantees of promissory notes owed by EX-IM Freezer Joint Venture,

in   which   Billy    R.   Shurley    had   been   a   partner.     After    some

procedural ping-pong in the courts below, the district court

affirmed     a    bankruptcy    court   judgment       overruling   Armstrong’s

objections.       On appeal in this court, Armstrong contends (1) that

the lower courts erred in their construction of the term “default”

in the underlying loan agreement between EX-IM and TCB; (2) that

even if default originally occurred on April 28, 1989, EX-IM’s late

payment of this installment cured any default; (3) that Mr. and

Mrs. Shurley did not effectively waive their right to notice of a

foreclosure sale pursuant to § 9.504(c) of the Texas Uniform

Commercial Code; and (4) that the Shurleys’ Chapter 7 trustee was

entitled     to   notice   of   the   foreclosure      sale.   We   affirm    the

judgments of the district and bankruptcy courts.

             The background facts, recited in the district court’s

opinion, may be briefly summarized.            As of December, 1988, EX-IM

owed TCB $9 million principal, borrowed over a period of years but

evidenced by a loan agreement, security agreements, assignments and

the guarantees at issue here, dated December 1, 1988.                 No later

than May 31, 1989, the Shurleys executed guarantees which were made

“effective” as of December 1, 1988.            EX-IM failed to make timely

monthly loan payments due on April 28 and May 28, 1989.               Although

EX-IM caught up these payments in August, 1989, it never became

current on the obligations under the loan agreement.

             On August 10, 1990, TCB sent written notice to Ex-Im that

it was behind in its payments.              In 1992, the Shurleys filed a

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Chapter 7 bankruptcy.         In 1993, TCB foreclosed its lien on the

collateral for the obligation owed by EX-IM.                While TCB gave the

Shurleys advance notice of this public foreclosure sale, it did not

so notify their Chapter 7 trustee.

             Texas law provides that if a creditor undertakes to sell

collateral after default on a debt, he must reasonably notify any

debtor, including a guarantor, of the time and place of a sale or

the   date    after   which     sale    may      occur     unless     the   debtor

“has . . . signed after default a statement renouncing or modifying

his right to notification of [a commercially reasonable] sale.”

Texas Bus. & Comm. Code § 9.504(c) (1991).1                 Two assertions are

critical to Armstrong’s appeal.             First, he contends that the TCB

loan was not in default because of EX-IM’s failure to make timely

payments on April 28 and May 28, 1989.           Second, he asserts that the

Shurleys’ waiver was not effective after the dates of default

because it was made “effective” as of December 1, 1988, and it was

not sufficiently specific as a waiver.

             The   bankruptcy     and       district     courts     held    against

Armstrong’s contentions, and we concur. The lower courts concluded

      1
       U.S.C. § 9.504(c).       In pertinent part:

      Unless collateral is perishable or threatens to decline
      speedily in value or is of a type customarily sold on a
      recognized market, reasonable notification of the time
      and place of any public sale or reasonable notification
      of the time after which any private sale or other
      intended disposition is to be made shall be sent by the
      secured party to the debtor, if he has not signed after
      default a statement renouncing or modifying his right to
      notification of sale.

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that EX-IM defaulted in its payments on April 28 and May 28 and

that the guarantees, executed approximately May 31, post-dated the

default as required by § 9.504.     These findings are correct.

            Armstrong contends that the loan did not fall into

default for non-payment until ten days after a payment was due and

written notice was communicated from the lender to EX-IM. Although

the December 1, 1988 loan agreement describes a non-payment “event

of default” in the terms described by Armstrong, the loan agreement

specifically distinguishes between a default and an “event of

default.”    Section 6.1(a) of the Loan Agreement.      As explained in

the “definitions” section of the agreement, an event of default

means an event specified in § 6.1 “provided that there has been

satisfied or met any requirement or condition specified in this

agreement for the giving of notice . . .”, while “default shall

mean any of the events specified in such section, whether or not

any other requirement or condition has been satisfied or met.”

(emphasis added) Section 1.1 of Loan Agreement.        The occurrence of

non-payment of an installment on its due date was thus a default

under the loan agreement.

            Armstrong also contends that the April 28 and May 29

defaults were “cured” when EX-IM made late payments in August of

that year.    Security Pacific National Bank v. Kirkland, 915 F.2d
1236, 1241 (9th Cir. 1990).    If the made-up payments had actually

cured   EX-IM’s   default,   this   argument   might    be   persuasive.

Armstrong does not, however, rebut the testimony of a TCB executive

                                    4
that notwithstanding these payments, the default on the loan to EX-

IM was never again cured.

          The lower courts also correctly rejected Armstrong’s

argument that the guarantees took effect pre-default.   Because the

Texas U.C.C., at § 9.504(c), states only that debtors must sign the

waiver of notice of a foreclosure sale after default, the guaranty

executed on May 31, 1989 clearly fulfilled that requirement.

Armstrong would have this court hold that the “effective” date of

the guarantees (six months earlier) is controlling, but to do so

contradicts the express language of the statute.        Further, as

appellee points out, if the statute said that a waiver need only be

“effective” after default, a lender could easily circumvent the

notice provision by requiring its borrower to agree prior to

default that a waiver would be “effective” at a later date.

          Armstrong also contends that the Shurleys’ waiver of

§ 9.504(c) notification is not specifically contained in their

guarantees.   On the contrary, we agree with the implicit findings

of the bankruptcy and district courts that the wording of the

guarantees is broad enough to have effected such a waiver.    Texas

law underscores that “[t]his provision of § 9.504(c) has been

strictly construed to require a specific, knowing waiver of the

right to notice.”    All Valley Accept. Co. v. Durfey, 800 S.W.2d
672, 675 (Tex. Ct. App. - Austin 1990).      One of the Shurleys’

guarantees stated:

          [t]he obligations, covenants, agreements and
          duties of Guarantors under this Guaranty shall
          in no way be affected or impaired by reason of
          the happening from time to time of any of the

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            following with respect to the Loan Documents,
            without the necessity of any notices to, or
            further consent of, either Guarantor:

                                   * * * * *

                 (g) The    voluntary             or    involuntary
            liquidation,   dissolution,            sale    of   any
            collateral, . . .

                       * * * * * (emphasis added).

Although    this   language   is    embedded      among   several    provisions

generally    waiving    or    limiting      the    guarantors’      rights,   it

specifically absolves the bank of providing notice of the sale of

any collateral.     Because this guarantee was signed by the Shurleys

after   EX-IM’s    default,   it    was    sufficient     to   conform   to   the

requirements of § 9.504(c).

            Finally, because the Shurleys executed valid post-default

renunciations of their right to notice of foreclosure sale of TCB’s

collateral, they had no further interest in notification that could

be transferred to their Chapter 7 trustee nearly two years later.

The trustee, who steps into the shoes of the debtor, was bound by

the Shurleys’ pre-petition waiver of notice.               See, e.g., In re:

Wey, 827 F.2d 140, 142 (7th Cir. 1987).

            For the foregoing reasons, the judgments of the lower

courts are AFFIRMED.

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