Petitions and Causes of Action
§ 14.1Statement of Cause of Action
Each petition must contain a short statement of the cause of action that gives fair notice of the claim and a demand for judgment for the relief that the party seeks. The plaintiff may state more than one claim in a petition and may present more than one statement of the claim alternatively or hypothetically. Tex. R. Civ. P. 47–48.
§ 14.2Allegation of Conditions Precedent
The plaintiff should plead generally, when appropriate, that every condition precedent has been performed or has occurred. After such a plea, the plaintiff must prove only those conditions specifically denied by the defendant. Tex. R. Civ. P. 54. The attorney should use caution in asserting that all conditions precedent have been met; the attorney’s signature on the pleading certifies that the allegations contained in it are likely to have evidentiary support. Tex. Civ. Prac. & Rem. Code § 10.001(3).
The defendant’s answer “denying all conditions precedent to the satisfaction of the claim” is not a specific denial. The plaintiff does not in response to such an answer have to prove the performance or occurrence of any condition precedent. Tex. R. Civ. P. 54. Hill v. Thompson & Knight, 756 S.W.2d 824, 826 (Tex. App.—Dallas 1988, no writ) (creditor not required to prove ownership because defendant failed to specifically deny any condition precedent to recovery on note).
In consumer-goods cases, pleading that “all conditions precedent have been performed” in a deficiency suit satisfies the requirement that the plaintiff plead that the foreclosure sale was performed in a commercially reasonable manner. The plaintiff has no further burden to prove commercial reasonableness unless the defendant specifically denies the commercial reasonableness of the sale. Greathouse v. Charter National Bank-Southwest, 851 S.W.2d 173, 176–77 (Tex. 1992). See section 14.29 below regarding deficiency judgments generally. For nonconsumer-goods transactions, see the discussion in section 14.29:4 below.
Items of special damage must be specifically stated. Tex. R. Civ. P. 56. This requirement applies particularly to collections litigation because of the many special types of damages involved, such as statutory interest, contractual interest, attorney’s fees, and costs. Unliquidated damages may be sought if the petition states that the damages sought are within the jurisdictional limits of the court. On special exception, the court can require that the petitioner amend the petition to specify the maximum amount claimed. Tex. R. Civ. P. 47. Although there are generally limits on the recovery of exemplary damages, those limitations are removed if the action is based on theft punishable as a third-degree felony or higher. See Tex. Civ. Prac. & Rem. Code § 41.008(c)(13); see also Tex. Civ. Prac. & Rem. Code §§ 41.003, 41.008(b).
§ 14.4:1Application of the Expedited Action Process
Rule 169 was added to rules effective March 31, 2013, to promote the prompt, efficient, and cost-effective resolution of civil actions. See 76 Tex. B.J. 221 (2013). Rule 169 is mandatory and applies to civil actions in district courts, county courts at law, and statutory probate courts in which the amount in controversy, inclusive of all claims for damages of any kind, whether actual or exemplary, a penalty, attorney’s fees, expenses, costs, interest, or any other type of damage of any kind, does not exceed $100,000. Tex. R. Civ. P. 169(a)(1); see also Tex. R. Civ. P. 169, cmt. 1. Tex. R. Civ. P. 47, 190.2 were revised to conform to the expedited actions procedures. Tex. R. Civ. P. 190.2(a)(1) was added to include in level 1 discovery control plan “any suit that is governed by the expedited actions process in Rule 169” and the rule was recaptioned as “Discovery Control Plan—Expedited Actions and Divorces Involving $50,000 or Less (Level 1).” See 76 Tex. B.J. 221 (2013). Rule 47(c), by requiring a statement of monetary relief sought, now expressly requires the plaintiff to plead into the requirements of the rule, or describe relief that falls outside the rule. See Tex. R. Civ. P. 47(c).
Rule 47 requires: (1) a short statement of the claim to give sufficient and fair notice of the claim involved; (2) a statement that the damages sought are within the jurisdictional limits of the court; (3) a statement of the monetary relief sought, and (4) a demand for judgment for all the other relief to which the party deems itself entitled. Tex. R. Civ. P. 47(a)–(d).
The expedited actions process applies in a suit in which all claimants, other than counter-claimants, affirmatively plead that they seek only monetary relief aggregating $100,000 or less, including damages of any kind, penalties, costs, expenses, prejudgment interest, and attorney’s fees. Tex. R. Civ. P. 169(a)(1). The expedited process does not apply to actions filed pursuant to the Texas Family Code, the Property Code, the Tax Code, or to medical liability claims governed by chapter 74 of the Texas Civil Practice and Remedies Code. Tex. R. Civ. P. 169(a)(2).
See part II. in chapter 19 for more information about expedited actions.
In order to plead into the expedited process, a claimant’s pleadings must indicate that the party seeks monetary relief of $100,000 or less, including damages of any kind, penalties, costs, expenses, prejudgment interest, and attorney’s fees. Tex. R. Civ. P. 169(a)(1). The following language may be used to plead into the expedited rules: “Plaintiff intends that discovery be conducted under Level 1 and affirmatively pleads that this suit is governed by the expedited-actions process in Tex. R. Civ. P. 169.”
If additional, nonmonetary relief is pleaded, the case will not be governed by the expedited rules. Tex. R. Civ. P. 169(c)(1)(B). Importantly, a claimant that does not plead as required by section (c) of rule 47 may not conduct discovery until the pleading is amended to comply with rule 47. Tex. R. Civ. P. 47.
§ 14.4:3Special Exceptions in Attempt to Force Pleading into Expedited Action
A defendant that wishes to force a plaintiff into the expedited process may seek to use a special exception. Tex. R. Civ. P. 47. A defendant, out of an abundance of caution, may also wish to have the court rule on any outstanding discovery requests, since a plaintiff may not conduct discovery until he complies with the pleading requirements of rule 47. The following special exception may accomplish this purpose:
Defendant specially excepts to the Plaintiff’s Petition in that it fails to comply with Tex. R. Civ. P. 47 which requires the Plaintiff to identify the amount of damages being sought, and whether Plaintiff seeks only monetary relief. Defendant requests that Plaintiff comply with Tex. R. Civ. P. 47(c) and amend the Petition to identify the amount of damages being sought, and whether Plaintiff seeks only monetary relief. Defendant requests that this special exception be set for hearing and that said special exception be granted. Defendant further requests that the Plaintiff be ordered to not conduct any discovery until the Petition is amended to comply with Tex. R. Civ. P. 47, and that any outstanding discovery requests served by Plaintiff on Defendant, if any, be quashed as untimely under Tex. R. Civ. P. 47.
§ 14.4:4Effect of Mandatory Expedited Action Process on Parties
Since a plaintiff will always be the master of his petition, he will be able to plead in or out of the expedited rules. However, a defendant, even one with counter-claims in excess of $100,000 or a nonmonetary claim, may be forced to try the case under the expedited process unless he can show “good cause.” See Tex. R. Civ. P. 169(a)(1), (c)(1)(A).
§ 14.4:5Removal from Expedited Action Process
A court must remove a suit from the expedited process in two instances. First, a suit must be removed from the expedited process on a showing of “good cause.” Tex. R. Civ. P. 169(c)(1)(A). Second, a court must remove the suit from the expedited process if a claimant, other than a counter-claimant, files a pleading, an amended pleading, or a supplemental pleading that seeks nonmonetary relief. Tex. R. Civ. P. 169(c)(1)(B). The rules do not provide that the parties can opt out of the expedited action process by agreement. The process is mandatory except in the two instances referenced immediately above.
In determining “good cause” to remove a suit from the expedited action process the court should consider factors such as—
1.whether the damages sought by multiple claimants against the same defendant exceed, in the aggregate, the relief allowed under rule 169(a)(1);
2.whether a defendant has filed, in good faith, a compulsory counterclaim that seeks nonmonetary relief;
3.the number of parties and witnesses;
4.the complexity of the legal and factual issues; and
5.whether an interpreter is necessary.
Tex. R. Civ. P. 169, cmt. 3.
Further, a pleading, an amended pleading, or a supplemental pleading that removes a case from the expedited process may not be filed without leave of court unless it is filed the earlier of thirty days after the discovery period is closed (the discovery period opens on filing of suit and closes 180 days after any discovery request of any kind is served on any party) or thirty days before the date set for trial. Tex. R. Civ. P. 169(c)(2), 190.2(b)(1). Leave to amend a pleading may only be granted if good cause outweighs any prejudice to the opposing party. Tex. R. Civ. P. 169(c)(2).
If a suit is removed from the expedited process then discovery must be reopened. Tex. R. Civ. P. 169(c)(3), 190.2(c). Once discovery is reopened, all discovery must be completed within the timeframes set forth in the new discovery control plan ordered by the court (within the limitations provided in Tex. R. Civ. P. 190.3 and 190.4). Any person previously deposed may be redeposed. And, on motion by any party, the court should continue the trial date so that discovery under the new control plan can be completed. Tex. R. Civ. P. 190.2(c).
§ 14.5Allegations about Parties
§ 14.5:1Information to Be Pleaded
The original petition should contain appropriate allegations about the parties, such as—
1.the complete true name and any alias of each individual defendant (see Tex. R. Civ. P. 79);
2.any assumed business name (Tex. R. Civ. P. 28);
3.the name and kind of entity, if any defendant is not an individual;
4.information about any individual who can accept service for any defendant that is not an individual;
5.the name and address of the registered agent for any corporate defendant;
6.the capacity of any defendant (for example, personal representative, receiver) not being sued for his own liability;
7.the residential address of each party (Tex. R. Civ. P. 79);
8.the business address of each defendant; and
9.all other addresses where each defendant might be found, to aid in serving the petition.
Additionally, Tex. Civ. Prac. & Rem. Code § 30.014 requires each party to include partial identification information in its initial pleading in a civil action filed in a district court, county court, or statutory county court. The last three numbers of the party’s driver’s license number (if issued) and the last three numbers of the party’s Social Security number (if issued) must be included. Tex. Civ. Prac. & Rem. Code § 30.014(a). A court may order that an initial pleading be amended to include this information and may find a party in contempt if the party does not amend the pleading as ordered. Tex. Civ. Prac. & Rem. Code § 30.014(b).
§ 14.5:2Purpose and Use of Allegations
Allegations about the parties provide necessary information for service of process. This information should be in the petition instead of a separate letter, because cover letters can easily become separated from the petition. Considered in light of the stated cause of action, party allegations help determine whether jurisdiction and venue are proper. These allegations also establish, for purposes of res judicata and joinder, who is involved in the suit. The plaintiff’s attorney must take care to include all necessary parties, all parties whose liability is sought, and all individuals whose personal liability is sought to satisfy debts of corporate defendants and other such entities. Individual liability for debts of entities is discussed in part II. in chapter 6 of this manual.
§ 14.6Ascertaining Status of Business as Party to Suit
A suit can be maintained only by and against parties who have an actual or legal existence. Ray Malooly Trust v. Juhl, 186 S.W.3d 568, 571 (Tex. 2006). The attorney should therefore ascertain that both his client and the defendant exist as legal entities with the capacity to sue or be sued.
§ 14.6:2Corporations and Limited Liability Companies
A Texas corporation or a foreign corporation authorized to transact business in Texas loses its privilege to file suit if it fails to pay franchise taxes. Tex. Tax Code § 171.252. Limited liability companies are considered corporations for franchise tax purposes. See Tex. Tax Code § 171.002(a). The attorney should call the secretary of state’s office corporations section at 512-463-5555 to determine a corporation’s or limited liability company’s standing. This information is also available online by subscribing to secretary of state’s online SOS-Direct resource. See section 3.22 in this manual for additional information on contacting the secretary of state’s office.
A foreign corporation need not be registered to bring suit in Texas. See Tex. Bus. Orgs. Code § 9.251. This statute also applies to foreign limited liability companies. See part II. in chapter 6 of this manual regarding corporations and limited liability companies.
§ 14.6:3Limited Partnerships and Limited Liability Partnerships
Limited partnerships and limited liability partnerships can lose their privilege to file suit if they fail to file a periodic report required by the Texas Revised Limited Partnership Act. See Tex. Bus. Orgs. Code § 153.307. The attorney should call the secretary of state’s office at 512-463-5555 to determine the standing of a limited partnership or limited liability partnership. See also section 6.9 in this manual regarding limited partnerships and section 6.10 regarding limited liability partnerships.
§ 14.6:4Business Operating under Assumed Name
A business operating under an assumed name must have a properly filed assumed name certificate to bring an action based on a contract or act in which the assumed name was used. Tex. Bus. & Com. Code § 71.201.
§ 14.7Multiple Defendants—Joinder of Parties
A person subject to process must be joined as a party if—
1.complete relief cannot be accorded among the other parties without his joinder, or
2.his interest in the action is such that disposition of the matter in his absence may—
a.subject any other party to a substantial risk of incurring multiple or otherwise inconsistent obligations because of the claimed interest, or
b.impair or impede the unjoined party’s ability to protect his interest as a practical matter.
If a person is indispensable and cannot be made a party, the court must dismiss the cause. In determining whether a party is indispensable, the court will consider, among other matters—
1.the extent to which a judgment rendered without the person’s joinder might be prejudicial to him or to the joined parties;
2.the extent to which this prejudice can be lessened or avoided by including protective provisions in the judgment, by shaping the relief, or by any other measure;
3.whether a judgment rendered without the person’s joinder would be adequate; and
4.whether dismissal for nonjoinder will leave the plaintiff with an adequate remedy.
A party whose presence is truly indispensable is rare; the court can usually adjudicate the dispute between the parties already joined. Indian Beach Property Owners’ Ass’n v. Linden, 222 S.W.3d 682, 698 (Tex. 2007); Cooper v. Texas Gulf Industries, 513 S.W.2d 200, 204 (Tex. 1974). A failure to join “indispensable” parties does not render a judgment void. Browning v. Placke, 698 S.W.2d 362, 363 (Tex. 1985).
Multiple defendants may be joined if—
1.a right to relief is asserted against them jointly, severally, or alternatively;
2.the claimed right arises out of the same transaction, occurrence, or series of transactions or occurrences; and
3.any question of law or fact common to all of them will arise in the action.
A spouse may generally be sued without the other spouse’s joinder. Tex. Fam. Code § 1.105. In a suit to reach joint-management community property, both spouses should be joined, although failure to do so will not render the judgment void, and the judgment will bind the party-spouse. Dr. Donald R. Klein & Associates, M.D., P.A. v. Klein, 637 S.W.2d 507, 508–509 (Tex. 1982); Dulak v. Dulak, 513 S.W.2d 205, 207 (Tex. 1974), overruled by statute as recognized in Stauffer v. Henderson, 801 S.W.2d 858, 868 (Tex. 1990). In a suit to reach community property under one spouse’s sole management and control, it is presumably not fatal to omit the other spouse as a party; in a suit affecting community property, each spouse should be a proper party. See section 27.33 in this manual regarding community and separate property.
§ 14.7:4Joinder of Party to Instrument
An assignor, endorser, or other party not primarily liable on an instrument may be joined in a suit against the principal obligor. Tex. R. Civ. P. 30. A conditionally liable party may be sued without joining the maker or principal obligor if the principal obligor—
1.is a nonresident or resides in a place at which he cannot be reached by ordinary process of law;
2.has an unknown residence that cannot be ascertained by use of reasonable diligence;
3.is dead; or
4.is actually or notoriously insolvent.
Tex. Civ. Prac. & Rem. Code § 17.001(b). A surety cannot otherwise be sued without joinder of his principal. Tex. R. Civ. P. 31. An absolute guarantor, however, can be sued without joining the principal. See section 14.31:1 below regarding guarantors and sureties.
The exceptions to joinder of guarantors and principal obligors cannot be enlarged. An insane maker, therefore, must be joined in a suit against his guarantor. Johnson v. First Mortgage Loan Co., 135 S.W.2d 806, 810–11 (Tex. Civ. App.—Austin 1939, no writ). The plaintiff, however, may sue a comaker singly and may proceed to judgment without joinder of the other comakers, even if the defendant was an accommodation party. It is the defendant’s duty to join other comakers. Reed v. Buck, 370 S.W.2d 867, 873 (Tex. 1963).
§ 14.8:1Entities as Defendants Generally
The petition should name every entity and individual against whom the creditor would impose liability. Rules about names under which various entities, rather than individuals, can or should be named as defendants are discussed in the following sections. A defendant’s entity status should be alleged, and the name, address, and capacity of an individual who can accept service for the entity should be stated. See Reynolds v. Haws, 741 S.W.2d 582, 589 (Tex. App.—Fort Worth 1987, writ denied) (entity not party to suit without being named in pleadings). The petition should name as defendants all individuals (for example, partners, shareholders, directors) against whom personal liability is sought. See Ray Malooly Trust v. Juhl, 186 S.W.3d 568 (Tex. 2006) (holding that a trust is not a legal entity and civil suits may be maintained only by or against parties having an actual or legal existence). Service of process is discussed in chapter 16 of this manual. See forms 14-14 through
14-20 in this chapter for clauses for party designation.
§ 14.8:2Texas Corporation or Limited Liability Company
A corporation or limited liability company should be sued in its corporate name. See Tex. Bus. Orgs. Code § 2.101(1). The statute also applies to nonprofit corporations; see also Tex. Bus. Orgs. Code § 2.109 (professional corporations). A dissolved corporation may be sued in its corporate name within three years after dissolution. Tex. Bus. Orgs. Code § 11.356. The statute also applies to nonprofit corporations and limited liability companies; see Tex. R. Civ. P. 29; see also Tex. Bus. Orgs. Code § 2.109 (professional corporations). If individual liability for directors, shareholders, or members is sought, those individuals must be identified and named as defendants. See part II. in chapter 6 of this manual. See forms 14-14 through 14-20 in this chapter for additional clauses for party designation.
A foreign corporation that is transacting or has transacted business in Texas can be sued in Texas, even if it is not registered to transact business in this state. Tex. Bus. Orgs. Code § 9.051. Allegations pertaining to service on the corporation will vary depending on the status of the corporation’s registration. See chapter 16 in this manual.
Entering into a contract by mail or by other means with a Texas resident is doing business in Texas for the purpose of allowing long-arm jurisdiction, if any part or all of the contract is to be performed in Texas by either party. Also, the act of recruiting Texas residents, directly or through an intermediary located in Texas, for employment inside or outside Texas is deemed doing business in Texas. Tex. Civ. Prac. & Rem. Code § 17.042(3). The petition should allege the specific basis for jurisdiction. The liability of shareholders of a foreign corporation for corporate debts, liabilities, and obligations for which they are not otherwise liable by statute or agreement is governed by the laws of the jurisdiction of incorporation of the foreign corporation. Tex. Bus. Orgs. Code § 1.104.
§ 14.8:4When Corporation Must Be Represented by Attorney
A corporation must be represented in litigation by an attorney. Handy Andy, Inc. v. Ruiz, 900 S.W.2d 739, 741 n.1 (Tex. App.—Corpus Christi 1994, writ denied); Moore v. Elektro-Mobil Technik GmbH, 874 S.W.2d 324, 327 (Tex. App.—El Paso 1994, writ denied); Electronic Data Systems, Inc. v. Tyson, 862 S.W.2d 728, 737 (Tex. App.—Dallas 1993, no writ).
A partnership may be sued in the name of the partnership. Tex. R. Civ. P. 28. All general partners are jointly and severally liable for all obligations of the partnership. Tex. Bus. Orgs. Code § 152.304. A suit against the partnership, with service on one or more partners, authorizes judgment against the partnership and the partner(s) actually served. Tex. Civ. Prac. & Rem. Code § 17.022. See also Tex. Civ. Prac. & Rem. Code § 31.003 (court may render judgment against partnership if suit is against several partners who are jointly indebted under a contract and citation has been served on at least one but not all of the partners); Tex. Bus. Orgs. Code § 152.306(a), (b) (judgment may be entered against partner who has been served in suit against partnership if judgment is obtained against partner and remains unsatisfied for ninety days; exceptions exist). An individual partner who enters an appearance, although not served, will also be subject to individual liability. Bentley Village, Ltd. v. Nasits Building Co., 736 S.W.2d 919, 923 (Tex. App.—Tyler 1987, no writ).
Long-arm jurisdiction can attach to a foreign partnership doing business in Texas (see section 14.8:3 above). See Tex. Civ. Prac. & Rem. Code § 17.042. See forms 14-14 through 14-20 in this chapter for clauses for party designation.
§ 14.8:6Business Operating under Assumed Name
A partnership, private corporation, unincorporated association, or individual doing business under an assumed name may be sued under the assumed name, partnership name, or common name. Tex. R. Civ. P. 28. For clarity, it is the better practice to allege both the assumed name and the name of the partnership, association, individual, or corporation operating under that name. See section 14.9:2 below. A court, in its discretion, may substitute the true name of the defendant in the judgment; the plaintiff is not necessarily required to replead. Trails East v. Mustafa, 713 S.W.2d 422, 424 (Tex. App.—Fort Worth 1986, no writ); but see Bailey v. Vanscot Concrete Co., 894 S.W.2d 757, 760–61 (Tex. 1995) (court declined to substitute correct name of defendant when plaintiff failed to add correct name). See also the discussion in section 17.63:9 in this manual.
A foreign or domestic unincorporated joint-stock company or association doing business in Texas may be sued in its company or distinguishing name without naming its individual stockholders or members. Tex. Rev. Civ. Stat. art. 6133. A nonresident joint-stock company or association may be subject to long-arm jurisdiction if it meets the “doing business” test; see section 16.14 in this manual. See Tex. Civ. Prac. & Rem. Code § 17.042. To obtain personal liability against individual members, it is necessary to also name and serve the individual members as defendants. See Tex. Rev. Civ. Stat. arts. 6136, 6137. Individual liability is discussed at section 6.31 in this manual. See forms 14-14 through 14-20 in this chapter for clauses for party designation.
§ 14.9Party Designations in Caption of Petition
§ 14.9:1Party Designation Generally
The parties’ capacities are not a required part of the caption, but they are often included for clarity. To the extent possible, reasonably complete names should be used. For a sole plaintiff and a sole defendant, the recommended form is set out below.
ACME CORPORATION,
Plaintiff
v.
JOHN L. DOE,
Defendant
An individual, partnership, unincorporated association, or corporation can sue or be sued in an assumed name, but the court or any party may move for substitution of the true name. Tex. R. Civ. P. 28. A person cannot maintain an action or proceeding in any Texas court arising out of a contract or act in which an assumed name was used until an original, new, or renewed business or professional name certificate has been filed. Tex. Bus. & Com. Code § 71.201(a) (formerly Business and Commerce Code section 36.25). See section 14.8:6 above. Because the court clerk may index a pleading or judgment under the names in the caption instead of the introductory paragraph, the recommended form includes both the true name and the assumed name.
ACME CORPORATION,
Plaintiff
v.
JOHN L. DOE, individually and
doing business as
ONE-DAY LAUNDRY,
Defendant
Although not required by rule or statute, listing the names of all parties in the caption ensures that all of them will be indexed in the court records.
ACME CORPORATION,
Plaintiff
v.
JOHN L. DOE, JANE C. DOE,
and RICHARD E. ROE,
Defendants
In the petition and answer, and subsequent amended or supplemental petitions and answers, the parties should be listed by their full names in the caption. In other pleadings if listing all parties would be unduly burdensome, the form set out below is suggested.
ACME CORPORATION,
Plaintiff
v.
JOHN L. DOE, et al.,
Defendants
See Abramcik v. U.S. Home Corp., 792 S.W.2d 822, 824 (Tex. App.—Houston [14th Dist.] 1990, writ denied).
§ 14.10Additional Forms of Party Designation
§ 14.10:1Residences and Identification of Parties
The petition should state the names of the parties and, if known, their addresses. Tex. R. Civ. P. 79. Also, each party must include the last three numbers of his driver’s license number (if issued) and the last three numbers of his Social Security number (if issued) in the initial pleading in a civil action filed in a district court, county court, or statutory county court. Tex. Civ. Prac. & Rem. Code § 30.014(a).
In a petition with multiple defendants a simple listing of the parties is suggested.
Defendants are [name of defendant], individually and doing business as [name of business], who can be served at [address, city, state], and [name of defendant], who can be served at [address, city, state].
Attorneys who store forms electronically may want to add the following clause at the end of the party allegations paragraph to avoid changing Defendant to Defendants throughout the forms:
Unless the context clearly indicates otherwise, the singular noun “Defendant” in this pleading includes all defendants listed above.
§ 14.10:3Plaintiff Using Assumed Name
A plaintiff may sue under an assumed name, but the court or another party may move for substitution of the true name. Tex. R. Civ. P. 28. To sue on a transaction made under an assumed name, a plaintiff must first comply with chapter 71 of the Texas Business and Commerce Code. Tex. Bus. & Com. Code § 71.201 (formerly Business and Commerce Code section 36.25). Recommended language for an individual is set out in clause 14-15-1 in this chapter. See section 14.10:4 below if the assumed name is being used by a corporation.
A corporation should sue in its corporate name and show its corporate status.
Texas Corporation: See clause 14-15-2 in this chapter.
Foreign Corporation Operating in Texas: A foreign corporation cannot bring suit in a Texas court on a cause of action based on a business transaction in the state without being registered to transact business in Texas. See Tex. Bus. Orgs. Code ch. 9, subch. A. This requirement applies to intrastate business, but not to interstate business. Killian v. Trans Union Leasing Corp., 657 S.W.2d 189, 192 (Tex. App.—San Antonio 1983, writ ref’d n.r.e.). See clause
14-15-3.
Foreign Corporation Not Operating in Texas: Foreign corporations not engaged in intrastate business in Texas may bring suit without being registered to transact business. A foreign corporation is not considered to be transacting business in Texas merely by engaging in interstate commerce in this state or by conducting an isolated transaction completed within thirty days. Tex. Bus. Orgs. Code § 9.251 (statute lists other instances of transactions not considered doing business in Texas). See clause 14-15-4.
Corporation Using Assumed Name: See clause 14-15-5.
§ 14.10:5Partnership as Plaintiff
A partnership may sue under its partnership, assumed, or common name, but the court or another party may move for substitution of the true names of the partnership or the partners if an assumed or common name is used. Tex. R. Civ. P. 28.
Partnership with No Partnership, Assumed, or Common Name: See clause 14-15-6 in this chapter.
Partnership Using Partnership (but Not Assumed) Name (for Example, Limited or General Partnership): See clause 14-15-7.
Partnership Using Assumed or Common Name: See clause 14-15-8.
§ 14.10:6Individual as Defendant
Personal service is discussed at section 16.3 in this manual. Out-of-state service on an individual is discussed briefly at section 16.9, and long-arm service is discussed at section 16.14.
Most forms in this manual provide examples of citing an individual Texas resident as a defendant. Other common instances of individuals as defendants are listed in form 14-16 in this chapter.
Nonresident Individual Not Required to Have Registered Agent, Having Texas Resident as Person in Charge of Business (Long-Arm Service): See Tex. Civ. Prac. & Rem. Code § 17.043. See clause 14-16-1.
Nonresident Individual Having Neither Regular Place of Business nor Registered Agent in Texas (Long-Arm Service): See Tex. Civ. Prac. & Rem. Code § 17.044. See clause 14-16-2.
Individual Using Assumed Name: See clause 14-16-3.
Personal Representatives of Deceased Nonresident for Whom Secretary of State Is Agent: If the defendant is a nonresident for whom the secretary of state is an agent for service of process and the defendant dies, the secretary of state remains the agent for a nonresident administrator, executor, or personal representative for the deceased’s estate. See Estate of Pollack v. McMurrey, 858 S.W.2d 388, 391 (Tex. 1991) (holding secretary of state agent for estate, but only for service of process). If the deceased has no administrator, executor, or personal representative, the secretary of state is an agent for service of process on an heir (as determined by the law of the foreign jurisdiction). See Tex. Civ. Prac. & Rem. Code § 17.044(c). If the secretary of state is served with duplicate copies of process as agent for a nonresident administrator, executor, or personal representative, a statement of the person’s name and address will be required by the secretary of state, who will immediately mail a copy of the process to the person. Tex. Civ. Prac. & Rem. Code § 17.045(e).
Guardian of Incompetent Nonresident for Whom Secretary of State Is Agent: If the nonresident for whom the secretary of state is an agent is judged incompetent, the secretary of state remains the agent for that person’s guardian or personal representative. See Tex. Civ. Prac. & Rem. Code § 17.044(d). If the secretary of state is served with duplicate copies of process as agent for a guardian or personal representative, a statement of the person’s name and address will be required by the secretary of state, who will immediately mail a copy of the process to the person. Tex. Civ. Prac. & Rem. Code § 17.045(e).
§ 14.10:7Corporation as Defendant
In some cases a corporation’s liability can be fixed on shareholders or other individuals. Individual liability for corporate debts is discussed in part II. in chapter 6 of this manual. Allegations suitable for those pleadings are beyond the scope of this manual. For brief discussions of service on corporations, see sections 16.11 and 16.12 in this manual. Long-arm service is discussed at section 16.14.
Texas Corporation
Registered Agent. See Tex. Bus. Orgs. Code § 5.201 (business corporations, nonprofit corporations), § 2.109 (professional corporations); see also Tex. Bus. Orgs. Code § 5.255. See clause
14-17-1 in this chapter.
Registered Agent Cannot Be Found. See Tex. Bus. Orgs. Code § 5.251 (business corporations, nonprofit corporations), § 2.109 (professional corporations); see also Tex. Bus. Orgs. Code § 5.255. See clause 14-17-2.
No Registered Agent. Statutory authorities relevant to this situation are the same as those cited above for the situation in which the registered agent cannot be found. See clause 14-17-3.
Foreign Corporation Registered to Transact Business in Texas
For brief discussions of service on foreign corporations operating in Texas, see sections 16.11:3 (business corporations) and 16.12:2 (nonprofit corporations) in this manual.
Registered Agent. See Tex. Bus. Orgs. Code §§ 5.201, 9.001, 9.004, 9.201 (business corporations, nonprofit corporations), § 2.109 (professional corporations); see also Tex. Bus. Orgs. Code § 5.255. See clause 14-17-4.
No Registered Agent. See Tex. Bus. Orgs. Code § 5.251 (business corporations, nonprofit corporations), § 2.109 (professional corporations); see also Tex. Bus. Orgs. Code § 5.255; ch. 9, subch. A. See clause 14-17-5.
Foreign Corporation Not Registered to Transact Business in Texas
For a brief discussion of foreign corporations not required to be registered to conduct some transactions in Texas, see section 16.11:4 in this manual.
Corporation with Person in Charge of Business in Texas (Long-Arm Service). See Tex. Civ. Prac. & Rem. Code §§ 17.043, 17.045, which are discussed at section 16.14. See clause
14-17-6.
No Agent in Texas (Long-Arm Service). See Tex. Civ. Prac. & Rem. Code §§ 17.044, 17.045, which are discussed at section 16.14. See clause 14-17-7.
Corporation Using Assumed Name: See clause 14-17-8.
§ 14.10:8Partnership (including Limited Liability Partnership) as Defendant
Because Tex. R. Civ. P. 99 requires that the citation be directed to the defendant, it is good practice to name the partnership and every partner who may be individually liable and to state his partnership status. Service on any partner authorizes judgment on the partnership. Tex. Civ. Prac. & Rem. Code § 17.022.
Practice Tip: Despite the language of section 17.022, the more cautious practice may be to serve separate citations on the partnership and the partners.
Limited liability partnerships shield partners from certain acts or omissions of other partners or representatives of the partnerships. This subject is discussed in more detail in section 6.10. The partnership should be identified as a limited liability partnership in the petition; otherwise, the rules regarding service on partnerships also apply to limited liability partnerships. See Tex. Bus. Orgs. Code §§ 152.304, 152.802; see also Tex. Bus. Orgs. Code § 5.255.
Texas Partnership
Principal Office in County of Suit. See Tex. Civ. Prac. & Rem. Code §§ 17.022, 31.003, which are summarized at section 16.10 in this manual. See clause 14-18-1 in this chapter.
Agent in County of Suit. See Tex. Civ. Prac. & Rem. Code § 17.021, which is summarized at section 16.10. See clause 14-18-2.
Foreign Partnership (Long-Arm Service)
Partnership with Person in Charge of Business in Texas. See Tex. Civ. Prac. & Rem. Code §§ 17.043, 17.045, which are discussed at section 16.14. See clause 14-18-3.
No Agent in Texas. See Tex. Civ. Prac. & Rem. Code § 17.044, which is discussed at section 16.14. See clause 14-18-4.
Partnership Using Assumed Name: See clause 14-18-5.
§ 14.10:9Limited Partnership as Defendant
Each general partner of a limited partnership, as well as the limited partnership’s registered agent for service of process, may be served. Tex. Bus. Orgs. Code § 5.255. See section 6.9 in this manual regarding the liability of individual limited partners for partnership obligations. Service on limited partnerships is discussed at section 16.10.
Texas Limited Partnership
Principal Office in County of Suit. See Tex. Civ. Prac. & Rem. Code §§ 17.022, 31.003, which are summarized at section 16.10. See clause 14-19-1 in this chapter.
The examples shown in clause 14-19-1 assume that the general partner being served is also a named defendant in the suit. With one service, both the limited partnership and the general partner are served. Tex. Civ. Prac. & Rem. Code § 17.022. Service may also be obtained on the limited partnership through its registered agent for service of process. Tex. Bus. Orgs. Code §§ 5.201, 5.255. If serving the registered agent is advisable (for instance, if no liability is alleged against a general partner), clause 14-17-1 should be used, altering it as appropriate to reflect that the defendant is a limited partnership (there are no presidents or vice-presidents). Serving only the registered agent, however, will not allow a subsequent judgment against a general partner.
Agent in County of Suit. Service on an agent or clerk is authorized in certain circumstances. See Tex. Civ. Prac. & Rem. Code § 17.021, which is summarized at section 16.10, for particulars. See clause 14-19-2.
Foreign Limited Partnership Registered to Transact Business in Texas: See Tex. Bus. Orgs. Code § 5.255; ch. 9, subch. A. See clause 14-19-3.
Foreign Limited Partnership Not Registered to Transact Business in Texas
Partnership with Person in Charge of Business in Texas (Long-Arm Service). See Tex. Civ. Prac. & Rem. Code §§ 17.043, 17.045, which are discussed at section 16.14. See clause 14-19-4.
No Agent in Texas (Long-Arm Service). See Tex. Civ. Prac. & Rem. Code § 17.044, which is discussed at section 16.14. See clause 14-19-5.
Limited Partnership Using Assumed Name: See clause 14-19-6.
§ 14.10:10Association or Joint-Stock Company as Defendant
See the brief discussion of service on these entities at section 16.13:4 in this manual.
Texas Association or Joint-Stock Company: See Tex. Rev. Civ. Stat. art. 6134, which is summarized at section 16.13:4. Members of the association or joint-stock company should be served only if the plaintiff anticipates that a judgment against the defendant organization will be returned without satisfaction and that the plaintiff will then try to reach personal property of the members to satisfy the judgment. See Tex. Rev. Civ. Stat. art. 6137. See clause 14-20-1 in this chapter.
Foreign Association or Joint-Stock Company (Long-Arm Service)
Organization with Person in Charge of Business in Texas. See Tex. Civ. Prac. & Rem. Code §§ 17.043, 17.045, which are discussed at section 16.14. See clause 14-20-2.
No Agent in Texas. See Tex. Civ. Prac. & Rem. Code § 17.044, which is discussed at section 16.14. See clause 14-20-3.
Association or Joint-Stock Company Using Assumed Name: See clause 14-20-4.
§ 14.10:11Limited Liability Company as Defendant
Chapter 5, subchapters E and F, of the Texas Business Organizations Code discuss registered agents and service of process. See also section 14.8:2 above. Service on limited liability companies is discussed at section 16.13:2 in this manual.
Texas Limited Liability Company
Registered Agent. See Tex. Bus. Orgs. Code §§ 5.201, 5.255. See clause 14-21-1 in this chapter.
Registered Agent Cannot Be Found. See Tex. Bus. Orgs. Code §§ 5.251, 5.255. See clause 14-21-2.
No Registered Agent. See Tex. Bus. Orgs. Code §§ 5.251, 5.255. See clause 14-21-3.
Foreign Limited Liability Company Registered to Transact Business in Texas
Registered Agent. See Tex. Bus. Orgs. Code §§ 5.201, 5.255; ch. 9, subch. A. See clause 14-21-4.
No Registered Agent. See Tex. Bus. Orgs. Code §§ 5.251, 5.255; ch. 9, subch. A. See clause 14-21-5.
Foreign Limited Liability Company Not Registered to Transact Business in Texas: The reach of the long-arm statute includes nonresident individuals, foreign corporations, joint-stock companies, associations, and partnerships. Use the language in clause 14-18-3, altering it as appropriate.
Limited Liability Company Using Assumed Name: See clause 14-21-6.
§ 14.10:12Defendant’s Whereabouts Unknown
If the defendant’s whereabouts are unknown, use the following language or alternative language setting forth the particular grounds specified by Tex. R. Civ. P. 109 for service by publication:
The residence of Defendant is unknown and after due diligence Plaintiff and Plaintiff’s counsel have been unable to locate him. Therefore, Plaintiff seeks service of process by publication.
See section 16.16 and forms 16-7 through 16-13 in this manual.
[Sections 14.11 through 14.20 are reserved for expansion.]
§ 14.21Action on Sworn Account
A suit on sworn account is probably the most useful collection procedure available to creditors. A defendant who does not file a proper sworn denial to a properly filed suit on sworn account cannot dispute the accuracy of the stated charges. See Tex. R. Civ. P. 93(10), 185; Vance v. Holloway, 689 S.W.2d 403, 404 (Tex. 1985); Airborne Freight Corp. v. CRB Marketing, Inc., 566 S.W.2d 573, 574–575 (Tex. 1978) (at trial, sworn account constituted prima facie evidence of debt without necessity of formally introducing account into evidence); Huddleston v. Case Power & Equipment Co., 748 S.W.2d 102, 103 (Tex. App.—Dallas 1988, no writ). “Rule 185, is not a rule of substantive law but a rule of procedure regarding the evidence necessary to establish a prima facie case or right to recover.” Rizk v. Financial Guardian Insurance Agency, Inc., 584 S.W.2d 860, 862 (Tex. 1979); Southern Management Services, Inc. v. SM Energy Co., 398 S.W.3d 350, 354 (Tex. App.—Houston [14th Dist.] 2013, no pet.); Hou-Tex Printers, Inc. v. Marbach, 862 S.W.2d 188, 190 (Tex. App.—Houston [14th Dist.] 1993, no writ). However, when the defendant timely files a verified denial of the correctness of the account, the evidentiary effect of the sworn account is destroyed, and the plaintiff must present further proof of his claim. Schum v. Munck Wilson Mandala, LLP, 497 S.W.3d 121, 125 (Tex. App.—Texarkana 2016, no pet.) (citing Woodhaven Partners, Ltd. v. Shamoun & Norman, L.L.P., 422 S.W.3d 821, 833 (Tex. App.—Dallas 2014, no pet.)); Southern Management Services, 398 S.W.3d at 354.
Tex. R. Civ. P. 185 states:
When any action or defense is founded upon an open account or other claim for goods, wares, and merchandise, including any claim for a liquidated money demand based upon written contract or founded on business dealings between the parties, or is for personal service rendered, or labor done or labor or materials furnished, on which a systematic record has been kept, and is supported by the affidavit of the party, his agent or attorney taken before some officer authorized to administer oaths, to the effect that such claim is, within the knowledge of affiant, just and true, that it is due, and that all just and lawful offsets, payments and credits have been allowed, the same shall be taken as prima facie evidence thereof, unless the party resisting such claim shall file a written denial, under oath. A party resisting such a sworn claim shall comply with the rules of pleading as are required in any other kind of suit, provided, however, that if he does not timely file a written denial, under oath, he shall not be permitted to deny the claim, or any item therein, as the case may be. No particularization or description of the nature of the component parts of the account or claim is necessary unless the trial court sustains special exceptions to the pleadings.
It is an extremely broad rule, which includes claims for goods, services, labor or materials furnished, and any claim for liquidated money demand founded on business dealings between the parties, on which a systematic record has been kept. A suit on a sworn account has been used in the following areas:
1.Insurance Premiums. See Bernsen v. Live Oaks Insurance Agency, Inc., 52 S.W.3d 306 (Tex. App.—Corpus Christi 2001, no pet.) (unpaid truck insurance premiums);
2.Freight Services. See Continental Carbon Co. v. Sea-Land Services, Inc., 27 S.W.3d 184 (Tex. App.—Dallas 2000, pet. denied) (ocean freight services);
3.Medical Services. See Solano v. Syndicated Office Systems, 225 S.W.3d 64 (Tex. App.—El Paso 2005, no pet.); Andrews v. East Texas Medical Center-Athens, 885 S.W.2d 264 (Tex. App.—Tyler 1994, no writ);
4.Attorney’s Fees. See Becker-White v. Goodrum, 472 S.W.3d 337 (Tex. App.—Houston [14th Dist.] 2015, pet. denied) (bench trial judgment affirmed for plaintiff on proper sworn account)); Woodhaven Partners, Ltd. v. Shamoun & Norman, L.L.P., 422 S.W.3d 821, 833 (Tex. App.—Dallas 2014, no pet.);
5.Oil & Gas Lease Expenses. See Southern Management Services, Inc. v. SM Energy Co., 398 S.W.3d 350 (Tex. App.—Houston [14th Dist.] 2013, no pet.); Vance v. Holloway, 689 S.W.2d 403 (Tex. 1985);
6.Advertising. See Livingston Ford Mercury, Inc. v. Haley, 997 S.W.2d 425 (Tex. App.—Beaumont 1999, no pet.) (radio advertising); and
7.Staffing Services. See Myan Management Group, L.L.C. v. Adam Sparks Family Revocable Trust, 292 S.W.3d 750 (Tex. App.—Dallas 2009, no pet.).
The sworn account procedure has been held inapplicable to suits on—
1.breach of a lease. See AKIB Construction, Inc. v. Neff Rental, Inc., No. 14-07-00063-CV, 2008 WL 878835, at *2–3 (Tex. App.—Houston [14th Dist.] Apr. 3, 2008, no pet.) (mem. op.) (citing Murphy v. Cintas Corp., 923 S.W.2d 663, 665 (Tex. App.—Tyler 1996, writ denied) (sworn account cannot be based on a lease agreement); Meineke Discount Muffler Shops, Inc. v. Coldwell Banker Property Management Co., 635 S.W.2d 135, 138 (Tex. App.—Houston [1st Dist.] 1982, writ ref'd n.r.e.). But see Baldwin v. Liberty Leasing Co., No. 05-99-00267-CV, 2000 WL 781430, at *1–2 (Tex. App.—Dallas June 20, 2000, pet. denied) (not designated for publication) (applying Tex. R. Civ. P. 185 in the context of an action for liquidated money demand based on written contract for lease of medical equipment);
2.transactions resting on a special contract. See Meaders v. Biskamp, 316 S.W.2d 75, 78 (Tex. 1958) (contract for sale of real estate not sworn account in claim for attorney’s fees). But see Carr Well Service, Inc. v. Skytop Rig Co., 582 S.W.2d 500, 502 (Tex. Civ. App.—El Paso 1979, writ ref’d n.r.e.) (action on special contract can be brought as sworn account if transaction is among types listed in Tex. R. Civ. P. 185);
3.transactions between third parties or parties who are strangers to the transaction. See Tandan v. Affordable Power, L.P., 377 S.W.3d 889, 894–95 (Tex. App.—Houston [14th Dist.] 2012, no pet.) (plaintiff failed to produce evidence other than sworn account that defendant was party to transaction); American Alloy Steel, Inc. v. Armco, Inc., 777 S.W.2d 173, 178 (Tex. App.—Houston [14th Dist.] 1989, no writ) (purchaser of goods sued seller but submitted sworn account based on contract for sale of goods to subsequent buyer) See generally Lee v. McCormick, 647 S.W.2d 735 (Tex. App.—Beaumont 1983, no writ));
4.promissory notes. Hou-Tex Printers, Inc. v. Marbach, 862 S.W.2d 188, 190 (Tex. App.—Houston [14th Dist.] 1993, no writ). However, it is arguable that a note is within rule 185 as a liquidated claim based on written contract between the parties on which a systematic record has been kept. See Baldwin, 2000 WL 781430 at *1–2; and
5.credit card debt. See Williams v. Unifund CCR Partners Assignee of Citibank, 264 S.W.3d 231, 234 (Tex. App.—Houston [1st Dist.] 2008, no pet.) (credit card debt not sworn account); Tully v. Citibank (South Dakota), N.A., 173 S.W.3d 212 (Tex. App.—Texarkana 2005, no pet.) (same); Bird v. First Deposit National Bank, 994 S.W.2d 280, 282 (Tex. App.—El Paso 1999, pet. denied) (same). However, if the account is based on a merchant-seller’s credit card, rather than a bank’s credit card, the sworn account rule appears to include such claims. Williams, 264 S.W.3d at 234–35 (citing Bird, 994 S.W.2d at 282).
The elements of a sworn account are that—
1.the sale and delivery of merchandise or performance of services;
2.amount of the account is “just,” i.e., the prices charged are pursuant to an express agreement, or in the absence of an agreement, that the charges are usual, customary, or reasonable; and
3.the outstanding amount remains unpaid.
Ellis v. Reliant Energy Retail Services, L.L.C., 418 S.W.3d 235, 246 (Tex. App.—Houston [14th Dist.] 2013, no pet.) (citing PennWell Corp. v. Ken Associates, 123 S.W.3d 756, 766 (Tex. App.—Houston [14th Dist.] 2003, pet. denied)).
§ 14.21:4Plaintiff’s Pleadings
A sworn account petition is at form 14-1 in this chapter. A sworn account must be supported by the affidavit of the party, his agent, or his attorney. See form 14-2. This affidavit must state that within the affiant’s knowledge—
1.the claim is just and true;
2.the claim is due; and
3.all just and lawful offsets, payments, and credits have been allowed.
A single affidavit, properly prepared, documented, and executed, can support both a sworn account petition and a subsequent summary judgment motion. The basic sworn account affidavit is at form 14-2 in this chapter. This affidavit may be combined with the requirements of a business records affidavit as set out in Tex. R. Evid. 902(10). The supporting documentation should be sufficiently itemized and explained so that the judge can ascertain the date and nature of the transaction or payment history. If necessary, a key or explanation of invoicing or billing should be attached to the pleading. See Price v. Pratt, 647 S.W.2d 756, 757 (Tex. App.—Corpus Christi 1983, no writ) (undefined and unexplained abbreviations on business records did not support sworn account). If the supporting documentation does not sufficiently describe the nature of the component parts of the account or claim, the defendant can specially except to the pleadings. Tex. R. Civ. P. 185; see also Southern Management Services, Inc. v. SM Energy Co., 398 S.W.3d 350, 355 (Tex. App.—Houston [14th Dist.] 2013, no pet.) (pleading was sufficient when it contained list of invoices but not actual invoices and defendant did not specially except or lack of specificity); Willie v. Donovan & Watkins, Inc., No. 01-00-01039-CV, 2002 WL 537682, at *2 (Tex. App.—Houston [1st Dist.] Apr. 11, 2002, no pet.) (not designated for publication) (finding that pleading was sufficient when invoices were attached and trial court denied special exceptions).
The affidavit can be signed by the party, his agent, or his attorney, as long as it is executed by someone with personal knowledge of the matters stated. The creditor’s attorney should exercise extreme caution in signing a sworn account affidavit, because personal knowledge is required. See section 19.17:3 in this manual, and Tex. Disciplinary Rules Prof’l Conduct R. 3.03.
Normally, a statement of account or invoice copies, if not voluminous, are referenced in the sworn account affidavit. The attorney should review any attachments carefully from a defense perspective. Do the attachments raise issues as to the correct party? Does the statement balance match the petition? Do the attachments raise usury issues?
§ 14.21:5Defendant’s Pleadings
A party resisting a sworn claim must timely file a written denial, under oath, that complies with the general rules of pleading that are required in any other kind of suit. If he fails to file a proper denial, he will not be permitted to deny the claim on the account in its entirety or to deny any item that is a part of it. Tex. R. Civ. P. 185. The filing of a proper verified denial by the defendant destroys the evidentiary effect of the plaintiff’s itemized account and forces the plaintiff to prove his case at common law. Worley v. Butler, 809 S.W.2d 242 (Tex. App.—Corpus Christi 1990, no writ); Nichols v. William A. Taylor, Inc., 662 S.W.2d 396, 398 (Tex. App.—Corpus Christi 1983, no writ) (citing Rizk v. Financial Guardian Insurance Agency, Inc., 584 S.W.2d 860 (Tex. 1979); Crawford v. Pullman, Inc., 630 S.W.2d 377 (Tex. App.—Houston [14th Dist.] 1982, no writ)).
The written denial, under oath, must appear in the defendant’s answer. An affidavit filed in op-position to the motion for summary judgment will not constitute a proper denial of the sworn account. Boodhwani v. Bartosh, No. 03-02-00432-CV, 2003 WL 743854, at *1 (Tex. App.—Austin Mar. 6, 2003, no pet.) (citing Cooper v. Scott Irrigation Construction, Inc., 838 S.W.2d 743 (Tex. App.—El Paso 1992, no writ); Rush v. Montgomery Ward, 757 S.W.2d 521 (Tex. App.—Houston [14th Dist.] 1988, writ denied); Zemaco, Inc. v. Navarro, 580 S.W.2d 616, 620 (Tex. Civ. App.—Tyler 1979, writ dism’d w.o.j.)).
Sworn General Denial Insufficient: A sworn denial of “each and every allegation” of a petition, demanding “strict proof thereof,” is a general denial that cannot meet the requirements of Tex. R. Civ. P. 93(10) and 185. Huddleston v. Case Power & Equipment Co., 748 S.W.2d 102, 102–04 (Tex. App.—Dallas 1988, no writ); see also Cooper v. Scott Irrigation Construction, Inc., 838 S.W.2d 743, 746 (Tex. App.—El Paso 1992, no writ) (statement in defendant’s affidavit that “cost of repairs and the loss to my 1990 cotton crop far exceed any amount otherwise due and owing for the pipeline system” was not sufficient as sworn denial of account).
Broad, Generalized Sworn Denial Insufficient: “The defendant’s written denial must state more than a broad generalization that he ‘specifically denies’ the sworn account allegations; instead, the verified affidavit must address the facts on which the defendant intends to rebut the plaintiff’s affidavit.” Woodhaven Partners, Ltd. v. Shamoun & Norman, L.L.P., 422 S.W.3d 821, 833 (Tex. App.—Dallas 2014, no pet.) (quoting Andrews v. East Texas Medical Center-Athens, 885 S.W.2d 264, 267 (Tex. App.—Tyler 1994, no writ)).
Amended Sworn Account Requires Amended Sworn Denial: When an amended sworn account substantially differs from the original, the party resisting the account must file another sworn denial. See Southern Management Services, Inc. v. SM Energy Co., 398 S.W.3d 350, 356 (Tex. App.—Houston [14th Dist.] 2013, no pet.) (plaintiff-creditor filed amended sworn account with new invoices and credits that reduced balance by approximately $50,000; defendant did not file a sworn denial of the amended account; summary judgment for creditor affirmed).
Affirmative Defenses: Even without a proper sworn denial of account, a debtor may still present affirmative defenses. See Rizk v. Financial Guardian Insurance Agency, Inc., 584 S.W.2d 860, 863 (Tex. 1979) (failure of consideration and statute of limitations could be raised in the absence of verified denial).
Statute of Limitations: Actions on sworn account must be brought not later than four years after the day the cause of action accrued. Tex. Civ. Prac. & Rem. Code § 16.004(c). The cause of action accrues on the day that the dealings in which the parties were interested together cease. Tex. Civ. Prac. & Rem. Code § 16.004(c). See Kaldis v. Crest Financial, 463 S.W.3d 588, 596 (Tex. App.—Houston [1st Dist.] 2015, no pet.) (cause of action accrued no earlier than when account was charged off and closed); Bank of America v. Jeff Taylor LLC, 358 S.W.3d 848, 854 (Tex. App.—Tyler 2012, no pet.); Livingston Ford Mercury, Inc. v. Haley, 997 S.W.2d 425, 429 (Tex. App.—Beaumont 1999, no pet.) (jury finding of open account; stipulation between the parties that open account was not subject to limitations defense).
Practice Tip: Accounts referred with charges over four years old do not give rise to the defense of statute of limitations if there are transactions on the account that are less than four years old. See Tex. Civ. Prac. & Rem. Code § 16.004(c); Kaldis, 463 S.W.3d at 596; Childs v. Taylor Cotton Oil Co., 612 S.W.2d 245, 248–50 (Tex. Civ. App.—Tyler 1981, writ ref’d n.r.e.) (in sworn account suit between two merchants with ten-year history of transactions, court applied predecessor statute to Tex. Civ. Prac. & Rem. Code § 16.004(c) to find four-year limitations period applied and did not commence until cessation of dealings together).
“Stranger to the Transaction” Defense: If defendant is not named on the invoice or statement as named in the petition, the suit may be subject to the “stranger to the transaction” defense. “When the plaintiff’s evidence fails to identify the defendant as the debtor on the account, ‘the sworn account is not considered as prima facie proof of the debt.’” Tandan v. Affordable Power, L.P., 377 S.W.3d 889, 894–95 (Tex. App.—Houston [14th Dist.] 2012, no pet.) (statement attached to petition named defendant and another company, raised fact question as to which company was indebted; sworn denial not required to controvert account) (citing Sundance Oil Co. v. Aztec Pipe & Supply Co., Inc., 576 S.W.2d 780 (Tex. 1978)). If the name on an invoice is not defendant’s legal name, consider pleading that defendant does business under the assumed name. The assumed name is established if defendant does not file a verbal denial. See Tex. R. Civ. P. 93(14).
Payment: Rule 95 of the Texas Rules of Civil Procedure states: “When a defendant shall desire to prove payment, he shall file with his plea an account stating distinctly the nature of such payment, and the several items thereof; failing to do so, he shall not be allowed to prove the same, unless it be so plainly and particularly described in the plea as to give the plaintiff full notice of the character thereof.” Tex. R. Civ. P. 95. If the defendant fails to provide an account, or to precisely identify the payments in its pleading, the payment evidence is inadmissable. See Sage Street Associates v. Northdale Construction Co., 863 S.W.2d 438, 443–44 (Tex. 1993) (defendant’s general pleading regarding “payments to subcontractors and suppliers” failed to satisfy the rule).
§ 14.22Action on Written Contract
The elements of a cause based on a written debt or contract are that—
1.there was a valid agreement;
2.the plaintiff performed or tendered performance;
3.the defendant breached; and
4.the plaintiff suffered damages.
Tamuno Ilfiesimama v. Haile, No. 01-15-00829-CV, 2017 WL 1173885, at *7 (Tex. App.—Houston [1st Dist.] Mar. 30, 2017, pet. denied); Woodhaven Partners, Ltd. v. Shamoun & Norman, L.L.P., 422 S.W.3d 821, 837 (Tex. App.—Dallas 2014, no pet.); Hussong v. Schwan’s Sales Enterprises, Inc., 896 S.W.2d 320, 326 (Tex. App.—Houston [1st Dist.] 1995, no writ); see also Valero Marketing & Supply Co. v. Kalama International, L.L.C., 51 S.W.3d 345, 351 (Tex. App.—Houston [1st Dist.] 2001, no pet.) (summary judgment in favor of defendant-seller in breach-of-contract case was proper where plaintiff did not prove he tendered performance). For a petition for a suit on a written contract, see form 14-3 in this chapter. Suits on specific kinds of written agreements—for example, promissory notes and leases—are discussed in subsequent sections of this chapter.
The plaintiff’s petition should plead every essential, material part of the contract. See Valero Marketing & Supply Co. v. Kalama International, L.L.C., 51 S.W.3d 345, 351 (Tex. App.—Houston [1st Dist.] 2001, no pet.) (defendant’s no evidence summary judgment granted; no evidence that plaintiff tendered performance under the contract). If the contract is available and reproducible, a copy may be attached to the petition and incorporated into it by reference. See Tex. R. Civ. P. 59. The attached exhibit will fill in any gaps in the pleadings. The contract will prove itself unless its execution or authority is specifically denied by sworn denial. Tex. R. Civ. P. 93(7); see Rockwall Commons Associates, Ltd. v. MRC Mortgage Grantor Trust I, 331 S.W.3d 500, 506 (Tex. App.—El Paso 2010, no pet.) (in failing to file verified denials as to execution of written instruments, and in failing to file verified denial of assignment of any of those instruments, defendants admitted validity of instruments and their assignments). If the original instrument cannot be produced because it has been lost or destroyed, the contents of the agreement can be proved by the oral testimony of witnesses even if the defendant objects that the testimony violates the best-evidence rule. See Tex. Bus. & Com. Code § 3.309(a); Briscoe v. Goodmark Corp., 130 S.W.3d 160 (Tex. App.—El Paso 2003, no pet.) (allowing oral testimony under Tex. Bus. & Com. Code § 3.309(a) about terms of lost promissory notes) (citing Hayes v. Bouligny, 420 S.W.2d 800, 802 (Tex. Civ. App.—Corpus Christi 1967, no writ). See also Tex. R. Evid. 1001–1008 for proof of contents of writings.
§ 14.22:3Performance of Contract by Plaintiff
The plaintiff must plead and prove that he has performed or tendered his obligations under the contract. See Krayem v. USRP (PAC), L.P., 194 S.W.3d 91, 94 (Tex. App.—Dallas 2006, pet. denied); Valero Marketing & Supply Co. v. Kalama International, L.L.C., 51 S.W.3d 345, 351–54 (Tex. App.—Houston [1st Dist.] 2001, no pet.).
§ 14.22:4Breach of Contract by Defendant
A petition must plead the defendant’s breach of contract. Hussong v. Schwan’s Sales Enterprises, Inc., 896 S.W.2d 320, 326 (Tex. App.—Houston [1st Dist.] 1995, no writ). “Breach” has been defined, in part, as the failure to perform any promise which forms a whole or part of any agreement, including the refusal of a party to recognize the existence of an agreement or the doing of something inconsistent with its existence. DeSantis v. Wackenhut Corp., 732 S.W.2d 29, 34 (Tex. App.—Houston [14th Dist.] 1987), aff’d in part, rev’d in part on other grounds, 793 S.W.2d 670 (Tex. 1990). See also Norsworthy v. American Lease Plan, 447 S.W.2d 768, 770 (Tex. Civ. App.—Houston [14th Dist.] 1969, no writ) (allegation that certain amount was due and owing was not sufficient allegation that defendant breached lease agreement; summary judgment for plaintiff reversed).
“Whether a party has breached a contract is a question of law for the judge, not a question of fact for the jury.” Lafarge Corp. v. Wolff, Inc., 977 S.W.2d 181, 186 (Tex. App.—Austin 1998, pet. denied) (citing Garza v. Southland Corp., 836 S.W.2d 214, 219 (Tex. App.—Houston [14th Dist.] 1992, no writ)). “When the evidence is undisputed regarding a person’s conduct under a contract, the court as a matter of law determines whether the conduct shows performance or breach of a contract obligation.” Lafarge Corp., 977 S.W.2d at 186.
A written contract presumes consideration for its execution. Burges v. Mosley, 304 S.W.3d 623, 628 (Tex. App.—Tyler 2010, no pet.); Doncaster v. Hernaiz, 161 S.W.3d 594, 603 (Tex. App.—San Antonio 2005, no pet.). See also Simpson v. MBank Dallas, N.A., 724 S.W.2d 102, 107 (Tex. App.—Dallas 1987, writ ref’d n.r.e.) (guaranty was written, signed by guarantor, and recited that it was executed “for value received”; therefore, the guaranty presumed consideration, and the burden was on guarantor to plead and prove the absence of consideration). Lack or failure of consideration must be specifically pleaded by verified pleading. Tex. R. Civ. P. 93(9).
§ 14.22:6Proving Charges for Services by Affidavit
The necessity and reasonableness of charges for services may be proved by affidavit. This affidavit may not be used in a sworn account action. See Tex. Civ. Prac. & Rem. Code § 18.001.
§ 14.22:7Statute of Limitations—Written Contracts Generally
Actions for debt, whether on written or oral contracts, must be brought not later than four years after the day the cause of action accrued. Tex. Civ. Prac. & Rem. Code § 16.004(a)(3). “Cause of action” means the right to institute suit. Moreno v. City of El Paso, 71 S.W.3d 898, 900 (Tex. App.—El Paso 2002, pet. denied), (citing Flores v. Lively, 818 S.W.2d 460, 461 (Tex. App.—Corpus Christi 1991, writ denied).
In applying the limitation statutes, a cause of action is generally said to accrue “when the wrongful act affects an injury, regardless of when the plaintiff learned of such injury.” An exception to the general rule is known as the discovery rule, which tolls the running of the limitations period until the time the injured party discovers or through the use of reasonable care and diligence should have discovered the injury. Enterprise-Laredo Associates v. Hachar’s, Inc., 839 S.W.2d 822, 837 (Tex. App.—San Antonio 1992, writ denied) (citing Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 351 (Tex. 1990)); El Paso Associates, Ltd. v. J.R. Thurman & Co., 786 S.W.2d 17, 20 (Tex. App.—El Paso 1990, no writ). “Some contract breaches may be inherently undiscoverable and objectively verifiable. But those cases should be rare, as diligent contracting parties should generally discover any breach during the relatively long four-year limitations period provided for such claims.” Via Net v. TIG Insurance Co., 211 S.W.3d 310, 315 (Tex. 2006). See also Taub v. Houston Pipeline Co., 75 S.W.3d 606, 618–20 (Tex. App.—Texarkana 2002, pet. denied) (discovery rule did not extend limitations on oil and gas contract because injury was not “inherently undiscoverable”).
§ 14.22:8Statute of Limitations—Actions by or against Carriers for Hire
An action brought by a carrier of property for hire to recover its charges, or an action against a carrier for recovery of an overcharge, must be brought not later than three years from the day the cause of action accrued. Tex. Civ. Prac. & Rem. Code § 16.006(a), (b). If a person has presented a written claim for overcharges within the three-year period, the limitations period for the claimant is extended for six months from the date written notice is given by the carrier to the claimant of the disallowance of the claim, in whole or in part, as specified in the carrier’s notice. Tex. Civ. Prac. & Rem. Code § 16.006(c). If the carrier either brings an action to recover charges relating to the service provided or, without beginning an action, collects charges relating to that service, the limitations period is extended for ninety days from the day the action is begun or the charges are collected. Tex. Civ. Prac. & Rem. Code § 16.006(d).
§ 14.22:9Statute of Limitations—Sale of Goods
An action for breach of contract for a sale of goods must be commenced within four years after the cause accrued unless the parties, by the original agreement, reduce the period of limitations to not less than one year. Tex. Bus. & Com. Code § 2.725(a). See also Buck v. Acme Brick Co., 666 S.W.2d 276, 277 (Tex. App.—Beaumont 1984, no writ) (holding that four-year limitations period applied to sale of bricks).
The elements of an action on a contract are the same whether the contract is oral or written. See section 14.22:1 above for a list of the elements. A plaintiff trying to recover on an oral debt or contract may encounter problems, such as a shorter limitations period (see part III. in chapter 17 of this manual), a statute of frauds defense (see section 17.13), and proof of the existence of the contract or its material terms. The plaintiff will also have to plead and prove consideration. Okemah Construction, Inc. v. Barkley-Farmer, Inc., 583 S.W.2d 458, 460 (Tex. Civ. App.—Houston [1st Dist.] 1979, no writ).
If the suit is based on services rendered by the plaintiff, the attorney should consider using the affidavit described in section 14.22:6 above. For a petition for a suit on an oral debt, see form 14-4 in this chapter.
§ 14.23:2Statute of Limitations
See sections 14.22:7 and 14.22:9 above.
§ 14.24Action on Revolving Credit Account
The elements of an action on a revolving credit account are the same as for any other kind of contract; see section 14.22:1 above. The El Paso court of appeals has held that a line of credit issued by a financial institution does not create the sort of debtor-creditor relationship required to bring suit as a sworn account under Tex. R. Civ. P. 185 because no title to personal property passes from the bank to the cardholder. Bird v. First Deposit National Bank, 994 S.W.2d 280, 282 (Tex. App.—El Paso 1999, pet. denied). However, in Bird the court did not reach the issue of whether a credit card issued directly by a provider of goods or services, such as a gasoline card or department store card, would be subject to collection by a suit on sworn account. This decision was followed by the Houston court of appeals. Williams v. Unifund CCR Partners Assignee of Citibank, 264 S.W.3d 231, 234 (Tex. App.—Houston [1st Dist.] 2008, no pet.) (holding that a credit card issued by a financial institution is a special contract that does not create the sort of debtor-creditor relationship to bring a claim within the scope of Tex. R. Civ. P. 185). If an action on a sworn account is not available, it may be possible to prove the necessity and reasonableness of charges for services by an affidavit. See Tex. Civ. Prac. & Rem. Code § 18.001.
Consumer credit transactions, that is, credit sales of goods or services intended for personal, family, or household use and not for business or commercial purposes, are governed by the Texas Finance Code and by various federal statutes and regulations. Consumer retail credit transactions are subject to numerous, strict requirements for disclosure and finance charge limits, and the creditor’s attorney should review those statutes before filing suit to determine whether potential liability against the creditor exists. The Texas Debt Collection Practices Act and the federal Fair Debt Collection Practices Act should also be reviewed carefully. See parts II. and III. in chapter 2 of this manual for a discussion of these Acts.
See form 14-5 in this chapter for a petition for suit on a revolving credit account and form 14-6 for a petition for suit on a retail installment contract. With respect to retail installment contracts, note that the creditor cannot accelerate the maturity of any part or all of the amount owed under such a contract unless the contract provides for acceleration and either the debtor is in default under any of his obligations or the creditor believes in good faith that the prospect of payment is impaired. See Tex. Fin. Code § 345.062.
§ 14.24:2Statute of Limitations
See sections 14.22:7 and 14.22:9 above.
To collect on a promissory note as a matter of law, the holder or payee must establish that—
1.there is a note;
2.the plaintiff is the legal owner and holder of the note;
3.the defendant is the maker of the note; and
4.a certain balance is due and owing.
Kaspar v. Patriot Bank, No. 05-10-01530-CV, 2012 WL 2087182, at *2 (Tex. App.—Dallas June 8, 2012, no pet.) (mem. op.) (citing Blankenship v. Robins, 899 S.W.2d 236, 238 (Tex. App.—Houston [14th Dist.] 1994, no writ)). An action on a note is usually one of the easiest cases to try. Normally the plaintiff will introduce the original of the note, which will entitle him to a judgment unless the defendant establishes a defense. See, e.g., Clark v. Dedina, 658 S.W.2d 293, 296 (Tex. App.—Houston [1st Dist.] 1983, writ dism’d) (introduction of note in evidence makes prima facie case for holder, where execution of note has not been denied under oath); see also Tex. Bus. & Com. Code § 3.308. For a petition for a suit on a note, see form 14-7 in this chapter.
§ 14.25:2Execution and Delivery
Denial of execution of a written instrument must be verified, or the note will be received in evidence as fully proved. Tex. R. Civ. P. 93(7); see also Vince Poscente International, Inc. v. Compass Bank, 460 S.W.3d 211, 215–16 (Tex. App.—Dallas 2015, no pet.) (in absence of verified denial of signature, promissory notes received into evidence as fully proved); Wheeler v. Security State Bank, N.A., 159 S.W.3d 754, 756–57 (Tex. App.—Texarkana 2005, no pet.) (same).
§ 14.25:3Persons Entitled to Enforce Note
Persons entitled to enforce a note include a holder of a note, a nonholder in possession of an instrument with the rights of a holder, and a person not in possession of a note who is entitled to enforce it because the instrument was lost, stolen, destroyed, or paid by mistake. See Tex. Bus. & Com. Code §§ 3.301, 3.309. A party who fails to qualify as a “holder” for lack of an endorsement may still prove that it owns the note. See Martin v. New Century Mortgage Co., 377 S.W.3d 79, 84–85 (Tex. App.—Houston [1st Dist.] 2012, no pet.) (ownership established through common-law assignment rather than negotiation).
If the petition alleges that the action is based on a written instrument, it is unnecessary to plead the existence or nature of the consideration; failure or lack of consideration is purely a defensive matter that must be raised by verified answer under Tex. R. Civ. P. 93(9). “All written contracts, including guaranty agreements, are presumed, at the outset, to be supported by consideration.” Cortez v. National Bank of Commerce of Brownsville, 578 S.W.2d 476, 479 (Tex. Civ. App.—Corpus Christi 1979, writ refused n.r.e.).
If the note is introduced in evidence and the date for payment has passed, maturity should be apparent on its face. See Tex. Civ. Prac. & Rem. Code § 16.036(d); The Cadle Co. v. Butler, 951 S.W.2d 901, 909 (Tex. App.—Corpus Christi 1997, no writ) (deed of trust executed as single instrument in combination with promissory note, but containing no maturity date, had the same maturity date as promissory note). If maturity or liability depends on a condition, the plaintiff should allege and prove the happening of the contingency or the performance or occurrence of the agreed condition. See section 14.25:7; Tex. R. Civ. P. 54; Wakefield v. Ayers, No. 01-14-00648-CV, 2016 WL 4536454, at *10 (Houston [1st Dist.] Aug. 30, 2016, no pet.) (“A party seeking to recover under a contract bears the burden of proving that all conditions precedent have been satisfied.”) (citing Associated Indemnity Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 283 (Tex. 1998)).
See section 2.111 in this manual for a discussion of acceleration.
The creditor should allege in its petition that all conditions precedent with respect to the claim have been performed or have occurred. The debtor will then be required to specifically deny the performance or occurrence of the conditions precedent. See Tex. R. Civ. P. 54. A denial stating merely that the debtor denies that all conditions precedent to the satisfaction of the claim have been satisfied and demanding strict proof with respect to those conditions is not a sufficient denial. See Miller v. University Savings Ass’n, 858 S.W.2d 33, 36 (Tex. App.—Houston [14th Dist.] 1993, writ denied) (proof of notice of intent to accelerate was waived by guarantor’s failure to specifically deny creditor’s conditions precedent pleading); see also Hill v. Thompson & Knight, 756 S.W.2d 824, 825–26 (Tex. App.—Dallas 1988, no writ) (where creditor pleaded that all conditions precedent had been met, debtor’s failure to specifically deny fulfillment of any conditions precedent removed burden of creditor from proving conditions precedent had been met).
The negotiability of an instrument is a question of law. Ward v. Stanford, 443 S.W.3d 334, 343 (Tex. App.—Dallas 2014, pet. denied) (citing FFP Marketing Co. v. Long Lane Master Trust IV, 169 S.W.3d 402, 408–09 (Tex. App.—Fort Worth 2005, no pet.). If the suit is between the payee and the maker of the note, it is unimportant whether the note is negotiable or nonnegotiable. If the note has been transferred, concepts of negotiability, real and personal defenses, and holder in due course become relevant. See section 2.112 in this manual regarding holder in due course.
§ 14.25:9Secondary Liability of Endorser
To hold an endorser liable on a negotiable instrument, the plaintiff must additionally plead endorsement, presentment, and dishonor. See Tex. Bus. & Com. Code §§ 3.415, 3.502, 3.503. These requirements can be waived in the note or by other means. See Tex. Bus. & Com. Code § 3.504.
§ 14.25:10Statute of Limitations—Note Payable at Definite Time
The limitation period for a negotiable note payable at a definite time is six years from the due date stated in the note or, if accelerated, from the date of acceleration. Tex. Bus. & Com. Code § 3.118(a). A note is “payable at a definite time” if it is payable (1) on elapse of a definite period of time after sight or acceptance; (2) on a fixed date or dates; or (3) at a time or times readily ascertainable at the time the promise or order is issued, all subject to rights of prepayment, acceleration, extension at the holder’s option, or extension to a further definite time at the option of the maker or acceptor or automatically on or after a specified act or event. Tex. Bus. & Com. Code § 3.108(b).
When a note payable at a definite time is not negotiable, the applicable statute of limitations is four years. See Guniganti v. Kalvakuntla, 346 S.W.3d 242, 247–48 (Tex. App.—Houston [14th Dist.] 2011, no pet.) (six-year limitations statute did not apply because note was determined to be nonnegotiable).
§ 14.25:11Statute of Limitations—Demand Note
For a negotiable demand note, the limitation period is six years after demand. If no demand is made, the action is barred if neither principal nor interest is paid for a continuous period of ten years. Tex. Bus. & Com. Code § 3.118(b). A demand note is one that is payable on demand or at sight, that otherwise indicates that it is payable at the will of the holder, or that does not state any time for payment. Tex. Bus. & Com. Code § 3.108(a).
When a demand note is not negotiable, the applicable statute of limitations is four years. See Guniganti v. Kalvakuntla, 346 S.W.3d 242, 247–48 (Tex. App.—Houston [14th Dist.] 2011, no pet.) (six-year limitations statute did not apply because note was determined to be nonnegotiable).
§ 14.25:12Statute of Limitations—Other Commercial Paper
A variety of other limitations statutes exist for negotiable instruments, including unaccepted drafts, accepted drafts, certified checks, teller’s checks, cashier’s checks, traveler’s checks, and certificates of deposit. See Tex. Bus. & Com. Code § 3.118(c)–(f).
§ 14.26Action on Lease of Personal Property
Leases of personal property are governed by either Tex. Bus. & Com. Code §§ 2A.101–.532 or the common law of bailments for hire. See Franklin v. Jackson, 847 S.W.2d 306, 308 (Tex. App.—El Paso 1992, writ denied) (lease of personal property is a form of a bailment for hire). UCC article 2A governs leases of “goods,” which are defined as all things that are moveable at the time of identification to the lease contract or are fixtures. “Goods” includes the unborn young of animals, but does not include money, documents, instruments, accounts, chattel paper, general intangibles, or minerals or the like, including oil and gas, before extraction. Tex. Bus. & Com. Code § 2A.103(a)(8).
A lease is a “transfer of the right to possession and use of goods for a term in return for consideration.” A sale, including a sale on approval or a sale or return, or retention or creation of security interest, is not a lease. Tex. Bus. & Com. Code § 2A.103(a)(10).
§ 14.26:3Lease Intended as Security Agreement
A further distinction exists between a true lease and a lease intended as a security agreement. A true lease is one in which the lessor retains title to the property and therefore generally prevails against the lessee’s creditors. A lease intended as security is one in which the lessor retains a security interest by reserving title until the lessee performs his obligations. See Tex. Bus. & Com. Code §§ 1.201(b)(35), 1.203. Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case. Tex. Bus. & Com. Code § 1.203(a). See, e.g., Federal Sign & Signal Corp. v. Berry, 601 S.W.2d 137, 139 (Tex. Civ. App.—Austin 1980, no writ) (fact that final payment was nominal consideration supported determination that lease was inteded as security agreement).
If the lease provides on its face that, on compliance with its terms, the lessee becomes owner of the property, it is deemed as a matter of law to be intended for security. Excel Auto & Truck Leasing LLP v. Alief Independent School District, 249 S.W.3d 46, 51 (Tex. App.—Houston [1st Dist.] 2007, pet. denied) (citing In re Triplex Marine Maintenance, Inc., 258 B.R. 659 (Bankr. E.D. Tex. Nov. 13, 2000)); Superior Packing, Inc. v. Worldwide Leasing & Finance, Inc., 880 S.W.2d 67, 71 (Tex. App.—Houston [14th Dist.] 1994, writ denied) (citing the previous version of Tex. Bus. & Com. Code Ann. 1.203). If the transaction allows the lessee to become the owner for no additional consideration or a nominal consideration, the lease is deemed to be intended as a security interest. Tex. Bus. & Com. Code § 1.201(b)(37); Horton v. Dental Capital Leasing Corp., 649 S.W.2d 655, 657 (Tex. App.—Texarkana 1983, no writ).
Foreclosure of a security interest is discussed at section 14.28 below.
§ 14.26:4Elements and Remedies
A lease is a contract. Vermont Information Processing, Inc. v. Montana Beverage Corp., 227 S.W.3d 846, 854 (Tex. App.—El Paso 2007, no pet.); Franklin v. Jackson, 847 S.W.2d 306, 308 (Tex. App.—El Paso 1992, writ denied). Therefore, the elements for an action on a lease are the same as those for other contracts. See section 14.22:1 above. If the parties to a contract have agreed to the remedy to be applied in the case of breach, it will be enforced by the courts unless it is illegal or against public policy. Doyle v. Second Master-Bilt Homes, Inc., 453 S.W.2d 226, 229 (Tex. Civ. App.—Fort Worth 1970, writ ref’d n.r.e.). In some cases, the lessor can sue for rent owed under the lease, demand return of the property, sue for conversion in an appropriate situation, or pursue other remedies as long as those remedies are listed in the contract. See Shasteen v. Mid-Continent Refrigerator Co., 517 S.W.2d 437, 439–40 (Tex. Civ. App.—Dallas 1974, writ ref’d n.r.e.).
A lessor under a personal property lease governed by UCC article 2A may on the lessee’s default—
1.cancel the lease contract, retaining the right to recover for damages based on prior default;
2.identify and dispose of goods identified to the contract;
3.withhold delivery of the goods and take possession of goods previously delivered;
4.stop delivery of the goods by a bailee;
5.dispose of the goods and recover damages, or retain the goods and recover damages or, in a proper case, rent; and
6.exercise any other rights or remedies provided for in the lease contract.
Tex. Bus. & Com. Code § 2A.523(a).
See the petition at form 14-8 in this chapter, which may be used for a suit on a true lease but not on a lease intended as security. See Kinerd v. Colonial Leasing Co., 800 S.W.2d 187 (Tex. 1990); see also Tex. Bus. & Com. Code § 1.201(b)(35) (definition of “security interest”), § 1.203 (lease distinguished from security interest). Also note that the sworn account procedure cannot be used for a suit on a lease. Van Zandt v. Fort Worth Press, 359 S.W.2d 893 (Tex. 1962); Meineke Discount Muffler Shops, Inc. v. Coldwell Banker Property Management Co., 635 S.W.2d 135, 138 (Tex. App.—Houston [1st Dist.] 1982, writ ref’d n.r.e.); Parmer v. Anderson, 456 S.W.2d 271 (Tex. Civ. App.—Dallas 1970, no writ).
See 15 U.S.C. § 1667a for various disclosures required for certain consumer leases of personal property. The federal consumer lease statute is discussed at section 2.77 in this manual. The attorney should review those statutes before filing suit to determine whether potential liability against the creditor exists.
A person having control of personal property under a written rental agreement who intentionally holds the property beyond the expiration of the rental period may be charged with the criminal offense of “theft of service.” Tex. Penal Code § 31.04(a)(3). See section 6.26:6 in this manual for further discussion.
§ 14.26:7Statute of Limitations
An action for default of a lease of personal property must be brought within four years from the date the cause of action accrues unless the parties (except in the case of a consumer lease) in the original contract reduce the period of limitations to not less than one year. Tex. Bus. & Com. Code § 2A.506(a). If a first action is so terminated as to leave available a remedy by another action for the same breach, the second action may be brought either within the first action’s limitation period or within six months from termination of the first action, unless the first action was terminated voluntarily or from dismissal for want of prosecution. Tex. Bus. & Com. Code § 2A.506(c).
The cause of action accrues when an act or omission or breach of warranty is or should have been discovered by the plaintiff. Tex. Bus. & Com. Code § 2A.506(b).
§ 14.27Actions by Secured Creditors—Preliminary Considerations
On default, the creditor may—
1.repossess the collateral and either sell it at foreclosure sale or retain it in satisfaction of the debt;
2.sue for enforcement of the lien; or
3.sue for enforcement of the underlying debt.
Repossession is discussed in chapter 5 of this manual, and a postforeclosure suit for deficiency is discussed at section 14.29 below. Suit to enforce the lien is discussed in chapter 7, and suit on the underlying debt is discussed at section 14.28:4 below. The notice requirements to guarantors are discussed at section 5.35.
Default is not determined by law but by the terms of the underlying security agreement. A typical security agreement may specify the following events of default:
1.Default in payments.
2.Failure to comply with any of the terms or conditions of the contract.
3.Failure to procure or maintain insurance on an automobile or on the life of the buyer as required by the contract.
4.Institution by the buyer or against the buyer or his property of a proceeding in bankruptcy, receivership, or insolvency.
5.Belief by the seller that the property is in danger of misuse or confiscation.
These events of default do not violate the restrictions on accelerating installment payments set out in Tex. Fin. Code § 348.109. See Hernandez v. Forbes Chevrolet Co., 680 S.W.2d 75, 78 (Tex. App.—Corpus Christi 1984, cause dism’d as moot); Lundquist Buick-Opel, Inc. v. Wikoff, 659 S.W.2d 466, 469 (Tex. App.—Corpus Christi 1983, no writ).
A contractual provision of default will be strictly construed. See Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 893 (Tex. 1991) (acceleration provisions must be clear and unequivocal); Ramo, Inc. v. English, 500 S.W.2d 461, 466 (Tex. 1973); Motor & Industrial Finance Corp. v. Hughes, 302 S.W.2d 386, 394 (Tex. 1957).
§ 14.27:3Failure to Pay as Default
If default in payment is the ground for enforcement, the attorney should make certain that the debtor is actually in default under the note and security agreement. The creditor is often in a better position than the attorney to compute amounts due. Further, if proper credit for items such as unearned interest is not given to the debtor, there may be a violation of usury laws. See part V. in chapter 2 of this manual regarding usury. The attorney should advise the client to give the debtor credit for all unearned interest, make the computation, and provide a payment history, if possible. The attorney should review this information and compare it with the debtor’s obligations.
Once it has been determined that the debtor is in default, the creditor should notify the debtor of default by sending a letter, by certified mail with return receipt requested, to the debtor at his residence and business addresses. While many security agreements and notes contain waivers of notice of default, the better practice is to ignore the waiver provisions and inform the debtor of default. For a letter notifying the debtor of default, see form 5-5 in this manual.
In virtually every case, the underlying debt must be accelerated before the creditor can proceed to enforce the security interest. See section 2.111 in this manual for a discussion of acceleration.
§ 14.28Foreclosure of Security Interest
Chapter 5 of this manual discusses nonjudicial repossession and foreclosure of security interests in personal property. In particular, see section 5.4, which discusses considerations in choosing self-help repossession or judicial foreclosure.
For a security interest to be foreclosed, there must be a valid security agreement between the creditor and the debtor, with value having been given to the creditor. The agreement must be in writing, signed by the debtor, and must describe the collateral. The debtor must have rights in the collateral and must have defaulted in his obligations under the agreement. Tex. Bus. & Com. Code §§ 9.203, 9.601.
Although preferable, perfection of a security interest is not necessary for the security agreement to be valid. Gulf Oil Co. v. First National Bank of Hereford, 503 S.W.2d 300, 307 (Tex. Civ. App.—Amarillo 1973, no writ).
Security interests can arise in a variety of debtor-creditor causes of action, including sworn accounts, notes, revolving credit accounts, and retail installment contracts.
§ 14.28:2Pleading Requirements
In addition to pleading the elements of the underlying debt—for example, sworn account, note, or retail installment contract—the attorney should plead the existence of the security agreement and the nature of the default. In most cases, the security agreement will provide that default of the underlying debt will constitute default of the security agreement. Attaching copies of the security agreement and the underlying debt instrument and incorporating them by reference will satisfy this pleading requirement. Otherwise, the attorney should plead the specific default that is the basis of the suit. In the prayer, foreclosure should be specifically requested. See Tex. R. Civ. P. 47(c).
Refer to the sections of this chapter concerning the specific underlying cause of action (sworn account, note, retail installment contract, and so forth) for other pleading guidelines and to section 20.9:3 in this manual regarding judgments for foreclosure.
§ 14.28:3Statute of Limitations
There is a split in the courts of appeals regarding whether a suit to foreclose a lien can be brought after the underlying debt is barred by limitations. See Holman St. Baptist Church v. Jefferson, 317 S.W.3d 540, 546–47 (Tex. App.—Houston [14th Dist.] 2010, pet. denied) (running of statute of limitations on action to collect personally from debtor does not bar right to use collateral in lender’s possession to repay debt); Miller, Hiersche, Martens & Hayward, P.C. v. Bent Tree National Bank, 894 S.W.2d 828, 830 (Tex. App.—Dallas 1995, no writ) (foreclosure allowed past limitations period); contra Proulx v. Wells, 235 S.W.3d 213, 215 (Tex. 2007) (exception exists to procuring service within limitations period when diligence has been exercised, but no exception exists for filing suit within limitations period); Gant v. DeLeon, 786 S.W.2d 259, 260 (Tex. 1990); Slagle v. Prickett, 345 S.W.3d 693, 696–97 (Tex. App.—El Paso 2011, no pet.); McBryde v. Curry, 914 S.W.2d 616, 619 (Tex. App.—Texarkana 1995, writ denied) (when debt barred by limitations, right to foreclose also barred). If a limitations period applies, the applicable period is the one attaching to the underlying cause of action, such as a negotiable instrument or a written contract. See sections 14.22:7 and 14.22:9 above.
The manual committee is not aware of a Texas case applying a statute of limitations to a secured creditor’s right to nonjudicial foreclosure of personal property. It has been suggested that there is no statute of limitations on nonjudicial foreclosure of personal property; because the contractual obligation survives even if the right to enforce the contract judicially expires, so too does the secured creditor’s right to foreclose survive. See Miller, 894 S.W.2d at 830.
§ 14.28:4Suit on Underlying Debt
The secured party may sue for the entire amount due and recover a personal judgment against the debtor without reference to or resorting to the security. Maupin v. Chaney, 163 S.W.2d 380, 382 (Tex. 1942); Garza v. Allied Finance Co., 566 S.W.2d 57, 62 (Tex. Civ. App.—Corpus Christi 1978); Lazidis v. Goidl, 564 S.W.2d 453, 456 (Tex. Civ. App.—Dallas 1978, no writ).
The secured party is not required to exhaust his remedies against the security before suing on the underlying debt and after obtaining a personal judgment against the debtor on the underlying debt may enforce that judgment against the collateral by a writ of execution. A judicial sale of the collateral under execution is a foreclosure of the security interest. Therefore, the secured party may purchase at the sale and, after the purchase, hold the collateral free of any other requirements of chapter 9 of the Texas Uniform Commercial Code. Garza, 566 S.W.2d at 62; see also Tex. Bus. & Com. Code § 9.601.
The lien obtained through levy of execution relates back to the earliest of the date of the perfection of the security interest, the date of the filing of a financing statement covering the collateral, or, in the case of agricultural liens, the date specified by statute; therefore, the secured party is afforded a benefit as the first to file. Tex. Bus. & Com. Code § 9.601(e). If the plaintiff does not seek judicial foreclosure but only prays for a specific money judgment combined with a general prayer, a judgment of foreclosure of the security interest should not be granted, because judicial foreclosure is an additional remedy to that of seeking a personal judgment against the debtor and a general prayer is not sufficient to establish a request for judicial foreclosure. The existence of the collateral is immaterial to a suit for a judgment on the debt. Garza, 566 S.W.2d at 62.
Texas Business and Commerce Code chapter 9 recognizes that an obligor (not necessarily the same person as the debtor (see Tex. Bus. & Com. Code §§ 9.608(a)(4), 9.102(a)(60)) is liable for a deficiency remaining after the disposition of any collateral or other collection efforts unless the parties have agreed otherwise. See Tex. Bus. & Com. Code §§ 9.608(a)(4), 9.615(d), (e) and the official comments; Smith v. Community National Bank, 344 S.W.3d 561, 570 (Tex. App.—Eastland 2011, pet. denied).
If a deficiency balance remains after foreclosure, the obligor is liable for that deficiency unless the underlying transaction is the sale of accounts, chattel paper, payment intangibles, or promissory notes. Tex. Bus. & Com. Code §§ 9.608, 9.615. However, the parties are free to modify the obligor’s liability by agreement. See Tex. Bus. & Com. Code § 9.608 cmt. 3.
To recover a deficiency after a nonjudicial foreclosure of collateral, the creditor must prove—
1.a valid debt;
2.a valid security agreement;
3.default of the security agreement;
4.valid notice to the debtor of the sale after repossession (Tex. Bus. & Com. Code §§ 9.611–.614);
5.acceleration of the debt (if acceleration occurred);
6.disposition of the collateral in a commercially reasonable manner (Tex. Bus. & Com. Code § 9.610); and
7.a deficiency balance remaining on the debt after sale (Tex. Bus. & Com. Code § 9.616).
See Tex. Bus. & Com. Code §§ 9.203, 9.504, 9.601.
Two Texas Supreme Court decisions that construed the provisions of chapter 9 relating to deficiency judgments have been limited in their applicability by the July 1, 2001, revisions to chapter 9 of the Texas Business and Commerce Code. See Tex. Bus. & Com. Code § 9.626. The decision in Greathouse v. Charter National Bank-Southwest, 851 S.W.2d 173 (Tex. 1992), concerning the pleading requirements in deficiency actions, is now effectively limited to actions on consumer obligations only. Likewise, application of Tanenbaum v. Economics Laboratory, Inc., 628 S.W.2d 769 (Tex. 1982), which held that a secured party whose collection, enforcement, disposition, or acceptance of collateral is not commercially reasonable is absolutely barred from collecting a deficiency, has been similarly limited to consumer cases. Under the 2001 revisions to chapter 9, commercial cases follow the rebuttable or refutable presumption rule. The secured party need not prove compliance with the provisions of chapter 9, subchapter F (generally, the commercial reasonableness standard), unless the debtor or secondary obligor puts the secured party’s compliance in issue. Tex. Bus. & Com. Code § 9.626(a)(1); Smith v. Community National Bank, 344 S.W.3d 561, 572–73 (Tex. App.—Eastland 2011, pet. denied). However, once at issue, the amount of any deficiency recoverable by the secured creditor or secondary obligor will be reduced or possibly eliminated by the effect of his failure to comply with the commercial reasonableness standard. Tex. Bus. & Com. Code § 9.626(a); Smith, 344 S.W.3d at 572–73.
The secured party must give notice to the debtor and secondary obligors before disposing of the collateral. Tex. Bus. & Com. Code § 9.611. Such notice must be authenticated, but the “safe harbor” provisions provided in Tex. Bus. & Com. Code § 9.611(e) satisfy the notice requirements. An exception to the notice requirement is provided for collateral that is perishable, threatens to decline speedily in value, or is customarily sold on a recognized market. The notice requirement may be waived by a debtor or secondary obligor but only by a postdefault, authenticated agreement. Tex. Bus. & Com. Code § 9.624(a). See section 14.27 above regarding default and acceleration and sections 5.31 regarding notice, 5.32 regarding commercial reasonableness of the disposition of the collateral, and 5.38 regarding disposition of the collateral generally. A petition for a deficiency judgment cause of action is at form 14-9 in this chapter.
Consumer-Goods Transactions: “Consumer goods” are goods that are used or bought for use primarily for personal, family, or household purposes. Tex. Bus. & Com. Code § 9.102(a)(23). See also section 2.121:2 in this manual. A secured party must provide a consumer obligor with a written explanation of a deficiency that conforms to Tex. Bus. & Com. Code § 9.616 before attempting to collect the deficiency. Subsection 9.616(a) defines “explanation” as a writing that states the amount of the deficiency; provides an explanation in accordance with subsection (c) of how the secured party calculated the deficiency; states, if applicable, that future debits, credits, charges (including additional credit service charges or interest), rebates, and expenses may affect the amount of the deficiency; and provides a telephone number or mailing address from which additional information concerning the transaction is available. The explanation must be provided to the consumer debtor or obligor no later than the time of the first written attempt to collect the deficiency. Tex. Bus. & Com. Code § 9.616(b). The debtor or obligor need not wait, however, until an attempt to collect is made but can instead make a request that obligates the secured party to provide an explanation within fourteen days after receipt of the request. Tex. Bus. & Com. Code § 9.616(a)–(b), (e). If no attempt is made to collect a deficiency, no explanation need be given.
Section 9.616(c) contains the requirements for how a calculation of a surplus or deficiency must be explained to satisfy subsection (a). The following information must be provided in the following order:
1.the aggregate amount of obligations secured by the security interest under which the disposition was made and, if the amount reflects a rebate of unearned interest or credit service charge, an indication of that fact, calculated as of a specified date—
a.if the secured party takes or receives possession of the collateral after default, not more than thirty-five days before the secured party takes or receives possession; or
b.if the secured party takes or receives possession of the collateral before default or does not take possession of the collateral, not more than thirty-five days before the disposition;
2.the amount of proceeds of the disposition;
3.the aggregate amount of the obligations after deducting the amount of proceeds;
4.the amount, in the aggregate or by type, and the types of expenses, including expenses of retaking, holding, preparing for disposition, processing, and disposing of the collateral, and attorney’s fees secured by the collateral that are known to the secured party and related to the current disposition;
5.the amount, in the aggregate or by type, and types of credits, including rebates of interest or credit service charges, to which the obligor is known to be entitled and that are not reflected in the amount in section 9.616(c)(1); and
6.the amount of the surplus or deficiency.
Tex. Bus. & Com. Code § 9.616(c).
A secured party has some discretion concerning how to explain rebates of interest or credit service charges. The rebates may be included in the aggregate amount of obligations secured under subsection (c)(1) or they may be included with other types of rebates and credits under subsection (c)(5). However, rebates of interest or credit service charges are the only types of rebates for which this discretion is provided. The explanation must indicate whether rebates of precomputed interest are included. The expenses and attorney’s fees to be described under subsection (c)(4) are those relating to the most recent disposition rather than those incurred in connection with earlier enforcement efforts and that have been resolved by the parties. Tex. Bus. & Com. Code. § 9.616(c) cmt. 3.
The secured party who fails to comply with section 9.616(b)(2) is liable for any loss caused plus $500. Tex. Bus. & Com. Code § 9.625(b)–(c), (e). (See the discussion in section 17.50 in this manual.) Section 9.616 also pertains to the explanation and calculation of a surplus. Note: There may be other applicable notices under the federal Fair Debt Collection Practices Act and the Texas Debt Collection Practices Act. See sections 2.11 through 2.36 in this manual.
Nonconsumer-Goods Transactions: Before bringing suit against the debtor for a deficiency, it is good practice to notify the debtor of the sale of the collateral, the net proceeds of sale, and the resulting deficiency. This notice gives the creditor the opportunity to negotiate payment before resorting to litigation.
Attorney’s Fees: In both consumer and nonconsumer goods transactions, if the underlying debt agreement does not provide for payment of attorney’s fees, the notice should also satisfy the requirements of Tex. Civ. Prac. & Rem. Code § 38.001, allowing recovery of attorney’s fees in the deficiency suit.
§ 14.29:4Pleading Requirements
In consumer-goods transactions, the creditor must plead commercial reasonableness. This pleading requirement may be satisfied either by pleading specifically or by pleading that all conditions precedent have been performed. If pleaded specifically, the creditor has the burden of proof, but if “all conditions precedent” is pleaded, the debtor must specifically deny commercial reasonableness, or the creditor is relieved from his burden of proof. See Greathouse v. Charter National Bank-Southwest, 851 S.W.2d 173, 177 (Tex. 1992) (creditor pleaded that all conditions precedent had been performed; because guarantor did not specifically deny commercially reasonable disposition of collateral, creditor not required to prove commercial reasonableness at trial); Tex. R. Civ. P. 54. If the creditor fails to plead commercial reasonableness or all conditions precedent, however, the debtor’s failure to plead lack of commercial reasonableness does not supply, by default, the proof necessary to establish the creditor’s right. Whirlybirds Leasing Co. v. Aerospatiale Helicopter Corp., 749 S.W.2d 915, 919 (Tex. App.—Dallas 1988, no writ), abrogated on other grounds by Greathouse, 851 S.W.2d at 174 n.2 (because creditor failed to notify debtor of its intent to dispose of collateral or to make proper disposal, creditor repossessed and disposed of collateral in full satisfaction of indebtedness).
The application of Greathouse has been limited to consumer-goods transactions by Tex. Bus. & Com. Code § 9.626. Under this new section, in nonconsumer-goods transactions, a secured party is not required to prove compliance with Code provisions unless the debtor or secondary obligor raises the issue. If the debtor or secondary obligor raises the issue and the secured party does not prove compliance, the debtor or obligor is credited with the greater of the actual disposition proceeds or the proceeds that would have been realized if the secured party had complied with the Code. Tex. Bus. & Com. Code § 9.626.
§ 14.29:5Amount of Sale as Determining Deficiency
If the sale was commercially reasonable and the debtor received notice, the fact that a better price could have been obtained will not affect the amount of the deficiency. Tex. Bus. & Com. Code § 9.627(a); Lister v. Lee-Swofford Investments, L.L.P., 195 S.W.3d 746, 753 (Tex. App.—Amarillo 2006, no pet.) (minimal sale proceeds, creditor’s inexperience in disposing of type of collateral, and failure of many dealers to attend auction did not conclusively establish commercial unreasonableness); Siboney Corp. v. Chicago Pneumatic Tool Co., 572 S.W.2d 4, 8 (Tex. Civ. App.—Houston [1st Dist.] 1978, writ ref’d n.r.e.) (the fact that better price could have been obtained does not render sale commercially unreasonable).
A petition for a fraudulent transfer cause of action is at form 14-10 in this chapter.
Fraudulent transfer laws enable a party to negate or undo the effect of a transfer of property that would otherwise place the property beyond the reach of the transferor’s creditors. Only creditors can bring fraudulent transfer claims. See Tex. Bus. & Com. Code §§ 24.005–.006. The term claims covers a broad concept, including liquidated, unliquidated, matured, unmatured, legal, equitable, or even disputed claims. Tex. Bus. & Com. Code § 24.002(3).
§ 14.30:2What Constitutes Transfer
A “transfer” can be either a transfer of title or of any interest in the debtor’s property or the creation of a lien or other encumbrance in the property. A disclaimer of inheritance is not a transfer. Tex. Bus. & Com. Code § 24.002(12).
§ 14.30:3When Transfer or Obligation Occurs
A transfer of realty (other than fixtures) is made when the transfer is so far perfected that a good-faith purchaser of the asset from the debtor against whom applicable law permits the transfer to be perfected cannot acquire an interest in the asset superior to the interest of the transferee. A transfer of personalty or fixtures occurs when the transfer is so far perfected that a creditor on a simple contract cannot acquire a judicial lien (other than under the fraudulent transfer statutes themselves) superior to the transferee’s interest. Tex. Bus. & Com. Code § 24.007(1).
An obligation is incurred when the writing executed by the obligor is delivered to or for the benefit of the obligee, if the obligation is evidenced by a writing. Otherwise, it is incurred when it becomes effective between the parties. Tex. Bus. & Com. Code § 24.007(5).
§ 14.30:4Present vs. Future Creditors
A present creditor is one whose claim arose before the transfer was made or the obligation was incurred. Tex. Bus. & Com. Code § 24.006(a). A future creditor is one whose claim arose within a reasonable time after the transfer was made or the obligation was incurred. Tex. Bus. & Com. Code § 24.005(a).
Certain transfers to insiders can be avoided by either present or future creditors. See Tex. Bus. & Com. Code §§ 24.005(b)(1), 24.006(b). The list of insiders is expansive, including relatives, partners, officers and directors of a debtor corporation, partnerships in which the debtor is a partner, “affiliates,” or “persons in control.” See Tex. Bus. & Com. Code § 24.002(7) for the list of these insiders. See also In re Holloway, 955 F.2d 1008, 1010 (5th Cir. 1992); Telephone Equipment Network, Inc. v. TA/Westchase Place, Ltd., 80 S.W.3d 601, 609 (Tex. App.—Houston [1st. Dist.] 2002, no pet.) (principal factors in determining insider status are (1) the closeness of the relationship between the transferee and debtor and (2) whether the transactions were at arm’s length); J. Michael Putman, M.D.P.A. Money Purchase Pension Plan v. Stephenson, 805 S.W.2d 16, 18 (Tex. App.—Dallas 1991, no writ) (list of insiders contained in section 24.002(7) is merely illustrative).
Insolvency is a factor in fraudulent transfers that can be attacked by either present or future creditors. See Tex. Bus. & Com. Code §§ 24.005(b)(9), 24.006. A debtor is insolvent if the sum of his debts is greater than the sum of his assets at a fair valuation. Tex. Bus. & Com. Code § 24.003(a). The sum of the debtor’s assets does not include property that has been transferred, concealed, or removed with intent to hinder, delay, or defraud creditors or that has otherwise been transferred in a manner making the transfer voidable under the Fraudulent Transfer Act. Tex. Bus. & Com. Code § 24.003(d). Debts are not included to the extent they are secured by a valid lien on the property of the debtor not included as an asset. Tex. Bus. & Com. Code § 24.003(e).
The debtor is presumed to be insolvent if he is not paying his debts as they come due. Tex. Bus. & Com. Code § 24.003(b).
§ 14.30:7Value and Reasonably Equivalent Value
Value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied. Value does not include an unperformed promise made otherwise than in the ordinary course of the promisor’s business to furnish support to the debtor or another person. Tex. Bus. & Com. Code § 24.004(a).
A person gives “reasonably equivalent value” if that person acquires an interest of the debtor in an asset by a regularly conducted, noncollusive foreclosure sale or execution of a power of sale for the acquisition or disposition of the debtor’s interest on default under a mortgage, deed of trust, or security agreement. Tex. Bus. & Com. Code § 24.004(b). “Reasonably equivalent value” includes, but is not limited to, a transfer or obligation that is within the range of values for which the transferor would have sold the assets in an arm’s-length transaction. Tex. Bus. & Com. Code § 24.004(d).
The operable date for valuation is the date of the transfer. See, e.g., First National Bank of Seminole v. Hooper, 48 S.W.3d 802, 808 (Tex. App.—El Paso 2001, pet. denied) (transfer occurred on creation of lien rather than date of foreclosure sale; therefore, operable date for valuation was date lien created), rev’d on other grounds, 104 S.W.3d 83 (Tex. 2003); see also Tex. Bus. & Com. Code §§ 24.002(12), 24.007(1).
§ 14.30:8Transfer with Intent to Hinder, Delay, or Defraud
A transfer made or obligation incurred by a debtor is fraudulent as to a present or future creditor if the debtor made the transfer or incurred the obligation with actual intent to hinder, delay, or defraud any creditor. Tex. Bus. & Com. Code § 24.005(a)(1). “Actual intent” may be determined by considering the following “badges of fraud,” among other factors:
1.The transfer or obligation was to an insider.
2.The debtor retained possession or control of the property after the transfer.
3.The transfer or obligation was concealed.
4.Before the transfer was made or the obligation was incurred, the debtor had been sued or threatened with suit.
5.The transfer was of substantially all the debtor’s assets.
6.The debtor absconded.
7.The debtor removed or concealed assets.
8.The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred.
9.The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.
10.The transfer occurred shortly before or shortly after a substantial debt was incurred.
11.The debtor transferred the essential assets of his business to a lienor who transferred those assets to an insider of the debtor.
Tex. Bus. & Com. Code § 24.005(b); see also Ho v. McArthur Ranch, L.L.C., 395 S.W.3d 325, 328–29 (Tex. App.—Dallas 2013, no pet.) (applying factors in Tex. Bus. & Com. Code § 24.005(b) in context of breach of rental contract).
Ordinarily the question of intent is a fact question, unless the fraud is admitted, the fraudulent intent is apparent on the surface, or there is some interest reserved in the property inconsistent with the alleged conveyance. See BMG Music v. Martinez, 74 F.3d 87, 90 (5th Cir. 1996); Quinn v. Dupree, 303 S.W.2d 769, 774 (Tex. 1957) (no fraudulent intent for debtor to prefer one creditor over another); Letsos v. H.S.H., Inc., 592 S.W.2d 665, 670 (Tex. App.—Waco 1980, writ ref’d n.r.e.).
A transfer or obligation is not voidable under section 24.005(a)(1) against a person who took in good faith and for a reasonably equivalent value or against any subsequent transferee or obligee. Tex. Bus. & Com. Code § 24.009(a). However, a transferee cannot show “good faith” if the transferee is on inquiry notice that the transfer may be voidable and fails to conduct a diligent investigation into the circumstances of the transfer, even if the investigation would not have discovered evidence of fraud. Janvey v. GMAG, L.L.C., No. 19-0452, 2019 WL 6972237, at *7 (Tex. Dec. 20, 2019). A person is on “inquiry notice” when he or she is aware of facts that would prompt a reasonable person to investigate further. Janvey, 2019 WL 6972237, at *4 (citing Black’s Law Dictionary (11th ed. 2019)).
The general statute of limitations for this cause of action is either four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant. Tex. Bus. & Com. Code § 24.010(a)(1). If the action is brought on behalf of a spouse, minor, or ward, it must be brought within two years after it accrues or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant. Tex. Bus. & Com. Code § 24.010(b)(1). But see Smith v. American Founders Financial Corp., 365 B.R. 647, 676–79 (S.D. Tex. 2007) (Tex. Bus. & Com. Code § 24.010 preempted by section 546(a) of the Bankruptcy Code).
§ 14.30:9Transfer for Less Than Reasonably Equivalent Value—Present or Future Creditors
A transfer made or obligation incurred by a debtor is fraudulent as to a present or future creditor if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor either—
1.was engaged in or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
2.intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.
Tex. Bus. & Com. Code § 24.005(a)(2). See also Colonial Leasing Co. v. Logistics Control Group International, 762 F.2d 454 (5th Cir. Tex. 1985) (noting that “[u]nder Texas law, one may bring an action under the Fraudulent Transfer Act as a creditor of the transferor merely by virtue of a legal action, pending and unliquidated at the time of transfer, against the transferor”); Hollins v. Rapid Transit Lines, Inc., 440 S.W.2d 57, 59 (Tex. 1969) (tort claimants are entitled to file causes of action under the Texas Uniform Fraudulent Transfer Act based on pending, unliquidated tort claims); Blackthorne v. Bellush, 61 S.W.3d 439, 443–44 (Tex. App.—San Antonio 2001, no pet.) (interim injunctive relief is available to remedy a fraudulent transfer for which the claimant asserts an equitable interest). See section 14.30:7 above regarding reasonably equivalent value.
A transfer is not voidable on these grounds if it resulted from termination of a lease on default by the debtor when the termination is in accordance with the lease and applicable law or enforcement of an article 9 security interest. Tex. Bus. & Com. Code § 24.009(e).
The general statute of limitations for this cause of action is four years from the date the transfer was made or the obligation was incurred. Tex. Bus. & Com. Code § 24.010(a)(2). If the action is brought on behalf of a spouse, minor, or ward, the cause of action is extinguished unless brought within two years after it accrues or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant. Tex. Bus. & Com. Code § 24.010(b)(1). But see Smith v. American Founders Financial Corp., 365 B.R. 647, 676–79 (S.D. Tex. 2007) (Tex. Bus. & Com. Code § 24.010 preempted by section 546(a) of the Bankruptcy Code).
§ 14.30:10Transfer for Less Than Reasonably Equivalent Value—Present Creditors Only
A transfer made or obligation incurred by a debtor is fraudulent as to a present creditor if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or became insolvent as a result of the transfer or obligation. Tex. Bus. & Com. Code § 24.006(a).
The general statute of limitations for this cause of action is four years from the date the transfer was made or the obligation was incurred. Tex. Bus. & Com. Code § 24.010(a)(2). If the action is brought on behalf of a spouse, minor, or ward, it must be brought within two years after it accrues or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant. Tex. Bus. & Com. Code § 24.010(b)(1). But see Smith v. American Founders Financial Corp., 365 B.R. 647, 676–79 (S.D. Tex. 2007) (Tex. Bus. & Com. Code § 24.010 preempted by section 546(a) of the Bankruptcy Code).
§ 14.30:11Transfers to Insiders—Present Creditors Only
A transfer made by a debtor is fraudulent as to a present creditor if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at the time, and the insider had reasonable cause to believe that the debtor was insolvent. Tex. Bus. & Com. Code § 24.006(b).
Such a transfer is not voidable—
1.to the extent the insider gave new value to or for the benefit of the debtor after the transfer was made, unless the new value was secured by a valid lien;
2.if made in the ordinary course of business or financial affairs of the debtor and the insider; or
3.if made under a good-faith effort to rehabilitate the debtor and the transfer secured present value given for that purpose as well as an antecedent debt of the debtor.
Tex. Bus. & Com. Code § 24.009(f).
The statute of limitations for this cause of action is one year after the transfer was made. Tex. Bus. & Com. Code § 24.010(a)(3). But see Smith v. American Founders Financial Corp., 365 B.R. 647, 676–79 (S.D. Tex. 2007) (Tex. Bus. & Com. Code § 24.010 preempted by section 546(a) of the Bankruptcy Code).
§ 14.30:12Remedies of Creditors
The remedies a creditor in a fraudulent transfer action can seek include—
1.avoidance of the transfer or obligation to the extent necessary to satisfy the creditor’s claim;
2.an attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with applicable law relating to ancillary proceedings;
3.injunctive relief against further disposition or transfer of the asset;
4.appointment of a receiver to take charge of the asset transferred;
5.if judgment has been obtained on a claim against the debtor, a levy of execution on the asset; or
6.any other relief circumstances may require.
Tex. Bus. & Com. Code § 24.008. A creditor may also seek exemplary damages. See Tex. Bus. & Com. Code § 24.008(a)(3)(c); In re Galaz, 850 F.3d 800, 804 (5th Cir. 2017) (affirming exemplary damages in fraudulent transfer suit). If the transfer or obligation is avoidable, the court must render judgment for the creditor against the transferee of the asset or the person for whose benefit the transfer was made, or any subsequent transferee, other than a good faith transferee, who took for value or from any subsequent transferee, in the amount of the value of the asset transferred as of the time of the transfer, subject to adjustment as the equities may require. Tex. Bus. & Com. Code § 24.009(b). Adjustment of the value of the asset may not take into account—
1.physical additions or changes to the asset;
2.repairs to the asset;
3.payment of tax on the asset;
4.payment of any debt secured by a lien on the asset superior or equal to the rights of the voiding creditor; or
5.preservation of the asset.
Tex. Bus. & Com. Code § 24.009(c).
§ 14.30:13Credits Accruing to Good-Faith Transferees
Although a good-faith transferee is not entitled to credit for payments made for repair or upkeep of the asset (see section 14.30:12 above), he is entitled to a claim or credit, to the extent he gave value for the transfer or obligation, to—
1.a lien, prior to the rights of the voiding creditor, or a right to retain any interest in the asset transferred;
2.enforcement of any obligation incurred; or
3.a reduction in the amount of liability on the judgment.
Tex. Bus. & Com. Code § 24.009(d)(1). The good-faith transferee is also entitled to a lien against the asset, superior to the rights of the voiding creditor, to the extent of the value of improvements the transferee made. Tex. Bus. & Com. Code § 24.009(d)(2).
In any proceeding under the Uniform Fraudulent Transfer Act, the court may award costs and reasonable attorney’s fees as are equitable and just. Tex. Bus. & Com. Code § 24.013.
§ 14.31:1Guarantors, Sureties, and Accommodation Parties
A guaranty is an undertaking to pay another’s debt or perform his obligation on the happening of one or more contingencies. See Starcrest Trust v. Berry, 926 S.W.2d 343, 350 (Tex. Civ. App.—Austin 1996, no writ). A surety is a party who promises to answer for the debt of another. Crimmins v. Lowry, 691 S.W.2d 582, 585 (Tex. 1985). At common law, the surety was directly liable for performance of the obligation, while the guarantor’s liability was only indirect. Arnett v. Simpson, 235 S.W. 982, 985 (Tex. Civ. App.—Amarillo 1921, writ dism’d). Sureties are defined to include guarantors for Uniform Commercial Code purposes. Tex. Bus. & Com. Code § 1.201(b)(39); Tex. Civ. Prac. & Rem. Code § 43.001.
The law recognizes a distinction between guaranty of collection and guaranty of payment, also called absolute guaranty and unconditional guaranty. An absolute guarantor is primarily liable and waives any requirement that the creditor take action against the principal obligor as a condition precedent to his or her liability on the guaranty. Corona v. Pilgrim’s Pride Corp., 245 S.W.3d 75, 81 (Tex. App.—Texarkana 2008, pet. denied) (citing Hopkins v. First National Bank at Brownsville, 551 S.W.2d 343, 345 (Tex. 1977)). A guaranty of collection is an undertaking of the guarantor to pay if the debt cannot be collected from the primary obligor by the use of reasonable diligence. Cox v. Lerman, 949 S.W.2d 527, 530 (Tex. App.—Houston [14th Dist.] 1997, no writ). With a conditional guaranty, the principal debtor must be joined in the suit unless excused pursuant to section 17.001 of the Civil Practice and Remedies Code. Cox, 949 S.W. at 530 (citing Ford v. Darwin, 767 S.W.2d 851, 854 (Tex. App.—Dallas 1989, writ denied)).
If the party’s signature is accompanied by words indicating unambiguously that he is guaranteeing collection instead of payment of another party’s obligation in the instrument, the signer is obligated to pay the instrument only if—
1.execution of judgment against the other party has been returned unsatisfied;
2.the other party is insolvent or is in an insolvency proceeding;
3.the other party cannot be served with process; or
4.it is otherwise apparent that payment cannot be obtained from the other party.
Tex. Bus. & Com. Code § 3.419(d).
Accommodation Party: An accommodation party is liable in the capacity in which he has signed. Tex. Bus. & Com. Code § 3.419(b). This liability is defined in terms of the accommodation party’s status under the Code—as, for example, a maker or endorser. Therefore, an accommodation endorser is entitled to the same presentment and notice of dishonor as is any other endorser. Tex. Bus. & Com. Code § 3.419(b). The accommodation party is not liable to the party accommodated. Tex. Bus. & Com. Code § 3.419(e).
The creditor enforcing a guaranty must establish—
1.the existence and ownership of the guaranty contract;
2.the performance of the terms of the contract by plaintiff;
3.the occurrence of the condition on which liability is based; and
4.guarantor’s failure or refusal to perform the promise.
Corona v. Pilgrim’s Pride Corp., 245 S.W.3d 75, 80 (Tex. App.—Texarkana 2008, pet. denied) (citing Barclay v. Waxahachie Bank & Trust Co., 568 S.W.2d 721, 723 (Tex. Civ. App.—Waco 1978, no writ)). For a petition for a suit on an absolute guaranty, see form 14-11 in this chapter.
Independent consideration to the guarantor generally is not required to create a valid guaranty contract. Consideration to the principal is sufficient consideration to bind the guarantor, as is postponement of enforcement of the debt. If a guaranty is entered into independently of the transaction that caused the obligation, the guaranty must be supported by consideration independent of the obligation. See Gooch v. American Sling Co., 902 S.W.2d 181, 185 (Tex. App.—Fort Worth 1995, no writ) (citing Fourticq v. Fireman’s Fund Insurance Co., 679 S.W.2d 562, 564 (Tex. App.—Dallas 1984, no writ) (indemnity agreement signed after creditor provided notice of termination of underlying contract lacked consideration because neither indemnitor nor primary debtor received any benefit, nor did creditor suffer a detriment). See also Windham v. Cal-Tim, Ltd., 47 S.W.3d 846 (Tex. App.—Beaumont 2001, pet. denied) (earlier execution of lease to principal sufficient consideration for guaranty when circumstances indicated lease and guaranty part of same transaction).
§ 14.31:3Joinder of Principal Obligor
Generally, a surety cannot be sued without joinder of the principal obligor unless judgment has already been rendered against the principal or the case is governed by a specific rule or law providing otherwise. Tex. R. Civ. P. 31. Additionally, the surety may require by written notice that the obligee bring immediate suit if the obligation is a contract for the payment of money or performance of an act. Tex. Civ. Prac. & Rem. Code § 43.002(a).
Statutory Exceptions to Joinder Requirement: In addition to when a judgment has been rendered against the principal, the guarantor can be sued without joinder of the principal obligor if the principal obligor—
1.is a nonresident or resides in a place at which he cannot be reached by ordinary process of law;
2.resides in a place that is unknown and cannot be ascertained by the use of reasonable diligence;
3.is dead; or
4.is actually or notoriously insolvent.
Tex. Civ. Prac. & Rem. Code § 17.001(b). If the principal obligor is not joined, the exception on which the exclusion is based must be pleaded and proved. Zimmerman v. Bond, 392 S.W.2d 149, 151 (Tex. Civ. App.—Dallas 1965, no writ) (judgment against guarantor reversed because primary obligor not joined to the lawsuit, and no exception pleaded). By its express terms, section 17.001 applies to suits on contracts involving several obligors or parties that are conditionally liable. Threlkeld-Covington, Inc. v. Baker Drywall Co., 837 S.W.2d 840, 843 (Tex. App.—Eastland 1992, no writ).
Contractual Waiver of Joinder: In almost every guaranty agreement, the guarantor waives the necessity of joining the principal obligor in a suit against the guarantor. These waivers are valid. See Universal Metals & Machinery, Inc. v. Bohart, 539 S.W.2d 874, 877 (Tex. 1976) (guarantors waived any requirement that the holder of the note must exhaust its rights or take action against the maker); Yandell v. Tarrant State Bank, 538 S.W.2d 684, 687–88 (Tex. Civ. App.—Fort Worth 1976, writ ref’d n.r.e.) (waiver upheld against guarantor on a note).
Practice Note: Usually the creditor will want to pursue both the primary obligor and the guarantor of a note or contract. Although creditor may not be legally required to join the obligor, especially if the guarantor has expressly waived the joinder requirement, the better practice is to name both the principal obligor and the guarantor as party defendants.
Notes for Which Maker Is Also Guarantor: If the maker of the note also signs as a guarantor, he must file a verified denial that he is liable in his capacity as a guarantor or he will have admitted liability in that capacity. Breckenridge v. Nationsbank of Texas, N.A., 79 S.W.3d 151, 158 (Tex. App.—Texarkana 2002, pet. denied).
§ 14.31:4Discharge of Liability
A surety, guarantor, or accommodation party is discharged from liability on a contract if a right of action has accrued on the contract, the surety has given notice to the creditor to sue on the contract, and the obligee fails to prosecute such a suit. Tex. Civ. Prac. & Rem. Code § 43.002.
§ 14.31:5Surety’s or Accommodation Party’s Rights against Principal Obligor
A surety who, because of his suretyship relation, pays part or all of a judgment against his primary obligor is subrogated to the judgment creditor’s rights under the judgment. Tex. Civ. Prac. & Rem. Code § 43.004(b). Similarly, an accommodation party who pays a negotiable instrument is entitled to reimbursement from the accommodated party and is entitled to enforce the instrument against the accommodated party. Tex. Bus. & Com. Code § 3.419(f).
§ 14.31:6Guarantor’s Obligation When Defects Exist in Underlying Contract
Under certain facts, a guarantor may not be permitted to rely on defects in the underlying contract to defend an unambiguous guarantee. Universal Metals & Machinery, Inc. v. Bohart, 539 S.W.2d 874, 877 (Tex. 1976) (guarantor, who contracted as primary, absolute, unconditional obligor, is not freed from liability because of forged signature of maker of underlying promissory note); Farmers & Merchants State Bank v. Reece Supply Co., 79 S.W.3d 615 (Tex. App.—Eastland 2002, pet. denied) (guarantor bank was unable to assert offset defense for unfit goods because bank signed unconditional payment guaranty); El Paso Refining, Inc. v. Scurlock Permian Corp., 77 S.W.3d 374 (Tex. App.—El Paso 2002, pet. denied) (usury is personal defense and may not be asserted by guarantor unless contract with guarantor also contains usurious provision); Bair Chase Property Co., L.L.C. v. S&K Development Co., 260 S.W.3d 133, 146 (Tex. App.—Austin 2008, pet. denied) (same).
§ 14.32Suit on Acknowledgment of Debt
While acknowledgment may be used to overcome a limitations defense, the Texas Supreme Court has held that a written acknowledgment of debt is an independent cause of action. See DeRoeck v. DHM Ventures, LLC, 556 S.W.3d 831, 834 (Tex. 2018) (per curiam) (“A suit on a debt is separate from a suit on a later written acknowledgment of the debt, and the latter is not barred by limitations merely because the former is.”). See also Siegel v. McGavock Drilling Co., 530 S.W.2d 894, 896 (Tex. Civ. App.—Amarillo 1975, writ ref’d n.r.e.) (when debtor signs written acknowledgment of previous debt, it supports an action on promise to pay that is independent of previous debt); Simpson v. Williams Rural High School District, 153 S.W.2d 852, 855 (Tex. App.—Amarillo 1941, writ ref’d) (when obligation is extinguished by operation of law instead of satisfaction by debtor, moral obligation to pay remains and is sufficient consideration for new promise). See section 17.64 in this manual for further discussion of acknowledgment as a means to defeat a limitations defense.
An acknowledgment of debt must—
1.be in writing and signed by the party to be charged;
2.contain an unequivocal acknowledgment of the justness or the existence of the particular obligation; and
3.refer to the obligation and express a willingness to honor that obligation.
DeRoeck v. DHM Ventures, LLC, 556 S.W.3d 831, 834 (Tex. 2018) (per curiam), citing Stine v. Stewart, 80 S.W.3d 586, 591 (Tex. 2002) (per curiam); see also Tex. Civ. Prac. & Rem. Code § 16.065.
The Uniform Electronic Transactions Act, Tex. Bus. & Com. Code §§ 322.001–.021, applies to electronic records and signatures relating to a transaction. Tex. Bus. & Com. Code § 322.003(a). “Electronic record” means a record created, generated, sent, communicated, received, or stored by electronic means. Tex. Bus. & Com. Code § 322.002(7). An e-mail satisfies all of the disjunctive definitions of an electronic record. Khoury v. Tomlinson, 518 S.W.3d 568, 576 (Tex. App.—Houston [1st Dist.] 2017, no pet.).
A record or signature may not be denied legal effect or enforceability solely because it is in electronic form. Tex. Bus. & Com. Code § 322.007(a). If a law requires a signature, an electronic signature satisfies the law. Tex. Bus. & Com. Code § 322.007(d). “Electronic signature” means an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record. Tex. Bus. & Com. Code § 322.002(8). In Khoury, the court held that the e-mail name or address in the “from” field satisfies the definition of an electronic signature. Khoury, 518 S.W.3d at 579.
A suit for acknowledgment of debt should be filed within the acknowledgment’s own limitations period. See Stine v. Stewart, 80 S.W.3d 586, 592–93 (Tex. 2002) (per curiam), (four-year statute of limitations governs acknowledgments, which are new contractual promises to pay; third-party creditor beneficiary properly sued within four-year limitations period); City of Houston v. Moody, 572 S.W.2d 13, 16 (Tex. Civ. App.—Houston [1st Dist.] 1978, writ ref’d n.r.e.).
A pleading of acknowledgment must be made “upon the new promise” and “must declare upon it as the cause of action.” “The correct practice is either to (1) to quote the writing alleged to constitute the new promise, or (2) to attach it to the pleading as an exhibit.” DeRoeck, 556 S.W.3d at 834–35, citing Hanley v. Oil Capital Broadcasting Ass’n, 171 S.W.2d 864, 865 (Tex. 1943).
§ 14.32:4Exception for Consumer Debt Buyers
Effective September 1, 2019, a debt buyer, as defined by the Texas Finance Code and as distinguished from the original consumer creditor, may not commence an action on an acknowledgement to revive a time-barred consumer debt. Acts 2019, 86th Leg., R.S., ch. 1055, §§ 2, 3 (H.B. 996) (codified at Tex. Fin. Code § 392.307 and known as the Fair Consumer Debt Collection Act). A debt buyer may not, directly or indirectly, commence an action against or initiate arbitration with a consumer to collect a consumer debt after the expiration of the applicable limitations period provided by section 16.004 of the Texas Civil Practice and Remedies Code or section 3.118 of the Texas Business and Commerce Code. If an action to collect a consumer debt is barred under subsection (c), the cause of action is not revived by a payment of the consumer debt, an oral or written reaffirmation of the consumer debt, or any other activity on the consumer debt. Tex. Fin. Code § 392.307(c), (d). The changes effective September 1, 2019, apply only to an action of a debt buyer to collect a consumer debt if the action occurs on or after that date. An action of a debt buyer to collect a consumer debt that occurs before September 1, 2019, is governed by the law in effect immediately before that date, and the former law is continued in effect for that purpose. See Acts 2019, 86th Leg., R.S., ch. 1055, § 4 (H.B. 996).
§ 14.33Confirmation of Arbitration Award
Confirmation of an arbitration award is governed by the Texas General Arbitration Act (the “Act”), Tex. Civ. Prac. & Rem. Code §§ 171.001–.098. The Act applies to debts and credit agreements. See Tex. Civ. Prac. & Rem. Code § 171.002.
An arbitration award, by itself, is not an enforceable judgment. An award becomes a judgment after a court enters an order confirming the award. Either party can apply for an order to confirm the award, either to conclude a pending lawsuit that was abated while the parties arbitrated the dispute, or in a new lawsuit brought for the purpose of seeking enforcement of the final arbitration award when the nonprevailing party delays or refuses to comply with the award. See Tex. Civ. Prac. & Rem. Code § 171.087, 171.092.
A proceeding to confirm an arbitration award is in the nature of an enforcement proceeding. See Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W.2d 225, 236 (Tex. App.—Houston [14th Dist.] 1993, writ denied). A party to an arbitration is required as part of the arbitration enforcement process to return to the trial court to confirm the award and make it into an enforceable final judgment. See Kline v. O’Quinn, 874 S.W.2d 776, 784–85 (Tex. App.—Houston [14th Dist.] 1994, writ denied).
A written arbitration agreement that provides for or authorizes an arbitration in this state confers jurisdiction on the court to enforce the agreement and to render judgment on an award under the Act. Tex. Civ. Prac. & Rem. Code § 171.081.
§ 14.33:1Jurisdiction and Venue
The filing with the clerk of the court of an application for an order, including a judgment or decree, invokes the jurisdiction of the court. Tex. Civ. Prac. & Rem. Code § 171.082(a).
Unless otherwise provided, a party must file the initial application in the county in which an adverse party resides or has a place of business or, if an adverse party does not have a residence or place of business in this state, in any county. When an arbitration agreement provides that the hearing before the arbitrators is to be held in a county in Texas, an application to confirm an arbitration award must be filed with the clerk of the court of that county. If a hearing before the arbitrators has been held, the application must be filed with the clerk of the court of the county in which the hearing was held. If a proceeding is pending in a court relating to arbitration of an issue subject to arbitration under an agreement before the filing of the initial application, a party must file the initial application and any subsequent application relating to the arbitration in that court. Tex. Civ. Prac. & Rem. Code § 171.096.
On application of a party adverse to the party who filed the initial application, a court that has jurisdiction but that is located in a county other than as described by Tex. Civ. Prac. & Rem. Code § 171.096 shall transfer the application to a court of a county described by that section. The court shall transfer the application by an order comparable to an order sustaining a plea of privilege to be sued in a civil action in a district court of a county other than the county in which an action is filed. The party must file the application under this section (1) not later than the twentieth day after the date of service of process on the adverse party, and (2) before any other appearance in the court by that adverse party, other than an appearance to challenge the jurisdiction of the court. Tex. Civ. Prac. & Rem. Code § 171.097.
An applicant for a court order may file the application (1) before arbitration proceedings begin in support of those proceedings; (2) during the period the arbitration is pending before the arbitrators; or (3) subject to Tex. Civ. Prac. & Rem. Code chapter 171, at or after the conclusion of the arbitration. Tex. Civ. Prac. & Rem. Code § 171.083.
There is no limitations period prescribed in the Texas Civil Practice and Remedies Code for the filing of an application to confirm an arbitration award. But see Guzy v. Guzy, No. 1:17-CV-228-RP, 2017 WL 3032432 at *2 (W.D. Tex. July 17, 2017) (citing FIA Card Services, N.A. v. Gachiengu, 571 F.Supp.2d 799, 804 (S.D. Tex. 2008)) (limitations period under Federal Arbitration Act to file application to confirm award is one year).
However, the time for modifying, correcting, or vacating an award is prescribed: an application must be brought within ninety days after delivery of a copy of the award to the applicant. Tex. Civ. Prac. & Rem. Code §§ 171.088(b), 171.091(b).
On the filing of the initial application and the payment to the clerk of the fees of court required to be paid on the filing of a civil action in the court, the clerk shall docket the proceeding as a civil action pending in that court. Tex. Civ. Prac. & Rem. Code § 171.082(b).
§ 14.33:6Content of Application to Confirm
A court may require that an application filed under this chapter—
1.show the jurisdiction of the court;
2.have attached a copy of the agreement to arbitrate;
3.define the issue subject to arbitration between the parties under the agreement;
4.specify the status of the arbitration before the arbitrators; and
5.show the need for the court order sought by the applicant.
Tex. Civ. Prac. & Rem. Code § 171.085(a).
In describing the status of the arbitration, the applicant should review the conduct of the arbitration proceeding and include allegations that the applicant complied with all requirements of the conduct of the arbitration proceeding and that an arbitration award was issued.
The applicant may show the need for a court order by stating that the other party failed to comply with the terms of the award. As appropriate, the applicant may state that the other party has not brought a timely action to vacate, modify, or correct the award. The application should conclude with a prayer for an order confirming the award and for rendition of a judgment enforcing its terms.
A court may not find an application inadequate because it fails to state a requirement of Tex. Civ. Prac. & Rem. Code § 171.085(a) unless the court, in its discretion, (1) requires that the applicant amend the application to meet the requirements of the court, and (2) grants the applicant a ten-day period to comply. Tex. Civ. Prac. & Rem. Code § 171.085(b).
While an application may confirm attorney’s fees awarded in the arbitration award, a court may not award additional attorney’s fees for confirming the arbitration award. International Bank of Commerce-Brownsville v. International Energy Development Corp., 981 S.W.2d 38, 55 (Tex. App.—Corpus Christi 1998, pet. denied) (concluding that trial court erred by awarding additional attorney’s fees in an application to confirm an arbitration award). Nor can attorney’s fees incurred to enforce an arbitration award be recovered. See Executone Information Systems, Inc. v. Davis, 26 F.3d 1314, 1331 (5th Cir. 1994); Amalgamated Meat Cutters v. Great W. Food Co., 712 F.2d 122, 125 (5th Cir. 1983); Kline v. O’Quinn, 874 S.W.2d 776, 785 (Tex. App.—Houston [14th Dist.] 1994, writ denied); Babcock & Wilcox Co. v. PMAC, Ltd., 863 S.W.2d 225, 236 (Tex. App.—Houston [14th Dist.] 1993, writ denied).
The court shall hear each initial and subsequent application to confirm an arbitration award in the manner and with the notice required by law or court rule for making and hearing a motion filed in a pending civil action in a district court. Tex. Civ. Prac. & Rem. Code § 171.093.
An action to confirm an arbitration award is intended to be an expedited proceeding. See Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 269, 272 (Tex. 1992).
On the filing of an initial application to confirm an arbitration award, the clerk of the court shall issue process for service on each adverse party named in the application and attach a copy of the application to the process. Tex. Civ. Prac. & Rem. Code § 171.094(a). To the extent applicable, the process and service and the return of service must be in the form and include the substance required for process and service on a defendant in a civil action in a district court. Tex. Civ. Prac. & Rem. Code § 171.094(b). An authorized official may serve process for an initial application. Tex. Civ. Prac. & Rem. Code § 171.094(c). The rules authorize numerous additional persons to serve process. See Tex. Civ. Prac. & Rem. Code § 171.095(a); Tex. R. Civ. P. 21a(d).
§ 14.33:9Confirmation of Award
Unless grounds are offered for vacating, modifying, or correcting an award under Tex. Civ. Prac. & Rem. Code § 171.088 (vacating award) or § 171.091 (modifying or granting award), the court, on application of a party, shall confirm the award. Tex. Civ. Prac. & Rem. Code § 171.087. See Hoskins v. Hoskins, 497 S.W.3d 490, 494 (Tex. 2016) (“The statutory text could not be plainer: the trial court ‘shall confirm’ an award unless vacatur is required under one of the enumerated grounds in [sections 171.088 or 171.091] . . . [the Act] leaves no room for courts to expand on those grounds . . . .”); see also Premium Plastics Supply, Inc. v. Howell, 537 S.W.3d 201, 205–06 (Tex. App.—Houston [1st Dist.] 2017, no pet.) (trial court correctly granted summary judgment in suit to confirm arbitration award, finding that counterclaims were barred by res judicata because they should have been raised in the then-concluded arbitration proceeding).
An arbitrator’s award has the same effect as a judgment of a court of last resort, and the trial judge may not substitute his judgment for the arbitrator’s merely because he would have reached a different conclusion. See Holk v. Biard, 920 S.W.2d 803, 806–807 (Tex. App.—Texarkana 1996) (orig. proceeding [leave denied]).
A mistake of fact or law is insufficient to set aside an arbitration award. Anzilotti v. Gene D. Liggin, Inc., 899 S.W.2d 264, 266 (Tex. App.—Houston [14th Dist.] 1995, no writ).
Errors in the application of substantive law by the arbitrators during the proceedings in arbitration are not reviewable by the court on a motion to vacate an award. Jamison & Harris v. National Loan Investors, 939 S.W.2d 735, 737 (Tex. App.—Houston [14th Dist.] 1997, writ denied) (arbitrator’s refusal to admit evidence of fraud in the inducement in the execution of notes and further refusal to admit evidence of partial discharge of notes by release of one of the parties to the note not reviewable by the trial court on a motion to vacate an award).
If an application to vacate is denied and a motion to modify or correct the award is not pending, the court shall confirm the award. Tex. Civ. Prac. & Rem. Code § 171.088(c). If an application to modify or correct is granted, the court shall modify or correct the award to effect its intent and shall confirm the award as modified or corrected. If the application to modify or correct is not granted, the court shall confirm the award. Tex. Civ. Prac. & Rem. Code § 171.091(c).
§ 14.33:10Judgment on Award; Costs
On granting an order that confirms an award, the court shall enter a judgment or decree conforming to the order. The judgment or decree may be enforced in the same manner as any other judgment or decree. The court may award: (1) costs of the application and of the proceedings subsequent to the application; and (2) disbursements. Tex. Civ. Prac. & Rem. Code § 171.092.
A party may appeal a judgment confirming or denying confirmation of an award. Tex. Civ. Prac. & Rem. Code § 171.098(a)(3). The appeal shall be taken in the manner and to the same extent as an appeal from an order or judgment in a civil action. Tex. Civ. Prac. & Rem. Code § 171.098(b).
§ 14.34Sister-State or Federal Judgments Enforced through Uniform Enforcement of Foreign Judgments Act (UEFJA)
Under the United States Constitution, each state must give a final judgment of a sister state the same force and effect the judgment would be entitled to in the state in which it was rendered. Bard v. Charles R. Myers Insurance Agency, Inc., 839 S.W.2d 791, 794 (Tex. 1992) (citing U.S. Const. art. IV, § 1). In Texas, the enforcement of foreign judgments is governed by the Texas version of the UEFJA, Tex. Civ. Prac. & Rem. Code § 35.001 et seq.; Karstetter v. Voss, 184 S.W.3d 396, 401 (Tex. App.—Dallas 2006, no pet.).
A creditor seeking to “domesticate” a judgment from a federal court, or from another state, may either use the affidavit procedure set out in the Uniform Enforcement of Foreign Judgments Act, Tex. Civ. Prac. & Rem. Code §§ 35.001–.007, or bring an independent action in a Texas court, Tex. Civ. Prac. & Rem. Code § 35.008. When a judgment creditor proceeds under the UEFJA, the filing of the foreign judgment comprises both a plaintiff’s original petition and a final judgment. Walnut Equipment Leasing Co. v. Wu, 920 S.W.2d 285, 286 (Tex. 1996) (citing Lawrence Systems, Inc. v. Superior Feeders, Inc., 880 S.W.2d 203, 208 (Tex. App.—Amarillo 1994, writ denied). The affidavit procedure is faster and easier than bringing an independent action. The independent action is discussed at section 14.35 below.
The creditor or his attorney must file with the clerk of any court of competent jurisdiction a copy of the sister-state judgment authenticated in accordance with an act of Congress or a statute of this state (see Tex. Civ. Prac. & Rem. Code § 35.003(a)), and an affidavit showing the name and last known post office addresses of the judgment debtor and judgment creditor (Tex. Civ. Prac. & Rem. Code § 35.004(a)).
The judgment creditor or the judgment creditor’s attorney must promptly mail notice of the filing to the judgment debtor at debtor’s last known address, and file proof of mailing of the notice with the clerk of the court. Tex. Civ. Prac. & Rem. Code § 35.004(b). Notice must include the name and post office addresses of the judgment creditor and, if the judgment creditor has a Texas attorney, the attorney’s name and address. Tex. Civ. Prac. & Rem. Code § 35.004(c). On receipt of proof of mailing of the notice, the court clerk must note the mailing in the docket. Tex. Civ. Prac. & Rem. Code § 35.004(d).
See form 14-12 in this chapter for authenticating a foreign judgment in Texas.
§ 14.34:3Authentication of Judgment and Bill of Costs
In the context of Tex. Civ. Prac. & Rem. Code § 35.003, a sister-state judgment or bill of costs can be authenticated in one of the following ways:
1.The judgment can be proved or admitted by the attestation of the clerk and seal of the court annexed, if a seal exists, together with a certificate of a judge of the court that the attestation is in proper form. 28 U.S.C. § 1738. The authentication is often referred to as an “exemplified judgment.” See also Medical Administrators, Inc. v. Koger Properties, Inc., 668 S.W.2d 719, 721 (Tex. App.—Houston [1st Dist.] 1983, no writ) (when plaintiff sues on judgment of sister state in Texas and introduces his judgment, authenticated according to 28 U.S.C. § 1738, he thereby establishes prima facie case); Paschall v. Geib, 405 S.W.2d 385 (Tex. Civ. App.—Dallas 1966, writ ref’d n.r.e.) (fact that foreign judgment and judge’s certificate were signed by two different individuals was not defect).
Practice Note: Requesting an exemplified judgment copy, also called a “triple-sealed” copy, from the foreign court is the most common way to authenticate a sister-state judgment.
1.Evidence of judicial proceedings of another state may be admissible if less is shown than required by the federal statute, as long as it conforms to the rules of evidence of the state where the trial is being held. Medical Administrators, Inc., 668 S.W.2d at 721 (citing Donald v. Jones, 445 F.2d 601, 606 (5th Cir. 1971), cert. denied, 404 U.S. 992 (1971)). A copy of a judgment can be authenticated according to Tex. R. Evid. 901(b)(7) or 902. The certification should be checked, however, to see that it is self-authenticating, in conformance with Tex. R. Evid. 902. See Whitehead v. Bulldog Battery Corp., 400 S.W.3d 115, 118–19 (Tex. App.—Dallas 2013, pet. denied) (mem. op. on reh’g); Sanders v. State, 787 S.W.2d 435, 438–40 (Tex. App.—Houston [1st Dist.] 1990, pet. ref’d).
2.A copy of a judgment of another state can be authenticated by the testimony of a witness who has compared the offered copy with the original record entry of the judgment; such a copy then becomes admissible as an “examined copy,” and is sufficient prima facie proof of it. Schwartz v. Vecchiotti, 529 S.W.2d 603, 604–05 (Tex. Civ. App.—Houston [1st Dist.] 1975, writ ref’d n.r.e.).
3.A copy of a judgment of a federal court can apparently be authenticated by no more than the certification of the rendering court’s clerk under the seal of that court. See Intertype Corp. v. Sentinel Publishing Co., 206 S.W. 548, 549 (Tex. Civ. App.—San Antonio 1918, no writ).
If the judgment debtor can show a ground on which enforcement should be stayed, the Texas court must stay enforcement if the debtor can provide the same sort of security required for staying enforcement of Texas judgments. Tex. Civ. Prac. & Rem. Code § 35.006(b); see also Tex. Civ. Prac. & Rem. Code § 52.006. The following are some of the grounds most often used to attack the validity of a sister-state judgment.
Merits of Original Controversy: The defendant cannot avoid a foreign judgment by pleading a matter that goes to the merits of the original controversy; on those matters the foreign judgment is conclusive, and a Texas court cannot relitigate a matter tried before a sister state’s court with jurisdiction over the parties and subject matter. Massachusetts v. Davis, 168 S.W.2d 216, 220 (Tex. 1942); Shaps v. Union Commerce Bank, 476 S.W.2d 466, 468 (Tex. Civ. App.—Beaumont, writ ref’d n.r.e.), cert. denied, 409 U.S. 1060 (1972).
Collateral Attack on Judgment: As a general rule, a sister state’s judgment that is final and nonpenal in nature can be collaterally attacked only if it is void as rendered on the following grounds:
1.The rendering court lacked jurisdiction.
2.The judgment has been paid or otherwise discharged.
3.It is a cause of action for which the forum state has not provided a court.
4.The judgment was procured by fraud.
Milwaukee County v. M.E. White Co., 296 U.S. 268, 271–72 (1935); Williams v. State of Washington, 581 S.W.2d 494, 496 (Tex. Civ. App.—Dallas 1979, writ ref’d n.r.e.).
Jurisdiction: Personal jurisdiction in Texas does not appear to be an avenue for attack. Haaksman v. Diamond Offshore (Bermuda), Ltd., 260 S.W.3d 476, 479 (Tex. App.—Houston [14th Dist.] 2008, pet. denied) (“Courts in other states have held that, although a judgment debtor may contest recognition by arguing that the foreign-country court lacked personal jurisdiction over the judgment debtor, the judgment debtor may not assert that the court of the state in which the judgment is filed does not have in personam jurisdiction over the judgment debtor.”) (citing Pure Fishing, Inc. v. Silver Star Co., 202 F. Supp. 2d 905, 910 (N.D. Iowa 2002) (holding a party seeking the recognition and enforcement of a foreign judgment under Iowa’s Uniform Foreign Money-Judgment Recognition Act is not required to establish a basis for exercise of personal jurisdiction over the judgment debtor)).
The validity of a sister-state judgment will be tested against the law of that state, except that in all cases the requirements of due process must be satisfied. O’Brien v. Lanpar Co., 399 S.W.2d 340, 341 (Tex. 1966); Country Clubs, Inc. v. Ward, 461 S.W.2d 651, 656 (Tex. Civ. App.—Dallas 1970, writ ref’d n.r.e.). For example, on the question of jurisdiction over a nonresident defendant, a Texas court may consider whether the defendant was properly served under the sister state’s long-arm statute; the Texas court also may examine the long-arm statute of the rendering sister state to ascertain whether it afforded the defendant due process. See Mitchim v. Mitchim, 518 S.W.2d 362 (Tex. 1975) (court examined whether Arizona long-arm statute afforded due process); Brown’s Inc. v. Modern Welding Co., 54 S.W.3d 450 (Tex. App.—Corpus Christi 2001, no pet.) (denial of domestication because of failure to comply with Washington’s personal jurisdiction service requirements); Country Clubs, Inc., 461 S.W.2d at 656 (denial of domestication because of failure to comply with Kentucky long-arm statute) When a collateral attack is made on a duly authenticated foreign judgment filed in Texas, the trial court has only two alternatives: it can enforce the judgment or, if proper evidence is before it, declare the judgment void for want of jurisdiction. Corporate Leasing International v. Bridewell, 896 S.W.2d 419, 422 (Tex. App.—Waco 1995, orig. proceeding) (abuse of discretion for Texas court to vacate Michigan judgment). See also Mindis Metals, Inc. v. Oilfield Motor & Control, Inc., 132 S.W.3d 477, 482 (Tex. App.—Houston [14th Dist.] 2004, pet. denied) (finding that appeal is better vehicle than mandamus for reviewing trial court’s order to vacate domesticated foreign state’s judgment).
Fraud: Full faith and credit can be denied the judgment of a sister state if it was procured through extrinsic fraud. False testimony constitutes instrinsic fraud, and the judgment of a sister state cannot be successfully challenged on that ground. Chapman v. Schefsky, 470 S.W.2d 786, 788 (Tex. Civ. App.—Waco 1971, writ ref’d n.r.e.). Extrinsic fraud refers to fraud that is collateral to the question determined in the original action and that denies the defendant the benefit of a fair adversary proceeding. See E.H. Schopler, Annotation, Fraud as Defense to Action on Judgment of Sister State, 55 A.L.R.2d 673, 687 (1957).
§ 14.34:5Statute of Limitations
An action on a foreign judgment is barred in Texas if it is barred under the laws of the jurisdiction in which it was rendered. Tex. Civ. Prac. & Rem. Code § 16.066(a). An action against a judgment debtor who has resided in Texas for ten years before the action may not be brought on a foreign judgment rendered more than ten years before the commencement of the Texas action. Tex. Civ. Prac. & Rem. Code § 16.066(b).
§ 14.35Common-Law Action to Enforce Sister-State Judgments
As an alternative to using the notice and affidavit procedure of the Uniform Enforcement of Foreign Judgments Act as described in section 14.34 above, the creditor may have his judgment domesticated by bringing a common-law suit to enforce it. See Tex. Civ. Prac. & Rem. Code § 35.008.
A petition must be prepared, filed, and served as in any other suit. It should allege the particulars of the sister-state suit—that is, proper subject matter jurisdiction, proper service according to the laws or rules of the sister state, and the rendering of a final, valid, and subsisting judgment. An authenticated copy of the sister-state judgment should be attached to the petition. See section 14.34:3 above regarding authentication and see form 14-13 in this chapter for a petition.
Once the plaintiff introduces a properly authenticated copy of the sister-state judgment, he creates a prima facie case of the validity of the judgment, and the burden shifts to the defendant to disprove its validity. Mitchim v. Mitchim, 518 S.W.2d 362, 364 (Tex. 1975); In re M.L.W., 358 S.W.3d 772, 774 (Tex. App.—Texarkana 2012, no pet.).
There is a split in the courts of appeals about whether this presumption applies to a default judgment taken in the sister state. Cases holding that the presumption exists include Cash Register Sales & Services of Houston, Inc. v. Copelco Capital, Inc., 62 S.W.3d 278, 280 (Tex. App.—Houston [1st Dist.] 2001, no pet.); Minuteman Press International, Inc. v. Sparks, 782 S.W.2d 339, 342 (Tex. App.—Fort Worth 1989, no writ); First National Bank v. Rector, 710 S.W.2d 100, 103 (Tex. App.—Austin 1986, writ ref’d n.r.e.); and Hart v. Calkins Manufacturing, Inc., 623 S.W.2d 451, 452 (Tex. App.—Texarkana 1981, no writ). Cases holding that a default judgment is not entitled to the presumption of validity include Jackson v. Randall, 544 S.W.2d 439, 441 (Tex. Civ. App.—Texarkana 1976, no writ), and Country Clubs, Inc. v. Ward, 461 S.W.2d 651, 652 (Tex. Civ. App.—Dallas 1970, writ ref’d n.r.e.).
See section 14.34:4 above for a discussion of defensive matters that can be raised.
No express statutory authority exists for recovery of attorney’s fees, but if the parties stipulate that the law of the sister state applies to the case and attorney’s fees can be recovered under that law, attorney’s fees are recoverable. See Tibbetts v. Tibbetts, 679 S.W.2d 152, 154 (Tex. App.—Dallas 1984, no writ). See chapter 31 in this manual for a general discussion of Texas law regarding attorney’s fees. Rules for the determination of the law of other states and foreign countries are set forth in Tex. R. Evid. 202–203. See the discussion of proof of foreign law at section 14.34 above.
A common-law suit to enforce a foreign judgment is barred by the same limitations periods as a suit under the Uniform Enforcement of Foreign Judgments Act. See the discussion in section 14.34:5 above.
§ 14.36Foreign-Country Judgments
Based on a strong need for uniformity between states with respect to foreign-country judgments, and to protect due process rights of Texas citizens and businesses, the Texas legislature revised the Texas Foreign-Country Money Judgment Recognition Act to conform to the updated Uniform Foreign-Country Money Judgments Recognition Act. See Acts 2017, 85th Leg., R.S., ch. 390, § 1 (S.B. 944), eff. June 1, 2017. See also Tex. Civ. Prac. & Rem. Code §§ 36A.001–.011, which may be cited as the Uniform Foreign-Country Money Judgments Recognition Act.
A lawsuit is required to recognize a foreign-country judgment. See Bannerman v. Gordy, No. A-15-MC-557-LY, 2017 U.S. Dist. LEXIS 168696, at *4 (W.D. Tex. Oct. 12, 2017) (court dismissed plaintiff’s attempt to enforce filed Canadian judgment because plaintiff failed to file complaint under Act, failed to pay civil filing fee, and failed to serve defendants).
The Act applies to a foreign-country judgment to the extent that the judgment (1) grants or denies recovery of a sum of money and (2) under the law of the foreign country in which the judgment is rendered, is final, conclusive, and enforceable. Tex. Civ. Prac. & Rem. Code § 36A.003(a). The Act excludes a judgment for taxes, fine, or other penalty, and excludes a judgment for divorce, support, maintenance, or in connection with other domestic relations. See Tex. Civ. Prac. & Rem. Code § 36A.003(b).
The party seeking recognition has the burden of establishing that the Act applies to the foreign-country judgment. Tex. Civ. Prac. & Rem. Code § 36A.003(c).
§ 14.36:2Standards for Recognition
A Texas court shall recognize a foreign-country judgment, unless one of the exceptions in section 36A.004(b) or (c) applies. Tex. Civ. Prac. & Rem. Code § 36A.004(a).
A Texas court may not recognize a foreign-country judgment if:
(1)the judgment was rendered under a judicial system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law;
(2)the foreign court did not have personal jurisdiction over the defendant; or
(3)the foreign court did not have jurisdiction over the subject matter.
Tex. Civ. Prac. & Rem. Code § 36A.004(b).
For a nonexclusive list of bases for personal jurisdiction, see Tex. Civ. Prac. & Rem. Code § 36A.005.
A Texas court is not required to recognize a foreign-country judgment if—
(1)the defendant in the proceeding in the foreign court did not receive notice of the proceeding in sufficient time to enable the defendant to defend;
(2)the judgment was obtained by fraud that deprived the losing party of an adequate opportunity to present the party’s case;
(3)the judgment or the cause of action on which the judgment is based is repugnant to the public policy of this state or the United States;
(4)the judgment conflicts with another final and conclusive judgment;
(5)the proceeding in the foreign court was contrary to an agreement between the parties under which the dispute in question was to be determined otherwise than by proceedings in the foreign court;
(6)jurisdiction was based only on personal service and the foreign court was a seriously inconvenient forum for the trial of the action;
(7)the judgment was rendered in circumstances that raise substantial doubt about the integrity of the rendering court with respect to the judgment;
(8)the specific proceeding in the foreign court leading to the judgment was not compatible with the requirements of due process of law; or
(9)it is established that the foreign country in which the judgment was rendered does not recognize judgments rendered in this state.
Tex. Civ. Prac. & Rem. Code § 36A.004(c).
§ 14.36:3An Action (Lawsuit) Is Required for Recognition
If recognition of a foreign-country judgment is sought as an original matter, the issue of recognition may be raised by filing an action seeking recognition of the foreign-country judgment. Tex. Civ. Prac. & Rem. Code § 36A.006(a). If recognition of a foreign-country judgment is sought in a pending action, the issue of recognition may be raised by counterclaim, cross-claim, or affirmative defense. Tex. Civ. Prac. & Rem. Code § 36A.006(b).
§ 14.36:4Effect of Recognition
If the court in a proceeding under section 36A.006 finds that the foreign-country judgment is entitled to recognition, then, to the extent that the foreign-country judgment grants or denies recovery of a sum of money, the foreign-country judgment is—
(1)conclusive between the parties to the same extent as the judgment of a sister state entitled to full faith and credit in this state would be conclusive; and
(2)enforceable in the same manner and to the same extent as a judgment rendered in this state.
Tex. Civ. Prac. & Rem. Code § 36A.007.
§ 14.36:5Stay of Texas Proceeding Pending Appeal of Foreign-Country Judgment
If a party establishes that an appeal from a foreign-country judgment is pending or will be taken, the court may stay any proceedings with regard to the foreign-country judgment until:
(1)the appeal is concluded;
(2)the time for appeal expires; or
(3)the appellant has had sufficient time to prosecute the appeal and has failed to do so.
Tex. Civ. Prac. & Rem. Code § 36A.008.
An action to recognize a foreign-country judgment must be brought within the earlier of the time during which the foreign-country judgment is effective in the foreign country or fifteen years from the date that the judgment became effective in the foreign country. Tex. Civ. Prac. & Rem. Code § 36A.009.
§ 14.36:7Converting Foreign Currency
The objective of civil money judgments is to place the judgment creditor in a position as close as possible to that in which he would have been if the obligation had been carried out by the judgment debtor or if the injury had not occurred. In enforcing a foreign judgment, the court should assure that neither party receives a windfall or is penalized as a result of the currency conversion. Restatement of Foreign Relations Law of United States § 823 cmt. c (1987). If the foreign currency has depreciated since the injury or breach, judgment should be given at the rate of exchange applicable on the date of the injury or the breach. If the foreign currency has appreciated since the injury or breach, judgment should be given at the rate of exchange applicable on the date of judgment or date of payment. El Universal, Compania Periodistica Nacional, S.A. de C.V. v. Phoenician Imports, Inc., 802 S.W.2d 799, 803–04 (Tex. App.—Corpus Christi 1990, writ denied).
§ 14.37Federal Court Judgments
§ 14.37:1Effect of Federal Court Judgment
Every district court judgment, other than one entered in favor of the United States, constitutes a lien on the property located in the state in which the district court judgment was rendered, to the same extent and under the same conditions as a state court judgment in that state, and the lien ceases to be a lien in the same manner and time. If state law requires certain procedures before a lien attaches, those requirements will apply to federal judgments only if the state law authorizes the judgment of a federal court to be conformed to rules and requirements relating to state court judgments. 28 U.S.C. § 1962.
§ 14.37:2Out-of-State Federal Court Judgments
A final judgment for the recovery of money or property entered in any federal district court, bankruptcy court, appeals court, or the Court of International Trade may be registered in any other district by filing a certified copy of the judgment with the other court. The judgment then has the same force and effect as a judgment of the district court in which it is registered, and it may be enforced in a like manner. A certified copy of the satisfaction of any judgment in whole or in part may be registered in any district in which the judgment is abstracted and recorded. 28 U.S.C. § 1963.
Federal court judgments can also be domesticated under the Uniform Enforcement of Foreign Judgments Act, Tex. Civ. Prac. & Rem. Code §§ 35.001–.007. See section 14.34 above.
§ 14.37:3Indexing Texas Federal District Court Abstracts of Judgment
An abstract of a judgment rendered by a federal court in Texas may be recorded and indexed on the certificate of the clerk of the court. Tex. Prop. Code § 52.007. The phrase on the certificate of the clerk of the court apparently refers to the certificate of the clerk of the federal court in which the judgment was rendered, because the prior version of this law provided that such an abstract of judgment “may be recorded and indexed in the same manner and with like force and effect as provided for judgments of the Courts of this State, upon the certificates of the clerks of such United States courts.” Acts 1925, 39th Leg., repealed by Acts 1983, 68th Leg., R.S., ch. 576, § 6 (S.B. 748), eff. Jan. 1, 1984.