Kenneth W. Erickson v. Bank of America, N.A.

Opinion issued April 21, 2005 In The Court of Appeals For The First District of Texas NO. 01-04-00790-CV KENNETH W. ERICKSON, Appellant V. BANK OF AMERICA, N.A., Appellee On Appeal from the 113th District Court Harris County, Texas Trial Court Cause No. 2003-13916 MEMORANDUM OPINION The trial court rendered summary judgment against Kenneth W. Erickson and in favor of Bank of America, N.A. (the “Bank”), awarding the Bank $138,056.74 plus post-judgment interest and attorney’s fees on the Bank’s lawsuit for recovery of money owed on a line of credit extended to Erickson. We affirm. BACKGROUND In November 1999, the Bank and Erickson entered into a written agreement in which the Bank extended a $120,000 line of credit to Erickson, and Erickson, in a written Pledge Agreement, assigned to the Bank a security interest in 50,000 shares of Stage Stores, Inc. stock. The credit line agreement required that Erickson “[a]t all times . . . maintain, or cause to be maintained, marketable securities as collateral for the Account as set forth in the Pledge Agreement.” The credit line agreement provided several events of default, including: If (a) you fail to make the Total Minimum Payment Due by the due date, (b) you . . . [do] not meet any condition of any agreement executed in conjunction with this Agreement, including but not limited to, the Pledge Agreement, . . . (i) we believe in good faith that the chances of you paying or meeting all of the conditions of this Agreement have been impaired, . . . then you will be in default of this Agreement. If you are in default we may do any or all of the following: (i) declare all amounts owing on the Account to be immediately due and payable in one payment without notice, . . . or (ix) bring legal action against you. . . . If this Agreement becomes due, by default, demand or maturity, we may at our option, demand, sue for, collect or make any compromise or settlement we deem desirable with reference to any marketable securities or any other collateral. We shall have no duty with respect to collection or protection of such collateral, or any income of such collateral or as to the preservation of any rights pertaining to such collateral. The Pledge Agreement provided, “This security interest is given to secure payment of all indebtedness evidenced by a promissory note, line of credit agreement or other financial accommodation in the amount of $120,000.00 . . . .” The Pledge Agreement contained the following pertinent provisions: 4. Limitations on Obligations of [the Bank]. [The Bank] will use ordinary reasonable care in the physical preservation and custody of the Collateral in [the Bank’s] possession, but will have no other obligation to protect the Collateral or its value. . . . Except as provided above, [the Bank] will have no responsibility or liability whatsoever for any deterioration or decrease in the value of the Collateral. 5. Default. Pledgor may be in default under this Agreement if (a) Pledgor does not make a payment when due . . . ; (b) this Agreement ceases to be in full force and effect (including failure of any Collateral document to create or continue a valid and perfected security interest or lien) at any time and for any reason; . . . (g) failure of Pledgor to comply with or to perform any term, obligation, covenant or condition contained in this Agreement or any other Agreement or loan with [the Bank]; . . . or, (i) if there is any event of default as defined in the Obligation. . . . . 7. Waivers. Pledgor waives presentment, demand, notice of demand and notice of acceleration of maturity, protest and notice of nonpayment, notice of dishonor, and any other notice whatsoever, except as may be required by law. . . . . . . . 10. A. Maintenance of Collateral. At all times during the term of this Agreement, Pledgor agrees to maintain as security for the Obligation Collateral with an Adjusted Collateral Value (as determined herein) in excess of the unpaid principal balance of the Obligation. . . . . . . . C. Event of Default. Pledgor agrees that the failure to comply with paragraph A above shall constitute an additional event of default under Section 5 of this Agreement. Pledgor shall have fifteen (15) calendar days from the date written notification of such noncompliance is mailed to Pledgor . . . to either pledge additional Collateral . . . or to reduce the unpaid principal balance of the Obligation . . . . If the Collateral is declining in value or threatens to decline speedily in value, [the Bank] shall have no obligation to notify Pledgor of the failure to comply with paragraph A above nor to provide Pledgor with an opportunity to cure such noncompliance, and in such case Pledgor agrees that [the Bank] may immediately at [the Bank’s] sole option (i) declare amounts due under the Obligation to be immediately due and payable, and/or (ii) sell all or any part of the Collateral and apply the proceeds of such Collateral to payment of amounts due under the Obligation. D. Sale or Substitution of Collateral. Subject to the provisions of paragraph C above, if no default has occurred under this Agreement or would result from such action, Pledgor may (i) sell the Collateral provided that the net proceeds from the sale . . . are delivered to [the Bank] to be applied at [the Bank’s] option to the amounts due under the Obligation . . . . Soon after entering into the agreement, Erickson borrowed the full $120,000 against the line of credit. Two weeks after signing the agreements and receiving the line of credit, Erickson wrote to the Bank, stating, “I have been informed that you will sell the stock if necessary. I am writing to ask you to please watch this stock’s value. In the event the stock’s value falls below my line of credit, I ask that you will sell the stock.” At some time after Erickson wrote this letter, the stock became virtually worthless. In March 2003, the Bank sued Erickson, alleging that he was in default and that he owed the Bank $108,563.85 in principal and interest. Erickson denied the Bank’s claim and filed a counterclaim for breach of contract, breach of fiduciary duty, breach of warranty, negligence, and gross negligence, asserting that the Bank’s failure to sell the Stage Stores shares, as directed by Erickson, resulted in a net loss to Erickson of $113,500. The Bank filed a motion for summary judgment in which it asserted that it had established its entitlement to repayment of the loan as a matter of law and challenged each of Erickson’s counterclaims as having no evidence to support them. The trial court rendered judgment in favor of the Bank on all issues, including Erickson’s counterclaims. DISCUSSION We review Erickson’s issues on appeal under the usual standard of review for rule 166a(c) and (i). See Tex. R. Civ. P. 166a(c), (i); Randall’s Food Mkts., Inc. v. Johnson, 891 S.W.2d 640, 644 (Tex. 1995) (stating standard of review under rule 166a(c)); Flameout Design & Fabrication, Inc. v. Pennzoil Caspian Corp., 994 S.W.2d 830, 834 (Tex. App.—Houston [1st Dist.] 1999, no pet.) (stating standard of review under rule 166a(i)). Liability on the Line of Credit In his first issue, Erickson contends that the trial court erred in granting the motion for summary judgment for recovery of “the outstanding balance alleged to be due on the promissory note” because there were issues of material fact regarding the right of recovery on “the note, and the conditions precedent to the recovery on the note.” Erickson argues that, in his deposition, he raised issues of fact regarding the existence of a default and whether the Bank provided notice of default and notice of intent to accelerate the note. Erickson further argues that the Bank’s failure to provide such notice did not comply with the requirements of Shumway v. Horizon Credit Corp., 801 S.W.2d 890, 892-93 (Tex. 1991). The issue in Shumway was whether the makers of a promissory note waived notice of intent to accelerate the note. Id. at 891. The Shumways signed a promissory note that was payable in monthly installments over a period of 15 years. Id. Upon their default, the holder accelerated the payments due on the note and sued the Shumways for the entire unpaid balance plus interest. Id. The supreme court concluded that, although the Shumways clearly waived presentment and notice of acceleration, they did not waive notice of intent to accelerate. Id. at 895. Erickson’s reliance on Shumway is misplaced. Erickson’s credit line agreement is not a promissory note payable in installments. The agreement has no time for payment and is therefore payable on demand. See Tex. Bus. & Com. Code Ann. § 3.108 (Vernon 2002) (note stating no time for payment is payable on demand); see also Donald v. Bennett, 415 S.W.2d 450, 453 (Tex. Civ. App.—Forth Worth 1967, writ ref’d n.r.e.) (“Paper payable on demand is due and actionable immediately without demand . . . . A bill or order that expresses no time for payment becomes, on acceptance, due on demand. . . .”) (quoting 9 Tex. Jur. 2d Bills and Notes §§ 62, 63 (1959) ); Stavert Props., Inc. v. RepublicBank, 696 S.W.2d 278, 281 (Tex. App.—San Antonio 1985, writ ref’d n.r.e) (stating that demand note is due from moment of execution and is actionable immediately without demand). In addition to the Bank’s rights under section 3.108, the agreements provided for the Bank’s rights to collect on the loan. Under the agreements, the Bank had the right to sue Erickson for all amounts owed in the event of Erickson’s default. Erickson’s failure to maintain collateral sufficient to secure his loan was an event of default of the Pledge Agreement, and a default of the Pledge Agreement was an event of default of the credit line agreement. These agreements provided that, upon default, the Bank could declare the loan due and payable without notice and bring legal action to collect the debt. It is therefore immaterial whether the Bank provided Erickson with notice of default and notice of intent to accelerate the note. We overrule Erickson’s first issue. Erickson’s Counterclaims In his second issue, Erickson contends that the trial court erred in granting the Bank’s motion for summary judgment on Erickson’s counterclaims because there were material issues of fact regarding whether the Bank breached its contract with Erickson by not selling the collateral and applying the proceeds to the balance of Erickson’s loan. Erickson argues that, at a time when the collateral was sufficient to satisfy the loan, he directed the Bank to sell the shares of Stages Stores stock and to apply the proceeds to the balance of the loan. Erickson further argues that, because the Bank did not honor his directive, the stock lost value and was not sufficient to secure the loan, and the Bank breached its contract with Erickson. Erickson’s contention that the Bank “acknowledged that it would act to sell the collateral and apply the proceeds to the balance of the loan” is without merit. Both the agreements were integrated, providing that they represented “the final agreement between Borrower(s) and [the Bank], and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements between such parties. There are no unwritten oral agreements between [Erickson] and [the Bank].” Thus, the terms of these written, integrated agreements could not be contradicted by Erickson’s deposition testimony. See Conte v. Greater Houston Bank, 641 S.W.2d 411, 419 (Tex. App.—Houston [14th Dist.] 1982, writ ref’d n.r.e.) (stating that express provisions of note cannot be contradicted by parol evidence). Contrary to Erickson’s assertion, the Pledge Agreement did not give Erickson the right to direct the Bank to sell the collateral. The Pledge Agreement, in paragraph 10.D, gave Erickson the right, subject to any events of default, to sell the collateral and to apply the proceeds to the balance of the loan. There is no evidence that Erickson told the Bank that he wanted to sell the collateral, nor is there evidence that he “directed” the Bank to do so. Erickson’s letter asked the Bank to “watch this stock’s value” and to “sell this stock” if it fell below his line of credit. Moreover, there is no evidence that the Bank actually received Erickson’s letter. The agreement between Erickson and the Bank specifically limited the Bank’s obligation in connection with the collateral to the physical preservation and custody of the collateral and relieved the Bank of any responsibility for the decrease in value of the collateral. Although the agreement gave the Bank the right to sell the collateral under certain conditions, it did not impose any duty to sell the collateral. Therefore, the Bank did not breach its contract with Erickson by not selling the stock. We overrule Erickson’s second issue. CONCLUSION We affirm the judgment. Sam Nuchia Justice Panel consists of Justices Nuchia, Jennings, and Alcala.