Saturday, December 14, 2013

Credit Union loses on appeal: Hooper v Generations Community FCU (case note) (San Antonio)

Hooper vs Generations Community FCU 


This is a collection case in which a debtor ultimately prevailed because the financial institution failed to prove its cause of action. The trial court had not held the plaintiff to its burden of proof, but the San Antonio Court of Appeals did, when it reviewed what had transpired in the court below, and overturned the trial court's judgment in June 2013.

Explaining in their opinion why judgment for the credit union had to be reversed, three justices on the San Antonio Court of Appeals, all women, correctly state that a cause of action for collection of a credit card debt is a breach of contract claim, recite the essential elements of such claim, and show that the credit union had simply not proven all of those elements at trial. It lost, as it should, because the credit union's attorney had done a poor job presenting its case. As was true of Citibank when it moved for summary judgment with a dubious motion against cardholder Jack Tully in one of the first precedent-setting Texas credit card debt collection case in recent history.  


In Tully v. Citibank (Citibank v Tully in the trial court) Citibank's attorney had a summary judgment in his client's favor reversed because two if his theories - sworn account and quantum meruit - were not legally viable for collection of a credit card debt, while the third and correct theory, given the nature of the debt -- breach of contract --  failed because Citibank had not proven the contractual authorization for finance charges.

The summary judgment record in Tully contained a Cardmember Agreement from Citibank, but it did not contain the interest rate disclosure information, which was presumably set forth in separate document ("card carrier") mailed with the card cards which reflected different interest rates for different categories of borrowers,  reflecting different borrower profiles, creditworthiness, and risk levels (-- > risk-based pricing based on borrower characteristics vs. market-based pricing).

The Texaraka Court of Appeals accordingly reversed the summary judgment for Citibank and sent the case back to the trial court.


In Hooper, a panel of the San Antonio Court of Appeals reviewed the propriety of judgment for the creditor entered after a bench trial. Even though the standard of review on appeal from such a judgment differs from the standard applicable to summary judgments, the substantive elements that the plaintiff has to prove are the same.

As plaintiff, the creditor has to prove (1) that a valid contract existed, (2) that the plaintiff performed or tendered performance, (3) that the defendant breached the terms of the contract, and (4) that the plaintiff suffered damages as a result of the defendant's breach.

Other intermediate courts of appeals in Texas do not disagree with the recitation of these essential elements of a breach of contract claim; nor do the even disagree with the requirement that specific contract terms must be proven for a viable breach-of-contract claim (rather than merely the abstract fact that there was some kind of contract between creditor and borrower).

But panels of justices of certain other courts of appeal (in Houston, Dallas, and Waco) have let financial institutions win without proving the underlying contract even though such a contract is always required under state and/or federal law governing credit cards and issuers of such cards. How so? -- By other means.
See --> Account Stated: an old theory turned to new use to allow creditors to win without proving up the loan contract


The court of appeals' opinion in Hooper makes clear that the credit union lost because its attorney had done a poor job presenting its case at trial. It had not actually proven up the agreement referenced in the application for credit, and had not shown what the terms were that formed the basis for the allegation of breach by Hooper. Since the element of breach of credit agreement could only be shown with reference to the specific contractual obligation governing repayment in installments, the absence of the agreement was also fatal to the third element of a viable breach of contract cause of action, breach by nonperformance.
Holding that the evidence was legally insufficient to support the trial court's judgment, the San Antonio appellate court explains that the creditor cannot prove breach without establishing what obligations were subject to breach, i.e. the terms of the underlying loan contract.

The court sums up the deficiency in the evidence as follows:

Although there was some evidence that Hooper obtained a credit card from the Credit Union and that he used the credit card, there was no evidence establishing Hooper's specific obligations under the terms of an agreement. For example, there was no evidence regarding Hooper's obligation to repay the balance and interest on the account, including when his payments were due, where his payments were to be made, and what would transpire if he failed to make a payment in accordance with the terms of an agreement. Nor was there evidence indicating Hooper failed to comply with a particular term of an agreement, or otherwise failed to perform his obligations under an agreement. We conclude the record discloses the complete absence of evidence of the third element of the Credit Union's breach of contract claim, i.e., that Hooper breached the terms of an agreement with the Credit Union. In the absence of evidence that Hooper failed or refused to do something he promised to do under an agreement, the Credit Union failed to prove its breach of contract claim.


Both Tully v. Citibank and Hooper v. Federal Credit Union involved insufficient proof of the terms of the underlying contract. In Tully it was lack of evidence that the interest rates on the account statements were contractually authorized because the Cardmember Agreement that Citibank attached to its motion did not actually contain the finance terms; in Hooper it was the absence of evidence of the repayment terms that the customer was alleged to have breached because the credit union never proved up the Credit Line Account Agreement and Disclosure that contained the terms under which the customer was to held liable.

Because the element of breach by nonperformance can only be established with reference to the underlying contractual obligations, the absence of the terms document also proved fatal to the third element of the credit union's breach of contract claim. Because the credit union had not met its burden of proof at trial, the San Antonio reversed and rendered judgment for the Defendant.


Jack TULLY v CITIBANK (SOUTH DAKOTA), N.A., 173 S.W.3d 212 (Tex.App.-Texarkana 2005, no pet.)(case note)
No. 04-12-00080-CV (Tex.App. - San Antonio, June 23, 2013, no pet.)

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