Did TERI guaranty bring NCSLT-securitized student loans within the nondischargeability provision of the Bankruptcy Code?

EIGHTH CIRCUIT WEIGHS IN ... SOMEWHAT TENTATIVELY

  In re Page v. NCSLT 2006-1, No. 18-6011 (8th Cir. Nov. 20, 2018) (reversing summary judgment for Trust and remanding for fact determination regarding TERI's guaranty of private student loan and its significance to the loan's dischargeability).

TERI apparently did not "fund" educational loan program after all by being involved in origination of private student loans and providing loan guarantee [for a fee added to the loan balance] so as to make such loans non-dischargeable when students later filed for bankruptcy. After all, because some courts had already resolved this issue against struggling student loan debtors who sought relief in bankruptcy court.

Page v. NCSLT 2006-1 (8th Cir. Nov. 20, 2018)

On Nov 20, 2018, Bankruptcy Panel of Eight Circuit Court of Appeals reversed summary judgment obtained by one of the 15 National Collegiate student loan securitization trusts regarding nondischargeability of private student loan debt, which was based on the contention that the loan qualifies for BK discharge immunity because the The Education Resources Institute (TERI), a nonprofit entity, had been involved in loan origination.

UPDATE: Hearing consistent with the BAP's remand directive scheduled for 1/8/2019 to consider the issue regarding TERI's guarantee of the Loan and funding of the Loan program. U.S. Bankruptcy Court for the Eastern District of Missouri - St. Louis). 

In a to-be-published opinion, the appeals panel agreed with the bankruptcy court that a private student loan taken out by the debtor--a community college student at the time of loan origination--was an "educational loan" within the meaning of §523(a)(8)(A), but determined that the  "funded by" requirement was not met based on TERI's involvement as loan processor and guarantor, - at least not based on the scant evidence presented to and ruled upon by the court below.

Based on the record below and considering the established case law on the meaning of "educational loan," we hold that the bankruptcy court did not err in characterizing the Debtor's Loan as an "educational loan" within the meaning of §523(a)(8)(A)(i). However, we conclude that the bankruptcy court's inference in NCST's favor that TERI "funded" the loan program was not reasonable as it was not supported by the evidence. We, therefore, reverse and remand the issue regarding TERI's guarantee of the Loan and funding of the program for further consideration in accordance with this opinion.

While there is no definitive ruling on dischargeability yet, the Court of Appeal's opinion could turn out to be an important first step toward debt relief on a much larger scale than what the CFPB was trying to accomplish with its ill-fated enforcement action against the National Collegiate Student Loan Trust machine last year: A first glimmer of light at the end of the tunnel for debtors because all of the loans under the National Collegiate moniker were covered by a TERI guaranty agreement.

By design.

The TERI guaranty was integral to the private student loan scheme because it provided a "credit enhancement" in Wall Street lingo by making it difficult, if not impossible, for students to shed their unsecured loan obligations if they found themselves unable to pay them back after graduation, which would obviously be good for the investors. Unlike with securitized mortgages, there were no homes as secured real assets to foreclose on, leaving collection lawsuits against borrowers and cosigners, followed by execution on nonexempt assets and garnishment, as forcible collection tools. 
 
TERI was used by the First Marblehead Corporation, the architect of the National Collegiate Student Loan behemoth, to make the loans more palatable to investors upon securitization because TERI would hold investors harmless by purchasing defaulted loans and paying full value on them, i.e. principal and accrued interest. TERI would then endeavor to collect on those loans itself and try to rehabilitate them. But TERI couldn't keep up because borrowers could not keep up. In 2008 TERI filed for bankruptcy when it became clear that it would be unable to cover the mounting losses due to high rates of delinquencies on earlier vintages of loans that were then in repayment, and little prospect for new revenue from future deals because the market's appetite for student-student-asset-backed securities (SLABS) had dissipated.

The poor quality of the most recent [highly subprime] vintages originated in 2007 just before the big crash (NCSLT 2007-1, 2007-2, 2007-3, and 2007-4) did not yet have to be recognized because most of the borrowers were still in in-school deferment and couldn't therefore default under the terms their loans were made. For these student debtors, the day of reckoning was still in the future, even if their interest rate was an APR of 12% plus a 10% Origination Fee amount that was added to principal from day one. But the writing was already on the wall. And TERI was one of the first casualties.

But TERI was a corporate entity, and was arguably instrumentalized and misused to allow for-profit entities to take advantage of TERI's not-for-profit status. Borrowers are real people. And there are tens of thousands of them facing the fallout.

Big US student loan guarantor files for bankruptcy, Reuters April 7, 2008. 

The Education Resources Institute (TERI) Files for Chapter 11 Bankruptcy Protection. Volatility in student loan market adversely impacts non-profit guarantor of private loans. BUSINESS WIRE (April 7, 2008). 

Private Student Loan Origination in Hindsight: What the Litigation Paper Trail (in PDF) and SEC Filings Can Tell Us About the National Collegiate Student Loan Trust Debacle (SSRN working paper) (May 10, 2018) (addressing questionable loan origination practices with respect to 2007 vintages of securitized private student loans). 

In re: Richelle A. Page, Debtor.
Richelle Angela Page, Plaintiff-Appellant,
v.
JP Morgan Chase Bank, Defendant,
National Collegiate Student Loan Trust 2006-1, Defendant-Appellee.

No. 18-6011.

United States Bankruptcy Appellate Panel, Eighth Circuit.

Submitted: September 24, 2018.    Filed: November 20, 2018. 

Appeal from United States Bankruptcy Court for the Eastern District of Missouri — St. Louis.

Before SALADINO, Chief Judge, DOW and SANBERG, Bankruptcy Judges.

DENNIS R. DOW, Bankruptcy Judge.

Debtor Richelle Page appeals from the Bankruptcy Court's order granting summary judgment in favor of the National Collegiate Student Loan Trust ("NCSLT") and denying Debtor's motion for summary judgment seeking a discharge of her NCSLT debt pursuant to 11 U.S.C. §523(a)(8). 

For the reasons that follow, we reverse and remand.

FACTUAL BACKGROUND

The Debtor attended St. Louis Community College in the spring semester of 2006, and paid for her tuition with financial aid. In response to a loan "preapproval notice" she received from Chase Bank ("Chase"), the Debtor executed a Loan Request/Credit Agreement (the "Agreement") requesting a $30,000 loan through the "Education One Undergraduate Loan" program. She acknowledged as part of the agreement that she would be responsible for repaying any funds which were not used for educational expenses related to the community college. The instruction sheet directed applicants to submit the agreement either by regular mail or expedited delivery to The Educational Resources Institute, Inc. ("TERI"), a non-profit organization.

The loan proceeds were disbursed to the Debtor (the "Debt" or the "Loan"). The Loan was subsequently sold to NCSLT. Despite the restriction in the Agreement, the Debtor used the proceeds to pay for non-educational expenses.

The Debtor filed bankruptcy in 2010. She listed the Debt in her Schedules. The bankruptcy court entered a discharge order providing that certain debts, including those for most student loans, were not discharged. Six years later, the Debtor filed her complaint seeking a determination that her student loan debt was not excepted from discharge. The NCSLT moved for summary judgment and the Debtor filed her own motion for summary judgment. The bankruptcy court granted summary judgment in favor of NCSLT and ordered that the Debt be excepted from discharge pursuant to §523(a)(8). Specifically, the court concluded that there was no genuine issue of material fact in dispute as to whether the Loan was an "educational loan" and as to whether TERI "funded" the Loan (program) for purposes of §523(a)(8)(A)(i).

The Debtor appeals.

STANDARD OF REVIEW

We review the Bankruptcy Court's determination of nondischargeability de novo. Educational Credit Management Corporation v. Jesperson, 571 F.3d 775, 779 (8th Cir. 2009). Findings of fact on which the legal conclusions are based are reviewed for clear error. Id.

DISCUSSION

Was the Loan an "educational loan" as contemplated by §523(a)(8)?

Section 523(a)(8) of the Bankruptcy Code provides for certain exceptions to discharge, including an educational loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution. 11 U.S.C. §523(a)(8)(A)(i). The Debtor states in her Brief on appeal that the Loan was not an "educational loan" but rather a routinely dischargeable consumer loan because of its alleged attributes (e.g., Chase's security interest in the Loan, the requirement of co-signers, and a substantial origination fee). However, the Debtor cited no cases holding that the commercial features described disqualify a loan from being an "educational loan" under §523(a)(8).

Rather than focus on a loan's features, courts routinely look to the purpose of a loan to determine whether it is "educational." See, e.g., In re Murphy, 282 F.3d 868 (5th Cir. 2002); In re Jean-Baptiste, 584 B.R. 574, 585 (Bankr. E.D.N.Y. 2018); In re Busson-Sokolik, 635 F. 3d 261, 266 (7th Cir. 2011). The debtor in Busson-Sokolik challenged whether the loan could be properly considered "educational" as required to bring it within §523(a)(8)(A). The court applied the purpose test and found that the following facts established that the loan was indeed educational: the loan was part of a package that included scholarship and grant money toward completion of the debtor's education at the school, the promissory note was signed while the debtor was a student, the debtor had to be a student to be eligible for the loan, and the loan proceeds were deposited into the debtor's student account at the school. Id. at 267. The bankruptcy court here applied a similar analysis and concluded that there was no genuine issue of material fact in dispute as to whether the Debt was for an "educational loan" based largely on the many education-related terms in the Agreement: identification as an "Undergraduate Loan," made through the "Education One" Loan Program, covering an "Academic Year," while debtor is enrolled at a specific "School." In addition, NCSLT's witness attested that the Loan was "for educational purposes." 

We agree that the court made ample findings based on undisputed facts to support its conclusion that the Loan was an "educational loan" within the meaning of §523(a)(8)(A).

Did the bankruptcy court err in drawing the inference in NCSLT's favor that TERI funded the program?

The Debtor also argues on appeal that the bankruptcy court erroneously inferred (in NCSLT's favor) that TERI expended resources in processing some of the bank's mail and thereby funded the loan program, stating since "TERI served in a plenary capacity as the sole entity to which loan documents were submitted," it expended its resources on the administration of the loan program and thereby funded it. The Debtor asserts that the bankruptcy court reduced the meaning of "funded" so that any entity that plays even a marginal role in a loan program can be said to have funded it.

When considering a motion for summary judgment, the court is required to review the record and draw all reasonable inferences in favor of the non-movant. Foster v. John-Manville Sales Corp., 787 F.2d 390, 391-92 (8th Cir. 1986). These inferences must then be considered in light of any competing inferences. See, e.g., In re Sunnyside Timber, LLC, 413 B.R. 352, 363 (Bankr. W.D. La. 2009)(if a reasonable trier of fact could find that the defendants engaged in collusive conduct after considering any inferences of non-collusive conduct supported by the evidence, the court should not grant summary judgment). Where the parties file cross-motions, the standards by which the Court decides the motions do not change. Livingston v. South Dakota State Medical Holding Co., Inc., 411 F. Supp. 1161, 1163 (D.S.D. 2006)(citing Heublein Inc. v. United States,996 F.2d 1455, 1461 (2nd Cir.1993)). Each motion must be evaluated independently, "taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Id. In this case, both parties filed competing summary judgment motions, so the question before us is whether the inference drawn by the court (that TERI funded the program) was appropriate, reasonable and supported by the evidence.

The widely-held view among courts considering this issue is that the definition of "funded" should not require that actual money be placed in some type of account. In re Gakinya, 364 B.R. 366, 374 (Bankr. W.D. Mo. 2007). Instead, the test adopted by many courts is whether the nonprofit entity played any meaningful part in procurement of the loans under the program.^[1] In re O'Brien, 299 B.R. 725, 730 (Bankr. S.D.N.Y. 2003)(citing In re Hammarstrom, 95 B.R. 160, 165 (Bankr. N.D. Cal. 1989)("Congress intended to include within section 523(a)(8) all loans made under a program in which a nonprofit institution plays any meaningful part in providing funds.")). See also In re Sears, 393 B.R. 678, 680-81 (Bankr. W.D. Mo. 2008)(rather than focus on financial role of the nonprofit, courts should place emphasis on the institution's degree of involvement in administrative functions of the program). The cases applying the so-called "meaningful part" test hinge on whether the non-profit entity committed financial resources to the loan program, or contributed something of value to make the program successful. See, e.g., In re Merchant, 958 F.2d 738 (6th Cir. 1992)(non-profit's agreement to purchase all defaulted student loans from for-profit lender held to be sufficient); In re Pilcher, 149 B.R. 595 (9th Cir. BAP 1993)(sufficient that some participants of the loan program were nonprofit institutions).

A number of courts have held that a non-profit institution's guarantee of the loans is sufficient to constitute a "meaningful contribution" by the nonprofit. See, e.g., In re McClain, 272 B.R. 42 (Bankr. D.N.H. 2002); In re Jean-Baptiste, 584 B.R. at 584 (loans ultimately purchased or guaranteed by non-profit entities generally excepted from discharge).^[2] The parties in this case disputed whether TERI in fact guaranteed this Loan. In the affidavit of Bradley Luke, custodian of records for NCSLT, he states that the Loan was guaranteed by TERI. The Debtor moved to strike that statement. The bankruptcy court denied the motion to strike as moot, stating that the court did not rely on that statement in rendering judgment.^[3] The bankruptcy court declined to resolve the issue and adjudicated summary judgment without making that determination. It concluded that TERI played a meaningful part in the program regardless of whether it guaranteed the Loan.

The only role mentioned by the court was that "TERI served in a plenary or near-plenary capacity as the sole entity to which loan documents were submitted to the Loan Program by regular mail or overnight delivery." While the instructions for submitting the application provided a P.O Box Number and address for TERI, the facsimile number was not identified as TERI's. It is unclear, therefore, whether TERI received all of the loan applications. In addition, the bankruptcy court admitted that the record did not reflect the method by which the Debtor submitted her Agreement — just that it was submitted. Also, NCSLT does not assert that it was TERI employees who processed the applications, merely that TERI spent money on the facilities where the processing occurred.

In general, any evidence presented in connection with §523(a)(8) must be viewed with the Congressional intent that exceptions to discharge be narrowly construed against the creditor and liberally in favor of the debtor in order to provide the debtor with comprehensive relief from the burden of his indebtedness. In re Olson, 454 B.R. 466, 472 (Bankr. W.D. Mo. 2011). This principle applies equally to student loan exceptions to discharge. See, e.g., In re Johnson, 215 B.R. 750, 753 (Bankr. E.D. Mo. 1997), aff'd, 218 B.R. 449 (B.A.P. 8th Cir. 1998)(applying, in the context of student loan debt, the well-established principal that exceptions to discharge are to be narrowly construed).

Here, the bankruptcy court's broad construction of the term "funded" is inconsistent with Congress' intent that exceptions to discharge be narrowly construed. The evidence on which the bankruptcy court's conclusion that TERI funded the Loan is based is scanty. It was not established that TERI guaranteed the loans, processed the loans, or even received all the loans. TERI merely provided an address to which applications could be delivered, and that is not sufficient to support the inference that TERI "funded" this loan program. Further, that inference was drawn in favor of NCSLT, the movant, rather than the Debtor as legally required.

We are not in a position to make a factual finding on the issue of TERI's guarantee of the Loan since the bankruptcy court declined to make that finding. We, therefore, remand this issue to the court for that determination and its legal significance to the Loan's dischargeability.

CONCLUSION

Based on the record below and considering the established case law on the meaning of "educational loan," we hold that the bankruptcy court did not err in characterizing the Debtor's Loan as an "educational loan" within the meaning of §523(a)(8)(A)(i). However, we conclude that the bankruptcy court's inference in NCST's favor that TERI "funded" the loan program was not reasonable as it was not supported by the evidence. We, therefore, reverse and remand the issue regarding TERI's guarantee of the Loan and funding of the program for further consideration in accordance with this opinion.

Accordingly, the judgment of the bankruptcy court is reversed and remanded.

[1] At least one court has concluded that the "meaningful part" test should not be applied. In re Pilcher, 149 B.R. 595, 600 (9th Cir. BAP 1993)("The addition of the meaningfulness requirement is purely a judicial creation. No qualifying language was included by Congress to establish minimum levels of participation."). The issue of whether the bankruptcy court erred in applying the "meaningful part" test is not before this Panel. However, regardless of whether that test is applied, there is insufficient evidence to support a finding that TERI funded this loan program.

[2] But see In re Wiley, 579 B.R. 1 (Bankr. D. Me. 2017)(holding that guarantee by nonprofit institution is not, by itself, enough). This is the minority view.

[3] In addition, there was guaranty language in Paragraph L.11 of the Agreement: "I acknowledge that the requested loan is subject to the limit on dischargeability in bankruptcy contained in Section 523(a)(8) of the United States Bankruptcy Code. Specifically, I understand that you have purchased a guaranty of this loan, and that the loan is guaranteed by [TERI], a non-profit institution." It is unclear if the bankruptcy court considered this acknowledgment, as it made no mention of it in its opinion.

MORE ABOUT TERI'S GUARANTY OF PRIVATE STUDENT LOANS THAT ARE TRUST ASSETS OF NATIONAL COLLEGIATE STUDENT LOAN TRUST 2006-1

[not part of court opinion above]

TERI-RELATED TRUST AGREEMENT DEFINITIONS

“TERI” means The Education Resources Institute, Inc., a private non-profit corporation organized under Chapter 180 of the Massachusetts General Laws.

“TERI Deposit Account” means the special deposit account established by TERI pursuant to the Deposit and Security Agreement.

“TERI Guaranty Agreements” means each of the Guaranty Agreements entered into between each of the Loan Originators and TERI as set forth on Schedule D attached hereto, as amended or supplemented from time to time.

“TERI Guaranteed Loans” means Student Loans originated under the Student Loan Programs owned by the Trust and guaranteed by TERI pursuant to the Guaranty Agreements.

LIST OF TERI GUARANTY AGREEMENTS (SCHEDULE D)

Guaranty Agreements

Each of the following Guaranty Agreements, as amended or supplemented, was entered into by and between The Education Resources Institute, Inc. and:

Bank of America, N.A., dated April 30, 2001, for loans that were originated under Bank of America’s BAGEL Loan Program, CEDU Loan Program and ISLP Loan Program.

Bank of America, N.A., dated June 30, 2003, for loans that were originated under Bank of America’s Direct to Consumer Loan Program.

Bank One, N.A., dated May 13, 2002, for loans that were originated under Bank One’s CORPORATE ADVANTAGE Loan Program and EDUCATION ONE Loan Program.

Bank One, N.A., dated July 26, 2002, for loans that were originated under Bank One’s M&T REFERRAL Loan Program

Charter One Bank, N.A., dated as of December 29, 2003 for loans that were originated under Charter One’s AAA Southern New England Bank Loan Program.

Charter One Bank, N.A., dated October 31, 2003, for loans that were originated under Charter One’s AES EducationGAIN Loan Program.

Charter One Bank, N.A., dated May 15, 2002, for loans that were originated under Charter One’s (AMS) TuitionPay Diploma Loan Program.

Charter One Bank, N.A., dated July 15, 2003, for loans that were originated under Charter One’s Brazos Alternative Loan Program.

Charter One Bank, N.A., dated May 15, 2002, for loans that were originated under Charter One’s CFS Direct to Consumer Loan Program.

Charter One Bank, N.A., dated June 30, 2003, for loans that were originated under Charter One’s Citibank Flexible Education Loan Program.

Charter One Bank, N.A., dated July 1, 2002, for loans that were originated under Charter One’s College Loan Corporation Loan Program.

Charter One Bank, N.A., dated December 4, 2002, for loans that were originated under Charter One’s Comerica Alternative Loan Program.

Charter One Bank, N.A., dated December 1, 2003, for loans that were originated under Charter One’s Custom Educredit Loan Program.

Charter One Bank, N.A., dated May 10, 2004, for loans that were originated under Charter One’s Edfinancial Loan Program.

Charter One Bank, N.A., dated May 15, 2002, for loans that were originated under Charter One’s Education Assistance Services Loan Program.

Charter One Bank, N.A., dated May 15, 2003, for loans that were originated under Charter One’s ESF Alternative Loan Program.

Charter One Bank, N.A., dated September 15, 2003, for loans that were originated under Charter One’s Extra Credit II Loan Program (North Texas Higher Education).

Charter One Bank, N.A., dated September 20, 2003, for loans that were originated under Charter One’s M&I Alternative Loan Program.

Charter One Bank, N.A., dated November 17, 2003, for loans that were originated under Charter One’s National Education Loan Program.

Charter One Bank, N.A., dated May 15, 2003, for loans that were originated under Charter One’s Navy Federal Alternative Loan Program.

Charter One Bank, N.A., dated May 15, 2002, for loans that were originated under Charter One’s NextStudent Alternative Loan Program.

Charter One Bank, N.A., dated March 26, 2004, for loans that were originated under Charter One’s NextStudent Private Consolidation Loan Program.

Charter One Bank, N.A., dated March 17, 2003, for loans that were originated under Charter One’s PNC Bank Resource Loan Program.

Charter One Bank, N.A., dated May 1, 2003, for loans that were originated under Charter One’s SAF Alternative Loan Program.

Charter One Bank, N.A., dated September 20, 2002, for loans that were originated under Charter One’s Southwest Loan Program.

Charter One Bank, N.A., dated March 25, 2004, for loans that were originated under Charter One’s START Education Loan Program.

Charter One Bank, N.A., dated May 15, 2003, for loans that were originated under Charter One’s WAMU Alternative Student Loan Program.

Charter One Bank, N.A., dated February 15, 2005, for loans that were originated under Charter One’s Referral Loan Program and Axiom Alternative Loan Program.

Chase Manhattan Bank USA, N.A., dated September 30, 2003, as amended on March 1, 2004 and February 25, 2005, for loans that were originated under Chase’s Chase Extra Loan Program.

Citizens Bank of Rhode Island, dated April 30, 2004, for loans that were originated under Citizens Bank of Rhode Island’s Compass Bank Loan Program.

Citizens Bank of Rhode Island, dated April 30, 2004, for loans that were originated under Citizens Bank of Rhode Island’s DTC Alternative Loan Program.

Citizens Bank of Rhode Island, dated April 30, 2004, for loans that were originated under Citizens Bank of Rhode Island’s Navy Federal Referral Loan Program.

Citizens Bank of Rhode Island, dated April 30, 2004, for loans that were originated under Citizens Bank of Rhode Island’s Xanthus Loan Program.

First National Bank Northeast, dated August 1, 2001, for loans that were originated under First National Bank Northeast’s CASL Undergraduate Alternative Loan Program.

HSBC Bank USA, National Association, dated April 17, 2002, as amended on August 1, 2003 and May 14, 2004, for loans that were originated under the HSBC Loan Program.

The Huntington National Bank, dated May 20, 2003, for loans that were originated under The Huntington National Bank’s Huntington Bank Education Loan Program.

Manufacturers and Traders Trust Company, dated April 29, 2004, for loans that were originated under Manufacturers and Traders Trust Company’s Alternative Loan Program.

National City Bank, dated July 26, 2002, for loans that were originated under National City Bank’s National City Loan Program.

PNC Bank, N.A., dated April 22, 2004, for loans that were originated under PNC Bank’s Alternative Conforming Loan Program.

Sovereign Bank, dated April 30, 2004, for loans that were originated under Sovereign Bank’s Alternative Loan Program.

SunTrust Bank, dated March 1, 2002, for loans that were originated under SunTrust Bank’s SunTrust Alternative Loan Program.

TCF National Bank, dated July 22, 2005, for loans that were originated under TCF National Bank’s Alternative Loan Program.

U.S. Bank, N.A., dated May 1, 2005, for loans that were originated under U.S Bank’s Alternative Loan Program.

Source: Trust Agreement for NCSLT 2006-1 Exhibit 10.10 Form 8-K filed 2006-04-23 (SEC website)

https://www.sec.gov/Archives/edgar/data/1352760/000088237706000922/p060388_ex10-10.htm

NATIONAL COLLEGIATE STUDENT LOAN TRUST 2006-1 - INDEX FOR NCSLT 2006-1

Not sad to see Justice Harvey Brown et al removed from the appellate bench in Houston: A critical look at the First Court of Appeals' private student loan jurisprudence

THE TEXAS BLUE WAVE AND STUDENT LOAN DEBTORS IN STATE COURT 

All of the eighteen sitting Houston court of appeals justices are Republicans. Those that were up for reelection this year were defeated by Democratic challengers without exception.

--> 2018 Elections to bring major shake-up to the Houston Courts of Appeals  

---> Partisan complexion the Texas Intermediate Court of Appeals to Change January 2019

Justice Harvey Brown is one of them. He deserves special attention on this blog because he wrote two of the three Houston appellate opinions in recent student loan collection cases brought by the National Collegiate Student Loan Trusts (NCSLT). The most recent opinion will be published case in the Southwestern Reporter:

Savoy v. NationalCollegiate Student Loan Trust 2005-3, No. 01-17-00345-CV, ___ S.W.3d ___ (Tex.App.- Houston [1st Dist.] Aug. 9, 2018, no pet.).

This blog post will critique his and his follow justices' work, and place the trifecta of partial appellate wins for defendants/appellants in private student loan collection cases in perspective. 

  

For consumer advocates and supporters of struggling student loan debtors who care only about results, Justice Brown can hardly be said to be one of the bad guys. After all, the judgments for the trusts got reduced on appeal in all three cases on which he sat on the panel. Brown wrote the opinions in two of them--Savoy and Mock. See cite and link for Savoy above and Mock v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00216-CV, 2018 WL 3352913 (Tex. App.-Houston [1st Dist.] July 10, 2018, no pet.) (mem. op.); also see Foster v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App.-Houston [1st Dist.] Mar. 1, 2018, no pet.) (mem. op. by Chief Justice Radack).

As such, Justice Brown is most directly responsible for the outcome, and the rationale offered for arriving at it. To the extent plaudits for a positive result for student loan defendants are due, he has earned them.

But one should also expect a sound judicial analysis and consistent application of the rules of law. Sadly, that cannot be said of the three opinions here. 

Rather obviously, as becomes clear by comparing the three cases, a decision was made how they all should come out, and they all came out the same way. Regardless of differences among them. Based on lack of evidence of acceleration of maturity, the damages awarded by the trial courts were reduced in all three cases to the sum of installment payments calculated based on the amortization schedule on the TIL Disclosure statement and the date the trust filed the lawsuit.

But that did not take into account that LIBOR dropped significantly in 2007 and monthly installment payments necessary to amortize the loan were therefore lower than originally projected.

Second, the calculation based on the Disclosure Statement estimates of future payment amounts was done regardless of whether the student or co-signer had made any payment. In the last case, Savoy, numerous payments had been made over several years, for which the two Defendants did not get any credit at all. In Foster and Mock, by contrast, the loan servicing record did not reflect that any installment payment was ever made in any amount. So much for equity when dispensing justice using appellate power.

While all of the defendants in the three cases received partial relief by having their loan balances reduced on appeal, the bigger gift was bestowed to the NCSLT student loan litigation machine.

Justice Brown graced it with a published opinion that freed TSI from the taint of the CPFB’s enforcement action (and resultant consent order) by overruling all objections to their affidavit and exhibits, finding TSI’s employees competent to lay a predicate for third-party business records without even identifying the servicer: PHEAA/AES. Knowingly receiving third-party records will do for sponsoring records under the judicially-amended Houston-Texas version of the business records rule; knowledge of the recordkeeping process of the originating entities no longer required.

Student loan default as a morality tale

In all three Houston cases, the issue on appeal was whether the Trust’s evidence at trial was admissible and, if so, whether it was sufficient to support judgment in its favor in the respective amounts. This required a detailed analysis of the Trust’s evidence on each element of a cause of action for breach of loan contract asserted by the Trust as assignee of the original creditor.

In none of three cases had the Trust brought a witness to trial. Its attorneys—hired by TSI on a state-by-state basis--never do that. At least not in Texas. The Trusts had instead relied on a business records affidavit signed by a “Legal Case Manager” employed by Transworld Systems, Inc. with a assortment of exhibits attached to it. See --> Complete Record on appeal in Savoy v. NCSLT 2005-3 (ca. 7 MB pdf file). 

But even leaving aside these more technical matters relating to the standard of proof at trial, and whether the Trust had met it, and looking at these private student loan default cases solely as morality tales, the Houston Court of Appeals cannot be said to have delivered a morally righteous and equitable result. 

History of payments made by student loan obligors treated as irrelevant, and simply ignored

On the assumption that the loan-related documents submitted with TSI’s business records affidavit are admissible and accurate (an issue resolved against the defendants as their evidentiary objections were all overruled), Foster and Mock never paid anything; but the same is not true of the Savoys. And yet, regardless of whether any installment payments were made, all three had their loan balances reduced based on the same questionable formula devised by the Houston Court of Appeals to deal with NCSLT cases.

In what was clearly a result-oriented disposition, the Houston justices decided that the student loan defendants should not be held liable for the full amount sought and obtained by the Trusts in the trial courts, but should pay a good portion of it.

In all three cases, the Court concluded that the defendant(s) should be held liable for the sum of the amount of the installment payments they were supposed to make under the terms stated on the TIL Disclosure Statement issued at the time of loan origination: Monthly installment amount times the number of months from the date the loan went into repayment to the date the Trust filed its lawsuit.

What’s wrong with that?

What is wrong with it is that the monthly installment amounts shown on the TIL Disclosure Statements were only projections because the loan-specific interest rate was based on the LIBOR index and therefore variable. The figures were specifically denoted “estimates” on the Disclosure Statements, with an explanation of the effect of interest rate changes on monthly installment amounts explained in the fine print.

The cost of individual loans varied based on the percentage margin to be added to LIBOR to compute variable interest accrual on an ongoing basis. Obviously, it could not be known at the time of loan origination that LIBOR would be much lower in 2008 and in the years thereafter, and that the monthly installment amounts necessary to amortize the loan over the standard 20-year repayment period would therefore also be lower compared to the estimates at the time of loan origination based on what was then the current LIBOR rate.

Judicially fixing LIBOR at historic rates

When Justice Brown and his colleagues on the panel decided how much the defendants should pay, they essentially “froze” LIBOR at the rate LIBOR was at the time the loan was originated, ignoring the fact that the loans were by design variable-rate loans, and that the drop in LIBOR starting in 2007 and thereafter worked in the student borrower’s favor rather than the creditors’.

When the students took out these loans between 2005 and 2007--many of them high-cost, especially those originated in 2007--they were required to assume the interest-rate risk, i.e. the risk associated with future fluctuations of the index in the financial markets. They should accordingly also be the beneficiaries of the diminished interest accruals based on the lower index rates in the wake of the financial crash, rather than having LIBOR retroactively fixed at a higher rate by judicial fiat years down the road in a collection suit.

Nor did or could the Court’s formula, being based on the repayment terms printed on the TIL Disclosure Statement, take account of any forbearances that might later be granted.

In the Savoy case, opinion-author Harvey Brown simply ignored the evidence of forbearances on the loan history records from AES as much as he ignored several pages of loan history reflecting credits for monthly payments diligently made over several years. As a result, the Savoys received the same judicial treatment as Foster and Mock, who may have been victims of predatory lending (given the high interest rates and origination fees on their loans), but had never paid anything. If they never made any payments on their respective loans, Foster and Mock were in effect net beneficiaries of the predatory loans (at least as long as the Trusts do not garnish their bank accounts, if any, judgments secured).

--> Garnishment of student loan debtors' bank accounts by NCSLT in Texas 

The same cannot be said of the Savoys, however. At least one of them (the records do not reflect whether it was the student or the co-signer) had faithfully made installment payments for several years. That would count in her favor if Savoy were ever to file for bankruptcy and seek discharge of otherwise non-dischargeable educational debt under the Brunner test, but this evidence of good-faith effort to meet student loan payment obligations carried no weight with Justice Brown and his colleagues.

The matter of default and charge-off

In an even more striking contrast with Mock and Foster, the loan history records in Savoy reflected that the Savoys had not only been making payments for years, but had been making payments in the months prior to what Justice Brown concluded was a charge-off of their loan based on their delinquency in January of 2014. But the reader of Justice Brown’s opinion would not know of these payments because there is simply no mention of them.

Last page of Savoy payment history exhibit 

While Justice Brown’s opinion in Savoy dutifully recites the elements of breach of contract, it omits the discussion of the element of breach (evidence of when what required payments was not made), not to mention nonpayment for a period of six month, which would be the standard period if the Trusts were subject to the Federal Reserve’s uniform charge-off policy. But the Trusts are not financial institutions; nor are they corporations or even going concerns. The trusts are merely static investment vehicles established under Delaware’s statutory trust act with no management and no employees. And the trust-related agreements do not even provide for chargeoff, whether by the trust’s servicer, the trust’s administrator, or any trustee. Instead, the governing documents required guaranty agency TERI to assume defaulted student loans.

All private student loans under the National Collegiate Trust securitization scheme were guaranteed by TERI

Under the TERI guaranty, the trusts would be held harmless because TERI was required to pay the full amount of principal and accrued interest on defaulted loans for which it had provided a guaranty. That applied to all of them because it was an essential credit enhancement for the securitization and made the private student loans non-dischargeable in bankruptcy, thereby reducing credit risk for investors in bonds issued in the name of the trusts to acquire the loans from the originating banks. TERI would attempt to collect and rehabilitate the loans on which TERI’s indemnity obligation had been triggered by the obligor’s default, and rehabilitated loans were eligible to be returned to the pool of trust assets.

TERI went bankrupt, of course, and the TERI guaranty funds set aside for payment of claims by the trusts were eventually liquidated and distributed to the various trust’s collection accounts, but neither the Court, nor the attorneys in their appellate briefing in any of the three Houston cases, went into the ramifications of that development. The fact that the bondholders received some material financial benefit from the TERI guaranty agreements covering the securitized student loans notwithstanding the TERI fracas at the time of the financial crisis and its aftermath went unmentioned.

Unlike the NCSLT bondholders, the student obligors did not benefit from the TERI guaranty, however. In Savoy, Justice Brown expressly overruled the argument that the defendants were not liable because the ending balance on the loan history documentation produced by TSI was zero, reflecting payoff by TERI pursuant to its guaranty obligation rather than chargeoff to loss/profit by the Trust suing as creditor.

It could nevertheless be said that the student debtors benefited too, albeit by other means, and in a manner utterly unrelated to the fact that the TERI had guaranteed their loans (thereby insulating them from bankruptcy discharge), and likewise unrelated to the fact that a TERI guaranty fees had been part of the cost of loan origination which had been added to the principal loan balances at the front end, making them part of the loan balance to be repaid by the borrowers.

No evidence of proper acceleration of maturity

The student loan defendants in the case before the court benefited because the Houston appellate court concluded that the trusts had failed to adduce evidence that the maturity of these private student loans, all of which have a standard amortization period of 20 years, had been validly accelerated in their specific cases. 

From the perspective of defensive litigation strategy, this was not a bad argument, and the attorneys for the debtors had asked for partial reversal based on nonacceleration as a fallback, should their bid for outright reversal and rending of a take-nothing judgment on appeal based on evidentiary or sufficiency issues fail.

As already discussed, however, the Houston Court of Appeal miscalculated the amount of the reductions of the amounts awarded by the trial courts that were necessary to properly reflect the plaintiffs’ failure to accelerate maturity, and this error resulted in an inflated amount for three distinct reasons: (1) because the Court implicitly used a historically higher LIBOR rate and treated it as a fixed rate by employing the estimated monthly installment amount figure shown on the TIL Disclosure Statement created at the time of loan origination; (2) because the Court did not make allowance for forbearance periods (during which no regular installment payments were due), and  (3) because the Court did apply any credits for payments made by the debtors to the sum of monthly installment amounts calculated through the date the Trust filed the lawsuit.

In all three student loan collection cases, the amount the breach-of-contract damages which the First  Court of Appeals found to be supported by the evidence was therefore overstated, and the overstatement was particularly egregious in the Savoy case because the Court did not acknowledge and give credit for the numerous monthly installment payments the loan history records from AES showed as having been made. The Savoys did not have to submit evidence of installments payments because the creditor’s own loan-specific records already reflected them. And as defendants, the Savoys did not have the burden to prove that the trust had actually sustained the amount of damages it alleged in its pleadings.

Savoy v. National Collegiate Student Loan Trust 2005-3. No. 01-17-00345-CV, ___ S.W.3d ___ (Tex.App.- Houston [1st Dist.] Aug. 9, 2018, no pet.).
Mock v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00216-CV, 2018 WL 3352913 (Tex. App.-Houston [1st Dist.] July 10, 2018, no pet. h.) (mem. op.)
Foster v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App.-Houston [1st Dist.] Mar. 1, 2018, no pet.) (mem. op.)

THE PROOF-OF-ASSIGNMENT ISSUE IN THE HOUSTON STUDENT LOAN TRUST CASES

The loan origination documents in NCSLT cases are not conventional promissory notes, not to mention negotiable instruments. That’s why the trusts, bringing collections suits based on loans that fall into default, have to prove all elements of a conventional breach of contract (loan contract) cause of action plus a valid assignment of the loan by the originating bank, called the program lender.

In three cases it has decided so far, the Houston Court of Appeals resolved the evidentiary challenges to the assignment proof offer through the TSI business records affidavit against the student loan defendants, and refrained from citing two earlier cases decided by the Fort Worth Court of Appeals which student defendants had won based on each trust’s failure to adduce sufficient evidence to prove that it had received the right to sue on the loans from the program lenders. See Gillespie v. National Collegiate Student Loan Trust 2005-3, No. 02-16-00124-CV, 2017 WL 2806780 (Tex. App.-Fort Worth June 29, 2017, no pet.) (mem. op.); Nat'l Collegiate Student Loan Trust 2006-2 v. Ramirez, No. 02-16-00059-CV, 2017 WL 929527 (Tex. App.-Fort Worth, Mar. 9, 2017, no pet.) (mem. op.).

THE CONTRACT-FORMATION ISSUE: PICKING THE THEORY TO FIT THE PREFERRED CONCLUSION

In all three Houston cases, the Court of Appeals correctly recited the relevant caselaw: That to form a valid contract, an offer must be accepted in the manner specified if the manner is specified, but it did not apply this unremarkable legal rule consistently.

In the case of private student loans under the NCSLT program, the standard terms attached to the loan application provides that the loan-specific credit terms (cost terms) will to be disclosed on a forthcoming TIL Disclosure Statement (if the loan was going to be approved) and that those cost terms were to be accepted by the loan applicant by endorsing and cashing the disbursement check upon its receipt. Otherwise the check or the money would have to be returned.

The cancelled disbursement check signed by student and cosigner was duly attached the TSI’s affidavit in the Mock case, thus proving disbursement and acceptance of both funds and loan terms, but it was not attached in the other two cases.

So how did the First Court handle this evidentiary deficit in those other two cases? It held that the proof of the specified manner of acceptance (i.e., the disbursement check) was not really needed, and that the evidence that a valid contract was formed was sufficient anyhow. In other words, the controlling legal rule was correctly applied in the case where its application suited the creditor, but it was not applied where it would have worked against the creditor because the critical evidence was missing; it was not applied in a case in which its absence would have warranted a take-nothing judgment in favor of the defendants for failure by the plaintiff to adduce sufficient evidence of contract formation, the first essential element for a viable breach-of-contract claim.

Across its three cases, the Houston Court’s actions do not inspire confidence in the equal application of applicable law.

Paradoxically, Foster v. NCSLT 2007-4 has already been cited for the general proposition that the contract may be accepted by conduct, with no mention of the fact that the relevant contract language in Foster specified the manner of acceptance, thus precluding acceptance in a different manner. See Law Office of Thomas J. Henry v. Jonathan Cavanaugh, No. 05-17-00849-CV (Tex.App. – Dallas, May 7, 2018, pet filed). 

Specifically, "[i]f one party signs a contract, the other party may accept by his acts, conduct, or acquiescence to the terms, making it binding on both parties." Foster v. Nat'l Collegiate Student Loan Trust 2007-4, No. 01-17-00253-CV, 2018 WL 1095760, at *9 (Tex. App.-Houston [1st Dist.] Mar. 1, 2018, no pet. h.) (mem. op.).

Further, in Foster, the loan history records from AES did not reflect that any installment payments were ever made (a circumstance noted in the Court’s opinion), so how can the absence of payments by the defendant (conduct other than a signature) establish that the defendant accepted the contract term by making payments, a proposition that has previously been accepted by appellate courts to establish contract-formation in credit card debt collection cases.

The Houston appeals court fudged the issue regarding acceptance of the essential loan terms that were only stated on the TIL Disclosure Statement by effectively treating the TIL Disclosure Statement as an “executed” instrument to be read and construed together with the signed application. This, even though the cost terms were not yet known when the student signed the application, and even though there was no evidence produced by TSI to show that the Disclosure Statement or the disbursement check were subsequently mailed to the student.

Clearly and disturbingly, the Houston Court of Appeals held the trusts to their burden of proof only in the Mock case, and exempted the trusts from having to satisfy their identical burden of proof on the contract-formation element in the cases of Savoy and Foster.

THE COURT'S DISPOSITION OF THE EVIDENTARY ISSUES IN NCSLT LITIGATION 

The Houston Court’s treatment of the evidentiary issues, alas, does not inspire belief in the equal and neutral application of the procedural law either.

In Foster, the Court rejected the granulated arguments challenging the Trust’s evidence in the student loan defendant's appellate brief on the ground that the same objections were not first made in the trial court.

In Savoy, however, in which the two defendants were represented by the same law firm and had better prepared for trial, the applicable objections were properly presented to the trial court—many even in writing--and were thus not waived.

Those objections included the objection to affidavit testimony by TSI’s “Legal Case Manager” as hearsay at trial. The appellate Court nevertheless relied liberally on the affidavit testimony of TSI’s employee to beef up the conclusion that the data sheet TSI had inserted between the Pool Supplement and the Deposit and Sale Agreement proved that the specific loan at issue in the case was part of the pool-level transaction involving many loans, and that the data sheet was a redacted copy of the omitted Schedule referenced by the Pool Supplement as containing identifying information on the affected loans.

Note that the admissibility and sufficiency of the loan-specific evidence of transfer from the program lender to the securitization trust had been the very issue on which the decisions of the Fort Worth Court of Appeal pivoted in Ramirez and Gillespie. As noted, the Houston court of appeals did not even acknowledge them as contrary case law, and instead ruled that the Trust had validly proven the assignments and the loan-specific chain of title, overruling all well-preserved fully briefed evidentiary objections.

DEBT COLLECTOR TRANSWORLD SYSTEMS INC. (TSI) RECEIVES A JUDICIAL WHITEWASH FOLLOWING CFPB ENFORCEMENT ACTION IN 2017 

In both Foster and Savoy, the Defendants had argued in the trial court that the employee of TSI who signed the business records affidavit was not qualified to sponsor business records created by other entities. The Houston court rejected this argument as unpreserved in Foster and responded to it in Savoy by citing its earlier holding in Simien v. Unifund CCR Partners, 321 S.W.3d 235, 240-41 (Tex. App.-Houston [1st Dist.] 2010, no pet.), in which it had permitted a representative of a debt buyer to lay a predicate for admission of business records created by the original creditor, based on the proposition that a major bank’s records must be trustworthy, lest the bank get in trouble with regulators.

Also see --> Simien v Unifund CCR Partners' shaky premise - U.S. Comptroller of the Currency (OCC) enforcement action against Chase Bank punctures presumption of trustworthiness of credit card debt records established by Houston Court of Appeals in 2010 

LEGAL STANDARDS LOWERED ONCE MORE TO HELP DEBT COLLECTORS

Rather than sticking to its own already out-of-the-mainstream prior holding in Simien, the First Court of Appeals in Savoy went one step further in finding it sufficient for TSI’s affiant to attest to knowledge of the “receiving” of hearsay records to establish a proper predicate for the truth of what is stated on them under the business records exception to hearsay.

Under the Court’s latest loosening of the requirements of the BRA rule, employees of debt collection agencies can now sponsor account records as long as they state—meaninglessly--that they rely on the accuracy of those records. What else can collectors do when they have no independent ability to evaluate the reliability of such transferred records and run no risk of perjuring themselves in any event?

When robo-signing receives its official seal of approval, it is no longer a problem. TSI must be having second thoughts about settling with the Consumer Financial Protection Agency and agreeing to civil penalties over its abuses in affidavit production and debt collection/litigation practices found abusive by the federal agency before it had been commandeers by new leadership that is no longer committed to consumer protection.

  

As for consumers in Texas, the lesson is bleak. If business-friendly appellate courts are ready to change existing law to make consumers lose under newly-made law, it ts a no-win situation. No amount or quality of lawyer assistance will make any difference.

--> Pitfalls of Consumer Debt Defense in Texas: Taylor v. Discover Bank (Tex. App. - Austin 2018) 

And not only do they lose their case. They will have helped establish new precedent for the benefit of the court’s favored category of litigants in similar types of case in the future. That’s precisely what happened in Simien v. Unifund a few years ago, when the First Court of Appeals held that the sponsoring witness did not have to be familiar with the record-keeping practices of the entity that had created those records. It was a big gift to out-of-state mass litigation collections firms suing Texas for thousand of dollars on junk debt that the original creditor had long written off and sold for pennies on the nominal dollar, balances often inflated by assessment of interest at rates of 30% or even higher after the cardholders had made a monthly payment late or had stopped making regular payments altogether. 

  

THE END OF CREDITOR-ACCOMMODATING REPUBLICAN JURISPRUDENCE?

It all smacks of results-oriented agenda-driven jurisprudential injustice against which there is no remedy because the state’s highest court is likewise under the iron-clad control of like-minded jurists of the same political party.

The Supreme Court of the United States is split between liberal and conservative factions and generates lively debate and vigorous dissents. Many of its decision come down 5 to 4. The supreme court’s counterpart in Texas, however, is an echo chamber populated by a single group with shared political and ideological commitments and industry sympathies. Sitting members resign before their terms are up so the Republican Governor gets to appoint another Republican, not infrequently a close associate in the executive branch. Former members of the High Court will in due course return to argue cases for private clients if they do not serve in other high office, regaling their former peers with citations to precedents they have themselves applied if not decided while sitting on the bench with them.

Sitting members of the supreme court will cite their own prior decisions as binding authority, just as the Houston Court has done in Savoy, a case in which it self-referentially relied on its recent decisions in Foster and Mock, while ignoring the opinions handed down by the Fort Worth Court of Appeals in Ramirez and Gillespie. Those cases happen to conflict with the Houston justices own preferred way to deal with private student loan mass litigation, and would interfere with the Houston Appeals Court's approach to creating of a creditor-friendly jurisprudence to guide the trial courts below.  

  

Hopefully, the arrival of new justices of the Democratic persuasion will pose a proper counterweight even if some of them have lesser experience and credentials than long-serving Republican incumbents; Hopefully the arrival of the new crop of appellate jurists will foster a more lively exchange of thoughts and greater intellectual honesty. Hopefully, the impending change in the partisan makeup of the major metropolitan courts of appeals will reign in the practices of creating—in an ad hoc fashion—new caselaw to accommodate special interests at the expense of individuals and at the expense of equal and fair application of law; under a court system that has been rejuvenated and has shed the heavy burden of many years of unassailable Republican hegemony.

CITES FOR PRIVATE STUDENT LOAN APPELLATE CASES IN TEXAS COURTS OF APPEALS  

Savoy v. National Collegiate Student Loan Trust 2005-3. No. 01-17-00345-CV, ___ S.W.3d ___ (Tex.App.- Houston [1st Dist.] Aug. 9, 2018, no pet.). 

Mock v. Natational Collegiate Student Loan Trust 2007-4, No. 01-17-00216-CV, 2018 WL 3352913 (Tex. App.-Houston [1st Dist.] July 10, 2018, no pet. h.) (memorandum opinion)

Foster v. National Collegiate Student Loan Trust 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App.-Houston [1st Dist.] Mar. 1, 2018, no pet.) (memorandum opinion).
See Gillespie v. National Collegiate Student Loan Trust 2005-3, No. 02-16-00124-CV, 2017 WL 2806780 (Tex. App.-Fort Worth June 29, 2017, no pet.) (mem. op.); Nat'l Collegiate Student Loan Trust 2006-2 v. Ramirez, No. 02-16-00059-CV, 2017 WL 929527 (Tex. App.-Fort Worth, Mar. 9, 2017, no pet.) (mem. op.).

REBECCA V. SAVOY AND THERESA SAVOY, Appellants,
v.
NATIONAL COLLEGIATE STUDENT LOAN TRUST 2005-3, Appellee.

No. 01-17-00345-CV 

Court of Appeals of Texas, First District, Houston.

Opinion issued August 9, 2018. 

On Appeal from the County Civil Court at Law No. 2, Harris County, Texas, Trial Court Case No. 1076548.

Panel consists of Justices Keyes, Brown, and Lloyd.

OPINION

HARVEY BROWN, Justice. 

This is an appeal from a final judgment in favor of National Collegiate Student Loan Trust 2005-3 in its suit against Rebecca and Theresa Savoy for breach of a student loan agreement and personal guaranty.^[1] In three issues, the Savoys contend that (1) the trial court abused its discretion in admitting the Trust's exhibits under the business-records exception to the hearsay rule, (2) there is legally and factually insufficient evidence to support the trial court's judgment, and (3) the Trust did not have standing to sue because the loan's other guarantor, The Education Resources Institute, Inc., assumed and paid off the debt after the Savoys defaulted. We suggest a remittitur of damages. Conditioned on that suggestion, we affirm the trial court's judgment.

Background

In August 2005, Rebecca Savoy, as borrower, and Theresa Savoy, as cosignor, took out a student loan from JPMorgan Chase Bank, N.A. to finance Rebecca's education at the University of Houston. Over ten years later, in April 2016, the Savoys were sued by a Delaware statutory trust,^[2] National Collegiate Student Loan Trust 2005-3, for defaulting on the loan.^[3]

The Trust alleged that it acquired the note from JPMorgan Chase before the Savoys' first payment date, when the loan was still in good standing. The Trust further alleged that, after the loan's deferral period, the Savoys failed to make payments as agreed, causing a default. The Trust then sent the Savoys a letter demanding payment in full, but the Savoys failed to pay the note. The Trust asserted claims for breach of contract and breach of personal guaranty, seeking damages of $20,492.05 for the unpaid balance and $2,004.15 for accrued and unpaid interest.

The case was tried to the bench. The Trust did not call any live witnesses. Instead, it offered into evidence the affidavit of Alicia L. Holiday, a legal case manager for the Trust's loan subservicer, Transworld Systems, Inc., and seven attached exhibits.

The first exhibit was a Subservicer Confirmation letter, which showed that TSI is a subservicer for the Trust and the custodian of records for all student loan accounts owned by the Trust. The second exhibit consisted of two documents relating to the origination of the loan: (1) a "Loan Request/Credit Agreement" and (2) a "Note Disclosure Statement." The third exhibit consisted of three documents relating to JPMorgan Chase's assignment of the loan through an intermediary to the Trust: (1) a "Pool Supplement," dated October 12, 2005, (2) a redacted copy of Schedule 1 to the Pool Supplement, and (3) a "Deposit and Sale Agreement," also dated October 12, 2005. The fourth, fifth, sixth, and seventh exhibits consisted of four documents relating to the loan's repayment history: (1) a "Loan Financial Activity" Report, (2) a "Deferment/Forbearance" Summary, (3) a "Repayment Schedule," and (4) a "Loan Payment History Report."

The Savoys made numerous written and oral objections to Holiday's affidavit and the attached exhibits. The trial court overruled the Savoys' objections and admitted the seven exhibits into evidence under the business-records exception to the hearsay rule. The trial court rendered judgment for the Trust on both its claims, awarding it damages in the amount of $20,492.05, plus costs and interest.

The Savoys appeal.

Admissibility of Evidence

In their first issue, the Savoys contend that the trial court abused its discretion in admitting the Pool Supplement, Pool Supplement Schedule, Deposit and Sale Agreement, Loan Financial Activity Report, Deferment/Forbearance Summary, and Repayment Schedule into evidence under the business-records exception to the hearsay rule. The Savoys contend that none of the documents satisfy the requirements of the business-records exception. And they further contend that three of the documents—the Pool Supplement, Pool Supplement Schedule, and Deposit and Sale Agreement—were not properly authenticated.

A. Standard of review

We review a trial court's decision to admit or exclude evidence for an abuse of discretion. Simien v. Unifund CCR Partners, 321 S.W.3d 235, 239 (Tex. App.-Houston [1st Dist.] 2010, no pet.). A trial court abuses its discretion when it acts without reference to any guiding rules and principles. Id. We must uphold the trial court's evidentiary ruling if there is any legitimate basis for the ruling. Id.

B. Whether documents meet requirements of Rule 803(6) to qualify as business records

Hearsay is an out-of-court statement offered into evidence to prove the truth of the matter asserted. TEX. R. EVID. 801(d). Hearsay is inadmissible unless a statute or rule provides otherwise. TEX. R. EVID. 802. The proponent of hearsay has the burden to show that the testimony fits within an exception to the general rule prohibiting the admission of hearsay evidence. Simien, 321 S.W.3d at 240.

Rule 803 establishes various exceptions to the hearsay rule, including an exception for certain business records. Under the business-records exception, a record of an act, event, condition, or opinion is not excluded by the hearsay rule if:

(A) the record was made at or near the time by—or from information transmitted by—someone with knowledge;

(B) the record was kept in the course of a regularly conducted business activity;

(C) making the record was a regular practice of that activity;

(D) all these conditions are shown by the testimony of the custodian or another qualified witness, or by an affidavit or unsworn declaration that complies with Rule 902(10); and

(E) the opponent fails to demonstrate that the source of information or the method or circumstances of preparation indicate a lack of trustworthiness.

TEX. R. EVID. 803(6).

"A document authored or created by a third party may be admissible as business records of a different business if: (a) the document is incorporated and kept in the course of the testifying witness's business; (b) that business typically relies upon the accuracy of the contents of the document; and (c) the circumstances otherwise indicate the trustworthiness of the document." Simien, 321 S.W.3d at 240-41.

In her affidavit, Holiday testified that TSI is the Trust's loan subservicer and the designated custodian of records for the Savoys' educational loan; that she is employed by TSI and authorized by the Trust to make the representations in her affidavit and to testify about the Savoys' educational loan; and that she has personal knowledge of the business records maintained by TSI as custodian of records and the business records attached to her affidavit. See TEX. R. EVID. 903(6)(D). She stated that the records are created, compiled, and recorded as part of regularly conducted business activity at or near the time of the event and from information transmitted by a person with personal knowledge of the event and a business duty to report it, or from information transmitted by a person with personal knowledge of the accounts or events described within the business records. See TEX. R. EVID. 803(6)(A), (C). She further stated that the records are created, kept, maintained, and relied upon in the course of ordinary and regularly conducted business activity. See TEX. R. EVID. 803(6)(B). And she stated that it is TSI's regularly conducted business practice to incorporate prior loan records and documentation into TSI's business records and that she is familiar with the process by which TSI receives prior account records, including origination records from the time the loans are requested and the funds disbursed. See Simien, 321 S.W.3d at 240-41 (stating circumstances under which document authored or created by third party may be admissible as business record of different business).

Thus, Holiday's affidavit provided the testimony necessary to show that the attached business records comply with the general requirements of Rule 803(6). Nevertheless, the Savoys argue that the Pool Supplement, Deposit and Sale Agreement, Pool Supplement Schedule, Loan Financial Activity Report, Deferment/Forbearance Summary, and Repayment Schedule did not qualify as business records because they were not trustworthy for various reasons.

1. Pool Supplement and Deposit and Sale Agreement

First, the Savoys argue that the Pool Supplement and Deposit and Sale Agreement did not qualify as the Trust's business records because they were retrieved from the SEC's online database, EDGAR. Assuming the Pool Supplement and Deposit and Sale Agreement were retrieved from EDGAR, these documents were nevertheless admissible as business records of the Trust because the Trust showed (a) the documents are incorporated and kept in the course of the Trust's business, (b) it typically relies upon the accuracy of the contents of these documents, and (c) the circumstances otherwise indicate that the documents are trustworthy. Id. Holiday averred that it is TSI's regularly conducted business practice to incorporate prior loan records and documentation into TSI's business records and that she is familiar with the process by which TSI receives prior account records. And if the Pool Supplement and Deposit and Sale Agreement came from EDGAR, then the circumstances indicate they are trustworthy. See Williams Farms Produce Sales, Inc. v. R&G Produce Co., 443 S.W.3d 250, 259 (Tex. App.-Corpus Christi 2014, no pet.) (documents printed from government websites are self-authenticating).

The Savoys further argue that the Pool Supplement was inadmissible because the copy proffered by the Trust is missing its final, fifth page. But the Savoys themselves admit that the fifth page is simply a reference to the Pool Supplement Schedule—which the Trust did proffer in redacted form. We hold that the trial court did not abuse its discretion in admitting Pool Supplement and Deposit and Sale Agreement.

2. Pool Supplement Schedule

Next, the Savoys argue that the Pool Supplement Schedule did not qualify as the Trust's business record because it was not made contemporaneously, it is not a record of the Trust but rather the Trust's indenture trustee, and it is not the schedule referenced by the Pool Supplement attached to Holiday's affidavit, as it contains information relating to only one loan rather than all the loans pooled for sale. As already discussed, in her affidavit, Holiday averred that the Pool Supplement Schedule, like the other records, was made at or near the time of the event it records. Just because the Pool Supplement Schedule is on file with the Trust's indenture trustee does not mean that it is not also on file with the Trust itself. Holiday averred in her affidavit that the Pool Supplement Schedule was on file with the Trust, and it was within the trial court's discretion to rely on that testimony. And it is unsurprising that the Pool Supplement Schedule only contains information for one loan, as Holiday's affidavit makes clear that it is a "redacted copy." That the information relating to the other loans is missing is not evidence that the Trust proffered the wrong schedule. We hold that the trial court did not abuse its discretion in admitting the Pool Supplement Schedule.

3. Loan Financial Activity Report, Deferment/Forbearance Summary, and Repayment Schedule

Finally, the Savoys argue that the Loan Financial Activity Report, Deferment/Forbearance Summary, and Repayment Schedule did not qualify as the Trust's business records because the print date on these documents (May 18, 2016) shows that they were not made contemporaneously, were not kept in the course of a regularly conducted business activity, and are untrustworthy. See TEX. R. EVID. 803(6)(A), (B), (E). The print date on these documents does not suggest that the documents were prepared on the date they were printed. Each document includes the date for each event recorded. The Loan Financial Activity Report records events from August 25, 2005 to January 8, 2014; the Deferment/Forbearance Summary records events from December 1, 2007 to February 28, 2009; and the Repayment Schedule records events from December 17, 2007 to July 2, 2013. These dates, considered together with Holiday's affidavit testimony, show that the records were kept contemporaneously and created before this litigation began to track the repayment of the loan. Rule 803(6) only requires that the information be recorded at or near the time of the event. It does not also require that the copy of the record proffered into evidence be printed near the time of the event. It is therefore irrelevant that new copies of the Loan Financial Activity Report, Deferment/Forbearance Summary, and Repayment Schedule were printed after the Trust filed its petition. We hold that the trial court did not abuse its discretion in admitting the Loan Financial Activity Report, Deferment/Forbearance Summary, and Repayment Schedule.

C. Whether documents were authenticated under Rule 902(10) or otherwise

The Savoys further contend that the Trust failed to properly authenticate the three documents relating to the assignment of the loan—the Pool Supplement, Pool Supplement Schedule, and Deposit and Sale Agreement. The Trust responds that it authenticated these documents through Holiday's business-records affidavit.

Under Rule 902(10), business records are self-authenticating and require no extrinsic evidence of authenticity if they meet the requirements of Rule 803(6) and are accompanied by an affidavit that complies with subparagraph (B) of the rule and any other requirements of law. TEX. R. EVID. 902(10). Subparagraph (B) provides a template for a sufficient affidavit, which enumerates the elements of Rule 803(6), discussed above. TEX. R. EVID. 902(10)(B).

Rule 902(10)(B) "does not require the affiant to identify the particular person who originally created the business record in order to satisfy the authentication predicate." H2O Sols., Ltd. v. PM Realty Grp., LP, 438 S.W.3d 606, 622 (Tex. App.-Houston [1st Dist.] 2014, pet. denied). "Testimony by a witness or affiant identifying the exhibits as the business records of the proponent of the evidence `is sufficient evidence to satisfy the authentication requirement of Rule 901(a), regardless of whether the witness had personal knowledge of the contents of this evidence.'" Id.(quoting Concept Gen. Contracting, Inc. v. Asbestos Maint. Servs., Inc., 346 S.W.3d 172, 181 (Tex. App.-Amarillo 2011, pet. denied) (brackets omitted).

The Savoys argue that the Pool Supplement and Deposit and Sale Agreement should have been authenticated either by a live witness or as certified copies of public records under Rule 902(4)(B). We disagree. As discussed, a proponent can authenticate a business record with an affidavit that complies with Rule 902(10), which is what the Trust did here.

The Savoys further argue that the Pool Supplement Schedule was not properly authenticated because the schedule was never identified by Holiday. Again, we disagree. In her affidavit, Holiday stated that the Pool Supplement Schedule was "a redacted copy of the Schedule of transferred loans referenced within the Pool Supplement." Thus, the Pool Supplement Schedule was sufficiently identified.

We conclude that Holiday's affidavit complies with Rule 902(10)(B). See TEX. R. EVID. 803(6), 902(10)(B). Thus, the Trust's business records—including the Pool Supplement, Pool Supplement Schedule, and Deposit and Sale Agreement—are self-authenticating and require no extrinsic evidence of authenticity to be admitted. See TEX. R. EVID. 902; Foster v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00253-CV, 2018 WL 1095760, at *6 (Tex. App.-Houston [1st Dist.] Mar. 1, 2018, no pet.) (mem. op.) (in similar case, holding that affidavit of employee of loan's subservicer complied with Rule 902(10)(B) and that attached business records were self-authenticating).

We overrule the Savoys' first issue.

Sufficiency of Evidence

In their second issue, the Savoys contend that there is legally and factually insufficient evidence to support the trial court's judgment.

A. Standard of review

In an appeal from a bench trial, the trial court's findings of fact have the same weight as a jury verdict. Choice! Power, L.P. v. Feeley, 501 S.W.3d 199, 208 (Tex. App.-Houston [1st Dist.] 2016, no pet.). When challenged, a trial court's findings of fact are not conclusive if there is a complete reporter's record on appeal. Id.

We review a trial court's findings of fact under the same legal-sufficiency-of-the-evidence standard used when determining whether sufficient evidence exists to support an answer to a jury question. Id. When considering whether legally sufficient evidence supports a challenged finding, we must consider the evidence that favors the finding if a reasonable factfinder could, and disregard contrary evidence unless a reasonable factfinder could not. Id. We view the evidence in the light most favorable to a finding and indulge every reasonable inference to support it. Id.

When, as here, a party attacks the legal sufficiency of an adverse finding on an issue on which she did not have the burden of proof, she must demonstrate on appeal that no evidence supports the adverse finding. Graham Cent. Station, Inc. v. Pena, 442 S.W.3d 261, 263 (Tex. 2014) (per curiam). We may sustain a legal-sufficiency challenge to a trial court's finding only when (1) the record discloses a complete absence of evidence of a vital fact, (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact, (3) the evidence offered to prove a vital fact is no more than a mere scintilla, or (4) the evidence establishes conclusively the opposite of a vital fact. Feeley, 501 S.W.3d at 208.

The Savoys contend that there is insufficient evidence that (1) they entered into a valid student loan contract with JPMorgan Chase, (2) the loan was assigned to the Trust, (3) interest accrued at the rate alleged by the Trust, and (4) the Trust accelerated repayment of the loan. We consider each contention in turn.

B. Sufficient evidence of formation of student loan contract

First, the Savoys contend that there is insufficient evidence that they entered into a valid loan contract with the loan's originator, JPMorgan Chase. The Trust responds that the Credit Agreement and Disclosure Statement are sufficient evidence that the Savoys entered into a loan contract with JPMorgan Chase.

"To prevail on a breach of contract claim, a party must establish the following elements: (1) a valid contract existed between the plaintiff and the defendant; (2) the plaintiff tendered performance or was excused from doing so; (3) the defendant breached the terms of the contract; and (4) the plaintiff sustained damages as a result of the defendant's breach." West v. Triple B Servs., LLP, 264 S.W.3d 440, 446 (Tex. App.-Houston [14th Dist.] 2008, no pet.). The elements of a valid contract are (1) an offer, (2) an acceptance, (3) a meeting of the minds, (4) each party's consent to the terms, and (5) execution and delivery of the contract with the intent that it be mutual and binding. Beverick v. Koch Power, Inc., 186 S.W.3d 145, 150 (Tex. App.-Houston [1st Dist.] 2005, pet. denied). When an offer prescribes the manner of acceptance, compliance with those terms is required to create a contract. Padilla v. LaFrance, 907 S.W.2d 454, 460 (Tex. 1995). If one party signs a contract, the other party may accept by his acts, conduct, or acquiescence to the terms, making it binding on both parties. Jones v. Citibank (S.D.), N.A., 235 S.W.3d 333, 338 (Tex. App.-Fort Worth 2007, no pet.). To be enforceable, a contract must be sufficiently certain to enable a court to determine the rights and responsibilities of the parties. Williams v. Unifund CCR Partners Assignee of Citibank, 264 S.W.3d 231, 236 (Tex. App.-Houston [1st Dist.] 2008, no pet.).

The Credit Agreement is signed by Rebecca Savoy, as borrower, and Theresa Savoy, as cosignor, and is dated August 18, 2005. It shows that the Savoys applied for a student loan in the amount of $15,000 from JPMorgan Chase under its Education One Undergraduate Loan program to finance Rebecca's education at the University of Houston for the academic period of August 2005 to May 2006.

Under the Credit Agreement, the Savoys promised to pay any loan made to them by JPMorgan Chase:

I promise to pay to your order, upon the terms and conditions of this Credit Agreement, the principal sum of the Loan Amount Requested shown on the first page of this Credit Agreement, to the extent it is advanced to me or paid on my behalf, and any Loan Origination Fee added to my loan (see Paragraph F) ("Principal Sum"), interest on such Principal Sum, interest on any unpaid interest added to the Principal Sum, and other charges set forth herein.

The Credit Agreement set forth the method by which the Savoys would agree to the terms of any loan offered by JPMorgan Chase:

By signing this Credit Agreement, and submitting it to you, I am requesting that you make this loan to me in an amount equal to the Loan Amount Requested plus any Loan Origination Fee . . . . I agree to accept an amount less than the Loan Amount Requested and to repay that portion of the Loan Amount Requested that you actually lend to me. . . . If you agree to make a loan to me, you will mail me the disbursement check (the "Disbursement Check") and a statement disclosing certain information about the loan in accordance with the federal Truth-in-Lending Act (the "Disclosure Statement"). . . . In addition to other information, the Disclosure Statement will tell me the amount of my disbursement and the amount of the Loan Origination Fee. The Disclosure Statement is part of this Credit Agreement. Upon receipt of the Disclosure Statement, I will review the Disclosure Statement and notify you in writing if I have any questions. My endorsement of the Disbursement Check or allowing the loan proceeds to be used by or on behalf of the Student without objection will acknowledge receipt of the Disclosure Statement and my agreement to be legally bound by this Credit Agreement.

And the Credit Agreement set forth the method by which the Savoys could cancel the loan:

If I am not satisfied with the terms of my loan as disclosed in the Disclosure Statement, I may cancel my loan. To cancel my loan, I will give you a written cancellation notice, together with my unused Disbursement Check or, if I have already endorsed and delivered the Disbursement Check to the School, a good check, payable to you, in the full amount of the Disbursement Check.

The Credit Agreement also addressed deferment periods, terms of repayment, interest, default, and acceleration.

The Disclosure Statement shows that, on August 25, 2005, JPMorgan Chase approved the Savoys' loan request and disbursed to Rebecca loan proceeds in the amount of $15,000 for Loan No. 03206792. The terms included an origination fee of $1,042.78; interest at 8.407 percent; and 240 payments of $149.95, due on the first day of each month, starting July 1, 2007.

Thus, the evidence shows that the Savoys applied for a loan from JPMorgan Chase, JPMorgan Chase offered the Savoys a loan on the terms set forth in the Credit Agreement and Disclosure Statement, and the Savoys accepted the offer by allowing the loan proceeds to be used by or on behalf of Rebecca without objection.

The Savoys nevertheless argue that the evidence is insufficient to show a valid contract because, although the Credit Agreement contains a promise, the promise was qualified as follows: "I promise to pay to your order, upon the terms and conditions of this Credit Agreement, the principal sum of the Loan Amount Requested shown on the first page of this Credit Agreement, to the extent it is advanced to me or paid on my behalf . . . ." (Emphasis added.) The Savoys contend that their promise to pay was "contingent" on the loan being approved and, because JPMorgan Chase had not yet approved the application when the Savoys signed it, there could not yet have been a meeting of the minds on the essential terms of the contract, including the amount of the loan and the cost-of-credit terms. The Savoys recognize that the terms do appear on the Disclosure Statement, but they contend that the Disclosure Statement cannot be part of the agreement because it is dated August 25, 2005, which is seven days after the date the Credit Agreement was signed. The Savoys contend that, although they signed the Credit Agreement, it does not, without more, constitute a binding contract. We disagree.

The Credit Agreement and Disclosure Statement, taken together, evince the essential terms of the loan, including the amount of the loan. The Disclosure Statement evinces the Savoys' assent to those terms. See Mock v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00216-CV, 2018 WL 3352913, at *6-7 (Tex. App.-Houston [1st Dist.] July 10, 2018, no pet. h.) (mem. op.) (in similar case, holding that credit agreement and disclosure statement constituted sufficient evidence of essential loan terms); Foster, 2018 WL 1095760, at *10.

The Savoys' argument overlooks "well-established law that instruments pertaining to the same transaction may be read together to ascertain the parties' intent, even if the parties executed the instruments at different times and the instruments do not expressly refer to each other." Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000). Courts may construe all the documents as if they were part of a single, unified instrument. Id.

The Savoys further argue that there is insufficient evidence that JPMorgan Chase disbursed the loan proceeds because the Trust failed to present a signed disbursement check. However, a signed disbursement check was unnecessary to prove that the proceeds were disbursed because the Trust presented the Disclosure Statement, which states that the proceeds were disbursed on August 25, 2005. The Savoys do not argue that the Disclosure Statement is inaccurate. Nor do they point us to evidence that they cancelled or attempted to cancel the loan after JPMorgan Chase deposited the loan proceeds.

We hold that there is legally and factually sufficient evidence that the Savoys entered into a student loan contract with JPMorgan Chase.

C. Sufficient evidence of assignment

Next, the Savoys contend that there is insufficient evidence that the loan was assigned to the Trust. The Trust responds that the Pool Supplement, redacted Pool Supplement Schedule, and Deposit and Sale Agreement show that the loan was assigned by JPMorgan Chase to The National Collegiate Funding LLC and then by National Collegiate to the Trust.

Under the Pool Supplement,^[4] JPMorgan Chase sold and assigned to National Collegiate each student loan listed on an attached Pool Supplement Schedule. And National Collegiate, in turn, agreed to sell the loans to the Trust.

The redacted Pool Supplement Schedule contains the information for one of the loans that was sold and assigned under the Pool Supplement.^[5] This information, when cross-referenced with the Credit Agreement, Disclosure Statement, and Loan Payment History Report, discussed below, shows that the referenced loan is the loan that JPMorgan Chase made to the Savoys. Among other information, the Pool Supplement Schedule identifies the loan by the lender (Bank One),^[6] the loan program (Education One Undergraduate), the borrower's social security number (matching the number provided by Rebecca Savoy in the Credit Agreement), and the principal balance (matching the balance of the Savoys' loan as of the date of the Pool Supplement).

Under the Deposit and Sale Agreement, National Collegiate sold and assigned to the Trust the student loans pooled under various pool supplements listed on an attached Schedule A. Schedule A to the Deposit and Sale Agreement lists the Pool Supplement under which JPMorgan Chase sold and assigned the Savoys' loan to National Collegiate—i.e., the Pool Supplement "entered into by and among The First Marblehead Corporation, The National Collegiate Funding LLC and . . . Bank One, N.A., dated October 12, 2005, for loans that were originated under Bank One's . . . Education One Loan Program . . . ."

In sum, the Pool Supplement shows that JPMorgan Chase transferred, sold, and assigned to National Collegiate the student loans listed on the attached Pool Supplement Schedule and that National Collegiate agreed to sell those loans to the Trust. The redacted Pool Supplement Schedule shows that the loan JPMorgan Chase made to the Savoys was among those sold to National Collegiate. And the Deposit and Sale Agreement shows that National Collegiate sold and assigned to the Trust the student loans listed on each pool supplement listed on an attached Schedule A, which lists the Pool Supplement under which JPMorgan Chase assigned the Savoys' loan to National Collegiate. Thus, these three documents show that JPMorgan Chase assigned the Savoys' loan to National Collegiate, which, in turn, assigned the loan to the Trust. We hold that there is sufficient evidence that the Savoys' loan was assigned to the Trust. See Mock, 2018 WL 3352913, at *7 (holding that pool supplement, redacted loan transfer schedule, and deposit and sale agreement constituted sufficient evidence that loan was assigned to trust by originator through intermediary); Foster, 2018 WL 1095760, at *7-8 (same).

D. Sufficient evidence of interest rate

Next, the Savoys contend that there is insufficient evidence of the loan's interest rate during the term of the loan.

The Credit Agreement in paragraph D discusses in detail how interest on the Savoys' loan was to be calculated throughout its term and provides for capitalization of interest during deferment. Paragraph I also provides for capitalization of interest and fees upon default. The Disclosure Statement states an annual percentage rate of 8.407 percent, with a variable rate based on the average of the one-month LIBOR index published in the "Money Rates" section of The Wall Street Journal on the first business day of each of the three calendar months immediately preceding the first day of each calendar quarter. The Loan Financial Activity Report lists the amount of "Interest Accrued" each month on the Savoys' loan through January 8, 2014.

The Savoys provide no evidence and do not contend that the interest rate reflected in these documents is in any way incorrect. Nor do they provide any authority for their argument that the Trust was required to support its claim with calculations supporting each month's interest computation over the life of the loan.

We hold that there is sufficient evidence of the loan's interest rate. See Mock, 2018 WL 3352913, at *7 (holding that credit agreement, disclosure statement, and loan financial activity report constituted sufficient evidence of loan's interest rate); Foster, 2018 WL 1095760, at *11 (same).

E. Insufficient evidence of acceleration

The Savoys contend that there is insufficient evidence that the maturity of the loan was accelerated.

The Disclosure Statement reflects that the Savoys agreed to pay the loan over a period of 20 years, with payments beginning in July 2007. The Credit Agreement states that, to the extent permitted by law, in the event of a default on the loan, the Trust "will have the right to give [the Savoys] notice that the whole outstanding principal balance, accrued interest, and all other amounts payable to [the Trust] under the terms of this Credit Agreement are due and payable at once."

"Where the holder of a promissory note has the option to accelerate maturity of the note upon the maker's default, equity demands notice be given of the intent to exercise the option." Ogden v. Gibraltar Sav. Ass'n, 640 S.W.2d 232, 233 (Tex. 1982). "The accelerated maturity of a note, which is initially contemplated to extend over a period of months or years, is an extremely harsh remedy." Allen Sales & Servicenter, Inc. v. Ryan, 525 S.W.2d 863, 866 (Tex. 1975). A creditor "must give the debtor an opportunity to pay the past due installments before acceleration of the entire indebtedness; therefore, demand for payment of past due installments must be made before exercising the option to accelerate." Williamson v. Dunlap, 693 S.W.2d 373, 374 (Tex. 1985) (emphasis omitted). The note holder must also notify the maker both of its intent to accelerate and of the acceleration. Ogden, 640 S.W.2d at 233-34.

There is no evidence in the record before us that the Trust provided the Savoys with either of the required notices. The Trust alleged in its petition that, as a prerequisite to acceleration, it served the Savoys with a letter demanding payment in full. However, the demand letter is not part of the record, and pleadings are not evidence.

We hold that the evidence is legally and factually insufficient to support the full amount of actual damages awarded. See Mock, 2018 WL 3352913, at *8 (holding that evidence was insufficient to show acceleration when trust presented no evidence that it provided debtor with notice of acceleration); Foster, 2018 WL 1095760, at *11-12 (same).

When acceleration is invalid, the plaintiff is entitled to judgment against the defendant only "for past due installments plus accumulated interest as provided in the note." Williamson, 693 S.W.2d at 374.

The Savoys request that we "reform the judgment to an amount commensurate with the sum of missed installment payments through the date the petition was filed" or, alternatively, "suggest a remittiture to accomplish a proper adjustment of the amount of contract damages proven by the admissible evidence as having been caused by breach of contractual duties." The evidence shows that, the sum of all monthly payments due, beginning on July 1, 2007, as stated in the Disclosure Statement, through the date of the filing of suit, April 15, 2016, is $15,894.70.^[7]

A court of appeals may suggest a remittitur when there is insufficient evidence to support the full amount of damages awarded but sufficient evidence to support a lesser award. Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat'l Dev. & Research Corp., 299 S.W.3d 106, 124 (Tex. 2009); see TEX. R. APP. P. 46.3. If part of a damage verdict lacks sufficient evidentiary support, the proper course is to suggest a remittitur of that part of the verdict, giving the party prevailing in the trial court the option of accepting the remittitur or having the case remanded for a new trial. Akin, Gump, 299 S.W.3d at 124.

As set out above, the record contains some evidence that breach-of-contract damages exist, but, without evidence of notice of acceleration, the evidence does not support the full amount awarded by the trial court. The evidence does, however, allow us to determine a lesser award. See ERI Consulting Eng'rs, Inc. v. Swinnea, 318 S.W.3d 867, 877-78, 880 (Tex. 2010) (holding there was "legally sufficient evidence to prove a lesser, ascertainable amount of lost profits with reasonable certainty," and remanding case to court of appeals to consider suggestion of remittitur).

Based on the record, the evidence is legally and factually sufficient to support a lesser damages finding of $15,894.70, which represents the sum of all monthly payments due, beginning on July 1, 2007, as stated in the Disclosure Statement, through the filing of suit on April 15, 2016. See Mock, 2018 WL 3352913, at *9 (suggesting remittitur when plaintiff-trust failed to prove acceleration of loan's maturity); Foster, 2018 WL 1095760, at *12 (same); see also PNS Stores, Inc. v. Munguia, 484 S.W.3d 503, 513 (Tex. App.-Houston [14th Dist.] 2016, no pet.)(suggesting remittitur to "the highest amount of actual damages supported by the evidence").

We sustain in part and overrule in part the Savoys' second issue.

Standing

In their third issue, the Savoys argue that the Trust lacked standing to sue because the loan was paid in full by the loan's second guarantor, The Education Resources Institute, Inc. TERI is a nonprofit organization that provides guaranties for private education loans. The Credit Agreement states that JPMorgan Chase "purchased a guaranty" from TERI. According to the Savoys, the last entry in the Loan Financial Activity Report reflects a principal balance of zero dollars, which shows that TERI assumed and paid the debt after the Savoys defaulted. We disagree.

The Loan Financial Activity Report reflects that the principal balance decreased to zero when a $20,492.05 "transaction" occurred in January 2014. The Loan Payment History Report reflects that the "transaction" did not refer to TERI paying the debt; rather, it referred to the Trust charging off the debt. The Savoys have failed to proffer any evidence that, contrary to these reports, the principal balance decreased to zero because the debt was paid by TERI. See Mock, 2018 WL 3352913, at *9 (holding that borrowers failed to show debt was paid by TERI when they failed to proffer evidence of such payment).

We overrule the Savoys' third issue.

Conclusion

We conclude that the evidence is insufficient to support the trial court's award of actual damages in the amount of $20,492.05 but is sufficient to support an award of actual damages in the amount of $15,894.70. Thus, we suggest a remittitur of the actual damages award to $15,894.70. In accordance with Rule 46.3 of the Texas Rules of Appellate Procedure, if the Trust files with this Court, within fifteen days of the date of this opinion, a remittitur to that amount, the trial court's judgment on damages will be modified and affirmed. See TEX. R. APP. P. 46.3. If the suggested remittitur is not timely filed, the trial court's judgment will be reversed and the cause will be remanded for a new trial on liability and damages. See Rancho La Valencia, Inc. v. Aquaplex, Inc., 383 S.W.3d 150, 152 (Tex. 2012)(holding that if party rejects remittitur, court of appeals must remand for new trial on liability and damages). 

[1] This appeal is one of several recent appeals involving Delaware statutory trusts that have acquired student loan debt and subsequently asserted claims against defaulting borrowers and guarantors. See, e.g., Mock v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00216-CV, 2018 WL 3352913 (Tex. App.-Houston [1st Dist.] July 10, 2018, no pet. h.) (mem. op.); Foster v. Nat'l Collegiate Student Loan Tr. 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App.-Houston [1st Dist.] Mar. 1, 2018, no pet.) (mem. op.). Although the cases involve different borrowers and different trusts, the lawyers are the same and the issues are similar.

[2] See DEL. CODE tit. 12, §§ 3801-26.

[3] Unlike common law trusts, statutory trusts may sue and be sued. See TEX. BUS. & COM. CODE § 9.102 cmt. 11 (statutory trust is juridical entity that may sue and be sued); cf. Ray Malooly Tr. v. Juhl,186 S.W.3d 568, 570 (Tex. 2006) (stating general rule that suit against common law trust must be brought against trustee).

[4] The Pool Supplement is a supplement to two earlier Amended and Restated Note Purchase Agreements—one dated May 1, 2002 and the other dated July 26, 2002—by and between The First Marblehead Corporation and Bank One, N.A. (Columbus Ohio) by its successor by merger, JPMorgan Chase Bank, N.A.

[5] In her affidavit, Holiday describes the document as "a redacted copy of the Schedule of transferred loans referenced within the Pool Supplement."

[6] In July 2004, Bank One merged with JPMorgan Chase. In some parts of the record, the loan's originator is identified as Bank One, while in others, it is identified as JPMorgan Chase.

[7] Calculated as $149.95 in monthly payments over 106 months.