A high number of consumer debt collection cases result in default judgments. Under Texas pleading rules, the contract does not have to be attached to a creditor’s petition, and when no answer is filed, the allegations in the petition are admitted except for unliquidated damages. The latter are typically “proven up” with an affidavit and at least one account statements attached to the creditor’s motion for default judgment.
That may not be so remarkable. What is more remarkable is that creditors routinely obtain judgments without proving the underlying contract even in contested cases because one intermediate court held in 2008 that proof of the contract is not required if the creditor proceeds on the alternative common-law theory of account stated. See Dulong v. Citibank (South Dakota), N.A., 261 S.W.3d 890, 893 (Tex. App.-Dallas 2008, no pet.) (Opinion by Justice Richter).
In Dulong, the Dallas Court of Appeals fundamentally changed the common-law theory of account stated while purporting to rely on existing authority, and blessed its use for credit card debt collection. It cited a case in which the Fourteenth Court of Appeals in Houston held that an invoice for medical services provided to a patient was not enough to prove the reasonableness of charges in the absence of the patient’s agreement to the amount. See Neil v. Agris, 693 S.W.2d 604, 605 (Tex. App.-Houston [14th Dist.] 1985, no writ).
His sole attempt to prove an account stated was through his bookkeeper, who testified that she mailed appellant a bill which was never paid. There is no evidence in the record to show at the time the services were rendered or even subsequently that appellant agreed to pay $1700 to appellee for the professional services rendered. In the absence of an agreement fixing the price for the services, appellee was required to prove that the price charged for his services was usual, customary and reasonable; this he failed to do. We therefore sustain appellant's second point of error.
Several Texas courts of appeals have jumped on the bandwagon and have approved credit card debt collection without proof of the contract, blessing grant of judgments based on copies of credit card statements only. They cite Dulong, but don’t reexamine Dulong’s mistaken reliance on Neil v. Agris.
The only hold-out is the Second Court of Appeals in Fort Worth. See Morrison v. Citibank (South Dakota) N.A., 02-07-00130-CV, 2008 WL 553284 (Tex.App.-Fort Worth Feb. 28, 2008, no pet.) (mem. op.) (per curiam), an opinion with which the Dallas COA has expressly taken issue. See Compton v. Citibank (S.D.), N.A., 364 S.W.3d 415, 417-18 (Tex. App.-Dallas 2012, no pet.)(declining to follow the Fort Worth Court of Appeals' opinion in Morrison in favor of its own holding in Dulong and its reliance on that case in subsequent credit card cases).
Although there is a conflict among the appellate court, the Texas Supreme Court declined the invitation to review a credit card judgment based on account stated when a petition in such a case was filed in 2015. See Core v. Citibank, NA, No. 13-12-00648-CV, 2015 WL 1631680 (Tex. App.-Corpus Christi Apr. 9, 2015, pet. denied) (mem. op.).
Proof of contract-formation not required to prove breach-of-contract claim: Exemptions available
Even when a creditor proceeds on a breach-of-contract theory, Texas appeals courts have gone out of their way to relax the substantive proof requirements.
Credit card agreements are typically not signed. In litigation, the legal theory of contract-formation is acceptance of credit terms by card use (or other form of credit utilization involving the account).
Although the matter is technically governed by the choice-of-law jurisdiction (Delaware for Discover Bank and FIA/BANA, Utah for American Express, South Dakota for Wells Fargo and Citibank, Virginia for Capital One), Texas common-law is typically applied because a motion for judicial notice of the other state’s law is rarely filed in collection suits.
Contractual choice of law comes up occasionally in American Express cases because of the distinct nature of the Utah statute of frauds and its statutory exceptions for credit cards, which do not fall under the statute of frauds in Texas even if the loan amount were to exceed $50,000. See TEX. BUS. & COMM. CODE ANN. § 26.02 (West, Westlaw through 2017 1st C.S.) (requiring a loan agreement exceeding $50,000 to be in writing, thus, creating a statute of frauds for certain loan agreements, but excepting (A) a credit card or charge card, and (B) an open-end account, as that term is defined by Section 301.002, Finance Code, intended or used primarily for personal, family, or household use.).
Contractual choice of law comes up occasionally in American Express cases because of the distinct nature of the Utah statute of frauds and its statutory exceptions for credit cards, which do not fall under the statute of frauds in Texas even if the loan amount were to exceed $50,000. See TEX. BUS. & COMM. CODE ANN. § 26.02 (West, Westlaw through 2017 1st C.S.) (requiring a loan agreement exceeding $50,000 to be in writing, thus, creating a statute of frauds for certain loan agreements, but excepting (A) a credit card or charge card, and (B) an open-end account, as that term is defined by Section 301.002, Finance Code, intended or used primarily for personal, family, or household use.).
Proof of a Meeting of the Minds on Contract Terms no longer necessary: Here is a consumer contract, you are a consumer, therefore you have agreed to it
Texas courts look to evidence of card use as shown by line items for charges on the credit card statement as proof that a contract was formed, but they do not require creditors to prove that a generic cardmember agreement attached to an affidavit is the one that was offered to and accepted by the cardholder.
In Wakefield v. Wells Fargo Bank, N.A., for example, the court of appeals found it sufficient that the defendant had the status of cardholder and that the generic agreement stated that it applied to cardholder even though the date on the agreement attached to the bank's summary judgment affidavit did not match the date attested to by the Bank’s affiant as the date of contract-formation, which was years earlier. Wakefield v. Wells Fargo Bank, N.A., No. 14-12-00686-CV, 2013 WL 6047031 (Tex. App.-Houston [14th Dist.] Nov. 14, 2013, no pet.) (mem op. by Justice Tracy Christopher).
In Wakefield v. Wells Fargo Bank, N.A., for example, the court of appeals found it sufficient that the defendant had the status of cardholder and that the generic agreement stated that it applied to cardholder even though the date on the agreement attached to the bank's summary judgment affidavit did not match the date attested to by the Bank’s affiant as the date of contract-formation, which was years earlier. Wakefield v. Wells Fargo Bank, N.A., No. 14-12-00686-CV, 2013 WL 6047031 (Tex. App.-Houston [14th Dist.] Nov. 14, 2013, no pet.) (mem op. by Justice Tracy Christopher).
Creditor’s affidavit testimony accepted as competent, Debtor’s dismissed as conclusory or immaterial
The matter of whether contractual rights predicated upon an unsigned contract (or terms-and-conditions document) are enforceable depends not only on the nature and quality of the proof of credit formation/acceptance, but whether the evidence is admissible.
In credit card cases, Texas courts of appeals find it sufficient when an affiant for a creditor testifies that an attached boilerplate agreement is the agreement governing the account without details regarding contract-formation, but reject or discount affidavit testimony by defendants disputing the creditor’s contentions as conclusory. See, e.g. Hay v. Citibank (S.D.) N.A., No. 14-04-01131-CV, 2006 WL 2620089, at *2 (Tex. App.-Houston [14th Dist.] Sept. 14, 2006, no pet.) (holding affidavit statement that customer "did not agree to the terms of any credit card" did not defeat summary judgment in creditor’s favor); also see Houle v. Capital One Bank (USA), N.A., No. 08-16-00234-CV, 2018 WL 6629698, at *5 (Tex.App.-El Paso Dec. 19, 2018, pet. filed) (opinion by Chief Justice Ann Crawford McClure) (concluding that defendant’s counter-affidavit disputing the bank’s claims and evidence did not raise a genuine issue of material fact).
In one recent summary judgment appeal, a Houston Court of Appeals found the creditor’s evidence “free from any contradictions or inconsistencies” even though there were only two credit card statements in the record and they had different account numbers on them. The court went so far as to cite a criminal case from a federal district court in a different state to support the factual proposition that two different account numbers can pertain to the same account to neutralize the discrepancy in the summary judgment record before it. See Germany v. Wells Fargo Bank, N.A., No. 14-17-00916-CV (Tex.App. – Houston [14th Dist.], Feb. 7, 2019, pet. filed)(memorandum opinion by Justice Christopher).
By contrast, when the issue is whether a valid agreement to arbitrate exists in the employment context (which is also a matter of ordinary state contract law), much closer attention is given to the elements of contract-formation. See, e.g., Kmart Stores of Texas, L.L.C. v. Ramirez, 510 S.W.3d 559, 568-71 (Tex. App.-El Paso 2016, pet. denied)(finding fact issue regarding existence of arbitration agreement where employee testified unequivocally that she did not log in through Kmart's online portal to view an arbitration agreement, did not click on a screen acknowledging receipt of the policy, and had never been presented with an arbitration agreement at any time during her employment.); Red Bluff , LLC v Tarpley, No. 14-17-00505-CV (Tex.App. – Houston [14th Dist.] Dec. 21 , 2018, no pet.) (mem. op by Justice Brett Busby) (arbitration agreement not formed because proper procedure not followed).
Imputation of consent upon the consumer by the Court of Appeals in the absence of evidence
Another approach taken by at least one Texas Court of Appeals to dispose of the issue of consumer consent is to simply impute consent on the consumer without the requisite evidence in the record that the consumer consented in the manner specified by the standard terms on the loan origination documents. See Foster v. National Collegiate Student Loan Trust 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App.-Houston [1st Dist.] 2018, no pet.) (mem. op. by Chief Justice Radack)(invoking theory of joint construction of multiple contract documents and concluding that student-applicant consented to loan terms by signing application even though the loan terms were not yet known when she signed the application), contra 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. by Justice Harvey Brown) (“The cancelled disbursement check is evidence that the Mocks agreed to the terms of the loan as set forth in the Credit Agreement and Disclosure Statement by endorsing and depositing the check that disbursed the loan proceeds.”).
In Foster, unlike in Mock, the Trust had not produced the disbursement check as proof of acceptance of the loan itself and the terms under which the loan was being offered (which were printed on the disclosure statement that post-dated the application), so the appellate court filled the evidentiary void with an ad-hoc legal theory that flies in the face of a fundamental tenant of contract-formation: the requirement of a meeting of the minds on essential terms.
Additionally, in Foster, the loan history exhibit did not reflect that any payments were ever made. So it could not have be argued that the evidence of installment payments was a sufficient proxy for proof of acceptance in the absence of the disbursement check as proof that the loan was made in the amount claimed by the trust, and that it was accepted on the terms stated in the TIL Disclosure Statement. See Benser v. Citibank (South Dakota), N.A., No. 08-99-00242-CV, 2000 WL 1231386, at *5 (Tex. App.-El Paso Aug. 31, 2000, no pet.) (concluding that defendant’s use of credit card and payments to account showed he understood obligation to bank and that contract had been formed).
Also see Research Paper on Retroactive Judicial Imputation of Consent to (Arguably) Predatory Loan Terms into a Student's Loan Application: A Critique of Foster v. NCSLT 2007-4, No. 01-17-00253-CV, 2018 WL 1095760 (Tex. App. – Houston [1st Dist.] March 1, 2018, no. pet. h.). (June 13, 2018). Available at SSRN:
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