Credit Union loses on appeal: Hooper v. Generations Community FCU (Tex.App. 2013) (case note) (San Antonio)

Hooper vs. Generations Community FCU (Tex.App. 2013)  

CREDIT UNION FAILED TO PROVE ELEMENTS OF BREACH OF CONTRACT CLAIM 

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

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

WHY DID CITIBANK LOSE IN TULLY? 

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

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

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

APPEAL FROM SUMMARY JUDGMENT VS. BENCH TRIAL 

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

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

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

But panels of justices of certain other courts of appeal (in Houston, Dallas, and Waco) have let financial institutions win without proving the underlying contract even though such a contract is always required under state and/or federal law governing credit cards and issuers of such cards. How so? -- By other means.

See --> Account Stated: an old theory turned to new use to allow creditors to win without having to prove up the loan contract.

WHY WAS THE JUDGMENT FOR THE CREDIT UNION REVERSED?

The court of appeals' opinion in Hooper makes clear that the credit union lost because its attorney had done a poor job presenting its case at trial. It had not actually proven up the agreement referenced in the application for credit, and had not shown what the terms were that formed the basis for the allegation that Hooper breached the contract. Since the element of breach of credit agreement could only be shown with reference to the specific contractual obligation governing repayment in installments, the absence of the agreement was also fatal to the third element of a viable breach of contract cause of action, breach by nonperformance.

Holding that the evidence was legally insufficient to support the trial court's judgment, the San Antonio appellate court explains that the creditor cannot prove breach without establishing what obligations were subject to breach, i.e. the terms of the underlying loan contract.

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

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

TULLY AND HOOPER COMPARED 

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

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

CITES FOR THESE APPELLATE OPINIONS IN SUCCESSFUL APPEALS BY DEBTORS 

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

HOW CITED 

A credit card issued by a financial institution is a special contract that does not create the sort of debtor-creditor relationship to bring a claim within the scope of Rule 185. See Bird, 994 S.W.2d at 282; see also Sherman Acquisition II LP v. Garcia, 229 S.W.3d 802, 807 (Tex.App.-Waco 2007, no pet.); Tully v. Citibank (South Dakota), N.A., 173 S.W.3d 212, 216 (Tex.App.-Texarkana 2005, no pet.).

Hooper v. Generations Cmty. Fed. Credit Union, No. 04-12-00080-CV, 2013 WL 2645111, at *3 (Tex. App.-San Antonio June 12, 2013, no pet.) (mem. op.) (reversing judgment for creditor where cardholder agreement was not offered into evidence and there was no evidence establishing debtor's specific obligations under an agreement).





Last revised: 12/8/2018 

Breach of contract and account stated in the alternative

BREACH OF CONTRACT AND "ACCOUNT STATED"

AS ALTERNATIVE BASIS FOR A JUDGMENT ON A CREDIT CARD DEBT

The Texas pleading rules permit a plaintiff to sue on several different theories of recovery, even if the theories are based on the same set of underlying facts (in our case, same debt) and are mutually exclusive or incompatible. All a plaintiff has to do to avoid contradictions, and their possible use by the opposing party for judicial admissions purposes, is to plead the theories in the alternative. 

Not all debt collection firms active in Texas pursue multiple theories of recovery. Those that do typically plead in the alternative with separate paragraphs for each theory. The factual allegations may be in a separate paragraph, and thus apply to both. Some debt collection attorneys, however, take a scattershot approach and also include theories that are not legally viable for collection of a credit card debt, such as unjust enrichment and quantum meruit (both of which are equitable theories), and sworn account, which is a subspecies of a suit on account.

There is little incentive for defense counsel to attack the non-viable theories (with special exceptions), unless the plaintiff also bases a motion for summary judgment on these additional theories, or includes them as alternative bases when it moves for summary judgment for breach of contract or some other theory that has been found acceptable to pursue the debt (--> the resuscitation of account stated and the lowering of proof requirements in debt collection suit).

MULTIPLE THEORIES OF RECOVERY ON APPEAL

When the trial court grants a creditor’s traditional motion for summary judgment based on two (or more) theories of recovery – such as breach of contract and account stated, a common combination -- and the written order does not say which one was the successful one, the losing defendant will have to challenge both bases on appeal. If he or she attacks only one ground for summary judgment, the appeal will have virtually no chance of success regardless of whether the other ground is valid or not. The error will have been waived by the appellant’s failure to raise it and brief it. The same goes if quantum meruit is included as an alternative basis for recovery. 

If both grounds are appealed and properly briefed, the appellate panel has a choice. The justices will consider both bases behind closed doors, or even at oral argument (if any), but they can affirm the summary judgment even if the Plaintiff has not met its burden to prove all essential elements of caused of action; and the court need not go into the matter in its opinion. A single valid basis for summary judgment is enough to affirm it.    

In Castilla v. Citibank the debtor challenged the summary judgment rendered against her on the alternative theories of breach of contract and account stated. Since one cause of action is sufficient to support a judgment for debt, and since the court of appeals affirmed the summary judgment for breach of contract, the court did not reach the account-stated theory. The court therefore did not address the cardholder's arguments challenging the trial court’s award of summary judgment on that basis.

It is not the first and only time a court of appeals declined to rule on the merits of an alternative theory of recovery, or the adequacy of the evidence to support each of its essential elements.

In Busch v Hudson & Keyse the Fourteenth Count of Appeals in Houston did not reach breach of contract as a basis for judgment because it affirmed it based on the theory of account stated, which it expressly endorsed as a proper theory for the collection of a credit card debt, citing to cases from other courts of appeals. See Busch v. Hudson & Keyse, L.L.C., 312 S.W.3d 294, 299 (Tex. App.-Houston [14th Dist.] 2010, no pet.); Butler v. Hudson & Keyse, L.L.C., No. 14-07-00534-CV, 2009 WL 402329, at *2 (Tex. App.-Houston [14th Dist.] Feb. 19, 2009, no pet.) (mem. op.). 
see -->  Critique of account stated theory for credit card debt collection).     

MULTIPLE THEORIES OF RECOVERY ON APPEAL IN OTHER TYPES OF CASES 

Example from outside the credit card/consumer debt collection context: Dallas Court of Appeals opinion in Pegasus v. CSX Pegasus Transportation Group, Inc. v CSX Transportation Inc. (Aug. 14, 2013) (The other theories were breach of contract and quantum meruit. The opinion also rejects the argument that account stated was not viable on the basis that there had been an express contract between the parties because that contract had expired and the debt claim related to services performed after expiration). 

Last revised 12/8/2018