Donald Ferrari and Ona Jean Ferrari v. Citation Securities, Inc. ( 2000 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

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NO. 03-99-00429-CV

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Donald Ferrari and Ona Jean Ferrari, Appellants

v.

Citation Securities, Inc., Appellee

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FROM THE DISTRICT COURT OF TRAVIS COUNTY, 331ST JUDICIAL DISTRICT NO. 93-14584, HONORABLE JON N. WISSER, JUDGE PRESIDING

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This is a suit on a promissory note. We must determine whether the six-year statute of limitations contained in 12 U.S.C. section 1821(d)(14)(A)(i)(I) (1989) commenced on the date the Federal Deposit Insurance Corporation ("FDIC") accelerated the maturity date of the promissory note or on the note's original maturity date. Because no affirmative act occurred after acceleration and before the note's original maturity date, we conclude that the acceleration was not effective and that the statute of limitations began running on the note's original maturity date. Accordingly, we affirm the trial court judgment.

Background

On March 31, 1986, Donald Ferrari and Ona Jean Ferrari (the Ferraris) executed a promissory note payable to North Central National Bank ("NCNB") in the principal amount of $305,000 secured by ten acres of real property and two Ferrari automobiles. The note was modified and extended on December 3, 1986 in the amount of $185,892.38. The Ferraris were obligated to make monthly installments with a final balloon payment due on December 3, 1987.

On or about April 23, 1987, the Office of the Comptroller of the Currency declared NCNB insolvent and the FDIC was appointed receiver of NCNB. The FDIC succeeded to all assets of NCNB by operation of law. 12 U.S.C. § 1821(d)(2)(A) (1989). On October 19, 1987, the FDIC gave notice of intent to accelerate the note by making a written demand for payment of the Ferraris' note and requesting the balance to be paid by October 30, 1987. Four days later, the FDIC accelerated the maturity date of the note, and informed the Ferraris that the FDIC intended to post the property securing the note for foreclosure. The Ferraris did not pay the balance and the FDIC did not post the property for foreclosure or take any other affirmative action to collect the note. The note matured on its own terms on December 3, 1987.

On March 1, 1989, the Ferraris sold one of the Ferrari automobiles securing the note and applied the $47,000 in proceeds to the amount due under the note. On May 15, 1992, a Travis County constable executed a constable's deed pursuant to an order of sale to Manor Independent School District, subject to the right of redemption, for taxes owed on the real property securing the Ferraris' note. The FDIC sold the note and related security documents to Citation Securities, Inc. ("CSI") on October 28, 1993. On November 24, 1993, CSI filed the underlying lawsuit against the Ferraris who defended on the basis that the statute of limitations had run before CSI filed its action. CSI paid the delinquent taxes, offered the real property for sale at a non-judicial sale, acquired the property for $50,000 on May 3, 1994, and applied the proceeds to the balance due on the note. Later that month, CSI foreclosed on its security interest in the remaining Ferrari automobile, sold it at auction, and applied the proceeds to the note.

Following a bench trial submitted on stipulated facts, the trial court concluded that the statute of limitations commenced on December 3, 1987, and thus the action was timely filed, awarded CSI a judgment in the amount of $275,000 plus interest, and ordered the foreclosure of CSI's deed of trust lien and sale of the real property. The Ferraris raise a single issue on appeal.

Discussion

The Ferraris contend the trial court erred in concluding limitations did not begin running until December 3, 1987. They argue that the date of the FDIC's November 3, 1987 letter accelerating the note was the date the statute of limitations commenced. Thus, according to the Ferraris' argument, CSI's lawsuit filed November 24, 1993 is barred by the six-year statute of limitations contained in 12 U.S.C. § 1821(d)(14)(A)(i)(I) (1989). ⁽¹⁾ In support of their position, the Ferraris first argue that there is no need for an affirmative act after acceleration to begin the running of the statute of limitations. According to the Ferraris, section 1821(d)(14)(A)(i)(I) provides that the limitations shall be the six-year period beginning on the date the claim accrues, without mentioning any further act. See 12 U.S.C. § 1821(d)(14)(A)(i)(I) (1989). They argue that because the FDIC could have foreclosed on the property or filed an action to collect the amount due or both after the acceleration in the November 3, 1987 letter, that is the date the cause of action accrued.

A cause of action on a note, assuming no acceleration, accrues when the note matures. See Swoboda v. Wilshire Credit Corp., 975 S.W.2d 770, 776 (Tex. App.--Corpus Christi 1998, pet. denied); see also Tex. Civ. Prac. & Rem. Code Ann. § 16.035(e) (West Supp. 2000) (when notes are secured by real property lien, limitations does not being to run until maturity date of last note). If a lender accelerates a note, the statute of limitations begins to run from the date of an effective acceleration. See McLemore v. Pacific Southwest Bank, FSB, 872 S.W.2d 286, 292-93 (Tex. App.--Texarkana 1994, writ dism'd by agr.) (note accelerated and matured upon date of foreclosure); Federal Deposit Ins. Corp. v. Massingill, 24 F.3d 768, 776 (5th Cir. 1994) (without affirmative act, no valid acceleration and statute of limitations did not begin until later default). A holder of a note may accelerate the note by providing: (1) the maker of the promissory note with notice of intent to accelerate and an opportunity to cure the default; (2) notice of the acceleration; and (3) further affirmative action enforcing the declared demand or acceleration. Massingill, 24 F.3d at 775-76; Ogden v. Gibraltar Sav. Ass'n, 640 S.W.2d 232, 233-34 (Tex. 1982); see Curtis v. Speck, 130 S.W.2d 348, 351 (Tex. Civ. App.--Galveston 1939, writ ref'd) (intention to accelerate maturity must be evidenced by clear and unequivocal acts followed by affirmative action towards enforcing declared intention).

The FDIC gave the Ferraris notice of intent to accelerate, an opportunity to cure, and a notice of acceleration. However, no affirmative act occurred after the November 3, 1987 letter of acceleration before the note matured on its own terms on December 3, 1987. Without an affirmative act after the acceleration, the acceleration was not effective to start the limitations period. Swoboda, 975 S.W.2d at 776-78. Accordingly, the cause of action accrued on the date the note matured, December 3, 1987. CSI timely filed its lawsuit on November 24, 1993, within six years of the accrual date.

In the alternative, the Ferraris argue that if an affirmative act is required, foreclosure by CSI more than six years later on May 3, 1994 satisfied such requirement. We disagree. On February 27, 1997, in an interlocutory order, the trial court set aside the May 3, 1994 foreclosure and declared it null, void and of no effect. Thus, there was no foreclosure to serve as an affirmative act to effectuate a valid acceleration.

Finally, the Ferraris contend that the requirement of a further affirmative act after notice of acceleration is no longer required. In support of this position, they rely on section 3.118 (a) of the Texas Business and Commerce Code. According to section 3.118(a):

Except as provided in Subsection (e), an action to enforce the obligation of a party to pay a note payable at a definite time must be commenced within six years after the due date or dates stated in the note or, if a due date is accelerated, within six years after the accelerated due date.

Tex. Bus. & Com. Code Ann. § 3.118(a) (West Supp. 2000). ⁽²⁾ The Ferraris argue that the "accelerated due date" refers to the notice of acceleration and not to a further act.

Section 3.118(a) was added effective January 1, 1996. Act of May 28, 1995, 74th Leg., R.S., ch. 921, § 1, 1995 Tex. Gen. Laws 4582, 4587 (codified at Tex. Bus. & Com. Code Ann. § 3.1198(a) (West Supp. 2000)). The new act expressly provided that it did not affect an action or proceeding commenced or a right that accrued before the effective date. Act of May 28, 1995, 74th Leg., R.S., ch. 921, § 9, 1995 Tex. Gen. Laws 4582, 4643. Accordingly, section 3.118(a) does not apply to the issue in this case regarding the commencement of the statute of limitations.

Conclusion

Having concluded that the acceleration was not effective, we hold that the limitations period commenced on December 3, 1987, the date the note matured, and that CSI's lawsuit filed November 24, 1993 was timely. We overrule the Ferraris' sole issue and affirm the trial court judgment.

Marilyn Aboussie, Chief Justice

Before Chief Justice Aboussie; Justices Kidd and B. A. Smith

Affirmed

Filed: March 30, 2000

Do Not Publish

1. It is undisputed that the six-year statute of limitations contained in 12 U.S.C. § 1821(d)(14)(A)(i)(I) (1989) applies. Jackson v. Thweatt, 883 S.W.2d 171, 174-76 (Tex. 1994).

2. Subsection (e) prescribes the limitations period for a certificate of deposit.

Code Ann. § 16.035(e) (West Supp. 2000) (when notes are secured by real property lien, limitations does not being to run until maturity date of last note). If a lender accelerates a note, the statute of limitations begins to run from the date of an effective acceleration. See McLemore v. Pacific Southwest Bank, FSB, 872 S.W.2d 286, 292-93 (Tex. App.--Texarkana 1994, writ dism'd by agr.) (note accelerated and matured upon date of foreclosure); Federal Deposit Ins. Corp. v. Massingill, 24 F.3d 768, 776 (5th Cir. 1994) (without affirmative act, no valid acceleration and statute of limitations did not begin until later default). A holder of a note may accelerate the note by providing: (1) the maker of the promissory note with notice of intent to accelerate and an opportunity to cure the default; (2) notice of the acceleration; and (3) further affirmative action enforcing the declared demand or acceleration. Massingill, 24 F.3d at 775-76; Ogden v. Gibraltar Sav. Ass'n, 640 S.W.2d 232, 233-34 (Tex. 1982); see Curtis v. Speck, 130 S.W.2d 348, 351 (Tex. Civ. App.--Galveston 1939, writ ref'd) (intention to accelerate maturity must be evidenced by clear and unequivocal acts followed by affirmative action towards enforcing declared intention).

The FDIC gave the Ferraris notice of intent to accelerate, an opportunity to cure, and a notice of acceleration. However, no affirmative act occurred after the November 3, 1987 letter of acceleration before the note matured on its own terms on December 3, 1987. Without an affirmative act after the acceleration, the acceleration was not effective to start the limitations period. Swoboda, 975 S.W.2d at 776-78. Accordingly, the cause of action accrued on the date the note matured, December 3, 1987. CSI timely filed its lawsuit on November 24, 1993, within six years of the accrual date.

In the alternative, the Ferraris argue that if an affirmative act is required, foreclosure by CSI more than six years later on May 3, 1994 satisfied such requirement. We disagree. On February 27, 1997, in an interlocutory order, the trial court set aside the May 3, 1994 foreclosure and declared it null, void and of no effect. Thus, there was no foreclosure to serve as an affirmative act to effectuate a valid acceleration.

Finally, the Ferraris contend that the requirement of a further affirmative act after notice of acceleration is no longer required. In support of this position, they rely on section 3.118 (a) of the Texas Business and Commerce Code. According to section 3.118(a):

Except as provided in Subsection (e), an action to enforce the obligation of a party to pay a note payable at a definite time must be commenced within six years after the due date or dates stated in the note or, if a due date is accelerated, within six years after the accelerated due date.

Tex. Bus. & Com. Code Ann. § 3.118(a) (West Supp. 2000). ⁽²⁾ The Ferraris argue that the "accelerated due date" refers to the notice of acceleration and not to a further act.

Section 3.118(a) was added effective January 1, 1996. Act of May 28, 1995, 74th Leg., R.S., ch. 921, § 1, 1995 Tex. Gen. Laws 4582, 4587 (codified at Tex. Bus. & Com. Code Ann. § 3.1198(a) (West Supp. 2000)). The new act expressly provided that it did not affect an action or proceeding commenced or a right that accrued before the effective date. Act of May 28, 1995, 74th Leg., R.S., ch. 9