Texas Supreme Court Upholds Contractual Waiver of Statute of Limitations for Deficiency Claims
The Supreme Court of Texas held that the contractual waiver of the statute of limitations on deficiency claims contained in a guaranty agreement was sufficiently “specific and for a reasonable time” as to be enforceable and not void as against public policy.
Accordingly, the Texas Supreme Court affirmed the ruling of the appellate court, although it disagreed with portions of the appellate court’s reasoning.
A copy of the opinion in Godoy v. Wells Fargo Bank, NA is available at: Link to Opinion.
The lender extended a loan to the borrower, which loan was secured by property owned by the borrower. A guarantor guaranteed the loan pursuant to a guaranty agreement.
The agreement contained a number of waivers of defenses, including certain statutes of limitations.
After the borrower defaulted on the loan, the lender’s successor (“bank”) foreclosed on the real property securing the loan. The sale of the property took place in November 2011. As the purchase price of the property was not sufficient to satisfy the unpaid balance, the bank sued the guarantor to recover the deficiency in June 2015.
The guarantor moved for summary judgment, arguing that the bank’s claim was barred by the Texas Property Code’s two-year statute of limitations for deficiency claims. See Tex. Prop. Code § 51.003(a). In response, the bank moved for partial summary judgment, arguing that the guarantor waived the two-year statute of limitations when he signed the agreement.
The trial court denied the guarantor’s motion and granted the bank’s motion. The bank moved for final summary judgment on its deficiency claim, which was granted.
On appeal, the guarantor argued that under Texas appellate court decisions applying the Texas Supreme Court decision in Simpson v. McDonald, 179 S.W.2d 239 (Tex. 1944), a statute of limitations defense can only be waived if the language of the waiver is specific and for a defined period of time. The guarantor further argued that the waiver he agreed to was indefinite and thus void as against public policy under Simpson, which held that “an agreement in advance to waive or not plead the statutes of limitation is void as against public policy.”
The bank argued that under the Texas Supreme Court’s decision in Moayedi v. Interstate 35/Chisam Road, L.P., 438 S.W.3d 1 (Tex. 2014), a party such as the guarantor can waive all statute of limitations defenses indefinitely by signing a broad waiver of all defenses.
The appellate court affirmed, holding that under Moayedi the agreement to waive “all rights or defenses arising by reason of . . . any . . . anti-deficiency law” was sufficient to waive the two-year statute of limitations under section 51.003(a.). However, the court did not decide whether the agreement’s waiver provision was sufficient to waive all possible statute of limitations defenses, because the bank sued within the four-year limitations period applying generically to suits to collect debts. Thus, the appellate court concluded that the bank’s lawsuit was timely even if the guarantor could not contractually waive all limitations defenses.
The appellate court did not consider the guarantor’s argument that his contractual waiver of the limitations period was void as against public policy under Simpson, because it concluded he waived the argument by failing to affirmatively plead it as a “matter constituting an avoidance” under Texas Rule of Civil Procedure 94.
The matter was then appealed to the Texas Supreme Court.
There, the guarantor argued that he did not waive his argument that the contractual abandonment of the statute of limitations is void as against public policy. Further, he argued that, under Simpson, his agreement to waive section 51.003(a)’s two-year limitations period was void unless it was specific and for a predetermined length of time.
The bank abandoned its argument that the agreement waived all statute of limitations defenses, and instead argued only that the guarantor waived all defenses under section 51.003, including the two-year statute of limitations. The bank argued that the effect of waiving the two-year limitations period was that the four-year limitations period of section 16.004(a)(3) applied as a backstop, and that its lawsuit was filed within the four-year period.
The Texas Supreme Court first considered whether the guarantor waived its argument under Simpsonby failing to plead it in his answer. In making its ruling, the Court determined that it need not decide whether the guarantor waived its argument by failing to plead it in his answer, because the bank waived the alleged pleading error by not raising it in the trial court prior to judgment. Accordingly, the Supreme Court ruled that the appellate court “erred by declining to consider the Guarantor’s void-as-against-public-policy argument.”
The Supreme Court next turned to the guarantor’s argument. The Court noted that following Simpson, appellate courts in Texas have built on its holding to require that a waiver of a statute of limitations is void unless the waiver is “specific and for a reasonable time.”
The Texas Supreme Court agreed with those subsequent appellate court decisions, and held that “[b]lanket pre-dispute waivers of all statutes of limitation are unenforceable, but waivers of a particular limitations period for a defined and reasonable amount of time may be enforced.”
The court next analyzed the three discrete sections of the agreement that potentially waived the statute of limitations.
Section (E) stated that the guarantor “waives any and all rights or defenses arising by reason of . . . any statute of limitations, if at any time any action or suit brought by Lender against Guarantor is commenced, there is outstanding indebtedness of Borrower to Lender which is not barred by any applicable statute of limitations.”
Section (F) purported to waive “any defenses given to guarantors at law or in equity other than actual payment and performance of the Indebtedness.”
The Supreme Court held that under Simpson, sections (E) and (F) were both unenforceable with respect to statutes of limitation because they purport to completely waive all limitations periods.
However, Section (A) provided that “Guarantor also waives any and all rights or defenses arising by reason of (A) any ‘one action’ or ‘anti-deficiency’ law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender’s commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale . . .”
The Texas Supreme Court determined that “[u]nlike sections (E) and (F), section (A) is both ‘specific’ and ‘for a reasonable time.’”
In reaching its conclusion, the Court explained that section (A) was specific because it “waives a particular, identifiable statute of limitations – the two-year period provided by section 51.003.”
Further, section (A) satisfied the “for a reasonable time” requirement, because although it did not state a substitute limitations period or provide a specific end-date for the waiver, the law in this instance provided for a four-year limitations period as a backstop.
Specifically, “[o]nce section 51.003(a)’s two-year statute of limitations is waived by operation of section (A), the four-year statute of limitations applying to suits to collect debts found in section 16.004(a)(3) of the Civil Practice and Remedies Code becomes applicable.”
The Court, therefore, held that the agreement “does not run afoul of the policy concerns animating Simpson because it is specific and for a reasonable time,” and thus the agreement was enforceable.
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This article courtesy of Maurice Wutscher, originally posted on The Consumer Financial Services Blog and written by Jeffrey Karek.