Compass Bank v. Manchester Platinum Management, Inc.
No. 05-11-00912-CV (August 13, 2013)
Dallas Court of Appeals
Justices Fillmore, Evans (Opinion), and FitzGerald (Dissent)
Over a strenuous dissent, the Court of Appeals reversed the trial court and rendered judgment for Compass Bank, holding that the borrower and two individual guarantors on a secured real estate loan had contractually waived their statutory right to have a deficiency following foreclosure offset by the fair market value of the subject property. The majority found waiver of the rights provided in section 51.003 of the Texas Property Code based on the terms of the deed of trust and guaranty agreements. The court rendered partial judgment for Compass Bank, and remanded for determination of attorney’s fees and interest payable to the bank.

Manchester executed a promissory note to Compass secured by real property. Two individuals also guaranteed the note. The deed of trust provided, “Borrower waives the benefit of any statute regulating the obtaining of a deficiency judgment or requiring that the value of the Property be set off against any part of the indebtedness secured hereby.” Each of the guaranty agreements contained a paragraph with the heading “Guarantor’s Obligations Independent: Statute of Limitations,” which included the sentence: “Guarantor waives, to the fullest extent permitted by applicable law, the benefit of any statute of limitations or other defenses affecting its liability hereunder or the enforcement thereof.”

When Manchester defaulted on the note, Compass Bank sold the property at a nonjudicial foreclosure for $538,650, leaving a deficiency of $392,892. Compass sued Manchester and the guarantors to recover the deficiency, and the defendants sought to offset the deficiency with the fair market value of the property, which was appraised at $855,000. The trial court granted summary judgment for the defendants, and entered judgment awarding Compass $18,700 plus interest.

On appeal, the panel majority reversed and rendered judgment awarding Compass the deficiency on the note, $392,892. Following its 2012 opinion in Interstate 35/Chisam Road, L.P. v. Moayedi, the court held that the waiver provisions in the deed of trust and the guaranties were enforceable and sufficient to waive the statutory right to an offset based on the property’s market value.

In a thorough and spirited dissent, Justice FitzGerald described the bank’s conduct as “a thinly veiled ‘setup,’ one so egregious it should not be tolerated.” Justice FitzGerald would have affirmed the trial court’s judgment because the harsh result of waiving the fair-market-value offset was not supported by the express language of the contract or sound public policy. And while Justice FitzGerald concluded that the contracts at issue here were distinguishable from Moayedi, he also urged that Moayedi was wrongly decided.