FFP Marketing Company, Inc. v. Long Lane Master Trust IV and MTGLQ Investors, L.P.

Citation: Not availableDocket: 02-04-00057-CV

Court: Court of Appeals of Texas; July 7, 2005; Texas; State Appellate Court

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FFP Marketing Company, Inc. appeals a summary judgment granted in favor of Long Lane Master Trust IV (LLMT) and MTGLQ Investors, L.P. (MTGLQ). FFP Marketing raises six issues challenging the judgment: (1) LLMT, as a trust, lacked capacity to sue without a trustee; (2) the judgment amount was not ascertainable from the judgment or record; (3) LLMT and MTGLQ did not conclusively demonstrate legal ownership of the notes and guaranties; (4) the trial court wrongly overruled FFP Marketing's special exceptions; (5) it improperly rejected FFP Marketing's objections to the summary judgment evidence; and (6) it wrongfully granted a permanent injunction not requested in the summary judgment motion. The court determined that LLMT and MTGLQ did not prove their claims as a matter of law, leading to the reversal of the trial court’s final judgment and the injunction, and remanding the case for trial on the merits.

FFP Operating Partners, L.P. operates convenience stores and gas stations. In 1999, FFP Operating executed thirty-one promissory notes in favor of Franchise Mortgage Acceptance Company (FMAC), with FFP Marketing guaranteeing the payments. FFP Operating later executed two additional notes with corresponding guarantees. LLMT and MTGLQ claim that Bay View Franchise Mortgage Acceptance Company succeeded FMAC and transferred its interests to them. Since January 11, 2003, FFP Operating allegedly defaulted on payments, prompting LLMT and MTGLQ to send multiple default notices. As of September 8, 2003, LLMT claimed an outstanding balance of $13,212,199.30 plus interest and fees, while MTGLQ claimed $373,832.94 with associated unpaid interest and fees. LLMT and MTGLQ sued the FFPs for defaults under the notes and guaranties, later moving for summary judgment supported by an affidavit detailing the loan documents and defaults.

FFPs amended their response to challenge LLMT’s capacity to sue and filed objections to the Wagoner affidavit while responding to LLMT and MTGLQ’s motion for summary judgment. A hearing was held on these motions before FFP Operating filed for Chapter 11 bankruptcy, leading to its dismissal from the case. The trial court granted LLMT and MTGLQ’s summary judgment against FFP Marketing, overruling all objections and special exceptions, and issued an injunction under Texas law. 

In the appeal concerning the summary judgment on notes and guaranties, the standard of review dictates that the burden of proof lies with the movants, who must demonstrate no genuine issue of material fact exists and entitlement to judgment as a matter of law. The evidence must be viewed favorably for the nonmovant, disregarding conflicts and accepting favorable evidence as true. 

FFP Marketing argues the trial court erred in granting summary judgment, claiming LLMT and MTGLQ failed to conclusively prove legal ownership of the thirty-three notes and guaranties. LLMT and MTGLQ counter that they have established their status as holders of the notes, asserting FFP Marketing has not sworn to challenge FFP Operating’s execution of the notes or the assignment to them. They maintain that without such a sworn denial, the documents should be accepted as fully proved. FFP Marketing contends that Texas courts require proof of both ownership and holding of the promissory notes and claims the Wagoner affidavit is inconsistent, weakening the summary judgment. Additionally, FFP Marketing argues that LLMT and MTGLQ cannot assert their entitlement to judgment based on the Texas Uniform Commercial Code for the first time on appeal, as they did not plead or prove the necessary elements regarding negotiable instruments.

The Thirty-three Promissory Notes do not qualify as negotiable instruments under Texas law, necessitating proof of ownership for enforcement. The Texas Uniform Commercial Code allows a holder to enforce a negotiable instrument regardless of ownership, but for a promissory note to be governed by the Code, it must meet specific criteria: it must be a written, unconditional promise to pay a sum certain, either on demand or at a definite time, and payable to order or bearer. The issue of negotiability is a legal determination. The Long Lane and MTGLQ notes define the maker’s liability expansively, encompassing obligations beyond the text of the instruments. This includes a broad definition of "Obligations," which comprises all debts and responsibilities of the Borrower and any affiliates to the Lender or its affiliates, covering principal, interest, fees, and collection costs, irrespective of how they arise. Key provisions include default interest accrual, security for payment, immediate acceleration upon default, and the Lender’s rights regarding funds or property associated with any Obligation. The Lender is not required to pursue repayment from any specific source.

The definition included in the notes undermines the requirement of a sum certain, as it does not clearly indicate the maker’s liability. Additionally, the notes do not constitute an unconditional promise since they reference other documents that must be examined to ascertain any conditions on payment. While a promise can refer to separate writings for collateral rights and obligations, in this case, the notes' incorporation of the loan and indenture agreements necessitates looking outside the notes to determine payment conditions and rights. Consequently, these notes are deemed non-negotiable instruments, which means their enforcement falls under contract law rather than the Uniform Commercial Code.

For recovery on a non-negotiable promissory note, the holder must demonstrate legal ownership, which also applies to LLMT and MTGLQ regarding their rights to recover through guaranties. A general denial raises the issue of ownership and shifts the burden to the plaintiff to prove their status. LLMT and MTGLQ provided an affidavit from Bradford A. Wagoner, including sworn copies of the notes and related documents, evidencing assignments from Bay View FMAC to LLMT and MTGLQ. FFP Marketing did not challenge these documents' execution or the genuineness of the assignments. On appeal, LLMT and MTGLQ assert that FFP Marketing's failure to file a verified plea regarding the execution or genuineness limits their ability to argue insufficient evidence for proving ownership.

However, FFP Marketing remains able to contest the sufficiency of evidence supporting LLMT’s and MTGLQ’s ownership and holder status. Furthermore, a photocopy of a note, accompanied by an affidavit affirming its accuracy, can legally establish ownership and holder status unless evidence is presented to the contrary.

Controverting evidence from the Wagoner affidavit challenges the sufficiency of summary judgment. FFP Marketing argues that the affidavit is inconsistent because Wagoner claims LLMT and MTGLQ are beneficial owners of notes and guaranties, not their lawful owners. Texas law under Rule 166a(c) allows summary judgment based on clear and consistent testimonial evidence, but Wagoner's testimony contradicts the attached documentation, which indicates legal ownership by LLMT and MTGLQ. The lack of explanation for this inconsistency raises a genuine issue of material fact regarding the ownership of the notes and guaranties, preventing summary judgment. Additionally, FFP Marketing disputes the trial court's ruling on the aggregated amount due on thirty-three notes, arguing that LLMT and MTGLQ failed to prove the interest rate applicable to each note. While an affidavit can support a summary judgment for the total balance due, it must specify the interest rate; otherwise, the movants do not meet their burden. Ambiguities arising from combining amounts due under different notes can also preclude summary judgment.

Each note in the case stipulates interest at the lower of the specified rate or the maximum allowed by Connecticut law, with a default interest rate set at five percent above the note rate or the maximum allowable rate. The summary judgment evidence does not establish the maximum interest rate under Connecticut law or the specific default rate for each note, rendering the evidence insufficient to determine the applicable interest rate legally.

Wagoner’s affidavit indicates that as of September 8, 2003, FFP Marketing owed $14,710,708.34 for thirty-one Long Lane notes (comprising $13,212,199.30 in principal, $1,488,899.04 in interest, and $9,610.00 in late fees) and $415,809.24 for two MTGLQ notes (consisting of $373,832.94 in principal, $41,059.28 in interest, and $917.52 in late fees). FFP Marketing challenges Wagoner's status as an interested witness and contends that the aggregated amounts due hindered its ability to contest the claims at trial, arguing that this violates rule 166a(c), which requires that affidavits from interested witnesses be easily controvertible.

LLMT and MTGLQ counter that lump sum assertions are adequate for establishing amounts owed, citing a precedent where a collective balance was deemed sufficient. However, the court finds this interpretation incorrect, clarifying that the previous case did not address evidence sufficiency for summary judgment but instead focused on the clarity of a final judgment. The court concludes that the lump sum assertion, given the multiple notes with differing amounts, introduces ambiguity that prevents summary judgment.

Consequently, the court determines that LLMT and MTGLQ did not conclusively prove the amounts due on each note or their legal ownership. The trial court's final judgment, including the injunction, is reversed, and the case is remanded for trial on the merits.

The document is a legal opinion from the Lee Ann Dauphinot Justice Panel, dated July 7, 2005, addressing various aspects of promissory notes and negotiable instruments under Texas law. Key points include:

- Under Texas Civil Practice and Remedies Code, parties can recover under certain conditions related to ownership and negotiation of promissory notes (Tex. Civ. Prac. Rem. Code Ann. 52.006e).
- The Texas Business and Commerce Code outlines that both the owner and holder of a promissory note can seek recovery (Tex. Bus. Com. Code Ann. 3.301).
- Requirements for a "sum certain" in negotiable instruments are emphasized for commercial certainty (Tex. Bus. Com. Code Ann. 3.104a).
- A promissory note may be deemed non-negotiable if it incorporates additional conditions from another agreement (Resolution Trust Corp. v. 1601 Partners, Ltd.).
- The document references multiple cases to illustrate the necessity of establishing ownership to recover on non-negotiable notes and the implications of failing to file sworn pleas regarding the genuineness of assignments and execution of notes (Tex. R. Civ. P. 92; 937).
- It underscores the importance of introducing the note into evidence to validate its terms in court proceedings.

The excerpt relies on various judicial precedents to clarify these legal principles, demonstrating nuances in the treatment of negotiable instruments in Texas law.

Failure to file a response does not bar a party from contesting the sufficiency of evidence supporting a summary judgment on appeal, as established by case law (e.g., 589 S.W.2d at 678). Relevant legal precedents include Zarges v. Bevan (652 S.W.2d 368, 369 Tex. 1983) and various rulings from the Texas Civil Appellate Courts, including Russell v. People’s Nat’l Bank of Belton (2 S.W.2d 961, 962 Tex. Civ. App.—Austin 1928) and Rabb v. Seidel (218 S.W. 607, 610-11 Tex. Civ. App.—San Antonio 1920). The Texas Rules of Civil Procedure (Tex. R. Civ. P. 166a) and Texas Rules of Appellate Procedure (Tex. R. App. P. 47.1) are cited, along with additional cases such as Diversified Fin. Sys. (99 S.W.3d 354) and Martin v. First Republic Bank (799 S.W.2d 482, 485 Tex. App.—Fort Worth 1990). Key points from these cases emphasize that a lack of response does not negate the opportunity to argue legal insufficiency of evidence during an appeal.