Shumway v. Horizon Credit Corp.
13 U.C.C. Rep. Serv. 2d (West) 1174, 801 S.W.2d 890, 1991 Tex. LEXIS 5 (1991)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A contractual waiver of a borrower's rights to presentment, notice of intent to accelerate, and notice of acceleration is effective only if it is clear and unequivocal. To meet this standard, the waiver provision must state specifically and separately each of the distinct rights being surrendered.
Facts:
- Gene and Sandra Shumway borrowed money from Horizon Credit Corporation to purchase a sailboat.
- The Shumways signed a promissory note that included a clause stating: 'If I default under this Note, you may require that the entire unpaid balance ... be paid at once without prior notice or demand.'
- The sailboat was subsequently damaged in an accident.
- A dispute arose between the Shumways and their insurer regarding the extent of the damage to the boat.
- Following this dispute, the Shumways stopped making their required monthly installment payments to Horizon, thereby defaulting on the note.
Procedural Posture:
- Horizon Credit Corporation sued the Shumways in Texas trial court to recover the unpaid balance of the promissory note.
- The trial court granted summary judgment in favor of Horizon Credit Corporation.
- The Shumways, as appellants, appealed the decision to the Texas court of appeals.
- The court of appeals affirmed the trial court's judgment in favor of Horizon, the appellee.
- The Shumways then appealed to the Supreme Court of Texas.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a clause in a promissory note stating the holder may accelerate the entire balance 'without prior notice or demand' upon default constitute a clear and unequivocal waiver of the borrower's separate rights to presentment, notice of intent to accelerate, and notice of acceleration under Texas law?
Opinions:
Majority - Hecht, Justice
No. While a clause allowing acceleration 'without prior notice or demand' effectively waives the right to presentment ('demand') and notice of acceleration ('notice'), it does not constitute a clear and unequivocal waiver of the separate and distinct right to notice of intent to accelerate. Due to the harshness of acceleration, any waiver of the debtor's notice rights must meet exacting standards, requiring that the rights surrendered be stated specifically and separately. A general waiver of 'notice' is too vague to unequivocally convey the borrower's intent to surrender the right to be notified of the lender's plan to accelerate, which is a right distinct from being notified that acceleration has already occurred. Because Horizon did not provide notice of its intent to accelerate and the Shumways had not clearly waived that right, Horizon was not entitled to summary judgment.
Concurring - Mauzy, Justice
Yes, the judgment should be reversed, but the majority's reasoning is flawed because any contractual waiver of a borrower's right to demand for payment, notice of intent to accelerate, and notice of acceleration should be held void as against public policy and therefore unenforceable. Given the unequal bargaining power between lenders and borrowers and the use of 'boilerplate' terms in pre-printed forms, these waivers are not freely negotiated. Equity demands that a borrower always have a meaningful opportunity to cure a default before a lender can accelerate the debt, a protection that these waivers eliminate. The court should not enforce contracts that 'no man in his senses and not under delusion would make' and 'no honest and fair man would accept.'
Analysis:
This decision establishes a heightened standard of specificity for lenders seeking to enforce waiver of notice provisions in promissory notes in Texas. By distinguishing 'notice of intent to accelerate' as a separate right that must be explicitly waived, the court provides greater protection for debtors, ensuring they receive a final opportunity to cure a default before the entire loan is called due. The ruling effectively requires lenders to redraft their standard loan agreements to include specific waivers for each notice right—presentment, notice of intent to accelerate, and notice of acceleration—rather than relying on broad, catch-all phrases. This case solidifies the principle that courts will strictly construe acceleration clauses and related waivers against the lender due to their harsh nature.
