Opinion
No. 10-05-00287-CV
Opinion delivered and filed October 25, 2006.
Appeal fromthe County Court at Law, McLennan County, Texas, Trial Court No. 2005-0171-CV1.
Affirmed as modified.
Before Cheif Justice GRAY, Justice VANCE, and, Justice REYNA.
MEMORANDUM OPINION
EMCC, Inc. sued Tony W. Johnson for a credit card debt. Johnson failed to answer. The court granted EMCC a default judgment for nominal damages. In three issues, EMCC contends that: (1) it is entitled to judgment as a matter of law; (2) the court's judgment is not supported by the evidence; and (3) the court improperly granted less relief than requested. We modify the judgment and affirm the judgment as modified.
Johnson also did not file an Appellee's Brief in this proceeding.
ANALYSIS
In its second issue, EMCC contends that there is no evidence to support the court's judgment reducing the amount of damages. We address this issue in four sub-issues: (1) whether a default judgment was proper; (2) whether EMCC's claims entitled it to a default judgment; (3) whether EMCC was entitled to damages; and (4) whether EMCC was entitled to attorney's fees.
Standard of Review
A court's findings of fact are reviewed in the same manner as jury findings. See Catalina v. Blasdel, 881 S.W.2d 295, 297 (Tex. 1994); Lucas v. Texas Dep't of Protective Regulatory Servs., 949 S.W.2d 500, 502 (Tex.App.-Waco 1997, pet. denied). A no-evidence "challenge should be addressed to specific findings rather than the judgment as a whole." Beard v. Beard, 49 S.W.3d 40, 54 (Tex.App.-Waco 2001, pet. denied).
Where the "appellant asserts that there is no evidence to support an adverse finding on which she had the burden of proof, we construe the issue as an assertion that the contrary was established as a matter of law." Id.; see Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989); see also La Grange v. Nueces County, 989 S.W.2d 96, 99-100 (Tex.App.-Corpus Christi 1999, pet. denied); Ex parte Thomas, 956 S.W.2d 782, 786 n. 5 (Tex.App.-Waco 1997, pet. denied). A no evidence point requires consideration of "whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review." City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). We "must credit favorable evidence if reasonable jurors could, and disregard contrary evidence unless reasonable jurors could not." Id.
Whether Default Judgment was Proper
A default judgment is appropriate where the petition "properly states a cause of action, invokes the trial court's jurisdiction, gives fair notice to the defendant, and does not affirmatively disclose any invalidity of the claim on its face." Jackson v. Biotectronics, Inc., 937 S.W.2d 38, 42 (Tex.App.-Houston [14th Dist.] 1996, no writ). "At any time after a defendant is required to answer, the plaintiff may take a default judgment if the defendant has not previously filed an answer, and the citation with the officer's return has been on file with the clerk for ten days." Aguilar v. Livingston, 154 S.W.3d 832, 834 (Tex.App.-Houston [14th Dist.] 2005, no pet.); see TEX. R. CIV. P. 239; see also TEX. R. CIV. P. 107.
Johnson filed no answer and the return of service remained on file for ten days before EMCC requested a default judgment. See Jackson, 937 S.W.2d at 44; see also TEX. R. CIV. P. 107, 239; Aguilar, 154 S.W.3d at 834. The court's own judgment acknowledged that "service and personal jurisdiction are proper, all legal requirements have been met, the answer date is past, the officer's return has been on file for the required time period, and a default judgment is appropriate." Under these circumstances, default judgment is proper. See id.
EMCC's Entitlement to a Default Judgment
EMCC claims relief based on Texas Rule of Civil Procedure 185 and breach of contract. First, Rule 185 governs suits on account and applies to transactions involving a " sale upon one side and a purchase upon the other, whereby title to personal property passes from one to the other, and the relation of debtor and creditor is thereby created by general course of dealing." Bird v. First Deposit Nat'l Bank, 994 S.W.2d 280, 282 (Tex.App.-El Paso 1999, pet. denied) (emphasis original); see Tully v. Citibank, N.A., 173 S.W.3d 212, 216 (Tex.App.-Texarkana 2005, no pet.). Transactions "resting upon special contract" are excluded. Id.
In credit card cases, "no title to personal property passes from the bank to the cardholder; rather, the card evidences a line of credit extended by the bank which the cardholder may use to purchase goods and services from a third party." Bird, 994 S.W.2d at 282; see Tully, 173 S.W.3d at 216. Therefore, "a credit card issued by a financial institution does not create the sort of debtor-creditor relationship" required by Rule 185. Id. Because the record reflects that EMCC's suit against Johnson involves a credit card debt, EMCC is not entitled to a default judgment based on Rule 185. See Bird, 994 S.W.2d at 282; see also Tully, 173 S.W.3d at 216.
Second, to prove breach of contract, a party must show: (1) a valid contract with the defendant; (2) plaintiff performed or tendered performance; (3) defendant breached the contract; and (4) plaintiff suffered damages as a result of the breach. Critchfield v. Smith, 151 S.W.3d 225, 233 (Tex.App.-Tyler 2004, pet. denied); Runge v. Raytheon E-Systems, Inc., 57 S.W.3d 562, 565 (Tex.App.-Waco 2001, no pet.).
To support its breach of contract claim, EMCC relied on requests for admissions included in its petition. Johnson failed to answer either the petition or the admissions, but the court found that EMCC "offered no evidence" that Johnson was served with the requests. We disagree.
A "certificate by a party or an attorney of record, or the return of the officer, or the affidavit of any other person showing service of a notice shall be prima facie evidence" of service. TEX. R. CIV. P. 21a (emphasis added); see Mathis v. Lockwood, 166 S.W.3d 743, 745 (Tex. 2005). According to the officer's return, Johnson was personally served with the petition. The admissions were incorporated into the body of EMCC's petition. Therefore, the officer's return constitutes prima facie evidence that Johnson was served with both the petition and the admissions. See id. Because Johnson failed to respond to the requests, the admissions are deemed admitted. See TEX. R. CIV. P. 198.2(c).
Of these deemed admissions, the following is established:
EMCC and Johnson agreed that EMCC would provide services, goods, wares, and/or merchandise to Johnson, for which Johnson would pay.
EMCC performed the acts described in the contractual agreement by delivering to Johnson the goods, wares, merchandise and/or services described in such agreement.
The remainder between the payments made and the purchases, plus proper interest is $8,763.85.
Johnson has made payments less than the total of the purchases, plus proper interest.
Johnson has no defense to the suit, and judgment should be granted, as prayed for.
The affidavit of an EMCC representative also stated that Johnson "defaulted, by not paying timely, in violation of the agreement."
The affidavit, pleadings, and deemed admissions establish that: (1) Johnson agreed to make payments in exchange for a line of credit; (2) EMCC provided the credit; (3) Johnson defaulted; and (4) EMCC was owed $8,763.85. Thus, EMCC conclusively proved each element of its breach of contract claim. See Critchfield, 151 S.W.3d at 233; see also Runge, 57 S.W.3d at 565; Jackson, 937 S.W.2d at 41-42; TEX. R. CIV. P. 107, 239.
EMCC's Entitlement to Damages
Finding that EMCC produced no evidence of damages at the default hearing, the court awarded only $100 in nominal damages. While the court's findings indicate that EMCC's attorney did not appear for a hearing, EMCC claims a hearing was not held. No reporter's record exists to confirm whether a hearing occurred. Nevertheless, the court incorrectly concluded that EMCC failed to produce evidence of damages.
Pleadings and affidavits "constitute a record upon which the court may base a default judgment." Barganier v. Saddlebrook Apartments, 104 S.W.3d 171, 173 (Tex.App.-Waco 2003, no pet.); see Tex. Commerce Bank v. New, 3 S.W.3d 515, 516-517 (Tex. 1999). The pleadings, affidavits, and deemed admissions on which EMCC relied conclusively establish that Johnson breached his contract with EMCC in the amount of $8,763.85. Thus, the record provided the court with a sound basis for awarding damages in the amount of $8,763.85. See id.
In unliquidated damages cases, courts must hear evidence regarding damages. See TEX. R. CIV. P. 243. "Because unobjected to hearsay constitutes probative evidence, it satisfies the requirement of Rule 243 that there be evidence of unliquidated damages." Tex. Commerce Bank v. New, 3 S.W.3d 515, 517 (Tex. 1999).
EMCC's Entitlement to Attorney's Fees
A party is entitled to attorney's fees upon a showing that the fees are reasonable and necessary and that: (1) the claimant is represented by counsel; (2) the claimant presented the claim to the opposing party; and (3) payment must not have been tendered within 30 days after presentment. TEX. CIV. PRAC. REM. CODE ANN. § 38.002 (Vernon 1997); see Doncaster v. Hernaiz, 161 S.W.3d 594, 606 (Tex.App.-San Antonio 2005, no pet.). A party may obtain attorney's fees for a claim based on "an oral or written contract." See Jackson, 937 S.W.2d at 44; TEX. CIV. PRAC. REM. CODE ANN. § 38.001 (Vernon 1997).
An affidavit from EMCC's attorney stated that $2,921.28 is a "reasonable and customary" attorney's fee. The deemed admissions also established that: (1) EMCC made demand on Johnson for payment of the outstanding balance due at that time; (2) at least $2,921.28 should be awarded as attorney's fees; and (3) Johnson has made payments less than the total of the purchases, plus proper interest. This evidence conclusively proved EMCC's entitlement to attorney's fees in the amount of $2,921.28. See TEX. CIV. PRAC. REM. CODE ANN. §§ 38.001, 38.002; see also Jackson, 937 S.W.2d at 44; Doncaster, 161 S.W.3d at 606.
CONCLUSION
The court properly found that EMCC is entitled to a judgment on the merits as a result of Johnson's default. However, in light of the evidence, the court's finding that EMCC failed to produce evidence of damages and its reduction of EMCC's damages are not supported by the record. City of Keller, 168 S.W.3d at 827. Rather, default judgment was proper and the evidence conclusively establishes EMCC's breach of contract claim and its entitlement to damages and attorney's fees. See Jackson, 937 S.W.2d at 41-42, 44; see also Aguilar, 154 S.W.3d at 834; Critchfield, 151 S.W.3d at 233; Runge, 57 S.W.3d at 565; Barganier, 104 S.W.3d at 173; New, 3 S.W.3d at 516-517; Doncaster, 161 S.W.3d at 606. We, therefore, sustain EMCC's second issue and do not address its remaining issues. See Tex.R.App.P. 47.1. We modify the court's judgment to reflect that EMCC recover from Johnson damages of $8,763.85; and attorney's fees of $2,921.28. We affirm the judgment as modified.
DISSENTING OPINION
This case presents an important issue for default judgment practice. In this case, we have the reverse side of the coin that was addressed by the Texas Supreme Court in New. Texas Commerce Bank v. New, 3 S.W.3d 515 (Tex. 1999). The problem preventing a definitive resolution of the issue here is that there is no one to carry this issue to the next level to get the issue resolved because the defendant did not appear for trial or in this appeal. See Sherman Acquisition II LP v. Graham, No. 10-05-00375-CV, 2006 Tex. App. LEXIS ___ (Tex.App.-Waco Oct. 18, 2006, no pet. h.) (Gray, C.J., dissenting) (the issue dies at the intermediate appellate level because there is no interested party to file a petition for review with the Supreme Court of Texas).
In New, the plaintiff relied upon affidavits and pleading allegations as admissions by default to support a default judgment of liability, damages, and attorney's fees. The trial court accepted the pleading admissions to establish liability and the affidavits to prove damages and attorney's fees. The court of appeals determined, however, that the affidavits could not be used to prove unliquidated damages or attorney's fees for a default judgment because the affidavits contained hearsay. New v. Texas Commerce Bank, 971 S.W.2d 711, 714 (Tex.App.-Austin 1998), rev'd, Texas Commerce Bank v. New, 3 S.W.3d 515, 517 (Tex. 1999). The Texas Supreme Court reversed the court of appeals and held that the affidavits were probative and had not been objected to and, therefore, the trial court did not err in considering those affidavits as proof of damages and attorney's fees. Id.
We have the opposite issue in this appeal. The issue we have is what happens when the trial court rejects the affidavits as insufficient evidence upon which to base the default judgment as to damages and attorney's fees?
The majority has held that we can conduct a de novo examination of the evidence, without regard to the trial court's determination, and render the judgment we decide is appropriate. I agree the trial court erred in rendering a default judgment for nominal damages when he found the evidence insufficient to render a default judgment. However, I believe the proper trial court judgment was a default judgment on liability and to set the issue of a determination of damages for trial. Accordingly, I would reverse and remand for further proceedings consistent with this dissenting opinion.
PROCEDURAL BACKGROUND
The trial court and this Court concluded:
(1) this was not a suit on a sworn account;
I have some problems with this conclusion. The basis for this conclusion comes from a question by the trial court and response by EMCC's attorney during a motion for new trial. I do not think the following statement in a motion for rehearing gets us to this conclusion. Even if we use existing case authority about the statements of counsel made during a hearing to get past the issue of whether the lawyer had to be put under oath before he is testifying as an officer of the court, the answer clearly indicates that the lawyer is not at all certain about what this suit is about. Further, this is a hearing on the motion for new trial, not at a trial or dispositive hearing, so that you would normally not expect an attorney to be offering evidence at this stage of the proceeding. The court's question and the attorney's response was:
THE COURT: Well, what is this suit about, anyway? What is this suit about?
MR. BAUMANN: Credit card. I believe it's a credit card.
(2) the plaintiff pled, in the alternative to a suit on sworn account, a suit for breach of contract; and
(3) the defendant defaulted by failing to appear or answer the suit.
We all agree EMCC was entitled to and obtained a default judgment on liability. EMCC also claims they are entitled to a default judgment for the alleged damages and attorney's fees for their suit on sworn account or in the alternative for the breach of contract.
The majority and I agree that the trial court erred when it rendered a default judgment for nominal damages. What we disagree about is what happens regarding damages in this situation. The question is whether, upon default, the plaintiff was entitled to damages for breach of an agreement as alleged, for the amount alleged, and for attorney's fees in the amount alleged. The amount of damages was alleged in the petition and were also attempted to be proved up by an affidavit. The affidavit referenced an attached statement of the account which was not actually attached to the affidavit. EMCC also alleges it is entitled to damages and attorney's fees based on a set of requests for admissions that were set out in the body of the petition.
I do not opine on the propriety of putting the actual request for admission into the body of the petition as opposed to a separate discovery document. I note only that the propriety of this practice has not been closely examined and independently decided.
The trial court was entitled to reject the affidavit as inadequate proof of damages because it was internally inconsistent and lacked the exhibit it stated was attached. The affidavits and requests for admissions were also inconsistent with the theory on which liability was based. The affidavit and the requests for admissions were clearly designed to prove up a suit on sworn account, not a suit on a credit card debt. As such, the facts as "proved" by the affidavit and the purportedly deemed admissions are not entirely consistent with a suit on a contract.
The majority accepts as conclusive that which the trial court rejected. Even if a review of the affidavits to determine the facts de novo is within our discretion, and I believe it is not, I would not. The trial court did not believe that EMCC had proven its damages. The proper result was a default judgment on liability and to set the matter for trial on the merits to determine the amount of damages and attorney's fees. This was not a summary judgment proceeding or a trial on unliquidated damages at the trial court; nor should we make it one at this Court.
CONCLUSION
The majority holds that EMCC conclusively proved its damages, modifies the judgment, and renders a judgment for all the damages and attorney's fees sought by EMCC. For the reasons stated, I do not believe damages and attorney's fees have been conclusively proven, and we have no authority to make findings of fact. Accordingly, I would reverse and remand for further proceedings. Because the majority does not, I respectfully dissent.