Cullen Frost Bank v. Dallas Sportswear Co
In Cullen Frost Bank v. Dallas Sportswear Co., 730 S.W.2d 668 (Tex. 1987), the debtor defaulted on two notes.
The bank threatened to foreclose its security interest in the debtor's accounts receivable if the debtor did not immediately begin depositing receipts from these accounts into a special account at the bank.
The debtor complied with this demand, and the notes were eventually paid off from this account.
The debtor then sued the bank, claiming both lack of notice and commercially unreasonable disposition of the collateral.
The trial court granted summary judgment for the bank, but the court of appeals reversed and remanded, concluding that fact issues under section 9.504 on both the debtor's claims precluded summary judgment. The Court disagreed that the bank had to follow section 9.504 in disposing of the collateral because the debtor had already collected the accounts for the bank. Id. at 669-70.
The Court concluded that the bank's use of the cash to pay off the debt was "within the bounds" of sections 9.306 and 9.502. Id. at 669.
Moreover, we concluded that the requirements of notice and commercial reasonableness in section 9.502 were not implicated because the bank had not collected directly from the account debtors themselves. Id. at 669.
The Court did not say, however, that section 9.504's commercial reasonableness requirement does not apply to foreclosure on intangible collateral, such as accounts receivable.
Both section 9.502 and section 9.504 contain a commercial reasonableness component.
Section 9.504 plainly provides that every aspect of the disposition of collateral be commercially reasonable. See TEX. BUS. & COM. CODE 9.504(c).
Section 9.502 plainly requires that secured parties who collect from account debtors under certain circumstances must do so in a commercially reasonable manner. See TEX. BUS. & COM. CODE 9.502(b).
Cullen did not touch on section 9.504, nor did it purport to apply the commercial reasonableness requirement of section 9.502.