Breach of Promissory Notes in Texas

Texas and Breach of Promissory Notes

A Promissory Note is a contract between a borrower and a lender. In the note, the borrower promises to repay the loan according to the terms of agreement specified within the note. If the borrower fails to repay the loan according to the agreed terms, the borrower may be liable for breach of note.

To prevail on a claim for breach of note, the plaintiff must prove four elements: proof that the promissory note exists, proof that the party signed the note, proof that the plaintiff is the true owner of the note, and the balance due on the note.

Breach of Promissory Note was the primary cause of action in the case of Comerica Bank vs. Progressive Trade Enterprises, Inc., and Poul Nielsen, then president of Progressive. At issue specifically was whether Comerica was the true owner and holder of the note. Comerica asserted that it owned and held a note from Progressive and a guaranty agreement from Poul Nielsen which had not been repaid as stipulated.

Progressive Trade Enterprises borrowed money from Sterling Bank, signing a note with a principal balance of $132,371.83. Nielsen, president of Progressive at the time, guaranteed the note as well. However, neither Nielsen nor Progressive made payments on the note according to the written agreement.

Sterling Bank later merged with Comerica Bank, and Comerica filed suit against Progressive for failing to adhere to the terms of the note.

When the trial began in December of 2016, Mary Ellen Hensley, Comerica’s vice president for special assets and custodian of the note, testified that Comerica acquired the note in question. On exhibit was a copy of the note which Ms. Hensley asserted as the true and correct copy of the note. When asked about the original note, she explained that it was in Comerica’s collateral department in Michigan. In question was whether or not she could confirm that Comerica was the true and original holder of the promissory note, that the original note had not been transferred to another bank. Although Hensley verified verbally that the note had not been transferred, the trial court at the time was not willing to admit Exhibit 1, the copy of the note, as evidence.

Comerica’s failure to produce the original note called into question its claim that it was the owner and holder of the Progressive Promissory Note as a result of the merger. Tex. R. App. P. 33.1(a). Although the trial court did not explain its basis for judgment, it made a final judgment that Comerica should not receive repayment from Progressive for the Promissory Note.

Comerica appealed the verdict, claiming it had “conclusively established and provided legally sufficient evidence” to support its assertions. Comerica claimed that based on testimony by Ms. Hensley, the custodian of the note and loan file, Exhibit 1 was in fact the true and correct copy of the original promissory note. Ms. Hensley also attested to the fact that Comerica did have possession of the original note. In addition, she testified that Comerica became owner and holder of the note when it merged with Sterling. . See Tex. Bus. Org. Code § 10.008(a)(2); Couturier v. Tex. State Bank, No. 13-03-00013-CV, 2005 WL 1982319, at *1 (Tex. App.—Corpus Christi Aug. 18, 2005, no pet.) (mem. op.)  Comerica also pointed out that Nielsen himself, at that time president of Progressive, verified his signature on the note. Since there was no further evidence to the contrary from either Nielsen or Progressive, the court of appeals upheld Comerica’s claim that it was the true holder and owner of the Progressive Promissory Note. See Couturier, 2008, WL 1982319, at *1-2.

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