Summary of a Recent
Judicial Development in
Secured Transactions

Malicious Prosecution Claim Requires Proof of Lack of Probable Cause

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In First Valley Bank of Los Fresnos v. Martin, 144 S.W.3d 466 (Tex. 2004), the Supreme Court of Texas reversed the rulings of the lower courts and held that a debtor who was prosecuted for conversion of collateral did not have a case for malicious prosecution because the creditor had not made any false representations that would influence the decision to prosecute.

Background

The Debtor's note came due in September 1996, and rather than wait for the Debtor to renegotiate the loan around the Christmas holidays, First Valley Bank accelerated the note without notice pursuant to its security agreement. Id. at 468. The Debtor deposited funds into his account, which were offset against his outstanding loans pursuant to the loan documents. Id. at 469. The Debtor was angry and threatened not to return to the Bank until the money was returned to him, and thereafter refused to speak to anyone at the Bank or make any further payments. Id. He informed the Bank of where his cattle were held through his attorney, but it was a large area and the cattle were wild so the Bank could only collect 20 of 75 head covered as collateral. Id. Those cattle were sold and credited towards the Debtor's loans. Id.

The Bank complained to the authorities that it was unable to collect the rest of its collateral, and the deputy sheriff investigated. Id. He determined that because the ranch covered 250 square miles and contained many wild cattle belonging to several people, it would be nearly impossible to identify and recover the Debtor's cattle. Id. The Bank did not tell the deputy about the 20 cattle they had already collected and sold. Id. The deputy presented the results of his investigation to the district attorney's office, and although the Bank's complaint was solely focused on finding its collateral, the Debtor was indicted for selling or disposing of secured property. Id. The Debtor was arrested and the charges were subsequently dropped. Id. The Debtor sued the Bank for malicious prosecution, and the trial court and appellate court found in his favor and awarded damages. Id. The Bank appealed. Id.

Arguments

The Debtor argued that no probable cause existed for the Bank to file a complaint against him, and therefore the Bank was liable for malicious prosecution. Id. at 471.

Analysis and Holdings

The court found that as a matter of law, the Debtor could not establish the absence of probable cause as was required to prove malicious prosecution. Id. at 470. The court further held that it was irrelevant whether the Bank told the deputy about the 20 cattle they had already collected, because that information "was immaterial to the decision to prosecute." Id. In conclusion, the court stated that "nothing the Bank reported or failed to report caused the indictment relating to [Debtor's] cattle sale," and therefore reversed the lower court's holding. Id. at 472.

The case was decided on September 3, 2004.