## Facts

- Legacy Bank extended Canyon Drilling Company a line of credit secured by a promissory note and security agreement covering Canyon’s assets, including accounts receivable.
- Canyon and Legacy had a lockbox arrangement for certain customer payments; the relevant agreements contained nonwaiver clauses requiring waivers to be in a signed writing.
- Fab Tech Drilling Equipment, Inc. and Impulse Electric, Ltd., trade creditors of Canyon, obtained a default judgment against Canyon for about $1.66 million.
- The judgment creditors began garnishment proceedings against the Thompsons, account debtors who owed Canyon money on receivables.
- Legacy intervened, asserting a prior perfected security interest in the receivables and priority over any judgment lien arising from garnishment.
- The Thompsons interpleaded the disputed funds (about $1,661,399.45) into the court registry.
- While the garnishment was pending, Legacy advanced Canyon an additional $2 million and did not foreclose on its collateral until April 2014.
- A jury found Legacy had waived its security interest; the trial court awarded the interpleaded funds to the judgment creditors and awarded them $266,558.75 in attorney’s fees.
- Legacy appealed, challenging the waiver finding and resulting loss of priority.

## Issues

1. Whether a prior perfected secured creditor waives its priority in accounts receivable by not promptly declaring default or foreclosing before a junior judgment creditor garnishes the same collateral.
2. Whether the evidence was legally sufficient to support a finding of express or implied waiver, given contractual nonwaiver provisions requiring a signed writing.

## Decision

- The court of appeals reversed the portion of the judgment awarding the garnished funds to the judgment creditors.
- The court rendered judgment that Legacy, as the prior perfected secured creditor, was entitled to the interpleaded garnished funds.
- The court held the evidence was legally insufficient to support the jury’s finding that Legacy waived its security interest.
- The court remanded the attorney’s-fees award for reconsideration because the prevailing party changed.

## Legal Principles

- Under Texas UCC Article 9 priority rules, a properly attached and perfected security interest in accounts generally has priority over later judgment liens, including liens pursued through garnishment, absent a recognized basis for subordination.
- Waiver requires an intentional relinquishment of a known right or intentional conduct clearly inconsistent with claiming that right; intent must be clearly shown by the circumstances.
- Contractual nonwaiver clauses requiring a signed writing weigh strongly against finding waiver absent such a writing.
- A secured creditor’s continued lending, accommodation of the debtor, use of a lockbox arrangement, or delayed exercise of remedies is not, without more, conduct so inconsistent with asserting the security interest as to imply waiver.
- Equitable arguments cannot override the UCC’s statutory priority scheme where the secured party has complied with Article 9.

## Conclusion

The court held that Legacy’s prior perfected security interest in Canyon’s accounts receivable retained priority over the judgment creditors’ garnishment lien, and that delayed enforcement and continued extensions of credit did not establish waiver; Legacy was entitled to the garnished funds, with attorney’s fees to be reconsidered on remand.


Legacy Bank v. Fab Tech Drilling Equip., Inc., 566 S.W.3d 922 (Tex. App.—Eastland 2018, pet. denied)