## Facts

- Michael A. Palmer, an Air Force nurse, financed an automobile through Sheppard Federal Credit Union, which took a security interest in the car.
- The security agreement contained a broad insecurity/acceleration clause permitting acceleration and repossession if the Credit Union deemed the debtor, debt, or security “unsafe or insecure,” with notice waived.
- Texas UCC restricted such clauses by permitting acceleration only when the secured party, in good faith, believes the prospect of payment or performance is impaired.
- After Palmer resigned his commission and indicated he might move to Dallas, the Credit Union demanded surrender of the car based on insecurity; Palmer surrendered it but asserted he was current on payments.
- Palmer obtained higher-paying employment in Dallas and continued making timely payments after the Credit Union took possession.
- The central dispute was whether the Credit Union had reasonable, good-faith grounds to believe payment prospects or security were impaired when it seized the vehicle.

## Issues

1. Under the Texas UCC limitation on insecurity acceleration clauses, who bears the burden of proof on the creditor’s “good faith” belief that payment or performance is impaired?
2. If the jury was instructed with an incorrect burden allocation and no objection was made at trial, does the error qualify as plain error requiring reversal?

## Decision

- The Fifth Circuit held the debtor bears the burden of proving the creditor did not act in good faith in declaring insecurity and accelerating.
- The district court’s instruction improperly required the Credit Union to prove it had reasonable grounds and good faith, effectively presuming wrongfulness absent the creditor’s proof.
- The court found the instruction was plain error because the burden allocation concerned the decisive issue and could have affected liability and punitive damages.
- The judgment for Palmer was reversed and the case remanded for a new trial.

## Legal Principles

- Under Texas UCC rules governing insecurity clauses, a secured party may accelerate only upon a good-faith belief that the prospect of payment or performance is impaired.
- In an action alleging wrongful repossession/acceleration based on an insecurity clause, the plaintiff-debtor must prove the creditor lacked the required good faith; the UCC good-faith limitation does not itself shift the burden to the creditor.
- A jury instruction that inverts the burden of proof on the case’s central issue may constitute plain error warranting appellate correction despite the absence of a contemporaneous objection.

## Conclusion

The Fifth Circuit required a new trial because the jury was instructed that the creditor had to prove its own good-faith insecurity, when the debtor instead bore the burden to prove lack of good faith; the misallocation was plain error given its likely effect on the verdict.


Sheppard Fed. Credit Union v. Palmer, 408 F.2d 1369 (5th Cir. 1969)