Opinion issued December 22, 2015
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-14-00764-CV
———————————
MAGNOLIA FINLAY & ANDREW FINLAY, Appellants
V.
ELIZABETH BLANTON, Appellee
On Appeal from the County Civil Court at Law No. 1
Harris County, Texas
Trial Court Case No. 1047130
MEMORANDUM OPINION
This lawsuit involves a dispute between parties to a residential lease. The
trial court entered a take-nothing judgment in landlord’s favor on the tenants’
claim that landlord did not return the tenants’ security deposit or provide an
accounting of deductions from deposit within 30 days of the tenants vacating the
premises. We reverse and render in part, and remand to the trial court for further
proceedings.
BACKGROUND
On March 28, 2012, plaintiffs-appellants Magnolia Finlay and Andrew
Finlay entered into a one-year residential lease to rent a house on Hadrian Drive
from defendant-appellee Elizabeth Blanton.
A. Justice Court Proceedings
On May 5, 2014, the Finlays filed suit against Blanton in Justice Court
alleging that they paid a $1,500 security deposit, and that Blanton “did not return
the security deposit or made improper deductions to the security deposit.” As
damages, the Finlays sought the return of their deposit and, pursuant to section
92.109 of the Texas Property Code, $100.00 as a penalty, three times the
wrongfully withheld $1,500.00 security deposit, and court costs.
Blanton filed an answer outlining the various ways that the Finlays allegedly
failed to comply with their lease obligations and contending that she was actually
owed $9,975 from the Finlays for late rent payment fees and other breaches. The
correspondence attached revealed the crux of the parties’ dispute in large part
centered around the Finlays mailing their rent check to Blanton in California three
times, instead of depositing the funds directly to Blanton’s bank account.
2
On March 24, 2014, the Justice Court entered judgment in the Finlays’
favor, awarding them $4,600.00 plus court costs. Blanton’s motion for new trial
was denied, with the court’s handwritten notation that Blanton had violated her
statutory duty to timely provide a written notice of deductions from the Finlays’
security deposit, thereby forfeiting her right to retain the deposit. Blanton appealed
to County Court.
B. County Court Proceedings
In the County Court proceedings, Blanton pleaded the following affirmative
defenses to the Finlay’s section 92.109 claims: (1) “Plaintiffs’ own acts or
omissions proximately caused or contributed to Plaintiffs’ injuries, if any,” (2)
“failure to mitigate damages,” (3) “unclean hands,” (4) “Defendant acted in good
faith at all times in retaining Plaintiffs’ security deposit for late charges in an
amount in excess of the deposit resulting from Plaintiffs’ intentional and willful
failure to adhere to the terms of the Lease Agreement,” and (5) “entitlement to
credits and offsets to any damages.”
On August 12, 2014, the County Court ordered that the Finlays take nothing
against Blanton, and that Blanton take nothing against the Finlays. The Finlays
appealed here. Blanton did not appeal the trial court’s take-nothing judgment on
her counterclaim.
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ISSUES ON APPEAL
The Finlays raise the following five issues in their appeal:
“ISSUE 1: Whether the trial court clearly abused its discretion misapplying
Texas Property Code § 192.103 and 192.109, in a manner so
arbitrary, subjective, unreasonable, or based on so gross and
prejudicial an error of law under unfunded, untrue and
inapplicable allegations to justify the landlord keeping the
security deposit by:
A. Allowing Blanton to calculate her 20-day vacation time, as 22–day
late rent payment fees, on the basis that the check was in her
mailbox, not deposited into her checking account, although rent
payment was early, and the lease agreement states her physical
address, as a second place of payment?
B. Allowing Blanton to justify being an amateur landlord for failing
to return the deposit and to furnish the required written itemization
within 30 days after the property had been properly surrendered?
C. Allowing Blanton to rebut bad faith without evidence presented to
do so. Blanton did not suffer damages for not having the money
deposited into her account at that particular time?”
“ISSUE 2: Whether the trial court failed to consider Plaintiff’s claims
regarding Defendant’s violation of Tex. Prop. Code Ann. §
92.052?”
“ISSUE 3: Blanton committed perjury by lying in trial and forgery by
altering the contract.”
“ISSUE 4: Judicial Bias and Fraud. The trial court abused its discretion by
excluding several Finlay’s Exhibits, as hearsay, and by not
allowing (discriminating) Mr. Finlay to object it because of his
slow speech due to his health condition. The Court Reporter
missing key evidence, and dialogues.”
“ISSUE 5: Errors in the Lease Agreement and Breach of Contract
Automatically Debunking Blanton’s claims.”
Blanton raises the following “response to appellants’ issues presented”:
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1. “The trial court did not err in entering a take nothing judgment.”
2. “The trial court did not err in excluding inadmissible evidence and
testimony.”
3. “Appellants did not raise the issues of untimely repairs, forgery, or
errors in the lease in the trial court; therefore, these issues are
improper on appeal.”
APPLICABLE LAW
The Texas Property Code provides that a landlord is generally obligated to
refund a tenant’s security deposit within 30 days of the tenant vacating the
premises, with statutorily prescribed penalties for failure to do so:
§ 92.103. Obligation to Refund
(a) Except as provided by Section 92.107 [obligating tenant to
provide forwarding address], the landlord shall refund a
security deposit to the tenant on or before the 30th day after the
date the tenant surrenders the premises.
(b) A requirement that a tenant give advance notice of surrender as
a condition for refunding the security deposit is effective only if
the requirement is underlined or is printed in conspicuous bold
print in the lease.
(c) The tenant’s claim to the security deposit takes priority over the
claim of any creditor of the landlord, including a trustee in
bankruptcy.
TEX. PROP. CODE ANN. § 92.103 (West 2014).
§ 92.104. Retention of Security Deposit; Accounting
(a) Before returning a security deposit, the landlord may deduct
from the deposit damages and charges for which the tenant is
legally liable under the lease or as a result of breaching the
lease.
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(b) The landlord may not retain any portion of a security deposit to
cover normal wear and tear.
(c) If the landlord retains all or part of a security deposit under this
section, the landlord shall give to the tenant the balance of the
security deposit, if any, together with a written description and
itemized list of all deductions. The landlord is not required to
give the tenant a description and itemized list of deductions if:
(1) the tenant owes rent when he surrenders possession of the
premises; and
(2) there is no controversy concerning the amount of rent
owed.
TEX. PROP. CODE ANN. § 92.104 (West 2014).
§ 92.109. Liability of Landlord
(a) A landlord who in bad faith retains a security deposit in
violation of this subchapter is liable for an amount equal to the
sum of $100, three times the portion of the deposit wrongfully
withheld, and the tenant’s reasonable attorney’s fees in a suit to
recover the deposit.
(b) A landlord who in bad faith does not provide a written
description and itemized list of damages and charges in
violation of this subchapter:
(1) forfeits the right to withhold any portion of the security
deposit or to bring suit against the tenant for damages to
the premises; and
(2) is liable for the tenant’s reasonable attorney’s fees in a
suit to recover the deposit.
(c) In an action brought by a tenant under this subchapter, the
landlord has the burden of proving that the retention of any
portion of the security deposit was reasonable.
(d) A landlord who fails either to return a security deposit or to
provide a written description and itemization of deductions on
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or before the 30th day after the date the tenant surrenders
possession is presumed to have acted in bad faith.
TEX. PROP. CODE ANN. § 92.109 (West 2014).
“A tenant may establish a prima facie case of bad faith by showing that the
landlord failed to refund the deposit within 30 days or that it failed to provide the
itemized list of deductions within 30 days.” Hardy v. 11702 Memorial, Ltd, 176
S.W.3d 266, 271 (Tex. App.—Houston [1st Dist.] 2004, no pet.) (citing Wilson v.
O’Connor, 555 S.W.2d 776, 780–81 (Tex. Civ. App.—Dallas 1977, writ dism’d)).
Bad faith implies an intention to deprive the tenant of a lawfully due refund. Id.
“To defeat the presumption, the landlord must prove his good faith, i.e., ‘honesty
in fact in the conduct or transaction concerned.’” Id. (citing Wilson, 176 S.W.2d at
780–81). Absent rebutting evidence, the presumption that the landlord acted in bad
faith by failing to return the deposit or provide a written description and
itemization of deductions within 30 days after surrender compels a finding of bad
faith. Id.
STANDARD OF REVIEW
Although couched in numerous subparts, the Finlays’ first issue rests upon
the two questions, i.e., (1) whether Blanton carried her burden of rebutting the
presumption of bad faith in retaining the Finlays’ security deposit without
providing a timely accounting of deductions, and (2) whether the Blanton carried
her burden of demonstrating that the retention of the Finlays security deposit was
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reasonable. By rendering a take-nothing judgment against the Finlays, the trial
court implicitly found that Blanton rebutted the presumption of bad faith and that
the Blanton proved that retention of the deposit was reasonable. The Finlays argue
that these findings are “against the great weight and preponderance of the
evidence, and is clearly wrong and unjust.” Their prayer requests that we reverse
and render judgment in their favor. Interpreting this as a challenge to the legal and
factual sufficiency of the evidence, we accordingly analyze whether the trial
court’s implied findings are supported under both standards.
When the trial court acts as a fact-finder, we review its findings under the
legal and factual sufficiency standards. In re Doe, 19 S.W.3d 249, 253 (Tex.
2000); Vongontard v. Tippit, 137 S.W.3d 109, 112 (Tex. App.—Houston [1st
Dist.] 2004, no pet.). When, as here, a party who does not have the burden of
proof at trial challenges the legal sufficiency of the evidence, we consider all of the
evidence in the light most favorable to the prevailing party, indulging every
reasonable inference in that party’s favor and disregarding contrary evidence
unless a reasonable fact-finder could not. City of Keller v. Wilson, 168 S.W.3d
802, 827 (Tex. 2005); City of Houston v. Hildebrandt, 265 S.W.3d 22, 27 (Tex.
App.—Houston [1st Dist.] 2008, pet. denied) (citing Assoc. Indem. Corp. v. CAT
Contracting, Inc., 964 S.W.2d 276, 285–86 (Tex. 1998)). “If there is any evidence
of probative force to support the finding, i.e., more than a mere scintilla, we will
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overrule the issue.” Hildebrandt, 265 S.W.3d at 27 (citing Haggar Clothing Co.
v. Hernandez, 164 S.W.3d 386, 388 (Tex. 2005)).
In reviewing a factual sufficiency challenge, we examine the entire record
and consider and weigh all the evidence, both in support of, and contrary to, the
challenged finding. See Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996);
Vongontard, 137 S.W.3d at 112. Having considered and weighed all the evidence,
we should set aside the verdict only if the evidence is so weak, or the finding is so
against the great weight and preponderance of the evidence, that it is clearly wrong
and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986). We cannot merely
substitute our opinion for that of the trier of fact and determine that we would
reach a different conclusion. Hollander v. Capon, 853 S.W.2d 723, 726 (Tex.
App.—Houston [1st Dist.] 1993, writ denied).
EVIDENCE1
In addition to the admission of several trial exhibits, three witnesses testified
at trial: (1) plaintiff Mrs. Finlay, (2) defendant Ms. Blanton, and (3) Blanton’s
attorney (as to his attorney’s fees).
1
“The Finlays filed an appendix to their brief containing exhibits that they
acknowledge are not in the record, and they “pray that this Court consider th[is]
sworn evidence.” We do not, however, “consider documents attached to an
appellate brief that do not appear in the record.” Till v. Thomas, 10 S.W.3d 730,
733 (Tex. App.—Houston [1st Dist.] 1999, no pet.).
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A. The Lease
The parties’ lease, which was introduced at trial, was executed on March 23,
2012 and provides a term from March 28, 2012 through March 30, 2013. The
lease provides that monthly rent of $1,500.00 will be paid “so that the Landlord
receives the monthly rent on or before . . . the first day of each month during this
lease.”
Under “Place of Payment,” there is a typed physical address listed for
Blanton in San Diego, California, as well as bank name handwritten beside it,
“USAA Federal Savings Bank,” with routing and account number.2 Under
“Method of Payment,” there is a handwritten notation stating “see above,” with an
arrow pointing to the the previous section.
The “Late Charges” section of the lease provides that if “Landlord does not
actually receive a rent payment in the full amount at the designated place of
payment by the 1st day of each month at 11:59pm, Tenant will pay Landlord for
each late payment (1) an initial late charge equal to . . . $50, and (2) additional late
charges of $25 per day thereafter until rent and late charges are paid in full.”
Section 10 of the lease sets forth terms related to the security deposit, and its
payment and return:
2
There is email correspondence between the Finlays and Blanton’s relator
indicating that the handwritten bank account information was added after the lease
was signed because Blanton wanted “to keep her banking information private until
[she had] the deposit in hand.”
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SECURITY DEPOSIT:
A. Security Deposit: On or before execution of this lease, Tenant
will pay a security deposit to Landlord in the amount of $
1.500.00. “Security deposit” has the meaning assigned to that
term in §92.102, Property Code.
B. Interest: No interest or income will be paid to Tenant on the
security deposit. Landlord may place the security deposit in an
interest-bearing or income-producing account and any interest
or income earned will be paid to Landlord or Landlord’s
representative.
C. Refund: Tenant must give Landlord at least thirty (30) days
written notice of surrender before Landlord is obligated to
refund or account for the security deposit.
Notices about Security Deposits:
(1) §92.108, Property Code provides that a tenant may not withhold
payment of any portion of the last month’s rent on grounds that the
security deposit is security for unpaid rent.
(2) Bad Faith violations of §92.108 may subject a tenant to liability up
to 3 times the rent wrongfully withheld and the landlord’s
reasonable attorney’s fees.
(3) The Property Code does not obligate a landlord to return or account
for the security deposit until the tenant surrenders the Property and
gives the landlord a written statement of the tenant’s forwarding
address, after which the landlord has 30 days in which to account.
....
D. Deductions
(1) Landlord may deduct reasonable charges from the security deposit
for:
(a) damages to the Property, excluding normal wear and tear, and all
reasonable costs associated to repair the Property;
(b) costs for which Tenant is responsible to clean, deodorize,
exterminate, and maintain the Property;
(c) unpaid or accelerated rent;
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(d) unpaid late charges;
(e) unpaid utilities and utility expenses Landlord incurs to maintain
utilities to the Property as required by this Lease;
(f) unpaid pet charges;
(g) replacing unreturned keys, garage door openers, security devices,
or other components;
(h) the removal of unauthorized locks or fixtures installed by Tenant;
(i) Landlord’s cost to access the Property if made inaccessible by
Tenant;
(j) missing or burned-out light bulbs and fluorescent tubes (at the
same location and of the same type and quality that are in the
Property on the Commencement Date);
(k) packing, removing, and storing abandoned property;
(I) removing abandoned or illegally parked vehicles;
(m) costs of reletting (as defined in Paragraph 27), if Tenant is in
default;
(n) attorney’s fees, costs of court, costs of service, and other
reasonable costs incurred in any legal proceeding against Tenant;
(o) mailing costs associated with sending notices to Tenant for any
violations of this lease;
(p) any other unpaid charges or fees or other items for which Tenant is
responsible under this lease; and
(q) cost to restore walls, flooring, landscaping or any alteration to the
Property not approved in writing by Landlord.
(2) If deductions exceed the security deposit, Tenant will pay to Landlord
the excess within 10 days after Landlord makes written demand.
The lease contains a “Default” section providing that “If Landlord fails to
comply with this lease, Tenant may seek any relief provided by law.” The default
section also grants permission to the Landlord to terminate the lease and accelerate
unpaid rents, as well as seek damages for repairs and reletting. The Finlays moved
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out on June 18, 2013, after Blanton gave them notice that they needed to pay
accrued late payment fees or move out.
Six days before the Finlays moved out, they provided their forwarding
address by email and requested their security deposit be returned. Twelve days
after they moved out, they sent Blanton a certified letter again requesting return of
their deposit. That letter cited section 92.109 of the Texas Property Code and
informed Blanton that the Finlays would be seeking penalties under that section
equivalent to three times the amount of the security deposit if they did not timely
receive a return of their deposit or an itemized list of deductions Blanton was
retaining. It is undisputed that Blanton did not return the Finlays’ security deposit
or provide an itemized accounting detailing reasons for withholding funds.
B. Plaintiffs’ Testimony
Mrs. Finlay testified that she and her husband insisted that there be a lease
clause permitting deposits into a bank account rather than mailing a check. After
Blanton provided information for an account with USAA, Mrs. Finlay requested
that Blanton instead open an account with Houston branches, such as Bank of
America.
Mrs. Finlay testified that she understood from the terms of the lease that they
had agreed to pay the rent each month into Blanton’s account at USAA Federal
Savings Bank. She testified that the Finlays made their first month’s rent payment
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(April 2012) timely into the USAA account from their Bank of America account,
but had to pay fees to Bank of America. The second and third months (May &
June 2012), they mailed a check to Blanton’s San Diego address, as they
understood that to be an acceptable secondary method of payment under the lease.
In the meantime, the parties continued to correspond about bank accounts.
The Finlays again requested that Blanton open a bank account with Bank of
America so that they could make a local Houston deposit. Several email chains
related to this issue were entered into evidence, in which the Finlays complained
that they had trouble transferring money from Bank of America to Blanton’s
USAA account and again reiterating their unwillingness to incur bank transfer fees.
The Finlays informed Blanton that if she was unwilling to come up with a solution,
they would continue to mail their rent, rather than directly deposit it.
In June, 2012, Mrs. Finlay requested that Blanton open a Wells Fargo
checking account to receive the Finlays’ rent payments
The record contains a July 13, 2012 email from Blanton providing her Wells
Fargo bank account number and stating that she would send a lease addendum
stating that the Finlays can pay their rent into her Wells Fargo account on or before
the 1st of each month beginning in August to “avoid late charges and default
issues.” Mrs. Finlay stated that the parties signed the addendum permitting the
Finlays to use a Wells Fargo account as the designated payment location, although
14
there is not a copy in the trial court record. With the exception of October 2012,
the Finlays’ rent payments from August 2012 through June 2013 were made
through deposit into Blanton’s Wells Fargo account.
Mrs. Finlay testified that the Finlays paid the rent late one time—in February
2013— because “there was apparently a discrepancy between payments with —
our bank.” Although she arranged to pay the rent on time that month, it was
received by Blanton three days late, so the Finlays “decided to pay the hundred-
dollar late fee” for that incident. She did not believe that any other valid late
charge was ever incurred under the lease.
C. Defendant’s Testimony
Blanton testified that she is an amateur lessor who has never been a landlord
before. When she bought the Hadrian Drive property in 2010, she was not aware
of the Texas Property Code provision requiring that a detailed itemized deduction
list be provided explaining deductions from a tenant’s security deposit.
Blanton spends a lot of time out of the country, so when Mrs. Finlay told her
that she would start mailing checks to Blanton’s address if Blanton would not open
a Bank of America account, Blanton gave the Finlays account information for an
LLC bank account at Wells Fargo and sent them a lease addendum permitting rent
to be paid at Wells Fargo. Blanton testified that the addendum was never returned
to her signed by the Finlays, despite email reminders. Blanton testified that at one
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time she began eviction proceedings, but abandoned them after realizing that
would adversely impact the Finlays’ credit score.
Blanton also testified that she regularly sent emails to the Finlays regarding
the amounts that she believed they owed in late fees under the lease. Pursuant to
the lease, Blanton applied the Finlays’ payments first to late fees ($50 for first late
day, and $25 for each day thereafter) and then to rent, such that the Finlays were
never caught up. She calculated that, because of unpaid late fees, the Finlays owed
$9,416.66 in unpaid rent when they moved out, calculated as follows:
Initial Other Late Balance
Month Rent Late Fees (#days Credits Amount Forward Payment
Due Fee x $25) Paid Owed Location
Apr. $1,500 $0 $0 $0 $1,500 $0 Realtor
2012
May $1,500 $0 $0 -$150 $1,350 $0 USAA
2012 cleaning
credit
June $1,500 $50 28x$25=$700 $1,500 $750 Mailed
2012
July $1,500 $50 29x$25=$725 $1,500 $1,525 Mailed
2012
Aug. $1,500 $50 29x$25=$725 $1,500 $2,300 Wells
2012 Fargo
Sept. $1,500 $50 28x$25=$700 $1,500 $3,050 Wells
2012 Fargo
Oct. $1,500 $50 29x$25=$725 $1,500 $3,825 Wells
2012 Fargo
Nov. $1,500 $50 28x$25=$700 $1,500 $4,575 Wells
2012 Fargo
Dec. $1,500 $50 29x$25=$725 $1,500 $5,350 Wells
2012 Fargo
Jan. $1,500 $50 29x$25=$725 $1,500 $6,125 Wells
2013 Fargo
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Feb. $1,500 $50 26x$25=$650 -$100 $1,600 $6,725 Wells
2013 late fee Fargo
paid
Mar. $1,500 $50 29x$25=$725 $1,500 $7,500 Wells
2013 Fargo
Apr. $1,500 $50 28x$25=$700 $1,550 $8,200 Wells
2013 Fargo
May $1,500 $50 29x$25=$725 $1,550 $8,925 Wells
2013 Fargo
June $1,500 $50 19x$25=$475 $1,033.34 $9,416.66 Wells
2013 Fargo
The monthly late fees stem from Blanton’s position that the payments were
not received at the “designated payment location” in June and July 2012. Then, for
each subsequent month, Blanton applied rent checks first to the accrued late fees,
resulting in additional late fees for the portions of the $1,500 payments that were
not applied to rent.
The chart above was entered into evidence and Blanton testified that it “is a
fair and accurate itemization.” The calculations differ, however, from some of
Blanton’s email correspondence.3
3
For example, on June 17, 2012, Blanton wrote an email to Mrs. Finlay
indicating that she had June’s rent in hand at least by June 17, 2012, and that she would
not charge a late fee for June, but would on future mailed checks:
I have been out of the country and per my instructions, the USPS held my
mail during my absence. To my dismay, when I returned home I found
your check in my on-hold mail instead of my USAA account for automatic
payment of bills.
Therefore, your June payment was late according to the Residential Lease
(page 2, 5 A & C), which you signed. This is the last time I will allow a
deviation.
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Blanton testified that she was not claiming any deductions from the Finlays’
security deposit for damages to the house, only for accrued late charges that
resulted in unpaid rent because she applied each rent payment first to late charges.
Blanton testified to her belief that she “gave fair notice to the Finlays during the
course of the lease that they were incurring late charges” and that she did not act
“purposely, willfully or intentionally to cause the Finlays harm” or to harass them
in failing to provide an accounting of deductions from their security deposit.
Blanton’s attorney also provided testimony that she incurred $5,057.96 in
reasonable and necessary attorneys’ fees.
A. Sufficiency of the Evidence
Blanton does not dispute that the bad-faith presumption in section 92.109 of
Late charges will apply from now on as stipulated in the Residential Lease.
In a July 21, 2012 email to the Finlays, Blanton states, with regard to the
June and July 2012 rent checks mailed to her house, “I had every legal right to charge late
fees for all the days your payment was not in my USAA account, but I chose to simply
remind you of your signed agreement.”
In July 2012, the Finlays gave notice to Blanton that they would be out of
the country in October, so they would be mailing their rent to Blanton on October 1, 2012
rather than depositing it at Wells Fargo. On October 24, 2012, Blanton wrote Mrs. Finlay
an email stating that she was out of town on the first of October and was charging the
Finlays 23 days of late fees for October, because that is how long it took her to return
home, receive the check, and put it in the bank.
The information in these emails is at odds with the chart entered into evidence,
which indicates Blanton assessed the Finlays late charges for 29 and 30 days in June and
July, and that October 2012 rent was deposited in Wells Fargo (rather than received in the
mail), and assessed a 30-day late fee.
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the Texas Property Code applies here. But she argues that the trial court properly
found that she rebutted the presumption of bad faith in retaining the Finlays’
security deposit and failing to provide an accounting because (1) “she had reason
to believe she was entitled to retain [the] security deposit to recover reasonable
damages,” (2) she “is an amateur lessor—because the residence is her only rental
property—and the landlord has no knowledge of the requirement to submit an
itemized list of deductions,” and (3) she believed she “gave fair notice to the
Finlays during the course of the lease that they were incurring late charges.” She
also contends that, because the Finlays “owed over nine thousand dollars in back
rent and late fees,” the retention of their security deposit was reasonable.
1. Reasonableness of Retention of Security Deposit
A landlord has the statutory burden to prove that retention of a tenant’s
security deposit was reasonable. TEX. PROP. CODE ANN. § 92.109(c) (“In an action
brought by a tenant under this subchapter, the landlord has the burden of proving
that the retention of any portion of the security deposit was reasonable.); Pulley v.
Milberger, 198 S.W.3d 418, 431 (Tex. App.—Dallas 2006, pet. denied) (“As it
relates to the [tenants’] claims for bad faith failure to return the security deposit
under section 92.109(a), which seeks, in part, to recover their security deposit, we
will address the issue as a challenge to the trial court’s implied finding of fact that
[the landlord’s] retention of the security deposit was reasonable under section
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92.109(c)”).
Deductions from a security deposit are reasonable for items the tenant is
legally liable for under the lease or by statute. Hardy, 176 S.W.3d at 273–75 (Tex.
App.—Houston [1st Dist.] 2004, no pet.). In this case, Blanton concedes that the
entire basis of her withholding the Finlays’ security deposit is the Finlays mailing
the rent to her California address rather than depositing in her bank account for
months two and three of the lease term. Blanton did not testify that these payments
arrived late, but rather that she was out of the country when they were mailed and
thus was unable to deposit them until her return. Given that the California address
is listed as one of the places of payment permitted in the parties’ lease, we
conclude that there no evidence to support the trial court’s implied finding that
Blanton’s retention of the Finlays’ deposit based on their mailing the rent
payments rather than directly depositing them was reasonable. Hardy, 176 S.W.3d
at 275 (“We conclude that there is no more than a scintilla of evidence that
landlord was entitled to any of the deductions taken from the security deposit”
because the “deductions were attempts to recover for items the tenant was not
legally liable for under the lease or Property Code”). Accordingly, we reverse the
portion of the trial court’s take-nothing judgment that denies recovery of Finlays’
security deposit, and render judgment that the Finlays recover their $1,500 security
deposit from Blanton.
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2. Bad Faith
“A landlord who fails either to return a security deposit or to provide a
written description and itemization of deductions on or before the 30th day after
the date the tenant surrenders possession is presumed to have acted in bad faith.”
TEX. PROP. CODE ANN. § 92.109(d) (West 2014). Evidence that a landlord failed to
refund the deposit within 30 days or that it failed to provide the itemized list of
deductions within 30 days makes out a prima facie case of bad faith. Hardy, 176
S.W.3d at 271 (citing Wilson, 555 S.W.2d 780–81). Bad faith implies an intention
to deprive the tenant of a lawfully due refund. Id. at 271. “To defeat the
presumption, the landlord must prove his good faith, i.e., ‘honesty in fact in the
conduct or transaction concerned.’” Id. (citing Wilson, 176 S.W.2d at 780–81).
Absent rebutting evidence, the presumption that the landlord acted in bad faith by
failing to return the deposit or provide a written description and itemization of
deductions within 30 days after surrender compels a finding of bad faith. Id.
Blanton contends that her evidence rebutted the bad faith presumption that
she retained the Finlays’ deposit in bad faith. She testified that she is an “amateur
lessor” and that she had been “[m]ore than accommodating” to the Finlays during
the course of their lease. Specifically, she tried to help them work out how to pay
rent to her USAA account and then allowed them to deposit money into her Wells
Fargo account. She started, and then stopped, proceedings to evict the Finlays
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because she read “where it could adversely affect their credit score and [she] didn’t
want to do that.” She testified that she had no “ill-will or malice towards the
Finlays” and that she believed that it was the Finlays that broke the lease by
mailing two rent checks. She believed that because the “payments were not
received to the designated payment location,” the Finlays incurred late fees that
snowballed as she deemed every additional rent payment to be late and short, as it
went first to paying initial late fees. Finally, although she acknowledged that she
did not account for her retention of Finlays’ security deposit within 30 days of their
moving out, she testified to her belief that she “gave fair notice to the Finlays
during the course of the lease that they were incurring late charges.” She stated
she never acted purposefully to cause the Finlays harm or harass them.
The Finlays point out that, although Blanton testified that she was an
amateur landlord and cites, in her appellee’s brief, her testimony that she “had no
knowledge of the requirement that you needed to submit an itemized list of
deductions,” there is evidence that she was aware of the statutory requirement at
the relevant times and simply chose not to comply with it. She testified that “when
she bought the property and became a landlord” (emphasis added), she was not
“aware of this statute in the Texas Property Code that required you to send an
itemized deduction 30 days after.” However, the lease Blanton entered with the
Finlays states “The Property Code does not obligate a landlord to return or account
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for the security deposit until the tenant surrenders the Property and gives the
landlord a written statement of the tenant’s forwarding address, after which the
landlord has 30 days in which to account.” (emphasis added).
Blanton acknowledged that she received a certified letter from the Finlays
within 30 days of them moving out—i.e., during the window that she still had time
to comply with the requirement that she return the deposit or provide an
accounting—specifically citing section 92.109, and putting her on notice that the
Finlays would seek the statutory treble damages if she did not comply. When
asked why, after receiving that letter, she did not provide the Finlays an
accounting, Blanton responded “Because everything I sent [the Finlays], they
ignored.” She also stated that she did not comply because the Finlays “owed [her]
much more than the deposit.”
The parties agree that, because of an issue with a bank transfer, the Finlays’
February 2013 rent was received by Blanton three days late. The Finlays
accordingly paid a $100 late fee pursuant to the lease ($50 for the first day, and
$25 for subsequent days). The entire basis for Blanton’s calculation that the
Finlays owed over $9,000—thereby justifying her belief that she was entitled to
retain the Finlays’ deposit—was based upon rent in June and July 2012 being sent
physically to her California address, which is a designated “Place of Payment”
under the lease. Because of those two mailed payments—which were in
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compliance with the lease terms (despite both parties preferring electronic bank
transfers)—Blanton assessed late charges for every single day for 13 months.
Contrary to Blanton’s representation to the Finlays in an email that she
would not charge them late fees for mailing the rent checks in June and July of
2012, she assessed late fees for every day of both months (despite having received
the rent), which set off a chain of daily late charges for remainder of the Finlays’
tenancy.
We have already concluded that, under the terms of the parties’ lease, the
trial court erred in finding that Blanton’s retention of the Finlays’ security deposit
was reasonable. Given the conflicting evidence on bad faith, we remand the
Finlays’ claim for statutory damages for bad faith retention of the security deposit
for additional proceedings in light of our holding that the deposit was wrongfully
withheld.
We sustain the Finlays’ first issue in part and overrule it in part.
ADMISSION OF EXHIBITS AND TESTIMONY
In their fourth issue, the Finlays complain that the court excluded several
exhibits as hearsay. These exhibits include copies of payment receipts, bank
account statements, receipts for repairs, letters from Wells Fargo, screen shots of
bank transactions, United State post office certified mail delivery receipts, and
correspondence with the court reporter about the record. There was a discussion of
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these exhibits off the record, and then the court resumed with: “We are now back
on the record. I am admitting Plaintiffs’ Exhibits A, B, H, I, and J. And I am
sustaining the hearsay objection to C, D, E, F, G.”
The trial court’s decision to admit or exclude evidence is reviewed under an
abuse of discretion standard. In re E.A.K., 192 S.W.3d 133, 140 (Tex. App.—
Houston [14th Dist.] 2006, pet. denied). A trial court abuses its discretion when it
rules without regard for any guiding rules or principles. Owens–Corning Fiberglas
Corp. v. Malone, 972 S.W.2d 35, 43 (Tex. 1998). We must uphold a trial court’s
evidentiary ruling if there is any legitimate basis for the ruling. Id. Hearsay is a
statement, other than one made by the declarant while testifying at the trial or
hearing, offered in evidence to prove the truth of the matter asserted. TEX. R. EVID.
801(d). The proponent of hearsay has the burden of showing that the testimony fits
within an exception to the general rule prohibiting the admission of hearsay
evidence. Volkswagen of Am., Inc. v. Ramirez, 159 S.W.3d 897, 908 n.5 (Tex.
2004).
Here, there is no record of the hearing to discuss whether this evidence
should be admitted. The Finlays provide no argument or authority for their
assertion that the trial court’s exclusion of these documents was an abuse of
discretion, nor do they claim that they presented to the trial court an exception to
the hearsay rule for any of these exhibits. In light of this, we will not hold that the
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trial court abuse its discretion in excluding these exhibits.
Relatedly, the Finlays claim that the trial court improperly limited Mr.
Finlay’s objections and testimony. Specifically, they complain about the trial court
admonishing Mr. Finlay that he could not speak from the gallery of the courtroom
during his wife’s testimony (while she was on the stand) to answer a question that
was posed to her. They also complain that the court would not let Mr. Finlay
testify through “objections” while others were on the stand. Finally, they argue
that, while Mr. Finlay was cross-examining Blanton, the trial court improperly
limited his questions. Again the Finlays do articulate how the trial court allegedly
erred, nor how they were harmed. And again they cite no authority in support of
their argument. We will not hold that the trial court acted outside its discretion by
disallowing side-bar testimony or limiting Mr. Finlay’s cross-examination time.
We overrule the Finlays’ fourth issue.
ISSUES RAISED FOR THE FIRST TIME ON APPEAL
In their second, third, and fifth issues, the Finlays raise arguments that were
not raised in trial court. Specifically they complain that Blanton did not make
timely repairs, Blanton made false statements at trial, Blanton submitted different
late fee calculations in the Justice Court than in the County Court, and that Blanton
committed forgery by adding an email address to the lease after the Finlays moved
out. We overrule the Finlays’ second, third, and fifth issues, as we do not consider
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such issues raised for the first time on appeal. E.g., Wells Fargo Bank, N.A. v.
Leath, 425 S.W.3d 525, 540 (Tex. App.—Dallas 2014, pet. denied) (holding claim
not raised in the trial court was waived, absent authority that would allow party to
raise issue for the first time on appeal); Haden v. David J. Sacks, P.C., 332 S.W.3d
503, 520 n.13 (Tex. App.—Houston [1st Dist.] 2009, pet. denied) (“We may not
address this contention because it was never presented to the trial court.”); In re
Marriage of Lendman, 170 S.W.3d 894, 898 (Tex. App.—Texarkana 2005, no
pet.) (“It is improper to present a new issue on appeal.”).
CONCLUSION
We reverse the trial court’s take-nothing judgment as the Finlays’ claim for
return of their security deposit and render judgment that the Finlays recover their
$1,500 deposit. We reverse and remand the remainder of the trial court’s judgment
for further proceedings.
Sherry Radack
Chief Justice
Panel consists of Chief Justice Radack and Justices Bland and Huddle.
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