KIRBY LUMBER CORPORATION v. Williams

• Decision Date: 24 April 1956
• Docket Number: No. 15465.,15465.
• Citation: 230 F.2d 330
• Parties: KIRBY LUMBER CORPORATION, Appellant, v. John W. WILLIAMS et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

230 F.2d 330 (1956)

KIRBY LUMBER CORPORATION, Appellant, v. John W. WILLIAMS et al., Appellees.

No. 15465.

United States Court of Appeals Fifth Circuit.

February 10, 1956.

Rehearing Denied April 24, 1956.

Claude C. Roberts, Houston, Tex., Fountain, Cox & Gains, Houston, Tex., for appellant.

James R. Cornelius, Jr., Lufkin, Tex., Collins, Garrison, Renfrow & Zeleskey, Lufkin, Tex., for appellees.

Before HUTCHESON, Chief Judge, and BORAH and BROWN, Circuit Judges.

HUTCHESON, Chief Judge.

The suit was for the title and possession of a fractional interest in a 100 acre tract of land in Jasper County, Texas, which had been deeded by the agreed common source of title, W. W. McBryde, to one R. J. Williams during the lifetime of his first wife, Emma Barrow Williams, the mother of the defendants.

The claim was that, by the acquisition by the First National Bank of Jasper of notes secured by a deed of trust lien, given after the death of his first wife by R. J. Williams, and the purchase of the property in the foreclosure suit, to which after the death of Williams the defendants were made parties as his heirs, the bank had acquired the legal title of the defendants, as heirs of their father, and also the equitable title, which they had inherited from their mother.

This claim took two forms. The first was that, since the defendants to this suit were defendants to the foreclosure suit and judgment was rendered against them for debt and foreclosure, the sheriff's deed passed all of their title to the bank. The second was: that the bank was a purchaser for value of the deed of trust lien upon the land in controversy and the debt secured thereby and, therefore, of the title to the land at the sheriff's sale, without notice of the equitable title of the children of Emma Barrow Williams; and that plaintiff succeeded to its status or rights as such.

The defendants, on the other hand, asserting the equitable title of their mother, insisted that neither plaintiff nor any of its predecessors in title was, or could claim to be, a bona fide purchaser for value without notice of their interest, and that it was not divested out of them by the foreclosure proceedings and the sheriff's deed thereunder.

Tried to the court without a jury, the case was submitted upon written briefs and arguments, and the district judge, in a full and thorough opinion,¹ stated the facts and set out the record title, one link in which was a quitclaim deed from the bank to Mrs. Cleona Trotti, through whom plaintiff claims.² Canvassing the contentions of the parties and determining that because of the existence in plaintiff's chain of title of this quitclaim deed, plaintiff could not assert the claim of innocent or bona fide purchase, he denied plaintiff a judgment against defendants as to the interest in the tract inherited from Emma Williams.

Appealing from that judgment, plaintiff is here insisting that, under Laffare v. Knight, Tex.Civ.App., 101 S.W. 1034, Donald v. Davis, Tex.Civ.App., 208 S.W.2d 571, and Regan v. Andrews, Tex. Civ.App., 241 S.W.2d 249, the court erred in so holding, and the judgment must, therefore, be reversed; and further that, upon the undisputed facts of record, the equitable title of defendants was divested by the foreclosure sale and, if not, the defendant bank, through whom plaintiff claims, was an innocent purchaser for value of the lien and title, and judgment must be here rendered in appellant's favor.

Appellees, conceding, as indeed they must, that the court erred in holding that, because of the quitclaim deed executed by the bank, plaintiff could not make the claim of innocent purchase, yet insists, upon the authority of Faubion v. Rogers, 66 Tex. 472, 1 S.W. 166; Linder v. Thomas, Tex.Civ.App., 228 S.W.2d 300; Hampshire v. Greeves, 104 Tex. 620, 143 S.W. 147; Walraven v. Farmers' & Merchants' Nat. Bank, Tex.Civ.App., 53 S.W. 1028, and Wood v. Franklin Life, 5 Cir., 17 F.2d 80, that the district judge was right in holding that defendants' title under Emma Williams was not put in issue in, and was not affected by, the foreclosure proceeding, and in further finding as a fact that when the notes and deed of trust were executed by Williams to the Jasper Mercantile Co., the grantees therein knew of the death of his first wife leaving children surviving her. They further argue that, though the district judge did not make a finding that the bank did not acquire the notes and lien as a bona fide purchaser, the evidence not only justified but required such a finding because (1) the bank, not having taken an assignment of the lien, did not acquire the legal title to it, (2) it showed as matter of law that the bank knew, or was charged with knowledge, of the existence of the equitable title in these defendants, and (3) having purchased the notes after maturity, the bank was not a purchaser in due course, and it took the notes and lien, as the mercantile company had taken them, charged with notice of any defects in the title to, and defenses against, them, and that this included notice of secret equities in the title to the property secured by the lien.

The opinion of the district judge fully and correctly sets out the facts and states the issues, and we can, without restating them, proceed directly to a determination of the questions this appeal raises. We shall do this, where the district judge has made a determination and expressed an opinion, by stating our agreement or disagreement with his views, and, where he has not, by making and stating ours.

Upon its first contention so vigorously argued by the appellant, that, because in the foreclosure proceeding the judgment was against those sued as defendants in this cause for the amount of the debt sued for and for foreclosure of the lien for that amount against the property described, it must be held that the district judge erred in holding that the judgment, execution, order of sale, and sheriff's deed did not pass to the bank their interest as heirs of their mother, we are in no doubt that Faubion v. Rogers, 66 Tex. 472, 1 S.W. 166 and the other cases cited, supra, settle the law to the contrary. This is not only because of the general rule established by the cases, that "The only proper parties to a suit to foreclose a mortgage are the mortgagor and mortgagee and those whose interests have been acquired subsequently to the date of the mortgage", but because, in the amended petition by which, upon the death of their father, the original defendant in the foreclosure suit, the defendants in this cause were brought into it, the defendants were sued and judgment was sought against them as children and heirs at law of R. J. Williams, their father. While, therefore, as was held in Walraven v. Farmers & Merchants Nat. Bank, supra, if it had been shown that the defendants' title, as heirs of their mother, was in fact litigated in the cause, it would be proper to hold that the validity of that title was now res judicata, there is no basis under the pleading and record in this case for the claim that the title they took from their mother was, or could have been, there litigated and adjudicated against them. Finally appellant's reliance on McDonald v. Powell Lumber Co., Tex.Civ.App., 243 S.W.2d 192, will not do for Gilbert McDonald, Jr., was, as maker of the notes, a primary defendant.

Finding ourselves also in agreement with the district judge's finding that the Jasper Mercantile Company, from whom the bank acquired the note and lien, was on notice of the death of Emma Williams and of the equitable title in her children, we come to the three contentions of appellees numbered 1, 2, and 3 above, on which the district judge made no determination but which are determinative of this appeal.

Of the first of these, that because the lien was not assigned to the bank it acquired not the legal but the equitable title to the lien, it is sufficient to say that this contention "ignores the settled principle that a mortgage securing a negotiable note is but an incident to the note and partakes of its negotiable character", West v. First Baptist Church, 123 Tex. 388, 71 S.W.2d 1090, at page 1098, and that "The rule is fully recognized in this state that a mortgage to secure a negotiable promissory note is merely an incident to the debt, and passes by assignment or transfer of the note. * * The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity." Van Burkleo v. Southwestern, Tex.Civ.App., 39 S.W. 1085, 1087.³ Cf. Gough v. Home Owners Loan Corporation, Tex.Civ.App., 135 S.W.2d 771. The controlling rule is perhaps nowhere better or more authoritatively stated than by Mr. Justice Greenwood in Pope v. Beauchamp, 110 Tex. 271, 219 S.W. 447, at pages 276-278. There, disapproving the earlier opinion of the court, reported in Tex.Com.App., 206 S.W. 928, the court withdrew it, and in contrast to the reliance in the earlier opinion on Moran v. Wheeler, 87 Tex. 179, 183, 27 S.W. 54, flatly held, "The bona fide purchaser has the same right to rely on an incidental and inseparable lien as on any other feature of a negotiable note." 110 Tex. 271, 219 S.W. 448. In West v. First Baptist Church, 123 Tex. 388, 71 S.W.2d 1090, Mr. Justice Smedley quotes from and relies fully on these pronouncements, while in Continental Nat. Bank v. Conner, 147 Tex. 218, 214 S.W.2d 928, at page 933, Mr. Justice Garwood cites and relies upon both opinions.

The second of these contentions, that the record contains evidence showing or tending to show that when the bank acquired the notes it knew as a fact or, otherwise than as the purchase of the notes after maturity had this effect, was charged with knowledge that, though Williams held and could convey the legal title to the whole of the mortgaged property, the equitable title to one-half of it was held by him for the defendants as...