Durkay v. Madco Oil Co., Inc.

• Decision Date: 15 April 1993
• Docket Number: No. 13-91-604-CV,13-91-604-CV
• Citation: 862 S.W.2d 14
• Parties: John DURKAY, Trustee of the Whitehead Bankruptcy Estate of Marvin Whitehead, et al., Appellants, v. MADCO OIL COMPANY, INC., et al., Appellees.
• Court: Texas Court of Appeals

Page 14

862 S.W.2d 14

John DURKAY, Trustee of the Whitehead Bankruptcy Estate of Marvin Whitehead, et al., Appellants, v. MADCO OIL COMPANY, INC., et al., Appellees.

No. 13-91-604-CV.

Court of Appeals of Texas,

Corpus Christi.

April 15, 1993.

Opinion Granting Rehearing Oct. 14, 1993.

Rehearing Overruled Dec. 9, 1993.

David B. Gaultney, Mehaffy & Weber, Beaumont, for appellants.

Warren R. Taylor, Floyd, Taylor & Riley, Houston, W. Ted Minick, Winstead, Sechrest & Minick, Dallas, Gary M. Jewell, and Jeffrey A. Shadwick, Winstead, Sechrest & Minick, Houston, for appellees.

Before NYE, C.J., ^* and DORSEY and GILBERTO HINOJOSA, JJ.

OPINION

DORSEY, Justice.

Durkay, a bankruptcy trustee, appeals from a take-nothing judgment in this wrongful foreclosure action. Durkay contends that three consecutive foreclosure sales on fourteen oil and gas leases, now claimed by the bankruptcy estate, were void. A jury found that the initial foreclosure sale was wrongful but awarded no damages, finding that the bankruptcy debtor ratified the trustee's deed executed after the sale. By seventeen points of error, Durkay essentially complains of the trial court's failure to set aside the foreclosure sales. The appellees assert two cross-points concerning the issues of res judicata and statute of limitations. We reverse the trial court's judgment, set aside the foreclosure sales, and return the property to the bankruptcy estate.

Appellee Madco Oil Company and Marvin Whitehead, d/b/a Whitehead Oil Company, ¹ entered into a business relationship in late 1981 or early 1982. In 1983, Madco loaned Whitehead $842,314.65, for which Whitehead pledged as collateral the fourteen oil and gas leases. Ultimately, Madco foreclosed on those leases in March or April of 1984 (the date of the foreclosure was disputed at trial). ² That sale is the crux of our disposition of this appeal.

Four of the leases foreclosed upon in 1984 were the subject of a pending state court action filed by local landowners against Whitehead. The landowners alleged that Whitehead removed, without compensating them, their ownership interest in oil and gas produced from the four leases. As a result, the leases were held in receivership by the court at the time of the 1984 foreclosure sale, pending the outcome of the conversion suit.

The landowners' action later resulted in a $1.3 million judgment against Whitehead. ³ The trial court ordered an execution sale of three of the four leases and Madco bought them on September 19, 1985 for $500. Durkay contended below that this 1985 execution sale, too, was void.

Madco pledged all fourteen leases to Allied Bank of Texas, now First Interstate Bank, both of which are appellees here, as collateral on a loan. ⁴ Allied/First Interstate foreclosed on the property in October, 1986, purchasing the property for itself. This is the third foreclosure sale Durkay complained of below.

Durkay brought suit against these appellees alleging that each of the three sales of Whitehead's oil and gas leases was a wrongful foreclosure. While a jury found the 1984 sale to be wrongful, they did not find that the sale proximately caused Whitehead damages and found that Whitehead ratified the sale and the deed evidencing it. The jury found no irregularity in the 1985 execution sale which caused the leases to be sold for a grossly inadequate price. They also found that Allied/First Interstate was a good faith purchaser at its October, 1986 foreclosure sale. Based on these jury findings, the trial court entered a take-nothing judgment in favor of appellees.

By points of error one and two, Durkay, on behalf of the Whitehead estate, contends that the 1984 sale was void as a matter of law. He asserts on appeal that the sale was not held on the first Tuesday of the month, ⁵ that the note was not in default, and that Madco had no authority to foreclose on all or part of the fourteen leases. At trial, when the jury was asked whether they found the 1984 foreclosure sale wrongful, they were instructed, in pertinent part You are instructed that a foreclosure is "wrongful" if any of the following occurred:

(1) The Whitehead Promissory Note was current at the time of the foreclosure.

or

(2) The foreclosure did not occur on the first Tuesday of the month.

or

(3) An irregularity occurred in connection with the foreclosure sale ... which caused or contributed to cause the property to be sold for a grossly inadequate price.

The question did not specifically ask the jury to determine whether the 1984 sale was void. As a result, the appellees objected to the issue and instruction during the charge conference, asserting that a mere finding by the jury that the foreclosure was wrongful would not be the equivalent of finding the sale void as well. The trial court overruled the objection.

Any one of the three improprieties listed above would render the 1984 foreclosure sale void. See Bradford v. Thompson, 470 S.W.2d 633, 636 (Tex.1971), cert. denied, 405 U.S. 955, 92 S.Ct. 1174, 31 L.Ed.2d 232 (1972) and Slaughter v. Qualls, 162 S.W.2d 671, 675 (Tex.1942) (foreclosure sale void when note not in default at that time); McLaren v. Jones, 89 Tex. 131, 33 S.W. 849, 850 (1896) (sale not held on first Tuesday of month is void); Pentad Joint Venture v. First Nat'l Bank of La Grange, 797 S.W.2d 92, 96 (Tex.App.--Austin 1990, writ denied) and Jinkins v. Chambers, 622 S.W.2d 614, 615 (Tex.App.--Tyler 1981, no writ) (irregularity in sale causing grossly inadequate price renders sale void).

The facts were greatly in dispute at trial regarding whether the 1984 sale occurred on the first Tuesday of the month, whether the note was in default, and whether irregularities in the sale resulted in a grossly inadequate price for the property. The jury's finding that the 1984 sale was wrongful, regardless of the fatal defect found, was the legal equivalent of finding that the sale was void as a matter of law.

A purchaser at a foreclosure sale obtains only that title the trustee had authority to convey. First Southern Properties, Inc. v. Vallone, 533 S.W.2d 339, 341 (Tex.1976). When a trustee forecloses on property by means not enumerated in the deed of trust, he has conveyed the property without the authority to do so. Slaughter, 162 S.W.2d at 675; Henke, 586 S.W.2d at 620; Ford v. Emerich, 343 S.W.2d 527, 532 (Tex.Civ.App.--Houston 1961, writ ref'd n.r.e.). A trustee's strict compliance with the terms of the deed of trust includes his following statutory prerequisites for the sale. These prerequisites include, among others, that the sale must be held on the first Tuesday of the month. TEX.PROP.CODE ANN. § 51.002 (Vernon 1984). Failure to comply with these prerequisites strips the trustee of his authority to sell the property and will render the foreclosure sale void.

When a foreclosure sale is void, title to the property does not pass to the purchaser, as he cannot acquire it. Henke v. First Southern Properties, Inc., 586 S.W.2d 617, 620 (Tex.Civ.App.--Waco 1979, writ ref'd n.r.e.). Consequently, the trustee's deed evidencing the sale is void.

The jury found, as a matter of law, that the 1984 foreclosure sale was void. Appellees contend that this is of no moment because the jury also found that Whitehead ratified the trustee's deed executed at the conclusion of the 1984 sale.

It is well settled that a grantor cannot, by subsequent acts and declarations, ratify a void deed. Kunkel v. Kunkel, 515 S.W.2d 941, 948 (Tex.Civ.App.1974); Pure Oil Co v. Swindall, 58 S.W.2d 7, 11 (Tex.Com.App.1933); 26 C.J.S. Deeds § 67a (1956). The Court in Pure Oil explains that "it is essential to consider whether the instrument, if genuine, would accomplish the apparent purpose of its execution." Id., 58 S.W.2d at 10. Because no title could pass to Madco as a result of the sale, the deed could not accomplish the purpose of its execution and was therefore void.

When a foreclosure sale is void, the debtor may bring a cause of action to set aside the sale, cancel the trustee's deed, and recover title to the property. Slaughter, 162 S.W.2d at 674; Owen v. Grimes, 539 S.W.2d 387, 389-90 (Tex.Civ.App.--Tyler 1976, writ ref'd n.r.e.). In the alternative, the debtor may seek damages for conversion of the property.

Appellees contend that Durkay's suit to set aside the 1984 sale is barred by limitations. They maintain that a four-year limitations period applies, as prescribed by the Residual Limitations Period under TEX.CIV.PRAC. & REM.CODE ANN. § 16.051 (Vernon 1986). See Gonzales v. Lockwood Lumber Co., 668 S.W.2d 813, 815 (Tex.App.--Houston [14th Dist.] 1984, writ ref'd n.r.e.). In Gonzales, a mortgagor sued the mortgagee for money damages resulting from the wrongful foreclosure of her property. The Houston court found that the central issue of the case was whether the terms of the deed of trust were complied with when the foreclosure sale was executed on the mortgagee's property. The Court held that this issue was one based on a written contract and applied the section 16.051 four-year statute of limitations. Gonzales, 668 S.W.2d at 815.

Appellees maintain that the primary issue in this lawsuit, too, is whether the terms of the deed of trust were complied with during the execution of the 1984 foreclosure sale. Thus, they contend that the four-year limitations period applies here as well. This case is distinguishable from Gonzales, however, in that here Durkay brought his cause of action to set aside this foreclosure sale, to cancel the trustee's deed, and, most importantly, to recover the property for the bankruptcy estate. TEX.CIV.PRAC. & REM.CODE § 16.051 expressly excludes from its applicability actions for the recovery of real property.

Further, as both sides concede, it is well established that when a deed is void, an action to recover the property conveyed by that deed is not barred by the four-year statute. Slaughter, 162 S.W.2d at 674; National Bank of Commerce v. May, 583 S.W.2d 685, 690 (Tex.Civ...