First Southern Properties, Inc. v. Vallone

• Decision Date: 28 January 1976
• Docket Number: No. B--5396,B--5396
• Citation: 533 S.W.2d 339
• Parties: FIRST SOUTHERN PROPERTIES, INC., Petitioner, v. Vince VALLONE, Receiver, Respondent.
• Court: Texas Supreme Court

Page 339

533 S.W.2d 339

FIRST SOUTHERN PROPERTIES, INC., Petitioner, v. Vince VALLONE, Receiver, Respondent.

No. B--5396.

Supreme Court of Texas.

Jan. 28, 1976.

Lackshin, Nathan & Berg, Herbert N. Lackshin and B. K. Watson, III, Houston, for petitioner.

Strickland & Gordon, Gerald S. Gordon, Houston, for respondent.

DANIEL, Justice.

This suit was brought by a receiver in the court of his appointment to set aside a substitute trustee's deed to certain real property executed after a foreclosure sale under a deed of trust. The receiver, Vince Vallone, alleged numerous irregularities in the foreclosure sale which was made to the defendant, First Southern Properties. Among these was an allegation that the substitute trustee's deed was void because the property in question was In custodia legis at the time of the foreclosure sale and because that sale was not authorized by the court.

At a non-jury trial, judgment was rendered for the receiver setting aside the trustee's deed and ordering a return of the purchase money to First Southern Properties. Upon appeal by First Southern, the court of civil appeals affirmed upon the grounds that the sale was void because the property was In custodia legis by reason of the prior receivership, and that the receiver was not estopped from setting aside the sale by reason of his failure to have on file a lis pendens notice under Article 6640 ¹ at the time of the sale. 523 S.W.2d 92. We affirm.

The receiver had been appointed on April 11, 1973, by a Court of Domestic Relations of Harris County in a divorce suit between Jerry Darnell and Jennye Darnell to 'manage or sell' the community assets, which included numerous tracts of real property. Among these was the property in question. It had been purchased during the marriage in the name of the husband, Jerry Darnell, from Joe Oxford and wife on January 21, 1966. As a part of the consideration, Darnell executed a $21,000 note payable to the Oxfords. This note was secured by a vendor's lien and a deed of trust. The deed of trust contained a power of sale from Darnell to the named trustee or a substitute trustee appointed by the Oxfords in accordance with the terms of the instrument.

After the appointment of the receiver, a monthly installment of $233.16 became due on the Oxford note on May 1, 1973, and it was not paid. All previous monthly payments since the execution of the note on January 21, 1966, had been paid when due. The outstanding balance at the time was $7,074.43. In less than ten days after the May 1 installment became delinquent, the Oxfords employed an attorney, Charles A. Brown, to foreclose on the property. There was evidence, and the trial court found, that the Oxfords did not request the named trustee, L. C. Owens, to act and that he was alive, capable of performing, and did not resign or fail or refuse to act. Nevertheless, on May 11, 1973, the Oxfords appointed Charles A. Brown as substitute trustee, and on the same day he posted notices of a foreclosure sale to be held on June 5, 1973. Although Mrs. Oxford and the substitute trustee knew that a receiver had been appointed for the property, they did not demand payment of the delinquent installment or the accelerated balance by Darnell or the receiver. Neither did they notify either of them of the acceleration or the proposed foreclosure sale. On June 5, First Southern purchased the property as the highest of two bidders for $22,000 in cash. A deed was executed on the same day by the substitute trustee to First Southern Properties, and it is this deed which the trial court set aside.

Herbert Axelrad, President of First Southern Properties, testified that for three years his company had specialized in 'distressed property sales.' Prior to the purchase of the Darnell property at the foreclosure sale, Axelrad conducted a title search in Harris County, where the property is located. This included a courthouse search of the grantor-grantee indices, deed of trust records, lis pendens records, abstract of judgment records, mechanic's and materialman's lien records, and the federal bankruptcy records, and a search of indices to the same records at American Title Company in Houston. He testified that this search did not reveal the trial court's appointment of Vallone as receiver. There is no evidence in the record to show that First Southern Properties had actual notice of the appointment of Vallone as receiver until after its purchase of the property.

First Southern contends that it is entitled to the protection extended by lis pendens Articles 6640--6642 to bona fide purchasers for valuable consideration, with actual or constructive notice, because the receiver did not have a lis pendens notice on file at the time of the sale. ² For the same reason, First Southern contends that the receiver should be estopped to set aside the trustee's deed. The receiver in reply asserts, as held by the court of civil appeals, that his appointment by the trial court as receiver placed the property In custodia legis and prohibited a foreclosure sale without approval of the trial court. The receiver's counter-points relating to other alleged irregularities were not reached by the court of civil appeals and were not brought forward in this appeal.

It has been held that a purchaser under a power at a foreclosure sale obtains only such title as to trustee had authority to convey. Slaughter v. Qualls, 139 Tex. 340, 162 S.W.2d 671 (1942); Ford v. Emerich, 343 S.W.2d 527 (Tex.Civ.App.1961, dism. w.o.j.); Bowman v. Oakley, 212 S.W. 549 (Tex.Civ.App.1919, writ ref'd).

No one has the authority, even under a prior deed of trust or execution, to sell property held In custodia legis by a duly appointed receiver, unless the sale is authorized by the court in which the receivership is pending. Ellis v. Vernon Ice, Light & Water Co., 86 Tex. 109, 23 S.W. 858 (1893); Texas Trunk R. Co. v. Lewis, 81 Tex. 1, 16 S.W. 647 (1891); Kirby v. Dilworth & Marshall, 260 S.W. 152 (Tex.Comm'n App.1924, holding approved); King Land and Cattle Co. v. Fikes, 414 S.W.2d 521 (Tex.Civ.App.1967, writ ref'd n.r.e.); Cline v. Cline, 323 S.W.2d 276 (Tex.Civ.App.1959, writ ref'd n.r.e.); Fielder v. Parker, 119 S.W.2d 1089, 1094 (Tex.Civ.App.1938, no writ); Scarborough v. Connell, 84 S.W.2d 734 (Tex.Civ.App.1935, no writ); Glenn v. Connell, 74 S.W.2d 451 (Tex.Civ.App.1934, no writ); Hacker v. Hacker, 4 S.W.2d 218 (Tex.Civ.App. 1928, no writ); Scott v. Crawford, 41 S.W. 697 (Tex.Civ.App.1897, writ ref'd). See also Wiswall v. Sampson, 14 How. (55 U.S.) 52, 59, 14 L.Ed. 322 (1852); 65 Am.Jur.2d 993, § 169; 43 A.L.R. 1357; and 49 Tex.Jur.2d 155, § 123. In Ellis, supra, this Court held void a constable's sale of property which had been levied on prior to the appointment of a receiver and sold after such appointment. The Court said:

'. . . The receivership does not destroy any liens that may have been acquired before the appointment, but the remedy for their enforcement should be sought in the court in which the whole estate is being administered. We therefore conclude that the court did not err in holding that the applicant took no title to the lots by the execution sale.'

In Texas Trunk R. Co. v. Lewis, supra, this Court said:

'In the case before us it appears not only that the suit in Kaufman county was instituted before the attachment sued out by Thompson was levied, but that the court had appointed a receiver before that was done, who, however, did not qualify until after the levy was made. We understand the courts to hold, almost without dissent, that, after the appointment of a receiver, the property to which the receivership relates is to be deemed in the custody of the law, and this seems to us the correct rule.'

In Hacker v. Hacker, supra, which involved a receivership in a divorce case, the court said:

'We agree with appellant that the sale under the trust deed was unauthorized and did not pass appellant's title to the defendant Schwiekart, because the property at the time of the sale was in custodia legis. The district court of Harris county having acquired jurisdiction over the property by the divorce proceeding, and having appointed a receiver to take charge of it and dispose of it in accordance with the decree of that court, no valid sale of the property could be made under process from any other court without the consent of the court in which the receivership was pending, and for a stronger reason a sale by a trustee foreclosing a lien would not affect the title held by the receiver.'

In Cline, supra, the court concluded 'that the sale under the deed of trust was void because under the terms of said decree Tracts A and B were in custodia legis.' In King Land & Cattle Co., supra, the court said: 'Under general principles according to good reason and sound public policy a sale of real estate over which a receiver has been appointed--by anyone othere than the receiver or under his authority--is alleged and void.'

First Southern cites no cases to the contrary, and we have found none. Neither have we found any case holding that it is necessary for a court or its duly appointed receiver to file a lis pendens notice under Article 6640 in order to protect property In custodia legis or to set aside an unauthorized sale thereof. In fact this seems to be the first reported case in which this contention has been made.

First Southern apparently assumes that the jurisdiction and custody of a trial court over property, exercised through a receiver,...