Gainesville Oil & Gas Co., Inc. v. Farm Credit Bank of Texas

• Decision Date: 09 February 1993
• Docket Number: No. 6-92-044-CV,6-92-044-CV
• Citation: 847 S.W.2d 655
• Court: Texas Court of Appeals
• Parties: GAINESVILLE OIL & GAS CO., INC., et al., Appellants, v. FARM CREDIT BANK OF TEXAS, et al., Appellees.

Page 655

847 S.W.2d 655

GAINESVILLE OIL & GAS CO., INC., et al., Appellants, v. FARM CREDIT BANK OF TEXAS, et al., Appellees.

No. 6-92-044-CV.

Court of Appeals of Texas Texarkana.

Feb. 9, 1993.

H.C. McCracken, McCracken, Taylor & Nelson, P.C., Carrollton, for appellants.

John L. Tidwell, Gooding & Dodson, Texarkana, for Farm Credit and L. Don Hager.

Pat C. Beadle, Clarksville, G. David Neal, Dallas, for Allan Ward, Jerry Ward, Judy Ward, Rufus Ward, Patsy Ward and Bogata Oil & Gas.

Before CORNELIUS, C.J., and BLEIL and CHADICK (Retired), JJ.

OPINION

CHADICK, Justice (Retired).

This is an appeal from a summary judgment. On January 23, 1990, the trial court signed and entered an interlocutory judgment granting defendants' summary judgment motion. Thereafter, the parties acted to finalize the interlocutory judgment and did so on February 18, 1992.

Appellants herein are Gainesville Oil & Gas Co., Inc. (Gainesville), and George Dean Ward and wife, Barbara Gail Ward (Ward couple). Appellees are Farm Credit Bank of Texas (Bank), Allan S. Ward, Jerry N. Ward, Judy Ward, Rufus Ward, Jr., Patsy Ann Ward, and Bogata Oil & Gas Co., Inc. (Bogata group). Gainesville and the Ward couple filed a joint brief, but the Bank and the Bogata group filed separately.

The land in suit is two separately described tracts in Red River County, one containing forty-four acres and the other twenty acres. The Ward couple, by deed of trust dated July 23, 1984, conveyed the land to a trustee to secure payment of a promissory note described in the deed of trust instrument. The substitute trustee's deed in controversy is an instrument dated December 6, 1988, conveying the land to Allan S. Ward.

Gainesville originated the suit by filing an original petition on May 25, 1989. Thereafter, on December 8, 1989, Gainesville superseded its original petition with a Plaintiff's Second Amended Original Petition, which added the Ward couple as joint plaintiffs and dropped L. Don Hager as a defendant. The action is to set aside the substitute trustee's deed upon allegations that the Bank's and the Bogata group's claimed rights and title to the land involved are invalid because of irregularities in the foreclosure sale conducted by the substitute trustee and that the purchaser at the mortgage foreclosure sale was not a good faith purchaser for value.

In response to the Bank's summary judgment motion, Gainesville and the Ward couple state:

[G]enuine issues of fact exist as to whether Farm Credit Bank of Texas and L. Dan Hager promised and/or led these Plaintiffs to believe that the mineral rights would not be sold at the foreclosure sale on December 6, 1988,....

And in response to the Bogata group's summary judgment motion, Gainesville and the Ward couple allege the summary judgment evidence "clearly shows that genuine questions of fact exist as to whether the purchaser of the property, Allan S. Ward, was a bona fide purchaser for value,...."

The Bank and the Bogata group countered the plaintiffs' amended pleadings with separate amended pleadings and amended motions for summary judgment. The Bank's original answer was a general denial, which it repeated in answering the plaintiffs' amended petition. The Bogata group's amended answer consisted of a plea in abatement for want of necessary parties, four special exceptions, a general denial, and a special denial alleging:

Defendants specifically deny that Plaintiff held superior rights to the first lienholder, Farm Credit Bank of Texas, in that (1) Plaintiff's alleged Oil, Gas and Mineral Lease reflects that it was executed on September 18, 1987, and was subject to the July 23, 1984 Deed of Trust on the subject property in favor of Farm Credit Bank of Texas, (2) said Deed of Trust contained the clause prohibiting any sale, assignment or conveyance without the advance written consent of the Mortgagee thereunder, (3) said Mortgagee did not give its written consent to the execution of the alleged Oil, Gas and Mineral Lease in favor of the Plaintiff; and by reason thereof Plaintiff's alleged Oil, Gas and Mineral Lease was subject to the rights of said Mortgagee under said Deed of Trust in that said Deed of Trust was not subordinated to Plaintiff's alleged Oil, Gas and Mineral Lease.

POINT I

The court erred in granting appellee's motion for summary judgment because the property was sold at a grossly inadequate price to an individual who had notice of the oil production owned by appellants and as such was not a good faith purchaser.

Slightly more than three years after execution, delivery, and recordation of the July 23, 1984, deed of trust, the Ward couple as grantors executed an oil, gas, and mineral lease covering the forty-four-acre tract and thereby conveyed a leasehold mineral estate therein to Gainesville Oil & Gas Company, Inc., but reserved to themselves a one-eighth royalty and a one-thirty-second override out of the working interest. Following default in payment of the note secured by the deed of trust, the bank foreclosed the July 23, 1984, deed of trust lien upon the entire sixty-four acres and, on December 6, 1988, at public auction sold the property to the highest bidder, Allan S. Ward. By appropriate deed, the substitute trustee, Gary M. Vaughn, conveyed the land to Allan S. Ward.

For the purpose of discussion, it will be assumed that Allan S. Ward and other parties holding by or through him or otherwise aligned with him had notice of the mineral lease and the production of oil from the forty-four-acre tract prior to and at the time he purchased the land at the foreclosure sale.

The appellants urge the general rule that a bona fide purchaser of realty is a purchaser who buys property in good faith for a valuable consideration without knowledge, actual or constructive, of outstanding claims in a third party or parties. The defect in their argument is that it disregards a long-settled corollary to the rule they rely upon. The corollary to the rule is that, when a lienholder takes a lien in good faith and for a valuable consideration and without notice of outstanding claims or equities, a purchaser at the lien foreclosure sale, regardless of the knowledge or notice the purchaser has, takes good title from the bona fide mortgagee. The rule and its application is found in Moran v. Adler, 570 S.W.2d 883, 885 (Tex.1978), where it is said:

Defendant Lester Adler asserted his title to the lands by claiming that the bank took the mortgage on the property for a valuable consideration without notice of the claim by the Moran children that Ramona had adopted them. If the bank took the lien in good faith for a valuable consideration without notice, then Adler, regardless of his knowledge or notice, took good title as purchaser under the bona fide mortgagee at the foreclosure sale. West v. First Baptist Church of Taft, 123 Tex. 388, 71 S.W.2d 1090, 1098-99 (1934); Bergen v. Producers' Marble Co., 72 Tex. 53, 11 S.W. 1027 (1888); Lewis v. Johnson, 68 Tex. 448, 450, 4 S.W. 644, 645 (1887); Donald v. Davis, 208 S.W.2d 571, 573-74 (Tex.Civ.App.--Waco 1948, writ ref'd); Benn v. Security Realty & Development Co., 54 S.W.2d 146, 150 (Tex.Civ.App.--Beaumont 1932, writ ref'd); Hunley v. Bulowski, 256 S.W.2d 932 (Tex.Civ.App.--Texarkana 1953, writ ref'd n.r.e.); Harper v. Over, 101 S.W.2d 830 (Tex.Civ.App.--Eastland 1937, no writ); Annot., 63 A.L.R. 1362, 1370 (1929); 39 Tex.Jur.2d Mortgages and Trust Deeds §§ 69, 70 (1976).

(Emphasis added.)

Though Allan S. Ward had notice and knowledge of the appellants' claim of title and production of oil subject to the mineral lease at the time of the foreclosure sale on December 6, 1988, the Bank had no such notice when the deed of trust was executed and could not have had prior knowledge or notice of a mineral lease dated September 18, 1987, which was entered into over three years subsequent to July 23, 1984, the date of the deed of trust. The appellants plead the Ward couple owned fee simple title to the land at the time the deed of trust was created, and it is undisputed that the Bank's position as lienholder mortgagee is that of an innocent purchaser for value without notice. On the authority of Moran v. Adler and the numerous authorities therein cited, it must be held that the sale vested in Allan S. Ward good title as purchaser from the bona fide mortgagee at the foreclosure sale, free and clear of the claims of the appellants if the foreclosure sale is valid. Point of Error I is overruled.

Whether or not the land was sold for a grossly inadequate price at the foreclosure sale, as argued by appellants under Point I, is immaterial to the solution of the issues presented by the point. The inadequate consideration claim will be considered in subsequent discussion. Similarly, as an affirmative defense, the appellees argue under their replies to Point of Error I that the appellants were estopped to assert title to the land because the duly recorded deed of trust prohibited an oil, gas, and mineral lease of the land except with prior consent from the Bank, which was not secured. This proposition will also be noticed in later discussion.

POINT II

The court erred in issuing an ex parte order on February 23, 1990 authorizing appellants to withdraw funds from the district clerk, and further erred in establishing a supersedeas bond of $25,000.00 and at the same time permitting appellants to withdraw all funds from the district clerk.

The trial court judgment ordered, adjudged and decreed that the Bank and the Bogata group "go hence with their costs without day." At the time the suit was instituted, the Bogata group held title to the property by virtue of a substitute trustee's deed and were in actual possession, operating the oil well and selling the oil produced. Gainesville and the Ward couple did not apply for or secure orders pending trial to protect their rights or interests or for protection and preservation of the property involved. Title and possession...