Huddleston v. Texas Commerce Bank-Dallas, N.A.

• Decision Date: 12 July 1988
• Docket Number: BANK-DALLA,No. 05-87-01032-CV,N,05-87-01032-CV
• Citation: 756 S.W.2d 343
• Parties: Albert D. HUDDLESTON, Appellant, v. TEXAS COMMERCEA., Appellee.
• Court: Texas Court of Appeals

Page 343

756 S.W.2d 343

Albert D. HUDDLESTON, Appellant, v. TEXAS COMMERCE BANK-DALLAS, N.A., Appellee.

No. 05-87-01032-CV.

Court of Appeals of Texas,

Dallas.

July 12, 1988.

Rehearing Denied Aug. 30, 1988.

Tom Thomas, Geoffrey G. Tudor, Kolodey & Thomas, Dallas, for appellant.

Vera R. Bangs, Edwin R. DeYoung, C. Kent Adams, Liddell, Sapp, Zivley, Hill & Laboon, Dallas, for appellee.

Before ENOCH, C.J., and McCLUNG and BAKER, JJ.

ENOCH, Chief Justice.

This is a summary judgment case. Appellee, Texas Commerce Bank-Dallas, N.A., sued Appellant, Albert D. Huddleston, on two real estate notes for a deficiency judgment after it had foreclosed on the real property. Huddleston counterclaimed for usury. The trial court granted summary judgment in favor of Texas Commerce both for the deficiency and on Huddleston's usury counterclaim. Huddleston appeals.

In four points of error, Huddleston urges that: (1) the district court erred in ruling that a foreclosure sale conducted in violation of the automatic stay imposed under 11 U.S.C. § 362 was void; (2) Texas Commerce is estopped to deny the validity of the foreclosure sale; (3) Texas Commerce's demand for payment constituted a charging of usurious interest as a matter of law; and (4) a fact issue exists as to whether Texas Commerce conducted a second foreclosure sale in a commercially reasonable manner. For the reasons below, we affirm the trial court.

Texas Commerce loaned Huddleston $7,500,000.00 and $7,158,253.00. Each loan was evidenced by a promissory note and secured by a deed of trust to real property. Huddleston failed to repay the notes when due, and Texas Commerce requested the substitute trustee to proceed with foreclosure sale of the properties. The substitute trustee posted notices for the sale to occur on May 6, 1986.

Huddleston was the sole shareholder and president of Trebla Resources, Inc. On May 5, 1986, Huddleston transferred the properties scheduled for foreclosure to Trebla. On May 6, prior to the foreclosure sale, Trebla filed a petition in bankruptcy. Unaware of these actions, the substitute trustee conducted the sale, and Texas Commerce purchased the properties. Thus, the May 6th foreclosure sale occurred in violation of the stay which arises automatically upon the commencement of a bankruptcy proceeding. 11 U.S.C. § 362(a).

On June 6, 1986, the bankruptcy court granted Texas Commerce's motion to dismiss Trebla's bankruptcy proceeding on the grounds that Trebla's filing was in bad faith. The bankruptcy court did not, however, specifically annul the automatic stay in its dismissal.

Following dismissal of Trebla's petition, Texas Commerce repeated foreclosure proceedings against the properties. On or about June 10, 1986, Texas Commerce demanded payment on the notes from Huddleston in an amount exceeding $14,500,000.00. This amount gave Huddleston no credit against the notes for the amounts tendered for the properties at the May 6th foreclosure sale. The substitute trustee again posted the properties, and they were again sold to Texas Commerce at a second foreclosure sale held on July 1, 1986.

After crediting the amount received for the properties at the July 1st sale against Huddleston's debt, Texas Commerce instituted this suit to recover the deficiency. Huddleston answered, asserting an affirmative defense of usury and a counterclaim for usury. ¹ As mentioned, the trial court granted judgment for Texas Commerce on its deficiency claim and against Huddleston on his claim of usury.

In his first and third points of error, Huddleston argues that, although the May 6th foreclosure sale was held in violation of the automatic stay, the subsequent dismissal of Trebla's bankruptcy petition reinstated that sale. Therefore, according to Huddleston, the amount of his debt should have been credited with the amounts received at the May 6th foreclosure sale. Consequently, Texas Commerce's demand for payment on June 10th, which failed to credit those amounts, constituted a charging of interest in violation of Texas usury statutes. We disagree.

The filing of a petition in bankruptcy operates to stay actions and proceedings against the debtor. 11 U.S.C. 362(a). The actions stayed include foreclosure sales such as the May 6th sale in this case. 11 U.S.C. § 362(a)(4). The stay is effective upon the filing of the petition even though the parties have no notice of its existence. In re Scott, 24 B.R. 738 (Bankr.M.D.Ala.1982).

In general, acts taken in violation of the automatic stay are void and without legal effect. Kalb v. Feuerstein, 308 U.S. 433, 60 S.Ct. 343, 84 L.Ed. 370 (1940); In re Scott, 24 B.R. 738 (Bankr.M.D.Ala.1982). This is the law in this jurisdiction. Continental Casing Corp. v. Samedan Oil Corp., 751 S.W.2d 499 (Tex.1988) (per curiam); but see In re Oliver, 38 B.R. 245 (Bankr.D.Minn.1984) (acts taken in violation of the automatic stay are voidable rather than void). The bankruptcy court may take some action, such as annulling the stay, to retroactively validate actions taken in violation of the stay. In re Albany Partners, 749 F.2d 670 (11th Cir.1984); Claude Regis Vargo Enterprises, Inc. v. Bacarisse, 578 S.W.2d 524 (Tex.Civ.App.--Houston [14th Dist.] 1979, writ ref'd n.r.e.). Absent such an action by the bankruptcy court, however, the mere termination of the stay does not validate actions taken in violation of it. Goswami v. Metropolitan Savings and Loan Association, 751 S.W.2d 487, 489 (Tex.1988); see In re Eden Associates, 13 B.R. 578, 585 (Bankr.S.D.N.Y.1981).

In this case, the May 6th foreclosure sale occurred during the pendency of the automatic stay. When the bankruptcy court dismissed Trebla's case, it took no action to annul or otherwise recognize the invalidity of the stay. Therefore, the May 6th sale was void and of no legal effect. Because the May 6th sale was void, it was ineffective to pass title to the property and title remained with Trebla.

Our conclusion is also supported by 11 U.S.C. 349(b)(3). That section provides that, unless the court orders otherwise, dismissal of a bankruptcy case revests property in the entity in which the property was vested immediately before the commencement of the case. 11 U.S.C. 349(b)(3); see also In re Eden Associates, 13 B.R. at 585 (dismissal of petition terminated automatic stay and restored rights of creditor to their position as of commencement of the case).

Huddleston urges that we adopt the reasoning of In re Linton, 35 B.R. 695 (Bkrtcy.D.Idaho 1983), and hold that the subsequent dismissal of Trebla's case reinstated the May 6th sale. We decline the invitation. Linton involved the effect of a subsequent dismissal on a creditor's attempt, during the pendency of the stay, to perfect his security interest in personal property. Those are not the facts of this case. Irrespective of this distinction, our opinion that the foreclosure sale is void unless the bankruptcy court takes some action to annul the stay or to recognize that the stay was invalid ab initio is consistent with the reasoning adopted by Texas cases. Goswami v. Metropolitan Savings and Loan Association, 751 S.W.2d 487, 489 (Tex.1988) (where bankruptcy court took no action to annul stay or recognize its invalidity, subsequent termination of temporary stay did not automatically validate foreclosure sale conducted during pendency of stay); Southern County Mutual Insurance Co. v. Powell, 736 S.W.2d 745, 748 (Tex.App.--Houston [14th Dist.] 1987, orig. proceeding) (default judgment, if entered during pendency of stay, was void); Community Investors IX, Ltd. v. Phillips Plastering Co., 593 S.W.2d 418 (Tex.Civ.App.--Houston [14th Dist.] 1980, no writ) (judgment of state court foreclosing lien during pendency of automatic stay is void); Claude Regis Vargo Enterprises, Inc. v. Bacarisse, 578...