In re Gayle
| Decision Date | 28 December 1995 |
| Docket Number | Bankruptcy No. 94-48313-H4-11. Adv. No. 95-4321. |
| Citation | 189 BR 914 |
| Parties | In Re George S. GAYLE, Jr. and Jane Colley Gayle, Debtors. FARM CREDIT BANK OF TEXAS v. George S. GAYLE, Jr. and Jane Colley Gayle. |
| Court | U.S. Bankruptcy Court — Southern District of Texas |
Marc Magids, Houston, TX, for debtor.
Michael S. Beckwith, Michael S. Beckwith, P.C., Houston, TX, for Curtis J. Domingue, Jr., Trustee.
Jeffrey E. Bohm, McGinnis, Lochridge & Kilgore, L.L.P., Austin, TX, for The Farm Credit Bank of Texas.
On May 12, 1995 Farm Credit Bank of Texas (the "Bank") instituted this adversary proceeding to obtain a declaratory judgment that its foreclosure on 327.999 acres in Fort Bend County, Texas was valid. After the Gayles ("Debtors") counterclaimed, the Bank filed a motion for summary judgment on August 17, 1995 in favor of its request for declaratory judgment and against Debtors' counterclaims. The Bank's motion for summary judgment has been previously granted by separate form of Order insofar as it pertains to the Bank's claims for declaratory judgment and against Debtors' counterclaim. This memorandum opinion constitutes the Court's findings and conclusions in connection with the Order granting the Bank's Motion for Summary Judgment.
George S. and Jane Colley Gayle ("Debtors") executed a note and deed of trust in favor of Farm Credit Bank of Texas (the "Bank") for real property financing in the amount of $512,000.00 on August 20, 1981. The note was secured by a deed of trust encumbering 327.999 acres in Fort Bend County, Texas. On or about October, 1992, Debtors defaulted on the note and the Bank proceeded to nonjudicially foreclose against the property.
Debtors sued to enjoin the nonjudicial foreclosure in state court and the Bank removed the action to the U.S. District Court for the Southern District of Texas. The Bank also filed a counterclaim on the debt, and on November 3, 1993, a judgment was entered on the promissory note in favor of the Bank for $601,795.80 and $6,200.00 in attorneys' fees.
On December 5, 1994 Debtors filed a Chapter 11 petition in this Court. The Bank secured an Order granting its Motion for Relief from the Automatic Stay on April 7, 1995. Consequently, foreclosure occurred on May 2, 1995.
The Bank instituted this adversary for declaratory judgment after the foreclosure because of a letter received by the Bank from Debtors' attorney stating that the Bank had wrongfully foreclosed and should restore title in the Debtors. The Bank sought a declaratory judgment that the foreclosure was valid, that the Trustee's sale under the deed of trust was proper, that Debtors hold no further interest in the property, and that the Bank, having purchased the property at the sale, holds valid legal title.
Debtors filed an amended counterclaim alleging wrongful foreclosure.1 On August 17, 1995 the Bank filed a Motion for Summary Judgment in favor of its request for declaratory judgment and against Debtors' counterclaim.
In its Motion for Summary Judgment, the Bank argues that it had the right to nonjudicially foreclose on its deed of trust lien and that its state law contractual rights were not erased by the Bank's earlier judgment on the promissory note in the Federal District Court lawsuit. Debtors, however, have argued that the Bank's right to nonjudicially foreclose on the property was eradicated by its earlier judgment on the promissory note because of either an election of remedies or the doctrine of merger.
The basic premise of the doctrine of election of remedies is that a claimant is prohibited from choosing between two or more inconsistent, but coexistent modes of procedure and relief allowed by law on the same state of facts. Pansegrau v. National Union Fire Insurance Co. of Pittsburgh, PA, 23 F.3d 960, 964 (5th Cir.1994); Ditmore v. Fairfield Industries, 855 F.Supp. 187, 191 (S.D.Tex.1994) (); Seamans Oil Co. v. Guy, 276 S.W. 424, 426 (Tex.1925); Thomas v. Thomas, 902 S.W.2d 621, 624 (Tex.App. — Austin 1995, rehearing denied). There is no election, that is, no inconsistency in choices when one first pursues a right or remedy which proves unfounded and then pursues one that is allowed. Pansegrau, 23 F.3d at 964; citing Plate & Platter, Inc. v. Wolf, 780 S.W.2d 453, 456 (Tex.App. — Dallas 1989, writ denied).
An election of remedies must be made between judicial foreclosure and nonjudicial foreclosure. Thurman v. Federal Deposit Insurance Corporation, 889 F.2d 1441, 1445 (5th Cir.1989, rehearing denied 1990); Vance v. Wilson, 382 S.W.2d 107, 108 (Tex.1964); Coffman v. Brannen, 50 S.W.2d 913, 915 (Tex.Civ.App. — Amarillo 1932, no writ); Terry v. Witherspoon, 255 S.W. 471, 477 (Tex.Civ.App. — Amarillo 1923, rehearing denied).2 Judicial foreclosure and nonjudicial foreclosure cannot be prosecuted concurrently; and the institution of judicial foreclosure constitutes an election of remedies which precludes the resort to nonjudicial foreclosure. Coffman v. Brannen, 50 S.W.2d at 915.
The law pertaining to the right to nonjudicially foreclose on personal property after a judgment on a promissory note has been rendered is well settled. After a debtor defaults on a secured personal property note, the creditor may exercise any right provided in the security agreement (with restrictions), reduce its claim to judgment, foreclose, or otherwise enforce the security interest by any available judicial procedure. TEX.BUS. & COM.CODE ANN. § 9.501(a) (Vernon 1991). These rights and remedies are cumulative. Id. (emphasis added).
As a result, obtaining a judgment on a promissory note secured by personalty does not preclude the creditor from exercising its right to nonjudicially foreclose on the property because the secured creditor can exercise cumulative remedies until the debt is repaid. CLARK, THE LAW OF SECURED TRANSACTIONS §§ 4-26 & 4-27 (2nd ed. 1988).
Crutcher v. Aetna Life Insurance, 746 F.2d 1076, 1080-81 (5th Cir.1984).
In Crutcher, the guarantor of a debt argued that because the creditor's claims against him were reduced to a judgment, the doctrine of election of remedies precluded the creditor from later proceeding against the land as collateral. Crutcher, 746 F.2d at 1080. The Fifth Circuit declined to accept this argument. Id.
In Federal Deposit Insurance Corp. v. Dye, the Fifth Circuit also stated that according to Georgia law:
A creditor can foreclose on property after suing on the note ... His right to foreclose is only barred by the actual satisfaction of the underlying debt; even reducing a note to judgment without execution is not such satisfaction as would prevent foreclosure ... By analogy, we conclude that to constitute a foreclosure sale which would preclude a judgment for the full amount of the note, the proceeds of the sale must have been transferred from the bidder to the creditor.
Federal Deposit Insurance Corp. v. Dye, 642 F.2d 837, 843 (5th Cir.1981), citing Norwood & Co. v. First Federal Savings & Loan Association, 99 Ga.App. 692, 109 S.E.2d 844 (1959); Oliver v. Slack, 192 Ga. 7, 14 S.E.2d 593 (1941); Brown v. Georgia State Bank, 141 Ga.App. 570, 234 S.E.2d 151 (1977).
The Dye case involved a suit brought by the FDIC against the makers and guarantors of notes which it sold to itself following its appointment as receiver of a creditor bank. Federal Deposit Insurance Corp. v. Dye, 642 F.2d at 839. The FDIC sued Jerry Dye and Larry Dye for the outstanding balances on the notes after the FDIC had made three invalid attempts to foreclose on the real property pledged as security. Id. at 840-841.3
The Court in Dye noted that in the event any of the three foreclosure attempts by the FDIC were valid, the FDIC would be precluded from suing on the notes because after foreclosure, a creditor can only sue for a deficiency judgment. Dye, 642 F.2d at 841.
No Texas state court has addressed the issue of whether a creditor can nonjudicially foreclose on real property collateral after obtaining a personal judgment against a debtor on a note. However, peripheral state court decisions, when read collectively, indicate that such a remedy is available after an unsatisfied judgment on a note.
In French v. May, the Texas Court of Appeals stated it is a well settled rule that nonjudicial foreclosure by a mortgagee is allowed during a pending suit on the note so long as foreclosure of the lien is not sought in the pending action. French v. May, 484 S.W.2d 420, 428 (Tex.App. — Corpus Christi 1972, writ ref. n.r.e.), citing Natali v. Witthaus, 135 S.W.2d 969 (Tex.1940, opinion adopted); Babington v. Gray, 71 S.W.2d 293 (Tex.Civ.App. — Austin 1934, no writ) (emphasis added).4 In French, the appellant contended that a foreclosure sale by the trustee was void because it occurred during the pendency of a suit on the note. Id. at 424.
Furthermore, in Middleton v. Nibling, the Court held that the holder of a note and security interest may bring suit and obtain judgment on the note without losing the right to bring a suit for judicial foreclosure on the collateral if no...
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