In re Hasie

• Decision Date: 05 June 1913
• Docket Number: 933.
• Citation: 206 F. 789
• Parties: In re HASIE. In re WAGGONER.
• Court: U.S. District Court — Northern District of Texas

206 F. 789

In re HASIE. In re WAGGONER.

No. 933.

United States District Court, N.D. Texas, Dallas Division.

June 5, 1913

Leake Henry & Robertson, of Dallas, Tex., for claimant.

Chilton & Chilton, of Dallas, Tex., for trustee in bankruptcy.

MEEK District Judge.

The bankrupt, prior to the institution of this proceeding in bankruptcy, executed a deed of trust on certain land to secure an indebtedness to the Guaranty State Bank & Trust Company, by the terms of which the trustee named in the instrument, in case of default, was empowered summarily to sell the land by posting notices of the time and place of sale, and to apply the proceeds in satisfaction of the indebtedness. After the adjudication of the bankrupt the trustee in the deed of trust posted notices and sold the property. At the sale D. E. Waggoner. the claimant herein became the purchaser. These steps were taken without the consent of the trustee in bankruptcy, and without the permission and approval of the bankruptcy court, and without notice to the creditors and other parties in interest in the bankruptcy proceedings who had the right to redeem, and while the trustee was in possession of the property and seeking to realize upon it for the benefit of the bankrupt's general creditors. Notwithstanding the sale by the trustee under the deed of trust. the trustee in bankruptcy has collected the rents accruing upon the land and claims the same as a part of the assets of the bankruptcy estate. After the sale by the trustee under the deed of trust, claimant made application to the referee to order the trustee in bankruptcy to turn over to claimant the rents which had accrued since the sale. This the referee, after full hearing, declined to do, and entered an order dismissing the application. Claimant thereupon applied for and obtained this certificate for review, and insists that the order of the referee should be set aside and the rents turned over to him.

The right of claimant to these rents depends upon the validity of the sale of the property by the trustee under the deed of trust. Thus a most important question, and one directly and materially affecting procedure in bankruptcy cases and the respective rights of the trustee and lien claimants, is submitted in this certificate. It is as follows: May a trustee, acting under summary powers conferred by a deed of trust, sell real property while such property is in the lawful possession of the trustee of a bankruptcy estate; and will such a sale, if made outside of any court of competent jurisdiction and without the consent of the bankruptcy court, divest title out of the trustee in bankruptcy and place it in the purchaser?

There appears to be no controversy as to the right of the trustee to the rents which had accrued before the sale. The claim as made by the claimant is in effect that the proceedings under the deed of trust vested him with title to the property and divested the equity of redemption of the trustee and creditors in the bankruptcy proceeding. To this the trustee answers that the sale of the property, having been made without the authority of the bankruptcy court, and while it was in his possession as such trustee, and while he was proceeding to administer on it in the belief that there was a substantial equity over and above the incumbrance thereon, was void, and conferred no rights on the purchaser to the rents and profits.

There is no substantial controversy over the material facts, except as to whether the value of the property was in excess of the incumbrance thereon. This issue is unimportant, in view of the real question involved, since, if the sale under the power in the deed of trust operated to foreclose the bankrupt's equity of redemption, the right of claimant to the rents and profits accruing thereafter is indisputable. If the opposite is true, and the sale was void, then the trustee in bankruptcy would be entitled to the rents and profits until either the equity of redemption is barred by appropriate proceedings instituted for that purpose, or he relinquishes administration upon it for the reason that the equity of the bankrupt is of no value to the general estate.

It is well settled in Texas that such instruments as the deed of trust in question are mere mortgage with power to sell, and that the power to sell is only a remedy for enforcing rights and obligations of the contract-- a remedy that is cumulative and does not supersede another given by law. The creditor, therefore, may elect to proceed to enforce his lien under the power to sell or foreclosure by suit. Blackwell v. Barnett, 52 Tex. 326; Morrison v. Bean, 15 Tex. 269. The power to sell by a trustee is also revocable. It is revoked ipso facto by the death of the grantor, and is thereafter only enforceable in a judicial proceeding. And in this connection the well-established rule in Texas is that in case of the death of the grantor a sale by the trustee of property conveyed under a deed of trust pending administration on the estate of the grantor is absolutely void. Whitmire v. May, 96 Tex. 317, 72 S.W. 375; Williams v. Armistead, 41 Tex.Civ.App. 35, 90 S.W. 925. This is also true in those cases where the property mortgaged is seized by judicial process. Accordingly it has been held in Texas, following the doctrine laid down in the United States Supreme Court in Wiswall v. Sampson, 14 How. 52, 14 L.Ed. 322, that a sale by a trustee under a deed of trust of land in the possession of a receiver is void. Scott v. Crawford, 16 Tex.Civ.App. 477, 41 S.W. 697; Ellis v. Vernon Waterworks Company, 86 Tex. 109, 23 S.W. 858. It is also a well-settled rule in Texas that a mortgagee out of possession is not entitled to the rents or profits until the mortgage has been foreclosed. The mortgagor contracts to pay interest, not rents. The law in this respect is the same as the rule laid down in Teal v. Walker, 111 U.S. 242, 4 Sup.Ct. 420, 28 L.Ed. 415. Therefore, when the trustee in bankruptcy is appointed, he succeeds to all the rights of the bankrupt mortgagor. He has the right to the rents and profits upon the property mortgaged until the mortgagee asserts his right of entry, and forecloses his lien, and bars the equity of redemption.

The power of sale under a deed of trust being a remedy, and subject to change, suspension, or revocation in event of a legal administration or seizure of the property incumbered by the deed of trust, it is not therefore an unalterable constituent of the contract. Where the power is revoked or suspended, a sale made thereafter by the trustee under a deed of trust acting under the power without the sanction of an order of court is void. Such sale would consequently confer no rights upon the purchaser, and it follows that a mortgagor or his legal representative would be entitled to rents and profits arising out of the mortgaged property until foreclosure proceedings or their equivalent had been instituted in some court having jurisdiction over the parties and the...