Kolbo v. Blair

• Decision Date: 30 April 1964
• Docket Number: No. 5,5
• Citation: 379 S.W.2d 125
• Parties: L. H. KOLBO et ux., Vera Street Kolbo, Appellants, v. A. N. BLAIR et ux., Lila Mae Blair, Appellees.
• Court: Texas Court of Appeals

Page 125

379 S.W.2d 125

L. H. KOLBO et ux., Vera Street Kolbo, Appellants, v. A. N. BLAIR et ux., Lila Mae Blair, Appellees.

No. 5.

Court of Civil Appeals of Texas, Corpus Christi.

April 30, 1964.

Rehearing Denied May 28, 1964.

Second Motion for Rehearing Denied June 18, 1964.

Mrs. Vera Kolb, Davant & Fricke, Port Lavaca, for appellants.

Phillip Wilson, of Brady, Drake & Wilson, Dallas, for appellees.

NYE, Justice.

This is a suit to recover a deficiency judgment after a purported sale of mortgaged property under the powers given in a chattel mortgage.

The appellees, A. N. Blair and his wife, held a chattel mortgage on personal property belonging to the appellants L. H. Kolbo and his wife. They foreclosed and attempted to sell the property to themselves and credited the proceeds from the purported sale to the mortgage debt. Thereafter, they brought suit for the deficiency alleged to be due on the promissory note given to them as part of the purchase price for a tourist court and its furnishings. The trial of this case was to the court without the intervention of a jury. A deficiency judgment was rendered on behalf of the appellees. The trial court filed, as part of the record herein, findings of fact and conclusions of law supporting its judgment. The appellants assign as error the action of the trial court in rendering a deficiency judgment contending that the purported private foreclosure sale of the personal property was invalid, that there was no evidence that the sale was fairly conducted, and that there was insufficient evidence to show either a fair or valid sale of the personal property.

The facts are substantially undisputed and are as follows: In October of 1959, appellees sold a tourist court located in Corpus Christi, Texas, to the appellants. The consideration paid by the appellants was as follows (1) the sum of $15,000.00 cash which the appellants obtained through a loan from Guaranty Title and Trust Company of Corpus Christi. This debt was secured by a first lien deed of trust mortgage on the tourist courts and a first lien chattel mortgage on the furniture and fixtures of the tourist courts; (2) the transfer and conveyance of certain real estate located in Dallas, Texas; and (3) the execution and delivery of a promissory note in the amount of $13,874.73 (the basis of this suit) which was secured by second lien deed of trust on the tourist court and a second lien chattel mortgage on the furniture and fixtures in the tourist courts. The first lien notes to the Guaranty Title and Trust Company and the second lien notes to the appellees were payable in monthly installments.

The operation of the tourist courts was never a success. Some nine or ten months after the purchase, the appellants sold the courts to a third party by the name of Watkins (not involved in this case) who assumed both notes but made no payment on either of them. Because of such default, appellees instructed their trustee to foreclose on their second lien deed of frust on the tourist courts. Pursuant to the appellees' instructions and after proper notice, the trustee sold the tourist courts in December of 1960 at public auction at the courthouse door. The appellees purchased the tourist courts for $7,500.00 subject to the first lien in favor of Guaranty Title and Trust Company, crediting the $7,500.00 on the second lien promissory note of the appellants. The appellants do not attack the validity of this sale which was held in accordance with the terms of the trust instrument.

Immediately following this sale by the trustee, the appellees made arrangements with the first lien holder, Guaranty Title and Trust Company, to forbear any action for several months on its first lien deed of trust and first lien chattel mortgage in order to give them an opportunity to attempt to work out the operations of the tourist courts. Following the making of these arrangements, the appellees took possession of the tourist courts and purported to conduct a private sale, either that afternoon in Corpus Christi, or the next day in Dallas, Texas. The record shows that no notice of the sale was given to the appellants or, in fact, to any prospective purchaser. The sale of the furniture and fixtures by the appellees' attorneys to themselves on behalf of the appellees was for the sum of $100.00 subject to the first lien of the Guaranty Title and Trust Company. The $100.00 was likewise credited to the promissory note. Shortly thereafter, the appellees brought this suit on the promissory note for the balance due and owing, plus interest and attorney fees. Judgment was entered in favor of the appellees in the amount of $7,207.00, together with interest at the rate of 6% (this being the amount of the second lien promissory note of $13,874.73, less payments made by the appellants during the to declare all said indebtedness courts, less a credit of $7,500.00 from the sale of the reality at the trustee sale, less a credit of $100.00 being the sale price of the furniture and fixtures at the chattel mortgage sale, adding attorney fees based on the unpaid balance and accrued interest on the note). The appellants have perfected their appeal to this court.

The appellees claim that the sale was a valid one and was held in accordance with the power given them in the chattel mortgage. The pertinent part of the chattel mortgage giving appellees the power of foreclosure at private sale without notice, reads as follows:

'* * * on default, * * * said mortgagee, or the assigns, agent or representative of said Mortgagee are hereby authorized at Mortgagee's option, to declare all said indebtedaness due, and take actual possession of said property and to sell same at private sale without notice to mortgager * * *.

(The mortgage instrument then authorized an alternate method of foreclosure and sale by public action) * * *. The said Mortgagee or assigns have power to receive money and make bills of sale of said property.' (Emphasis supplied.)

The appellees did not elect to seek judicial foreclosure by filing suit and sale as under execution. Such sales are presumed to be valid and fairly conducted. There, all the parties have notice, prospective purchasers have an opportunity to bid on the property, and the sale is conducted under the direction of the court. Nor did the appellees elect to foreclose and sell the mortgaged chattels at public auction, with published notice as authorized in the power given them in the subject mortgage instrument. Such a sale at public auction is a sale to the highest bidder--its object, a fair price--its means, competition--its results, a sale, presumed as a matter of law to be fairly conducted. In either of the foregoing type sales, a mortgagor attacking them has the burden of proving that the sale is invalid or that it was not fairly conducted. Here, the appellees elected to take actual possession and sell at private sale, without notice to the mortgagors, under the power given to them in the chattel mortgage instrument.

The general rule is well-settled in this state to the effect that the power to sell mortgaged property to the satisfaction of the indebtedness secured by the mortgage must be executed in strict compliance with the terms upon which such power is granted. Any sale that is attempted to be made without a strict compliance with the terms of the instrument defining such power and the method of its execution is unauthorized. Michael v. Crawford, 108 Tex. 352, 193 S.W. 1970, Fireman's Fund Insurance Company v. Wilson, 284 S.W. 920 (Tex.Comm.App. Sec. A, 1926). This power of private sale does not eliminate the necessity of proving the existence of an actual sale nor does it relieve the mortgagee seeking to obtain a deficiency judgment from proving that the sale was fairly conducted. The Court with its equity powers should scrutinize the private sale before rendering a deficiency judgment. This is so because the mortgagee, charged with conducting the private sale (sometimes without notice to the mortgagor as in this case), is generally in control of the facts.

While the statement of facts is somewhat lengthy, that evidence pertinent to the sale, and whether it was fairly conducted, was quite brief. Quoting from the testimony of the attorney representing the appellees and who purportedly conducted the sale:

'My notes are not real clear. It is my recollection that a sale of the personalty took place--I am not positive--a sale of this personalty took place subject to the first. Whether or not it is something we did in Dallas or whether we did it there, I have the vaguest recollection myself, and I could be mistaken, somewhat mimicking what McCulloch (the trustee at the trustee sale) had said about 'Gather around all those interested and bid upon.' The old man down in the corner said something to me about what sale or some comment but, be that as it may, whether it occurred there or at Dallas, a private sale was held, no bids were made, and no notice was given to the mortgagee--I should say mortgagor, and a $100.00 was bid by our firm on behalf of the Blairs and allowed against the debt. * * * I don't know. I have the vaguest recollection of crying out there at the motel. Mrs. Blair (one of the appellees) does not recall it and I can't look you in the eye and tell you I did it, because honestly I don't know, and there is nothing in here that says so. * * * There was no notice whatsoever to either of the Kolbos (the appellants) or to any interested bidder. * * * She went into possession * * * a subsequent sale of that personal property either the afternoon of the 6th on the premises or the next day in Dallas when we got around to drawing documents.' (Emphasis supplied.)

The trial court found that a private sale was held on or about the 6th day of December, 1960. We recognize the rule that the trial court's findings of fact will be upheld unless they are manifestly erroneous, and they will be overruled only when they are...