Lawson v. Gibbs
| Decision Date | 17 October 1979 |
| Docket Number | No. A2150,A2150 |
| Citation | 591 S.W.2d 292 |
| Parties | 29 UCC Rep.Serv. 576 David LAWSON, Trustee, Appellant, v. David K. GIBBS, Appellee. (14th Dist.) |
| Court | Texas Court of Appeals |
John W. Wheat, Wheat, Thornton & Burnett, Will G. Dickey, Houston, for appellant.
Paul J. McConnell, III, DeLange, Hudspeth, Pitman & Katz, Houston, for appellee.
Before COULSON, SALAZAR and JUNELL, JJ.
This appeal raises the issue of the validity of a foreclosure sale under a deed of trust conducted by a substitute trustee appointed by the collateral assignee and indorsee of a real estate vendor's lien note. The trial court granted summary judgment in favor of the property owner against the purchaser at the foreclosure sale, declaring the sale void. We reverse.
The suit was brought by David K. Gibbs, the owner of a tract of land, to quiet title in him and to declare void an attempted foreclosure sale. The property was originally owned by William H. Craig, who sold it to Wortham Investments, Inc., on April 1, 1975. The $100,000.00 first mortgage and deed of trust securing same are not in issue. Craig retained a subordinate vendor's lien for $10,000.00 secured by a deed of trust naming John L. Buvens as trustee. On April 7, 1975, Craig executed a collateral transfer of that $10,000.00 note to Main Bank of Houston, granting the bank a security interest in the note, to secure his payment of a separate indebtedness to that bank. On the same day Craig indorsed and delivered the note to Main Bank of Houston. Craig filed a petition under Chapter XI of the Bankruptcy Act and on September 17, 1975, a stay order was entered in that proceeding. On October 14, 1975, Wortham Investments, Inc. conveyed the property to appellee Gibbs by general warranty deed retaining a vendor's lien to secure a $10,977.20 note which the deed calls a "second lien note." There is no mention in that deed of the preexisting $10,000.00 vendor's lien note which Craig had collaterally assigned and indorsed to Main Bank of Houston.
On November 15, 1976, Main Bank of Houston appointed a substitute trustee of the deed of trust securing the $10,000.00 note indorsed and collaterally assigned to it by Craig. Notices of the trustee's sale were posted as provided by the deed of trust, and on December 7, 1976, Terrance Baggott, the substitute trustee, sold the subject property to David A. Lawson, Trustee, the highest bidder. Lawson is one of the defendants sued by Gibbs, and the appellant before this court.
The trial court granted plaintiff Gibbs's motion for summary judgment against purchaser Lawson and denied Lawson's motion for summary judgment. The court held that Craig, the collateral assignor, was the legal owner and holder of the note, and therefore the only proper party to appoint a substitute trustee. The court based its holding on the case of Merit Homes, Inc. v. Alltex Mortgage Company, 402 S.W.2d 943 (Tex.Civ.App.-Texarkana 1966, writ ref'd n.r.e.).
Appellant assigns error in the trial court's ruling, claiming that the court incorrectly interpreted the applicable law, and alternatively that there are material fact issues in dispute. He appeals from the granting of Gibbs's motion for summary judgment and from the overruling of his own motion for summary judgment.
When both parties have filed motions for summary judgment and one is granted, the court of civil appeals should determine all questions presented, including the propriety of the order overruling the losing party's motion for summary judgment. Tobin v. Garcia, 159 Tex. 58, 316 S.W.2d 396 (1958). Thus, this court may consider the decision of the trial court in its review of the error claimed.
Appellee relies heavily on two cases, Merit Homes, supra and Busbice v. Hunt, 430 S.W.2d 291 (Tex.Civ.App.-Tyler 1968, writ ref'd n.r.e.). In both of those cases a note secured by a deed of trust was assigned as collateral by the holder to a third party. Upon default the collateral assignor of the note then appointed a substitute trustee under the deed of trust to institute foreclosure. In neither of those cases was the note ever indorsed by the holder to the collateral assignee. The sale by the substitute trustee in those cases was upheld on the ground that the collateral assignor was the proper party to appoint the substitute trustee.
Those cases are clearly distinguishable from the present case. The courts in Merit Homes and Busbice found the appointments proper not because the collateral assignor had that right inherently, as appellee contends. The appointments were proper because they were made by the holder of the note. In the present case it is undisputed that Craig indorsed the note in question to Main Bank of Houston; the issue then is the legal effect of that indorsement.
Negotiation of an instrument is a transfer of that instrument in such form that the transferee becomes a holder. Tex.Bus. & Com.Code Ann. § 3.302(a) (Vernon 1968). A holder is defined as a person who is in possession of an instrument drawn, issued or indorsed to him or to his order or to bearer or in blank. Tex.Bus. & Com.Code Ann. § 1.201(20) (Vernon 1968). The code states that if it is an instrument payable to order, delivery with the necessary indorsement makes the transferee a holder. Tex.Bus. & Com.Code Ann. § 3.202(a) (Vernon 1968). Thus, Main Bank of Houston became the holder of the Craig note by Craig's indorsement and delivery. This is a status never attained by the collateral assignee in Merit Homes and Busbice, and makes the present case distinguishable from those decisions.
According to the code, a holder may transfer, negotiate, discharge or enforce the note in his own name. Tex.Bus. & Com.Code Ann. § 3.301 (Vernon 1968). The mortgage of the property is an incident of the debt; and as long as the debt exists, the security will follow the debt. Nutt v. Anderson, 87 S.W.2d 760 (Tex.Civ.App.-Fort Worth 1935, writ dism'd). The power of nonjudicial foreclosure and sale must be exercised in strict compliance with the terms of the deed of trust creating that power. Slaughter v. Qualls,139 Tex. 340, 162 S.W.2d 671 (1942). An examination of the deed of trust in this case reveals that the "legal owner and holder" of the note secured is the "beneficiary." The deed of trust authorizes the beneficiary to appoint a substitute trustee, by designation in writing, who succeeds to all the rights and powers of the original trustee.
Appellee Gibbs argues that even if Craig's indorsement gave Main Bank the rights of a holder, Craig remained the legal owner of the note, thus precluding the bank from becoming the "beneficiary." We disagree. When Craig, as payee of the note, unconditionally indorsed and delivered the note to the bank, the bank acquired the...
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...because the mortgage, as an incident, would follow the note into the hands of every holder."); Lawson v. Gibbs, 591 S.W.2d 292, 294 (Tex.Civ.App.-Houston [14th Dist.] 1979, writ ref'd n.r.e.) ("The mortgage of the property is an incident of the debt; and as long as the debt exists, the secu......
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...an incident of the debt; and as long as the debt exists, the security will follow the debt.”); Lawson v. Gibbs, 591 S.W.2d 292, 294 (Tex.Civ.App.-Houston [14th Dist.] 1979, writ ref'd n.r.e.) (same). Defendants do not explain how the failure to record an assignment changes Texas's longstand......
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