Lester v. First American Bank, Bryan, Tex.

• Decision Date: 30 November 1993
• Docket Number: No. 10-92-283-CV,10-92-283-CV
• Citation: 866 S.W.2d 361
• Parties: Jack W. LESTER, Jr., Appellant, v. FIRST AMERICAN BANK, BRYAN, TEXAS, Appellee.
• Court: Texas Court of Appeals

Page 361

866 S.W.2d 361

Jack W. LESTER, Jr., Appellant, v. FIRST AMERICAN BANK, BRYAN, TEXAS, Appellee.

No. 10-92-283-CV.

Court of Appeals of Texas,

Waco.

Nov. 30, 1993.

A.W. Davis & Vaughan E. Waters, Davis & Davis, Bryan, for appellant.

Bill Payne & H. Clint Milner, Thornton, Payne, Watson & Kling, P.C., Bryan, for appellee.

Before THOMAS, C.J., and CUMMINGS and VANCE, JJ.

OPINION

THOMAS, Chief Justice.

Section 51.003 of the Texas Property Code provides that the defendant in a suit for a deficiency judgment following a non-judicial foreclosure can request the court to determine whether the property's fair market value at the date of foreclosure exceeded its sales price at the foreclosure sale. TEX.PROP.CODE ANN. § 51.003(b) (Vernon Supp.1993). If the court determines that its fair market value exceeded what it sold for, then the difference between the two amounts is offset against the deficiency. Id. § 51.003(c). Jack Lester, Jr. relied on section 51.003 when he was sued for a deficiency judgment by First American Bank. However, the court granted the bank a summary judgment on the ground that section 51.003, when applied to a deed of trust executed prior to the statute's effective date, violates the contract clause of the Texas constitution. See TEX. CONST. art. I, § 16.

HAS THE QUESTION BEEN DECIDED?

Article I, section 16, of the Texas constitution provides: "No bill of attainder, ... or any law impairing the obligation of contracts, shall be made." Id. In November 1934 the Texas Supreme Court decided two cases dealing with this constitutional provision. See Travelers Ins. Co. v. Marshall, 124 Tex. 45, 76 S.W.2d 1007 (1934); Langever v. Miller, 124 Tex. 80, 76 S.W.2d 1025 (1934).

In Marshall the Court held that article 2218b (Texas Moratorium Act) was unconstitutional because it impaired the obligation of contract. Article 2218b authorized courts to enjoin foreclosure sales granted under deeds of trust and to restrain execution sales under judgments. Marshall, 76 S.W.2d at 1009. Marshall is noteworthy because of the Court's discussion and interpretation of the contract clause's meaning when it was adopted in 1876 as part of the Texas constitution.

In Langever the Supreme Court declared that article 2218 (Texas Anti-Deficiency Judgment Law) also violated the contract clause. Like section 51.003, article 2218 allowed the court to determine whether the property's "actual value" at the time of foreclosure exceeded its foreclosure sales price and, if it did, to credit the difference against the deficiency. Langever, 76 S.W.2d at 1027. Thus, the significance of Langever is in the similarity of the legal effect of article 2218 and section 51.003, whose constitutionality is now under scrutiny.

First American Bank argues that, because of the statutes' similarity, the decision in Langever is controlling and requires a similar result here. Lester attempts to distinguish Langever on the facts, pointing out that it involved a judicial rather than a non-judicial foreclosure and that the mortgagee had already reduced the deficiency to a final judgment before article 2218 was enacted. Moreover, assuming that Langever is binding on this court, Lester questions its continuing validity as sound constitutional law in the light of three later United States Supreme Court decisions. See Gelfert v. National City Bank of New York, 313 U.S. 221, 61 S.Ct. 898, 85 L.Ed. 1299 (1941); Honeyman v. Jacobs, 306 U.S. 539, 59 S.Ct. 702, 83 L.Ed. 972 (1939); Richmond Mortg. & Loan Corp. v. Wachovia Bank & T. Co., 300 U.S. 124, 57 S.Ct. 338, 81 L.Ed. 552 (1937). He would have us "reevaluate" Langever on that basis.

Our first step will be to determine Langever's binding effect as legal precedent under the doctrine of stare decisis. Ultimately, we hold that Langever is not controlling authority in this case. Finally, we will examine the opinion in Marshall, as well as the three United States Supreme Court cases mentioned above, for an understanding of the meaning of the contract clause of the Texas constitution. Based upon our interpretation of the contract clause and the relevant caselaw, both federal and state, we will hold that section 51.003 passes constitutional muster. Accordingly, we will reverse the summary judgment and remand the cause for trial.

PREAMBLE

As a preamble to our examination of Langever's binding effect, we briefly sketch the doctrine of stare decisis:

As originally conceived and as generally applied, the doctrine of stare decisis governs only the determination of questions of law and its observance does not depend upon identity of parties. After a principle, rule or proposition of law has been squarely decided by the Supreme Court, ... the decision is accepted as a binding precedent by the same court or other courts of lower rank when the very point is again presented in a subsequent suit between different parties.

See Swilley v. McCain, 374 S.W.2d 871, 875 (Tex.1964). The binding effect of a prior decision cannot be determined without reference to its important facts. See Meyer v. Texas Nat. Bank of Commerce of Houston, 424 S.W.2d 417, 419 (Tex.1968). In fact, the doctrine of stare decisis only applies if the facts on which the prior case is founded are substantially the same as those in the subsequent suit. McKenzie Const. Co. v. City of San Antonio, 50 S.W.2d 349, 353 (Tex.Civ.App.--San Antonio 1932, writ ref'd).

Dictum, which includes expressions of opinion on a point or issue not necessarily involved in the case, will not create binding precedent under stare decisis. See Boswell v. Pannell, 107 Tex. 433, 180 S.W. 593, 597 (1915); Grigsby v. Reib, 105 Tex. 597, 153 S.W. 1124, 1126 (1913). However, there are exceptions to the dicta rule for expressions of opinion on issues that may arise during a retrial and for points of such importance the upper court deems and states that a deliberate ruling on an unnecessary question is appropriate. Palestine Contractors, Inc. v. Perkins, 386 S.W.2d 764, 773 (Tex.1964); Parker v. Bailey, 15 S.W.2d 1033, 1035 (Tex.Comm'n App.1929, holding approved).

Because stare decisis requires the Supreme Court in Langever to have "squarely decided" the "very point" now before us upon "substantially similar" facts, we first examine that decision and opinion in juxtaposition to the facts here.

LANGEVER

The important facts in Langever are these. H.H. Miller obtained a deficiency judgment against Langever for $1,338.29, plus interest and costs, which ordered foreclosure of a second lien against Langever's real property. Langever, 76 S.W.2d at 1026. The court issued an order of sale under the deficiency judgment, and Miller purchased the property at the foreclosure sale for $25, leaving a deficiency judgment of approximately $1,450. Id. The judgment became final before the enactment of article 2218. Id. at 1035.

Relying on article 2218, Langever filed suit against Miller to have the court determine whether the actual value of the property at foreclosure, exclusive of all liens, exceeded its $25 sales price and, if so, to have the difference credited against the deficiency judgment. Id. at 1026. The trial court and the court of appeals both held that article 2218 was unconstitutional. Id. The Supreme Court declared article 2218 unconstitutional under both the contract clause and the separation-of-powers clause of the Texas constitution. Id. at 1035.

Contrast the facts in Langever with these. First American Bank held two promissory notes executed by Lester, each secured by a deed of trust on his real property. Lester executed the deeds of trust before the legislature passed section 51.003. When Lester defaulted on the notes, the trustee conducted a non-judicial foreclosure sale under the deeds of trust after section 51.003 became effective. At the foreclosure sale the bank purchased the two tracts for $435,849 and applied that amount against the unpaid notes, leaving a total arrearage of $202,782.33.

Later, the bank filed suit against Lester to obtain a deficiency judgment. Relying on section 51.003, Lester moved to have the jury determine whether the fair market value of the two tracts on the date of foreclosure exceeded their sales price and, if so, to have the difference offset against what he still owed on the two notes. First American Bank moved for a summary judgment on the ground that section 51.003, when applied to mortgages executed before its enactment, is unconstitutional under the contract clause of the Texas constitution. The court granted the motion and entered a summary judgment for the bank for the unpaid balance of both notes.

Looking at the facts side-by-side, one cannot reasonably argue that they are substantially similar. Langever dealt with a judicial foreclosure; the case before us involves a non-judicial foreclosure. One case involved a final judgment that established the amount of the deficiency; the other does not.

Next, consider the dissimilar legal questions. In Langever the Court had to determine the constitutionality of article 2218 when applied to a pre-existing final judgment. The facts in Langever did not present the question squarely before us--whether a statute substantially similar to article 2218 in its legal effect is unconstitutional when applied to a non-judicial foreclosure of a pre-existing mortgage. Yet, in discussing the legal effect of article 2218 on final deficiency judgments, the Court stated:

It is obvious that the legal effect of this act is to cancel all deficiency judgments to the extent of the difference between the actual value of the property sold under foreclosure and the amount which it may have brought at such sale, provided, of course, an action is brought by the judgment debtor for such purpose, and the necessary proof of value made. In the case of sales under deeds of trust without judicial foreclosure, the effect is the same, since the purpose of the law is to deny recovery of a deficiency judgment for any...