Phillips v. Latham

• Decision Date: 20 February 1975
• Docket Number: No. 18483,18483
• Citation: 523 S.W.2d 19
• Parties: Durwood O. PHILLIPS et al., Appellants, v. C. T. LATHAM et ux., Appellees.
• Court: Texas Court of Appeals

Page 19

523 S.W.2d 19

Durwood O. PHILLIPS et al., Appellants, v. C. T. LATHAM et ux., Appellees.

No. 18483.

Court of Civil Appeals of Texas Dallas.

Feb. 20, 1975.

Rehearing Denied May 1, 1975.

H. Averil Sweitzer, Dallas, Howard D. Pattison, Eustace, for appellant, Charles Ben Howell.

Neil Brans, Dallas, for appellant, D. O. Phillips.

John A. Pace, Pace & Chandler, Dallas, for appellees.

GUITTARD, Justice.

This suit arose out of an allegedly wrongful trustee's sale of a residence owned and occupied by plaintiffs C. T. Latham and wife. They sued C. R. Smith (or Carolyn R. Smith), who had held a second-lien note secured by the deed of trust under which the property was sold, Charles Ben Howell, an attorney, who acted as substitute trustee, and Durwood Phillips, who bought the property at the sale. Plaintiffs' petition includes a count in trespass to try title and also a count for actual and exemplary damages for 'illness and many hours of worry,' and loss of time from their work, caused by an alleged conspiracy between the defendants to deprive plaintiffs of their home. After a jury trial, judgment was rendered in plaintiffs' favor against all defendants for title to the property, and against defendants Phillips and Howell for damages, and these defendants appeal.

We hold that the judgment for title was correct, that the recovery of damages is without support in the evidence.

Title

Defendant Phillips asserts that he purchased the property at a valid trustee's sale on September 2, 1969. Alternatively, he claims under a second trustee's sale on March 2, 1971. Plaintiffs contend that neither of these sales passed title to the property because the indebtedness was not in default when either sale was made. We conclude that the verdict establishes that the indebtedness was not in default at the time of either sale.

The verdict must be construed in the light of the evidence. The promissory note in question was payable in twenty-dollar installments, due on the twentieth day of each month. C. R. Smith acquired the note in June 1969. Shortly afterward, defendant Howell, acting for her, wrote plaintiffs a letter notifying them of her acquisition of the note and advising: 'Payments may be made by personal check as long as a valid check is actually received before the due date.' The letter states further: '(P)ayment must be in the hands of the undersigned owner before the due date.' Howell's law-office address appears on the letter, apparently as the address to which payments should be sent.

Default in payment of the monthly installments was a sharply contested issue. Admittedly, the installment due June 20, 1969, was duly received and acknowledged. Howell testified that no payments were received after that time. Plaintiffs testified that they mailed the checks every month to C. R. Smith at the address given. Although the court's charge did not expressly submit the issue of 'default,' the jury found in response to issues submitted that after plaintiffs were advised that C. R. Smith has acquired title to the second-lien note, plaintiffs mailed twenty-dollar checks to C. R. Smith for twenty-one months beginning July 20, 1969, on or before the due date of each installment, and that if each of the checks had been presented to the bank monthly in due course of business, all would have been paid. The last of the twenty-one monthly payments so found by the jury would have been on March 20, 1971. Under these circumstances, the jury's findings established that no default occurred because of failure to pay any of the monthly installments due before the dates of either the trustee's sale on September 2, 1969, or the sale on March 2, 1971.

Defendant Phillips contends that even though the verdict may establish that the monthly payments were not in default at the time of the first trustee's sale in September 1969, it does not establish that all payments were properly made before the second trustee's sale in March 1971. He argues that after September 1969, all payments were made to the wrong party because, even if the first sale was void, it nevertheless operated as an equitable assignment to him of the note and lien.

This argument is without merit because plaintiffs had no notice that anyone other than C. R. Smith was the holder of the note. The jury found, on sufficient evidence, that the first notice of plaintiffs that the property had been sold to Phillips was after the second trustee's sale, when they received a notice to vacate preliminary to a forcible detainer suit, which Phillips later filed. Payment to the original creditor is effective as against an assignee if made in good faith, without notice of the assignment. Olshan Lumber Co. v. Bullard, 395 S.W.2d 670, 672 (Tex.Civ.App., Houston 1965, no writ).

Defendant Phillips also contends that plaintiffs were in default at the time of the second trustee's sale in March 1971, because they had failed to pay the ad valorem taxes and had failed to keep the property insured in favor of the holder of the indebtedness. The deed of trust provides that on failure of the mortgagors to pay the taxes and keep the property insured in favor of the holder of indebtedness, 'the whole amount of said indebtedness remaining unpaid, shall at the option of the party of the third part, or other holder thereof, without demand, presentment and notice immediately mature and become payable.' The trustee is authorized to sell the property only upon the holder's exercise of the option to declare 'the whole amount of the indebtedness' immediately payable. The deed of trust also provides that the holder 'shall have the option of paying taxes and insurance hereunder and in such event the sum so expended shall operate as a lien on the real property herein described and be secured hereby.' Defendant Phillips proved that he had paid the taxes for 1970 in the amount of $210.27, and had also procured insurance in his favor, for which he had paid a premium of $128.51.

To this contention plaintiffs reply that the provisions of the deed of trust dispensing with demand and notice do not apply in the particular circumstances of this case. We agree. Phillips purchased the property in September 1969, at a trustee's sale, which we hold to be void under the jury's findings. He accepted a trustee's deed, which was recorded in the deed records and returned to him. Accordingly, the tax notices for 1970 were sent to him rather than to the Lathams. He did not forward them to the Lathams, and neither did he make demand on the Lathams for payment. According to the jury's findings, he did not even notify them that he had bought the property. Instead, he paid the taxes himself and procured insurance on the property for his own benefit. Thus he affirmatively kept the Lathams from receiving the tax notices which they would normally have expected to receive. Under these circumstances, he is not entitled to assert that they were in default under the deed of trust for failure to pay the taxes and the insurance premiums without some sort of notice giving them an opportunity to reimburse him for these items.

Moreover, the trustee's sale cannot be supported on the theory of default in payment of taxes and insurance premiums because the record affirmatively shows that the balance of the note was never accelerated on this ground. Under the terms of the deed of trust, the holder of the note has the option to accelerate the balance of the indebtedness on failure of the mortgagor to keep the taxes paid or on failure to keep the property insured in favor of the holder, and upon the holder's exercise of his option to accelerate the balance of indebtedness on this default or for some other default under the deed of trust, the trustee is authorized, at the holder's request, to sell the property. This option to accelerate just be exercised in some manner. See Jernigan v. O'Brien, 303 S.W.2d 515, 516 (Tex.Civ.App., Austin 1957, no writ); Parker v. Mazur, 13 S.W.2d 174, 175 (Tex.Civ.App., San Antonio 1928, writ dism'd).

The record fails to show any exercise of the option to accelerate after Phillips paid the taxes and insurance premiums. Exercise of such an option would be inconsistent with Phillips's claim that he became the owner of the property by virtue of the first sale. Evidently, Phillips paid the 1970 taxes and procured insurance on the property for his own benefit by reason of his claim as owner, not by reason of his alternative claim, which he now asserts, that he was equitable assignee of the note and lien. If Phillips had asserted the rights of an equitable assignee of the note and lien before March 1971, and, in some effective manner, had exercised the option to accelerate because of the Lathams's failure to pay the taxes and insurance premiums, then, perhaps such failure would support the trustee's authority to make the second sale. His present contention that the second sale was authorized by default in payment of the texas and insurance premiums is clearly an afterthought. The option to accelerate cannot be exercised retroactively after the sale.

For similar reasons, the record shows that Phillips's supposed assignor, C. R. Smith, did not exercise this option on his behalf. She no longer had the right to accelerate the balance and request the trustee to sell on her own behalf, since she had accepted the amount of his bid at the first trustee's sale in September 1969.

Phillips contends further that since the trustee's deeds and other foreclosure documents are regular on their faces and appear to be sufficient to pass title, plaintiffs cannot assert title against him in an action in trespass to try title, but must specifically plead and prove equitable grounds to avoid the trustee's sale. We do not agree. Under the jury's findings, as we have construed them, payments on the note were not in default at the time of either of the trustee's sales. Consequently, the substitute trustee had no authority under the deed of...