Wood v. Parker Square State Bank, A-10867

• Decision Date: 23 March 1966
• Docket Number: No. A-10867,A-10867
• Citation: 400 S.W.2d 898
• Parties: A. J. WOOD, Jr., Petitioner, v. PARKER SQUARE STATE BANK, Respondent.
• Court: Texas Supreme Court

Page 898

400 S.W.2d 898

A. J. WOOD, Jr., Petitioner, v. PARKER SQUARE STATE BANK, Respondent.

No. A-10867.

Supreme Court of Texas.

March 23, 1966.

Prothro & Sellers, Wichita Falls, for petitioner.

Nelson, Montgomery & Robertson, Wichita Falls, for respondent.

STEAKLEY, Justice.

On August 1, 1962, the Respondent bank loaned Lincoln Enterprises, Inc., the sum of $125,000.00, evidenced by a promissory note payable in five annual installments. The note was secured by a duly recorded deed of trust lien on 34.6 acres of land in Wichita County. The provisions of the deed of trust regarding future indebtedness are involved here. The first provision quoted below was added to the printed deed of trust form; the last quoted was a part of the printed form:

'* * * (as well as all other indebtedness which may accrue and become owing in the future either as maker endorser, guarantor or surety (direct or contingent) and all interest charges and attorney's fees thereon, and all extensions and renewals thereof, then this conveyance shall become null and void and these presents shall be released in due form at grantor's expense) * * *.'

'And this conveyance is made for the security and enforcement of the payment of said indebtedness and also to secure the payment of any and all other sums of money which may be advanced for or loaned to grantors by the beneficiary, his heirs or assigns.'

On January 23, 1963, Petitioner loaned Lincoln Enterprises, Inc., the sum of $50,000.00, evidenced by a promissory note and secured by a deed of trust covering the same land. The lien was expressly subordinated to the August 1, 1962, deed of trust lien held by the respondent bank.

On October 3, 1963, Lincoln Enterprises, Inc., executed a note of $21,248.46, payable to Wayne K. Horton ninety days after date. The note represented funds previously advanced by Horton to Lincoln over a period of several years. Horton was an employee of respondent bank to which he was indebted. On October 26, 1963, the bank purchased the Lincoln note from Horton and a portion of Horton's indebtedness to the bank was paid out of the sum paid Horton for the note. It is undisputed that prior to the purchase of this note the bank had actual knowledge of Petitioner's note and second lien.

In January, 1964, the bank foreclosed its lien on the land and claimed that it also secured the Horton note. By agreement of the parties Petitioner bought the land at the trustee's sale, paid Respondent the balance due on the $125,000.00 note, and placed the sum of $21,980.00, the sum then due on the Horton note, in escrow pending a judicial decision as to the rights of the respective parties. Petitioner thereupon instituted suit for a judicial declaration that the bank was not 'entitled to add the sum due under the note of October 3, 1963, executed by Lincoln Enterprises, Inc., in favor of Wayne K. Horton, to the amount of its first lien on the above property so as to make such sum first and superior to the lien in favor of your Plaintiff (Petitioner here).' Petitioner also alleged that the respondent bank was estopped to so assert the superiority of its lien. Both parties moved for summary judgment and that of the respondent bank was granted. The Court of Civil Appeals affirmed. 390 S.W.2d 835. We reverse the judgments below and render judgment for Petitioner.

The parties appear to have assumed in their pleadings and motions, and in their presentations to the Court of Civil Appeals and to us, that the acquisition by the bank of the Horton note was a future advancement or other indebtedness within the contemplation of the parties and of the terms of the deed of trust which Lincoln Enterprises gave the bank. Petitioner argues here, as he did below, that the bank does not have priority over its second lien to the extent of the Horton note indebtedness because the bank was not obligated to acquire the Horton note and did so voluntarily with notice of Petitioner's second lien. The Court of Civil Appeals decided the case adversely to these contentions upon the authority of Freiberg v. Magale, 70 Tex. 116, 7 S.W. 684 (1888), and its line of cases.

Freiberg established the rule in Texas that a mortgage can be made to cover future debts which will be good not only between the parties but as to purchasers from the mortgagee with notice of the mortgage. The mortgage there considered was given to secure a specific debt, together with any other debt the mortgagor might thereafter owe the mortgagees by reason of the sale of merchandise, or in any other manner. The specific holding was that the mortgage included an indebtedness thereafter arising out of the guarantee by the mortgagee of certain debts of the mortgagor, and was not confined to debts arising from the sale of goods to the mortgagor. In referring to the provisions of the mortgage there under review the Court said 'These frequent repetitions leave no doubt that the instrument was intended to cover every character of debt that Owens (the mortgagor) might in future owe to the mortgagees during the existence of the mortgage.' Freiberg, however, is inapposite to the case at bar. The mortgagees there guaranteed the mortgagor's debts in question before they accrued and became owing and before the intervening sale of the mortgaged goods to a third party. The guarantees were immediate advances of credit for the benefit of the mortgagor and, indeed, were at his request. ¹ The case did not involve the problem here presented where the senior lienholder has voluntarily purchased a third party debt of the mortgagor in a transaction of no benefit to the mortgagor and not at his request. The rule in such a situation has been stated to be as follows:

'A mortgagee, buying up claims held by third persons against his mortgagor, cannot include them in his mortgage and compel their settlement as a condition to redemption, or have them included in a foreclosure decree, unless with the consent of the mortgagor and in cases where no subsequent purchaser or lien creditor will be prejudiced. Even where the mortgage is so drawn as to cover any demands which the mortgagee may hold against the mortgagor, the mortgagee cannot by virtue of the instrument buy up outstanding claims against the mortgagor and include them in the security, unless a provision that he may do so is clearly and unequivocally expressed, since a stipulation of this character ordinarily can cover only such demands as arise directly out of dealings between the parties to the instrument.' 59 C.J.S. Mortgages, § 178 c, p. 224.

We recently held in Moss v. Hipp, 387 S.W.2d 656 (Tex.Sup.1965), that mortgage stipulations securing future indebtedness apply only to those debts which were reasonably within the contemplation of the parties. In Moss, Falls borrowed $3,500.00 from Hipp in 1960 to make a down payment on a tractor-trailer. In 1961 Falls borrowed the remainder of the purchase price from the American National Bank and as security for his note to the bank in the sum of $5,471.28 gave the bank a chattel mortgage on the tractor-trailer which contained broad lien provisions securing '* * * any other note or indebtedness now or hereafter by me/us owing at any time during the existence of this mortgage.' Falls was unable to meet the payments on the note of the bank whereupon Hipp paid the entire balance and took an assignment of the note and chattel mortgage on December 9, 1962. Moss was a garage mechanic who repaired the tractor on several occasions from October 10, 1961, to August 22, 1962. He was not paid and brought the suit to foreclose his constitutional lien on the tractor. We held that the 'dragnet' clause in the chattel mortgage did not secure Hipp's original $3,500.00 loan; in so doing we said:

'Provisions of this type apply only to indebtedness which was reasonably within the contemplation of the parties to the mortgage at the time it was made. See National Finance Co. v. Fregia, Tex.Civ.App., 78 S.W.2d 1081 (writ dis.); Republic Bank of Dallas v. Zesmer, Tex.Civ.App., 187 S.W.2d...