Jasper State Bank v. Braswell

' WALKER, Chief Justice.

On the 8th day of June, 1932, the partnership of J. M. Orton & Son and its individual members, J. M. Orton, Robert Orton, and Kern L. Braswell, doing a drug business in the city of Jasper, Jasper county, were adjudged bankrupts by the District Court of the United States in and for the Eastern District of Texas, and J. W. Shotwell was duly appointed tr.ustee and qualified and administered the bankrupt estate, as such trustee. On the 20th day of June, 1932, Jasper State Bank filed in that bankrupt proceeding its claim against the bankrupts, on that day amounting to $18,673.30, evidenced by four promissory notes as follows: First note dated December 26, 1930, due six months after date for $6,500, with interest at 10 per cent, from maturity, executed by J. M. Orton, Robert Orton, Kern L. Braswell, and Mrs. A. D..Wagley; second pote dated January 21, 1931, for $1,725, due six months after date, bearing 10 per cent, interest from maturity and executed by the same parties who executed note No. 1; third note dated February 18, 1931, for $1,450, due four months after date, bearing interest at 10 per cent, from maturity, executed by the same parties who executed notes 1 and 2; fourth note dated April 4, 1931, for $7,900, due six months after date, interest at 10 per cent, from maturity, executed by the same parties who executed notes I, 2, and 3, and also by Mrs. Ethel Braswell, wife of Kern L. Braswell, who subsequently became a party to all 'the notes. Though Mrs. Braswell was a párty to all four notes, she was in no way a party to the .bankrupt proceedings. These four notes were secured as follows: (a) By deed of trust dated the 7th day of July, 1931, duly filed for record in Swisher county, wherein bankrupts Robert Orton and Kern L. Braswell, joined by his wife, Mrs. Ethel Braswell, conveyed to L. J. Forten-berry, trustee for Jasper State Bank, the following described land: “Section No. 59, Block B-2, Certificate 1/802, original grantee Beaty, Seale & Forwood, patented to Emily Smyth October 27, 1880, by patent No. 553, Vol. 2, Abst. No. 119, in Swisher County, Texas, and being the same land described as first tract in a certain deed executed by A. D. Wagley to the grantors herein July 1931, to which deed reference is here made for description as well as all other purposes,” hereinafter referred to as the Swisher County .land. This tract was owned one-half by Robert Orton and one-half by Mrs. Ethel Braswell, who held under deed from Mrs. A. D. Wagley on consideration of $10 and the assumption by the grantees of her liability on the four above-described notes, (b) By deed of trust dated the 4th day of April, 1931, duly recorded in Jasper county, wherein the bankrupts J. M. Orton, Robert Orton, and Kern L. Braswell, joined by his wife, Mrs. Ethel Braswell, conveyed to L. J. Fortenberry, trustee for Jasper State Bank, the following described property:

“ * * * lying and being in the County of Jasper and State of Texas, viz:

“Being a part of Lot No. 33 of the Town of Jasper, according to the original map thereof, recorded in Vol. 3, page 302 of the Deed Records of Jasper County, Texas, situated on the North side of the Court house square and bounded as follows:

“Beginning on the South side of said Lot No. 33 77 ft. West of the South East corner thereof, being 22 ft.. west of the South west corner of a part of said lot sold by J. M. Orton to W. E. Lanier. Thence North 150 ft. Thence West 46 ft. Thence South 150 ft. to the south line of said lot; Thence East 46 ft. to the place of beginning,”

hereinafter referred to as the city of Jasper property. The two Ortons owned an' undivided seven-eighths interest in this property and Mrs. Braswell owned the remaining one-eighth interest. The claim of the Jasper State Bank was duly approved by the federal court, both as to amount and as to security. ■ •

On the 3d day of October, 1925, the three bankrupts, joined by Mrs. Ethel Braswell, conveyed the- city of Jasper property to T. W. Bardell, trustee, to secure Southwestern Life Insurance Company in the payment of a note executed to it by all four of the makers of the deed of trust dated the 3d day of October, 1925, with interest at 7 per cent, per annum from maturity ; this claim was duly filed in the Orton & Son bankruptcy proceedings and on the 21st day of June, 1932, was allowed in the sum of $6,600, together with its security. In due course of administration of the bankrupt estate, under orders of the federal court regularly made and entered, J. W. Shotwell, as trustee, sold and by separate deeds dated the 30th day of August, 1932, conveyed the two tracts of land as above described to Jasper State Bank, on the following consideration: (a) For the Swisher County land $6,400, to be credited by the Jasper State Bank on its secured claim, represented by the four notes above described; (b) for the city of Jasper property $5,000, to be credited on the four notes, and the further consideration that the Jasper State Bank assume and pay the claim of the Southwestern Life Insurance Company; as a further consideration it was recited in the order that neither Jasper State Bank nor Southwestern Life Insurance Company should make any further claim against the bankrupt estate. The Jasper State Bank duly paid to the Southwestern Life Insurance Company the full amount of its claim, and on the 11th day of January, 1934, the Southwestern Life Insurance Company executed a formal release of its lien against the city of Jasper property. When the Jasper State Bank purchased the two tracts of land at the bankrupt sale, it knew in fact of the note and lien in favor of Southwestern Life Insurance Company and voluntarily accepted the deed from the trustee on the recited consideration that it would pay the notes to the Southwestern Life Insurance Company. Immediately after the execution to it of the two deeds to the two tracts of land by the trustee in bankruptcy, the Jasper State Bank took possession of both tracts of land and was continuously in possession from that date, claiming to own both tracts of land in fee simple, basing its claim on the deeds executed to it by the trustee in bankruptcy.

On the 23d of May, 1936, Mrs. Ethel Braswell, joined by her husband, Kern L. Braswell, sued the Jasper State Bank in trespass to try title for an undivided one-fourth interest in the city of Jasper property and an undivided one-half interest in the Swisher county property. Jasper State Bank answered by pleading general and special demurrers, general denial, and specially the facts as detailed above, and further that it took possession under the two deeds executed to it by the trustee in bankruptcy; that it paid the taxes against the land; that it had made improvements thereon and had collected certain rents, these items being itemized in the plea. On the facts pleaded it prayed for title to both tracts of land in fee simple or, in the alternative, that it be declared to be a mortgagee in possession as against Mrs. Ethel Braswell and her husband, with equitable, relief under that plea. Mrs. Braswell replied by supplemental petition, pleading general and special exceptions to the answer and cross-action of the Jasper State Bank, general denial, limitation, etc.

On trial to the court without a jury on the 17th day of August, 1936, judgment was entered in favor of Mrs. Braswell against the Jasper State Bank, denying its claim to be mortgagee in possession and awarding Mrs. Braswell title and possession to an undivided one-eighth interest in the city of Jasper property and to an undivided one-half interest in the Swisher county property, and awarding to her an accounting against the Jasper State Bank for the rents and revenues collected by it on the two pieces of property. In support of the judgment fact conclusions were filed finding the facts as detailed above, and the following additional facts: The last of the four notes due the Jasper. State Bank matured on October 4, 1931, and since this suit was filed on the 23d of May, 1936, all four notes were barred by limitation at the time the suit was filed; at no time after the institution of the bánkruptcy proceedings did the Jasper State Bank recognize or deal with Mrs. Ethel Braswell as its mortgagor, nor did it recognize that she owned any interest in the two tracts of land; the Jasper State Bank did not go into possession of the two tracts of land or any part thereof with the consent or under any agreement with Mrs. Braswell, nor as her mortgagee, but it “went into possession” solely as owner under the deed from the trustee in bankruptcy; the Jasper State Bank did not qccupy the land “in recognition or by virtue of any mortgage, deed of trust or claim any right under a mortgage or deed of trust” (as against Mrs. Bras-well) but its entire possession was by virtue of the bankruptcy proceedings against J. M. Orton & Sons and the individual members of the firm, and such title in fee as it obtained by virtue of the deed from the trustee in bankruptcy; the Jasper State Bank never recognized that Mrs. Braswell was the owner of any interest in the two tracts of land; that it was her mortgagee, or that its possession as to her was for the purpose of collecting its debt out of her interest in the land.

On the undisputed facts we find, in addition to the facts found by the trial court, that the Jasper State Bank took possession of the two tracts of land in the belief that it acquired a fee-simple title to all interest in the land under its deed from the trustee in bankruptcy, and at a time when none of its notes was barred by limitation it held possession under that belief and with the knowledge of appellees continued in possession, collected the rent, paid the taxes, and made the improvements in controversy in this suit.

From the judgment entered against the Jasper State Bank it has prosecuted its appeal to this court.

Opinion.

As appellant has no assignment against the conclusions of fact of the lower court, they must be accepted as having support in the evidence. On the conclusions of fact appellant makes the proposition that it was in peaceful and lawful possession of the land in controversy and, being appellees’ mortgagee, had the rights of “a mortgagee in lawful possession,” the right to remain in possession until Mrs. Braswell paid it her pro rata share of the indebtedness against the property, less her pro rata share of the net profits of appellant’s occupancy.

That a mortgagee in lawful possession of the mortgaged premises can hold his possession until his debt is paid is the unquestioned law of this state. Browne v. King, 111 Tex. 330, 235 S.W. 522; 7 Tex. Law Review, 170; 41 C.J. p. 613, par. 581; Rodriguez v. Haynes, 76 Tex. 225, 13 S.W. 296; Howard v. North, 5 Tex. 290, 51 Am.Dec. 769; R. B. Hannay, Adm’r v. Louisa L. Thompson, 14 Tex. 142; Morrow v. Morgan, 48 Tex. 304; Burgess v. Samuel H. Millican,. 50 Tex. 397; French v. Grenet, 57 Tex. 273; Duke v. Reed, 64 Tex. 705; Northcraft v. Oliver, 74 Tex. 162, 11 S.W. 1121; Baker v. Collins, 4 Tex.Civ.App. 520, 23 S.W. 493; Hays v. Tilson, 18 Tex.Civ.App. 610, 45 SW. 479; Vanderwolk v. Matthaei (Tex.Civ.App.) 167 S.W. 304; Elliott v. C. C. Slaughter Co. (Tex.Civ.App.) 236 S.W. 1114; Majors v. Strickland (Tex.Civ.App.) 6 S.W.(2d) 133; Thomason v. Wiebusch (Tex.Civ.App.) 89 S.W.(2d) 452. Though his debt is barred by limitation, he can hold possession until it is paid.

Appellees define “a mortgagee in lawful possession” as “one in possession by consent of the mortgagor, or under circumstances calling to his aid principles of equity to avoid unconscionable wrong,” citing principally Galloway v. Kerr (Tex.Civ.App.) 63 S.W. 180, and Williams v. Connor Bros. (Tex.Civ.App.) 83 S.W.(2d) 692 (writ granted). In the Texas Law Review cited above, it is said: “In the states following the lien theory of mortgages, the courts are divided as to the character Of entry necessary to acquire the status of a mortgagee in possession. In ope group, it must be with the consent of the mortgagor, express or implied. Herrmann v. Cabinet Land Co., 217 N.Y. 526, 112 N.E. 476 (1916); Jones v. Rigby, 41 Minn. 530, 43 N.W. 390 (1899); McClory v. Ricks, 11 N.D. 38, 88 N.W. 1042 (1902). A second holding extends this rule to include peaceable, good faith entry under ‘color of law’, as under a void foreclosure. Pettit v. Louis, 88 Neb. 496, 129 N.W. 1005 [34 L.R.A.(N.S.) 356] (1911); Cameron v. Ah Quong, 175 Cal. 377, 165 P. 961 (1917); Caro v. Wollenberg, 68 Or. 420, 136 P. 866 (1913). In the third group, it is not essential to the status of mortgagee in possession that the possession be taken under the mortgage nor with the consent of the mortgagor. It is enough that the possession be peaceably acquired. Jaggar v. Plunkett, 81 Kan. 565, 106 P. 280, 25 L.R.A.(N.S.) 935 (1910); Stouffer v. Harlan, 68 Kan. 135, 74 P. 610, 64 L.R.A. 320, 104 Am.St.Rep. 396 (1903).” Appellant insists that the law of “the third group” is the law of Texas. The. facts of this case do not invoke appellant’s proposition, nor appellees’ definition, nor any one of the three classifications formulated by the Texas Law Review.

To be a mortgagee in lawful possession the mortgagee must hold under his mortgage, in recognition of the rights of his mortgagor. Not only must he be ready and willing at all times to render an accounting to his mortgagor of the profits of his possession, .but his claim and possession must be of such a nature that his mortgagor can compel an accounting, and that without relation to thé .bar of the statutes of limitation. A mortgagee in lawful possession holds as trustee for his mortgagor, both as to his claim and possession of the property, and as to the profits of his possession, and limitation in his favor can run only after a repudiation by him of his original entry with notice to his mortgagor of his hostile claim. Appellant’s possession does not fall within this statement of the law. The deeds to it from the trustee in bankruptcy conveyed all the property, every interest in the property. It took possession claiming to own all of the property conveyed by its deeds, every interest in the property. It did not take possession with consent of appellees nor in recognition of its mortgage against ap-pellees, nor did it hold possession under the mortgage nor in recognition of any right in Mrs. Braswell, either as mortgagor or as its joint tenant. Its entry was hostile to the title of Mrs. Braswell and a repudiation of her joint tenancy. For almost five years it claimed to own all the property conveyed by its deed, held exclusive possession in repudiation of the joint tenancy, collected all the revenues, made all the repairs, paid all the taxes and insurance. Under this statement appellant was not in possession as “a mortgagee in lawful possession” but in the character of a limitation claimant who had almost, lacking only a few months, perfected a title under the statute of five years. Little v. Wagner (Tex.Civ.App.) 5 S.W.(2d) 232; Clayton v. Humble Oil 6 Ref. Co. (Tex.Civ.App.) 291 S.W. 597. Appellees have correctly summarized the facts and law in their brief, from which we quote as follows:

“Appellant was not a mortgagee in possession because: it did not go into possession with Mrs. Braswell’s consent; it did not at any time after it got its deed from the trustee in bankruptcy, recognize that it owned only an undivided interest; that Mrs. Braswell owned half of one tract and eighth of the other; that its possession as to her was by reason of a mortgage; and that, when its possession should result in the collection of the part of its debt originally secured by a lien on her interest, it must and would return to her the possession. No, not it. It took a deed from the trustee to all the interests, as if it had foreclosed a lien in the bankrupt court upon all interests. It went into possession claiming to own it all, paying taxes on it all, insuring it all, collecting rents from it all, not offering at any time .to account tQ Mrs. Braswell as to her part, even by giving the mortgage upon her part credit. * * *

“It had years after it entered into possession in which to foreclose its lien on Mrs. Braswell’s interest in the two tracts of land. If it had taken such action she would have been compelled to pay the amount for which her interest was' bound

* * *. But appellant did not so proceed. It "offered to stand upon what it had. If it had been let alone a few months longer, it would have been the owner of it all under the five year statute of limitation;

* * * it was in possession under a deed 'serving as a repudiation of her interest as a tenant in common. It was paying taxes. It was claiming the whole. It was not recognizing her as a part owner and itself a mere mortgagee so far as she was concerned. Certainly it could not so act as to mature its title by limitation to her part, and, when sued a little too early for it to hold the legal title, change its position and claim as the owner of only one half and seven eighths, and that Mrs. Braswell owned1 the other, and was its mortgagor.”

It is our conclusion that the judgment or the lower court should be in all things affirmed, and it is accordingly so ordered.