ACCEPTED
03-15-00039-CV
5381083
THIRD COURT OF APPEALS
AUSTIN, TEXAS
5/21/2015 2:14:02 PM
JEFFREY D. KYLE
CLERK
Case No. 03-15-00039-CV
FILED IN
3rd COURT OF APPEALS
IN THE COURT OF APPEALS AUSTIN, TEXAS FOR THE THIRD DISTRICT OF TEXAS5/21/2015 2:14:02 PM AUSTIN, TEXAS JEFFREY D. KYLE Clerk
AVALON INVESTMENTS, LLC,
Appellant
V.
JEAN PENICK SPILLER,
Appellee
On Appeal from Cause No. 08-0128-A; in the 207th Judicial District Court of Hays County, Texas; Honorable R. Bruce Boyer, Judge Presiding
APPELLEE’S BRIEF
Andrew Oliver
State Bar No. 24046556
Oliver Law Office
9951 Anderson Mill Road, Suite 201 Austin, Texas 78750
(512) 233-1103 Telephone
(512) 551-0330 Fax
aoliver@oliverlawoffice.com
ATTORNEY FOR APPELLEE,
JEAN PENICK SPILLER
TABLE OF CONTENTS
INDEX OF AUTHORITIES…………………………………………………... iii STATEMENT OF THE CASE………………………………………………... v STATEMENT REGARDING ORAL ARGUMENT…………………………. vi ISSUE PRESENTED………………………………………………………… vii STATEMENT OF FACTS…………………………………………………….. 1 SUMMARY OF THE ARGUMENT………………………………………….. 3 ARGUMENT…………………………………………………………………... 5 I. Applicable Standard of Appellate Review (De Novo)............................. 5
II. Ms. Spiller Was A Bona Fide Purchaser For Value Without Notice as a Matter of Law............................................................................................ 7
PRAYER………………………………………………………………………. 17 CERTIFICATE OF SERVICE………………………………………………… 19 CERTIFICATE OF COMPLIANCE…………………………………………... 20 APPENDIX A- Collateral Transfer of Note (Security Agreement) B- Consent of Secured Party C- Release of Collateral Transfer of Note D- Substitute Trustee’s Deed
ii
INDEX OF AUTHORITIES
CASES:
Basic Capital Mgmt., Inc. v. Dynex Commercial, Inc., 348 S.W.3d 894, 900 (Tex. 2011)……………………………………………... 14
Benser v. G.E. Capital Mortgage Servs., Inc., 1994 WL 156245, at 4 (Tex. App. – Dallas 1994, writ denied)(not designated for publication)……..... 13
Bernal-Bell v. Saxon Mortg. Servs., Inc., 2010 WL 3250115 (Tex. App.-San Antonio, no pet) (not designated for publication)…………….. 13
Chandler v. Guaranty Mortg. Co., 89 S.W.2d 250, 254 (Tex. Civ. App. – San Antonio 1935, no writ)……………………………... 12-13
Colvin v. Alta Mesa Resources, Inc., 920 S.W.2d 688 (Tex. App.- Houston[1st Dist.] 1996, writ denied)…………………………….. 7
Cooksey v. Sinder, 682 S.W.2d 252, 253 (Tex. 1984)…………………………. 7
Esquivel v. Murray Guard, Inc., 992 S.W.2d 536, 543 (Tex. App.-Houston [14 Dist.] 1999, pet. denied)…………………………….. 15
Hartford Acc. & Indem. Co. v. Hewes, 190 Miss. 225, 199 So. 93 (1940), judgm’t mod., 199 So. 772 (1941)……………………………………………... 15
Henke v. First Southern Properties, Inc., 586 S.W.2d 617 (Tex. Civ. App. – Waco 1979, writ ref’d n.r.e.)……………………………….. 16
Hexter v. Pratt, 10 S.W.2d 692 (Tex. Comm’n App. 1928)…………………... 8 In re T.A., 346 S.W.3d 676, 678 (Tex. App. – El Paso 2009, rev. denied)……. 14 Madison v. Gordon, 39 S.W.3d 604, 606 (Tex. 2001)………………………… 7
MCI Telecommunications Corp. v. Tex. Utilities Elec. Co., 995 S.W.2d 647, 651-652 (Tex. 1999)………………………………………… 14
Republic Nat. Bank of Dallas v. Nat'l Bankers Life Ins. Co., iii 427 S.W.2d 76, 81 (Tex. Civ. App. - Dallas 1968, writ ref’d n.r.e.)……….…. 15 Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 495 (Tex. 1991)……… 6
Slaughter v. Qualls, 139 Tex. 340, 347, 162 S.W.2d 671, 675 (Tex. 1942)…....................................................... 4-5, 16-17
South Tex. Water Auth. v. Lomas, 223 S.W.3d 304, 306 (Tex. 2007)……… 14-15 Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011)…………………………... 14
University State Bank v. Gifford-Hill Concrete Corp., 431 S.W.2d 561, 571 (Tex. Civ. App.-Fort Worth 1968, writ ref’d n.r.e.)…………………………… 8
Valence Operating Co. v. Dorsett, 164 S.W.3d 656 (Tex. 2005)……………. 5-6
Walters v. Pete, 546 S.W.2d 871, 874 (Tex. Civ. App.- Texarkana 1977, writ ref’d n.r.e)………………………………………………. 8
Wilson v. Armstrong, 236 S.W. 755, 760 (Tex. Civ. App.-Beaumont 1921, no writ)…………………………………….. 13
Wolfram v. Wolfram, 165 S.W.3d 755, 758 fn. 4 (Tex. App.- San Antonio 2005, no pet.)……………………………………….. 6
RULES: TEX. R. CIV. P. 166a(c)………………………………………………………… 6 TEX. R. CIV. P. 329b(c)………………………………………………………… v TEX. R. APP. P. 38.1……………………………………………………………. 14
iv
STATEMENT OF THE CASE
On January 18, 2008, Appellant, Avalon Investments, LLC (“Avalon”), filed suit (Cause No. 08-0128) to set aside a January 1, 2008 foreclosure sale of a 30.458-acre tract of undeveloped land in Hays County, Texas [CR 4-35, 38]. After the foreclosure sale, but prior to the filing of suit by Avalon, Appellee, Jean Penick Spiller (“Ms. Spiller”), purchased an undivided one half (1/2) interest in the property from the foreclosure sale purchaser [CR 44]. Avalon subsequently joined Ms. Spiller as a defendant to the suit seeking to cancel her deed and requesting judgment for title and possession to the property [CR 4]. As an affirmative defense to Avalon’s claim against her, Ms. Spiller alleged her status as a bona fide purchaser for value without notice [CR 36]. On July 31, 2013, Ms. Spiller filed a traditional motion for summary judgment on her affirmative defense of bona fide purchaser for value without notice [CR 38]. On August 13, 2014 the trial court granted Ms. Spiller’s motion [CR 138-139]. On October 23, 2014 the trial court granted a motion to sever filed by Ms. Spiller and severed Avalon’s claims against Ms. Spiller into this cause (Cause No. 08-0128-A) [CR 143-144]. On November 20, 2014, Avalon filed its motion for new trial [CR 145], which was overruled by operation of law. Rule 329b(c), TEX. R. CIV. P. [CR 2-3]. On January 20, 2015, Avalon timely filed its notice of appeal [CR 157].
v
STATEMENT REGARDING ORAL ARGUMENT Oral argument is unnecessary. The legal issues are straightforward.
However, in the event the Court is of the opinion that oral argument would be beneficial and grants the request of Avalon for oral argument, then in such event Ms. Spiller respectfully requests she also be allowed to present oral argument to the Court.
vi
ISSUE PRESENTED
Did the trial court correctly grant summary judgment in favor of Ms. Spiller on her affirmative defense of bona fide purchaser for value without notice?
vii
STATEMENT OF FACTS
In November 2006 Avalon purchased a 30.458-acre tract of undeveloped land in Hays County, Texas from John Kimbro [CR 5]. As part of the purchase price Avalon executed a $360,000 promissory note payable to Kimbro. Id. The promissory note was secured by a Deed of Trust on the property. Id.
In December 2006 Kimbro executed a Collateral Transfer of Note (Security Agreement) to a third party lender JHX2, Ltd. [CR 98-107]. The Collateral Transfer of Note (Security Agreement) collaterally assigned Avalon’s promissory note payable to Kimbro from Kimbro to JHX2, Ltd. as collateral to secure a loan from JHX2, Ltd. to Kimbro. Id. The Collateral Transfer of Note (Security Agreement) was filed for record in the Official Public Records of Hays County, Texas on December 27, 2006 [CR 107].
Avalon subsequently defaulted on its obligations under its promissory note to Kimbro [CR 110]. On December 3, 2007 the substitute trustee under the Deed of Trust executed by Avalon posted a notice of intent to foreclose by public sale, with the sale to be held on January 1, 2008 [CR 109-114]. On December 31, 2007, prior to the scheduled foreclosure sale, Kimbro’s collateral transferee JHX2, Ltd. executed a written Consent of Secured Party [CR 119-124], expressly dated to be effective December 1, 2007, which stated in pertinent part:
Secured Party [JHX2, Ltd.] hereby consents to Debtor [Kimbro]
accelerating the maturity of the Collateral [the Avalon promissory
2
note], including the posting of the Deed of Trust for foreclosure. The Secured Party [JHX2, Ltd.] further consents to Debtor [Kimbro]
submitting a bid against the Collateral at the foreclosure sale. The Secured Party [JHX2, Ltd.] further ratifies any action previously taken by Debtor [Kimbro] in accelerating the maturity of the Collateral [the Avalon promissory note] and posting the Deed of Trust for foreclosure.
[CR 119].
At the same time, the collateral transferee JHX2, Ltd. also executed a written Release of Collateral Transfer of Note, also expressly dated to be effective December 1, 2007, by which JHX2, Ltd. transferred back to Kimbro the Avalon promissory note and all liens securing the Avalon promissory note [CR 126-131]. Both of these documents were filed for record in the Official Public Records of Hays County, Texas [CR 119-31].
On January 1, 2008, in accordance with the notice of foreclosure sale, the 30.458-acre tract was sold by substitute trustee’s sale under the Deed of Trust executed by Avalon [CR 116-7]. Kimbro was the foreclosure sale purchaser. Id.
After purchasing the property at the foreclosure sale, Kimbro approached Ms. Spiller, who is an elderly widow, about buying an undivided one-half (1/2) interest in the property [CR 44]. Kimbro did not tell Ms. Spiller the circumstances of how he acquired the property or discuss any potential issues he might have with Avalon [CR 44]. At closing on January 9, 2008, Ms. Spiller paid Kimbro $400,000 cash for an undivided one half (1/2) interest in the property [CR 48].
3
On January 18, 2008, after Ms. Spiller had purchased her interest in the property, Avalon filed suit against Kimbro to set aside the foreclosure sale [CR 38]. Avalon did not join Ms. Spiller as a defendant in the suit until October 2010, almost two years after her purchase. Ms. Spiller’s receipt of the citation and Avalon’s amended pleading was her first knowledge of any claim by Avalon regarding the property [CR 44-45]. In the amended petition naming Ms. Spiller, Avalon alleged in pertinent part:
[T]he Notice of Foreclosure sale posted on December 5 [sic], 2007 was defective in that the Defendant, John Kimbro did not own the Promissory Note which was secured by a Deed of Trust authorizing a foreclosure in an event of default. Defendant, John Kimbro did not possess the right nor authority to initiate the foreclosure on the Property.
[CR 6].
Based on this allegation, it was Avalon’s contention that the January 1, 2008 foreclosure sale was void and should be set aside [CR 6-7]. Avalon also sought cancellation of Ms. Spiller’s deed and judgment against her for title and possession to the property [CR 8].
SUMMARY OF THE ARGUMENT
Ms. Spiller acquired her interest in the property on January 9, 2008 as a bona fide purchaser for value without notice of Avalon’s then unfiled claim alleging that Kimbro was not the owner of the promissory note executed by Avalon and therefore without authority to initiate a foreclosure under the Deed of Trust
4
securing the promissory note. As established by the undisputed summary judgment evidence, Ms. Spiller had no actual notice of Avalon’s claim of an alleged defect in the foreclosure procedure when she purchased her interest in the property [CR 44]. Similarly, the instruments in her chain of title to the property on the date of her purchase did not provide any constructive notice to Ms. Spiller of Avalon’s then unfiled claim that Kimbro was not the owner of the promissory note and therefore unauthorized to foreclose on the property.
As a matter of law, and as shown further below, the recorded instruments in Ms. Spiller’s chain of title do not provide any constructive notice of a potential claim by Avalon alleging that Kimbro was not the owner of the promissory note or otherwise unauthorized to foreclose. To the contrary, the recorded instruments facially confirm that Kimbro was the owner of the promissory note and was fully authorized to foreclose, and they certainly provide no constructive notice otherwise to a prospective purchaser of an interest in the property such as Ms. Spiller.
Furthermore, even if it were later to be determined in the remaining litigation between Avalon and Kimbro (Cause No. 08-0128) that the foreclosure was void on grounds of which Ms. Spiller did not have notice, resulting in a loss of Kimbro’s interest in the property, Ms. Spiller is still protected with respect to her interest in the property as a bona fide purchaser for value without notice under the settled rule of Slaughter v. Qualls, 139 Tex. 340, 347, 162 S.W.2d 671, 675 (Tex.
5
1942). Under Slaughter v. Qualls, a subsequent bona fide purchaser for value without notice is protected even if a prior foreclosure in the chain of time is later determined to be void. This rule proceeds on the doctrine of estoppel: when the debtor by execution of the deed of trust cloaks the trustee under the deed of trust with authority to sell the property, the debtor is estopped to later challenge the title of a subsequent bona fide purchaser for value without notice who purchases from the party who bought at the foreclose sale or from another subsequent purchaser. While the immediate purchaser at the foreclose sale is generally at risk of unknown defects in the foreclosure process, a subsequent bona fide purchaser for value without notice is protected. This is a salutary rule, once land re-enters into the stream of commerce, because otherwise the certainty of land titles would be compromised by a potentially lurking defect in a past foreclosure in the chain of title when the defect is unknown to a later purchaser and not shown of record. If the rule were otherwise, it would pose an unacceptable risk to an innocent purchaser when there is a foreclosure in the chain of title, as is commonplace.
The trial court correctly granted summary judgment on Ms. Spiller’s affirmative defense of bona fide purchaser for value without notice.
ARGUMENT
I. Applicable Standard of Appellate Review (De Novo).
The standard of review for summary judgment is de novo. Valence
6
Operating Co. v. Dorsett, 164 S.W.3d 656 (Tex. 2005). However, the issues on appeal before this Court are limited to those that were expressly presented by Avalon before the trial court. TEX. R. CIV. P. 166a(c)(“Issues not expressly presented to the trial court by written motion, answer or other response shall not be considered on appeal as grounds for reversal.”)(emphasis added); Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 495 (Tex. 1991); Wolfram v. Wolfram, 165 S.W.3d 755, 758 fn. 4 (Tex. App. - San Antonio 2005, no pet.) (“. . . a summary judgment cannot be reversed on appeal on the basis of an issue that was not expressly and timely presented to the trial court by written response or other document.”).
In the trial court Avalon raised only one issue in its response to Ms. Spiller’s affirmative defense of bona fide purchaser for value without notice: Avalon’s sole responsive issue was its erroneous contention that Ms. Spiller had constructive notice of Avalon’s claim that Kimbro was not the owner of the promissory note and was thus unauthorized to foreclose [CR 75-76]. No other responsive issue was expressly raised in the trial court by Avalon with respect to any of the other elements of Ms. Spiller’s affirmative defense of bona fide purchaser for value without notice [CR 68-78]. In this appeal Avalon has similarly limited its argument and briefing to the constructive notice issue [Appellant’s Brief at 7-8]. As shown below, the trial court correctly granted summary judgment in favor of
7
Ms. Spiller and correctly held as a matter of law that she had no constructive notice of Avalon’s claim regarding an alleged defect in the foreclosure.
II. Ms. Spiller Was A Bona Fide Purchaser For Value Without Notice as a Matter of Law.
A bona fide purchaser is one who makes a good faith purchase of real property for a valuable consideration without actual or constructive notice of a claim. Madison v. Gordon, 39 S.W.3d 604, 606 (Tex. 2001); Cooksey v. Sinder, 682 S.W.2d 252, 253 (Tex. 1984); Colvin v. Alta Mesa Resources, Inc., 920 S.W.2d 688 (Tex. App.- Houston [1st Dist.] 1996, writ denied). The undisputed summary judgment evidence presented by Ms. Spiller established her good faith purchase of an interest in the property by warranty deed for a cash purchase price of $400,000 without any actual notice of any claim by Avalon against the title [CR 44], and in the trial court Avalon presented no issues responsive to these elements of the bona fide purchaser defense [CR 68-78]. As already noted, in the trial court, as in this appeal, the sole issue raised by Avalon relates to its erroneous contention that Ms. Spiller had constructive notice of Avalon’s claim of an alleged defect in the foreclosure procedure.
Turning to the issue of constructive notice, there is an initial important observation to be made about the recording system: a purchaser is not charged with constructive notice of every single recorded document in the clerk’s office. If the rule were such, so that every document of record provided constructive notice,
8
the purpose of the recording system to provide a practical system for searching land titles would completely fail from impracticality. Purchasers are not charged with constructive notice of every document filed of record in the county clerk’s office. Rather, a purchaser is only charged with constructive notice of those facts appearing in the specific chain of title through which the purchaser claims title that would place a reasonably prudent person on inquiry as to the rights of third parties in the property.
Second, and also of importance, whether or not the recorded instruments in a purchaser’s chain of title provide constructive notice of a third party’s claim with respect to the title to the property is a question of law for the court, and it is not a question of fact to be determined by the trier of fact. Hexter v. Pratt, 10 S.W.2d 692 (Tex. Comm’n App. 1928); University State Bank v. Gifford-Hill Concrete Corp., 431 S.W.2d 561, 571 (Tex. Civ. App. - Fort Worth 1968, writ ref’d n.r.e.) (“[W]hereas actual notice is usually a question of fact for the jury, constructive notice is a legal presumption not to be controverted.”).
Lastly, a party will only be charged with notice of what appears on the face of the documents. Walters v. Pete, 546 S.W.2d 871, 874 (Tex. Civ. App. - Texarkana 1977, writ ref’d n.r.e). Thus, the question here is whether the facial terms of the recorded documents in her specific chain of title put Ms. Spiller on notice of Avalon’s claim of an alleged defect in the foreclosure (i.e., Avalon’s
9
claim that Kimbro did not own the promissory note and thus did not have authority to foreclose). In its Appellant’s Brief, Avalon identifies four documents in Ms. Spiller’s chain of title that are alleged to give her constructive notice of Avalon’s claim [Appellant’s Brief at p. 11]:
1. Collateral Transfer of Note (Security Agreement) from Kimbro to JHX2, Ltd. [CR 16];
2. Consent of Secured Party executed by JHX2, Ltd. [CR 119];
3. Release of Collateral Transfer of Note executed by JHX2, Ltd. [CR 119];
and 4. Substitute Trustee’s Deed [CR 34].
Contrary to Avalon’s contention, these documents not only do not provide any such constructive notice, but instead confirm to a subsequent purchaser that Kimbro was empowered to initiate the foreclosure against the property under the Deed of Trust. Turning first to the Substitute Trustee’s Deed, it is standard in form and expressly confirms the facts of default by Avalon in its obligations under the promissory note payable to Kimbro as well as the posting and filing of the notice of foreclosure sale and the particulars of the foreclosure sale conducted on January 1, 2008 [CR 35]. There is nothing disclosed by the Substitute Trustee’s Deed that would excite in any respect the “suspicion” of any subsequent prospective purchaser of the property.
10
Avalon disingenuously asserts in its Appellant’s Brief (p. 12) that the Collateral Transfer of Note (Security Agreement) should have raised “suspicions” about Kimbro’s ownership of the promissory note. As an initial matter, this contention fails because even the most cursory reading of the Collateral Transfer of Note (Security Agreement) – to say nothing of the title of the document itself – reveals that it is a collateral transfer only, not a transfer of ownership of the promissory note, any more than a deed of trust is a transfer of ownership of land. Thus, among other things, in the Collateral Transfer of Note (Security Agreement):
JHX2, Ltd. is identified as the “Secured Party” and not as “Owner” or some other similar term [CR 98];
Kimbro is identified as “”Debtor” and not as “Seller” or some other similar term [CR 98];
JHX2, Ltd. is granted a “Security Interest” and not “Ownership” or “Title”
or some other similar term [CR 98]; 1 The promissory note transferred to JHX2, Ltd. is called the “Collateral” and not some other term indicating a different status [CR 98];
In the event of default by Kimbro of his debt to JHX2.Ltd. provision is made
1 If the Collateral Transfer of Note (Security Agreement) were in fact a transfer of “ownership” of the promissory note to JHX2, Ltd., which of course it is not, one would have great difficulty explaining the need for or even viable co-existence of a security interest in and ownership of the same property simultaneously by the same person; this further confirms the correct reading of the document as a security agreement, not a transfer of ownership.
11
for sale of the Avalon promissory note by public or private foreclosure sale in accordance with the Uniform Commercial Code, as would normally be the case with pledged property [CR 98]; and The transaction evidenced by the Collateral Transfer of Note (Security Agreement) is called in the instrument itself a “secured transaction” and not a “sale” or other similar term [CR 103].
The unquestionable character of the document as a security agreement, and not a conveyance, is further confirmed by this language in the document:
This conveyance, however, is made in TRUST to secure the Indebtedness and should Debtor perform and comply with all of the covenants and agreements herein contained, and make prompt payment of all Indebtedness secured hereby as the same shall become due and payable, then this conveyance shall become null and void and of no further force and effect. . . .
[CR 102].
Thus, there is no reasonable reading of the Collateral Transfer of Note (Security Agreement) that would suggest to a subsequent purchaser that ownership of the promissory note passed from Kimbro to JHX2, Ltd.
Avalon’s argument also completely ignores both (1) the Consent of Secured Party dated to be effective December 1, 2007 [CR 119], which provides express consent for Kimbro to initiate and proceed with foreclosure and expressly ratifies all actions previously taken by Kimbro in the foreclosure [CR 119], and (2) the Release of Collateral Transfer of Note also dated to be effective December 1, 2007
12
[CR 126], which places all rights and liens with respect to the promissory note back into Kimbro effective as of December 1, 2007 [CR 126]. Either one of these documents would be sufficient to resolve any “suspicions” that might arise in the mind of a subsequent purchaser of the property, even one who erroneously read the Collateral Transfer of Note (Security Agreement) to be something it was not. A correct consideration of the Collateral Transfer of Note (Security Agreement) as a security agreement, coupled with the cumulative effect of the Consent of Secured Party and the contemporaneous Release of Collateral Transfer of Note, as a matter of law does not give constructive notice of any lack of authority in Kimbro to proceed with foreclosure; to the contrary, these recorded instruments provide complete comfort to a prospective purchaser that Kimbro had whatever permission or consent as might be needed from JHX2, Ltd. to foreclose on the property. It is hard to imagine any further belts or suspenders that could be employed to confirm or ratify Kimbro’s authority to foreclose. The recorded documents certainly would not give rise to any reasonable belief that JHX2, Ltd. was in any respect not in full agreement and concurrence with Kimbro’s foreclosure of the property. Frankly, to contend that the documents should have given rise to “suspicions” is a specious argument. Texas courts have repeatedly used the doctrine of ratification to provide confirmation of authority of acts taken in the foreclosure process. See, e.g., Chandler v. Guaranty Mortg. Co., 89 S.W.2d 250, 254 (Tex. Civ. App. – San
13
Antonio 1935, no writ); Wilson v. Armstrong, 236 S.W. 755, 760 (Tex. Civ. App.- Beaumont 1921, no writ); Bernal-Bell v. Saxon Mortg. Servs., Inc., 2010 WL 3250115 (Tex. App.-San Antonio, no pet) (not designated for publication); Benser v. G.E. Capital Mortgage Servs., Inc., No. 05-93-00995-CV, 1994 WL 156245, at *4 (Tex. App. – Dallas 1994, writ denied)(not designated for publication). In the present case all preparatory actions for the foreclosure sale were fully confirmed and ratified prior to the conduct of the sale on January 1, 2008, so that the substitute trustee was fully authorized on January 1, 2008 to conduct the foreclosure sale. This is not a case in which on a date after the foreclosure sale a post-sale ratification is retroactively attempted. While the doctrine of ratification as liberally applied in the Texas cases might well be extended to a case involving a post-sale ratification, it is not necessary for the Court in the present case to address such a circumstance. Here, as stated, all ratifying steps were completed prior to the conduct of the foreclosure sale on January 1, 2008.
The Collateral Transfer of Note (Security Agreement) admittedly does contain a contractual provision stating that Kimbro was required to obtain the “prior written consent” of JHX2, Ltd. as a prerequisite to posting the property for a foreclosure sale [CR 101]. Avalon has not specifically mentioned this contractual provision in the Collateral Transfer of Note (Security Agreement) in the argument in its Appellant’s Brief, but Avalon did contend in the trial court that this
14
contractual provision was pertinent to its argument [CR 76]. While this trial court contention by Avalon should be considered as waived in this Court by reason of a failure to brief, see, e.g., In re T.A., 346 S.W.3d 676, 678 (Tex. App. – El Paso 2009, rev. denied); TEX. R. APP. P. 38.1, in anticipation of possible attempted argument by Avalon in its reply brief, Ms. Spiller would point out the following: The Collateral Transfer of Note (Security Agreement) was a contract solely between Kimbro and JHX2, Ltd., and Avalon is in no respect a party to or beneficiary of this contract. The contractual provision at issue patently was for the sole benefit of JHX2, Ltd. as the secured party under the Collateral Transfer of Note (Security Agreement). A party who may be incidentally benefited by the performance of a contractual provision is not thereby a third-party beneficiary of the contract. MCI Telecommunications Corp. v. Tex. Utilities Elec. Co., 995 S.W.2d 647, 651-652 (Tex. 1999) (“A third party may recover on a contract made between other parties only if the parties intended to secure some benefit to that third party, and only if the contracting parties entered into the contract directly for the third party's benefit.”). A third party beneficiary contract may not be created by implication. Basic Capital Mgmt., Inc. v. Dynex Commercial, Inc., 348 S.W.3d 894, 900 (Tex. 2011). All doubts are resolved against creating third party beneficiary status. Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011). Indeed, there is a presumption against third party beneficiary status. South Tex. Water
15
Auth. v. Lomas, 223 S.W.3d 304, 306 (Tex. 2007); Esquivel v. Murray Guard, Inc., 992 S.W.2d 536, 543 (Tex.App.-Houston [14 Dist.] 1999, pet. denied).
[T]he controlling principle of law here involved is that one not a party to a contract can sue for a breach thereof only when the condition which is alleged to have been broken was placed in the contract for his direct benefit. A mere incidental beneficiary acquires by virtue of the contractual obligation no right against the promisor or the promisee.
Republic Nat. Bank of Dallas v. Nat'l Bankers Life Ins. Co., 427 S.W.2d 76, 81 (Tex. Civ. App. - Dallas 1968, writ ref’d n.r.e.), quoting Hartford Acc. & Indem. Co. v. Hewes, 190 Miss. 225, 199 So. 93, 199 So. 93 (1940), judgm’t mod., 199 So. 772 (1941).
When these applicable rules are applied in the present case, it is clear that any benefit that might be derived by Avalon from the “prior written consent” provision in the Collateral Transfer of Note (Security Agreement) is purely incidental. The absurd nature of any attempted claim by Avalon to third party beneficiary status is shown most clearly by the following observation: Avalon would be claiming the benefit of a contractual provision which only comes into play when Avalon has itself defaulted on the promissory note assigned as collateral to JHX2, Ltd.; that is, Avalon is attempting to benefit when it has deprived Kimbro and JHX2, Ltd. of the one benefit passing under the Collateral Transfer of Note (Security Agreement)(i.e., the security of expected payment represented by the assigned promissory note). Thus, any benefit to Avalon in these circumstances
16
would be not only purely incidental, but wholly unwarranted, undeserved, and unexpected.
As a final point of argument, Ms. Spiller was not the immediate purchaser at the foreclosure sale, but a subsequent bona purchaser without notice. While the immediate purchaser at a foreclosure sale purchases at his or her risk with respect to defects in the foreclosure, see, e.g., Henke v. First Southern Properties, Inc., 586 S.W.2d 617 (Tex. Civ. App. – Waco 1979, writ ref’d n.r.e.), a subsequent bona fide purchase for value without notice is protected even if the underlying foreclosure sale were determined to be void. This rule was settled in the Texas Supreme Court case of Slaughter v. Qualls, 139 Tex. 340, 347, 162 S.W.2d 671, 675 (Tex. 1942), which is further dispositive of the issue presented on this appeal. While it is disputed that the issue alleged by Avalon with respect to the foreclosure in any respect renders the foreclosure void, even if it were later determined for some presently unfathomable reason in the remaining litigation between Avalon and Kimbro that the foreclosure sale were void, resulting in a loss of Kimbro’s interest in the property, Ms. Spiller as a subsequent bona fide purchaser for value without notice is fully shielded against such a claim with respect to her interest in the property under the rule of Slaughter v. Qualls.
As previously observed in the Summary of Argument, the rule of Slaughter v. Qualls is based on estoppel. When a debtor executes a deed of trust, the debtor
17
cloaks the trustee under the deed of trust with authority to sell the property. The debtor is thereby estopped to later challenge the title of a subsequent bona fide purchaser for value without notice who purchases from the party who bought at the foreclose sale or from another subsequent purchaser. While the immediate purchaser at the foreclose sale may be generally at risk of unknown defects in the foreclosure process, a subsequent bona fide purchaser for value without notice, such as Ms. Spiller, is protected under the rule of Slaughter v. Qualls. If the rule were otherwise, the certainty of land titles would be undermined.
PRAYER
Appellee, Jean Penick Spiller, respectfully requests that this Court affirm the Order Granting Defendant Jean Penick Spiller’s Traditional Motion for Partial Summary Judgment signed by the trial court on August 13, 2014, deny all relief sought by Appellant, Avalon Investments, LLC, in this appeal, and grant such other and further relief to Appellee, Jean Penick Spiller, to which she may be justly entitled.
18
Respectfully submitted,
/s/ Andrew Oliver
_________________________
Andrew Oliver State Bar No. 24046556 Oliver Law Office 9951 Anderson Mill Road, Suite 201 Austin, Texas 78750 (512) 233-1103 Telephone (512) 551-0330 Fax aoliver@oliverlawoffice.com
ATTORNEY FOR APPELLEE, JEAN PENICK SPILLER
19
CERTIFICATE OF SERVICE
The undersigned hereby certifies that on May 21, 2015, a true and correct copy of this Appellee’s Brief was served by certified mail, return receipt requested, upon the following attorney of record for Appellants:
Arthur G. Vega Law Offices of Arthur G. Vega 419 S. Main, Suite 301 San Antonio, Texas 78204 (210) 224-8888 (210) 225-7751 (Facsimile) Attorney for Appellant
/s/ Andrew Oliver
_________________________
Andrew Oliver
20
CERTIFICATE OF COMPLIANCE Pursuant to Rule 9.4(i)(3), I certify the number of words in this Appellee’s Brief (not including words contained in the caption, identity of parties and counsel, statement regarding oral argument, table of contents, index of authorities, statement of the case, statement of issues presented, statement of jurisdiction, statement of procedural history, signature, proof of service, certification, certificate of compliance, and appendix) is 4,145 words based upon the Microsoft Word word-count function. This brief complies with the typeface requirements of TEX. R. APP. P. 9.4(e) because this brief is printed using Times New Roman 14 point in text and Times New Roman 12 point font in footnotes produced by Word 2010 software.
/s/ Andrew Oliver
_________________________
Andrew Oliver