Van Brunt v. Banctexas Quorum, N.A.

804 S.W.2d 117, 14 U.C.C. Rep. Serv. 2d (West) 931, 1990 Tex. App. LEXIS 2466, 1989 WL 236541

• Court: Court of Appeals of Texas
• Decided: May 8, 1990
• Docket: 05-87-01165-CV
• Status: Published

Opinions

BAKER, Justice.

The two issues in this case are: (1) whether BancTexas Quorum, N.A. gave John and Susan Van Brunt sufficient notice of its intent to sell the Van Brunts’ collateral pursuant to section 9.504(c) of the Uniform Commercial Code¹; and (2) whether the Van Brunts’ four-acre tract was entitled to a homestead exemption. The trial court concluded that BancTexas complied with section 9.504 of the Code and that the Van Brunts’ four-acre tract was not a homestead. We reverse the trial court’s judgment on its notice finding and render judgment that BancTexas is not entitled to sue the Van Brunts for a deficiency. We affirm the trial court on its judgment finding that the four-acre tract was not a homestead.

John Van Brunt was the president of a company known as Labels Unlimited, Inc. This company executed five promissory notes totaling an amount in excess of $840,-000 payable to BancTexas. To secure the debt, Labels Unlimited executed security agreements granting BancTexas a security interest in its equipment, inventory, and receivables. John Van Brunt executed an agreement personally guaranteeing all of the obligations of Labels Unlimited to BancTexas.

Labels Unlimited defaulted on the notes and declared bankruptcy. The bankruptcy court authorized the bankruptcy trustee to abandon the secured property to BancTex-as. Subsequently, on January 6, 1987, BancTexas sent John Van Brunt notice of its intent to sell the collateral. On January 29, 1987, BancTexas sent notice to both Labels Unlimited and John Van Brunt of its intent to conduct a public auction on February 18, 1987, in Lawrence, Kansas, the site of one of Labels Unlimited’s plants. BancTexas held the public auction on that date, and John Van Brunt was there. At the auction BancTexas announced that it reserved the right to reject all bids. Shawnee Sales and Marketing submitted the highest bid of $40,000. However, BancTex-as rejected this and all other bids. Subsequently, Causey Mason, the person Banc-Texas hired to organize the auction, telephoned numerous persons who had attended the auction, and other individuals, in an attempt to negotiate a higher sales price. Shawnee increased its bid to $55,000 and purchased the property. BancTexas did not notify John Van Brunt of its attempts to sell the property after the public auction.

On the homestead issue, the facts are that in 1981 the Van Brunts purchased a two-acre tract of land and subsequently built a home on it. In 1982, John Van Brunt purchased a contiguous four-acre tract, which is the property in dispute. The trial court found that John Van Brunt had previously listed the four-acre tract as a separate asset in his financial statements. Pat Greer, a vice president of BancTexas, testified that John Van Brunt told Greer that he was holding the property for investment purposes. The Van Brunts testified that they used the four acres for family recreation, mowed the tract two or three times a year, and occasionally threw grass seed on it. They also stated that the family dog had the full run of all six acres. While BancTexas and John Van Brunt were negotiating a business loan, BancTex-as required John Van Brunt to pledge the four-acre tract as collateral. BancTexas requested a title company to prepare a deed of trust and title policy on the four-acre tract in connection with the loan; however, the title company refused because it determined that the four-acre tract was a part of the Van Brunts’ homestead. Banc-Texas then prepared an affidavit of non-homestead as to the four-acre tract and a homestead designation as to the two-acre tract. Both John and Susan Van Brunt executed this affidavit. BancTexas then completed and funded the loan.

The trial court rendered judgment that BancTexas recover from John Van Brunt the unpaid principal on the notes together with interest due through the date of judgment. The trial court also rendered judgment that the four-acre tract was not a homestead and denied injunctive relief to the Van Brunts.

In their first point of error, the Van Brunts contend that the trial court erred in holding that BancTexas complied with the notice requirements of section 9.504 of the Code. The Van Brunts argue that the notice of the public auction does not constitute notice of the subsequent private sale. The Van Brunts assert that because they received no notice of the private sale, Banc-Texas is not entitled to sue for a deficiency, and the trial court should have rendered judgment that BancTexas take nothing on the deficiency claims. See Tanenbaum v. Economics Laboratory, Inc., 628 S.W.2d 769, 771 (Tex.1982); Gentry v. Highlands State Bank, 633 S.W.2d 590, 591 (Tex.App.—Houston [14th Dist.] 1982, writ ref’d). We agree and hold that BancTexas failed to give the Van Brunts sufficient notice.

The relevant portion of section 9.504 provides:

Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor, if he has not signed after default a statement renouncing or modifying his right to notification of sale.

§ 9.504(c). The purpose of requiring reasonable notification is to provide the debtor sufficient notice to enable him to protect his interest in the collateral. See MBank Dallas v. Sunbelt Mfg., Inc., 710 S.W.2d 633, 636 (Tex.App.—Dallas 1986, writ ref’d n.r.e.). Such notification gives the debtor the opportunity to pay the debt, find a buyer, or to attend the sale and bid on the property or have others do so, to the end that the property will not be sacrificed by a sale at less than its true value. See Wright v. Interfirst Bank Tyler, 746 S.W.2d 874, 877 (Tex.App.—Tyler 1988, no writ). Official comment 5 to section 9.504 states:

“Reasonable notification” is not defined in this Article; at a minimum it must be sent in such time that persons entitled to receive it will have sufficient time to take appropriate steps to protect their interests by taking part in the sale or other disposition if they so desire.

§ 9.504 comment 5.

The letter that BancTexas sent John Van Brunt on January 6, 1987, notified him that BancTexas intended to sell all the collateral under the terms of its security agreement. The January 29, 1987 letter from BancTexas to John Van Brunt notified him that:

[P]ursuant to the provisions of Section 9.504 of the Texas Uniform Code, Banc-Texas will hold a public auction of the Collateral which is located at the Labels plant in Lawrence, Kansas on February 18, 1987, at 12:00 p.m. The public auction will be held at the Labels plant located at 2201 Haskell, Lawrence, Kansas 60044.

John Van Brunt attended the public auction. When the auction started, Mason, the person BancTexas hired to evaluate and liquidate the collateral, announced that BancTexas reserved the right to reject all bids. At the end of the auction, BancTexas rejected all bids. Shawnee had submitted the highest bid of $40,000. Subsequently, without notice to John Van Brunt, Mason telephoned some of the persons who were at the public auction and a few other persons, and he eventually sold the collateral to Shawnee for $55,000.

The Van Brunts argue that BancTexas’s reserving the right to reject all bids at the public auction did not constitute notice that BancTexas would sell the collateral privately if it rejected bids made at the public auction. The Van Brunts contend that the notice of the public auction does not constitute notice of a subsequent private sale. See Wright, 746 S.W.2d at 877; Gateway Aviation, Inc. v. Cessna Aircraft Co., 577 S.W.2d 860, 862 (Mo.Ct.App.1978). The Van Brunts argue that, pursuant to section 9.504(c) of the Code, they were entitled to notice of a specific date after which Banc-Texas would proceed to otherwise dispose of the collateral. We agree.

In Wright, a creditor sent the debtor a notice that if he did not repay the note, the creditor would sell the collateral under the terms of the security agreement. The creditor later notified the debtor that the creditor intended to sell the collateral at a public auction, specifying the date and time. The creditor apparently never conducted a public auction and ended up selling the collateral at a private sale at a later date. The court held, as a matter of law, that notice of a public sale did not constitute “reasonable notification” of the subsequent private sale. The court noted that the purpose of the notice requirement was to enable the debtor to protect his interest in the collateral. Wright, 746 S.W.2d at 875, 877.

In Gateway, the creditor gave the debtor notice of a public auction, held the public auction, and rejected the highest bid of $130,000. Subsequently, the creditor sold the collateral at a private sale for $134,000. The creditor did not give the debtor notice of its intent to sell the collateral privately. In Gateway, the court reasoned that because the debtor could have taken measures to protect his interest in the collateral, the failure to give the debtor notice of the private sale was fatal to recovery for the deficiency. Gateway, 577 S.W.2d at 862.

In our view, these cases correctly state the law applicable to this case. Where a creditor intends to sell collateral privately, section 9.504(c) of the Code requires “reasonable notification of the time after which any private sale or other intended disposition is to be made_” See § 9.504(c). At a minimum, “reasonable notification” requires that persons entitled to notice have sufficient time “to take appropriate steps to protect their interests by taking part.in the sale or other disposition if they so desire.” See § 9.504 comment 5. Banc-Texas’s January 6, 1987 letter to John Van Brunt informed him that BancTexas intended to sell the collateral. This letter did not contain any notice of whether the sale would be public or private, nor did it contain any notice of an anticipated date of a sale. BancTexas’s January 29, 1987 letter notified John Van Brunt that BancTexas intended to sell the collateral at a public auction, specifying the place, the date, and the time. BancTexas concedes that no further notice of any kind was given to the Van Brunts concerning the additional efforts to sell the collateral at a private sale following the public auction on February 18, 1987.

Based on the facts of this case, we hold that the Van Brunts did not have reasonable notice that BancTexas intended to sell the collateral privately. We cannot assume that the Van Brunts could not have taken action to protect their interests if they had been given notice of the private negotiations following the public auction. See Gateway, 577 S.W.2d at 862. BancTexas fails to persuade us by their argument that they should not be penalized for attempting to obtain a higher price for the collateral. We wish to make it clear that we do not disapprove such attempts to secure a higher price for the collateral; we only disapprove the failure to notify the debtors. Because it failed to give proper notice, BancTexas is not entitled to sue for a deficiency judgment against the Van Brunts. Tanenbaum, 628 S.W.2d at 772. We sustain the Van Brunts’ first point of error. Because of our disposition of this point of error, we deem it unnecessary to consider the Van Brunts’ points of error numbers two through five.

In their sixth point of error, the Van Brunts argue that the evidence is legally and factually insufficient to support the trial court’s findings that the four-acre tract was not a homestead. An appellate court, in reviewing a legal insufficiency point, must consider only the evidence and the inferences tending to support the finding and disregard all evidence and inferences to the contrary. See Garza v. Alviar, 395 S.W.2d 821, 823 (Tex.1965). On the other hand, when an appellate court considers a factual insufficiency assertion, all of the evidence in the record must be considered to decide the issue. Garza, 395 S.W.2d at 823. Only if the finding is so against the great weight and preponderance of the evidence as to be manifestly unjust will the finding be set aside. See In re King’s Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (1951).

The Van Brunts executed an affidavit that the four-acre tract was not their homestead. This fact alone provides some evidence to support the trial court’s finding. The Van Brunts’ no evidence argument is without merit.

To establish homestead rights, the claimant must show a combination of both overt acts of homestead usage and the intention on the part of the owner to claim the land as a homestead. Lifemark Corp. v. Merritt, 655 S.W.2d 310, 314 (Tex.App.—Houston [14th Dist.] 1983, writ ref’d n.r.e.). The Van Brunts testified that they used the four acres for family recreation and enjoyment which included family picnics, family recreational games, and company picnics. They mowed the four-acre tract two or three times a year and occasionally threw grass seed on it. The family dog had the full run of all six acres. Pat Greer, BancTexas’s vice president, said that John Van Brunt told him that Van Brunt was holding the property for investment purposes. The general rule is that the testimony of interested witnesses, such as the parties to the suit, merely raises a fact issue to be determined by the fact finder. See Lifemark, 655 S.W.2d at 315.

The two-acre and four-acre tracts were purchased separately. Both of the Van Brunts executed an affidavit that the four-acre tract was not a homestead. John Van Brunt had previously listed the four-acre tract as a separate asset in his financial statements. Based on this record, we cannot say that the trial court’s finding that the four-acre tract was not a homestead is manifestly wrong or unjust. We overrule the Van Brunts sixth point of error.

In their seventh point of error, the Van Brunts argue that the trial court erred in finding that they were estopped from asserting the homestead exemption because once property is impressed with homestead character, the representations of the owners that the property is not a homestead have no effect. They rely on Braden Steel Corp. v. McClure, 603 S.W.2d 288 (Tex.Civ.App.—Amarillo 1980, no writ) and Blomgren v. Van Zandt, 126 S.W.2d 506 (Tex.Civ.App.—Eastland 1939, no writ). Because the trial court found that the four-acre tract was not impressed with a homestead character, the estoppel finding is moot. Braden Steel and Blomgren do not apply to the facts of this case. We overrule the Van Brunts’ seventh point of error.

In their eighth point of error, the Van Brunts contend that the trial court made fatally inconsistent and contradictory findings of fact and conclusions of law. They quote the portion of the judgment that provides:

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED, that the following property is not, at the date of the judgment, nor has it ever been, the homestead of JOHN VAN BRUNT AND SUSAN VAN BRUNT; but if the following property ever has been the homestead of those parties, they are estopped from so claiming....

The Van Brunts also quote the corresponding finding of fact which contains similar language. The Van Brunts argue that, on the one hand, the trial court finds that the four-acre tract was never a homestead; however, on the other hand the court impliedly finds that the tract was a homestead and that the Van Brunts are estopped from so claiming. The Van Brunts argue that these two findings conflict and are therefore fatal to the judgment. See Woodyard v. Hunt, 695 S.W.2d 730, 732 (Tex.App.—Houston [1st Dist.] 1985, no writ).

Both the judgment and the finding of fact are worded in the alternative. Because we have held that the four-acre tract was never a homestead, we agree with the trial court’s first finding. Because we agreed with this finding, we need not consider the second alternate finding. We disregard this finding, and the conflict, if any, is immaterial. See Border State Life Ins. Co. v. Noble, 138 S.W.2d 119, 123 (Tex.Civ.App.—El Paso 1940, writ dism’d judgmt cor.) We hold that there is no conflict between the finding of fact and the judgment rendered by the trial court. We overrule the Van Brunts’ eighth point of error.

BancTexas has asserted one cross point, arguing that if this Court determines that the four-acre tract was a homestead, then the homestead was an urban homestead and not a rural homestead. Because we have not held that the four-acre tract is a homestead, we need not consider the merits of this cross point.

We reverse the trial court’s judgment granting a deficiency in favor of BancTex-as and render judgment that BancTexas take nothing from the Van Brunts on the BancTexas suit for deficiency. See TEX.R. APP.P. 81(c). We affirm the trial court’s judgment that the four-acre tract was not a homestead.

Dissenting opinion by KINKEADE, J.

1 . AH references to "the Code” and to section 9.504 are to the Texas Business and Commerce Code. See TEX.BUS. & COM.CODE ANN. § 9.504 (Tex.UCC) (Vernon Supp.1989).