Saunders v. Given (70 S.W.2d 310, 1934)

WADTHADD, Justice.

On* February 23, 1933, Charles Given, as plaintiff, filed this suit in the Forty-first district court of El Paso county, Tex., against O. F. Saunders, as trustee in bankruptcy, of the estate of West Texas Real Estate & Investment Company, a. Texas corporation, bankrupt, as defendant.

The suit is in trespass to try title; the petition sets forth the usual allegations of the plaintiff in such suits; alleges that plaintiff is the owner of, and, at time stated, was in possession of the real estate fully described in the petition, and generally known and designated as street numbers 308-312, East San Antonio street, in the city of El Paso, Tex., and that defendant, Saunders, thereafter unlawfully entered upon and dispossessed him of his possession thereof.

Defendant, Saunders, filed a plea to the jurisdiction alleging in substance: (a) The jurisdiction was lacking because the plaintiff’s title depended on a sale of the property to him by a trustee under a deed of trust, which sale was made after the bankruptcy, and hence was ineffective to pass title, and because (b) no consent of the bankruptcy court to sue -defendant bad been obtained.

Defendant joined issue on the plea. The court overruled the plea, and the case was tried before the court without a jury.

The trial court made findings of fact which are lengthy; we adopt the trial court’s findings, but state briefly only such of them as seem to be pertinent to the points raised on this appeal.

Several of appellant’s propositions assign-error to the overruling of his plea to the jurisdiction of the court to try the case.

The suggestions substantially and in legal effect are that appellee’s title was invalid because it depended upon a sale of the property made under a deed of trust with power of sale after adjudication in bankruptcy of the holder of the legal title; no consent of the bankruptcy court was obtained; no title passed to appellee in the foreclosure sale for the reason that the property involved was partly in the actual and partly in the constructive possession of the bankrupt at! the time of bankruptcy and at the time of the sale under the deed of trust; the sale was invalid because the adjudication of bankruptcy suspended the -power of sale under the deed of trust; the sale was invalid because possession of the property being in the bankrupt, exclusive jurisdiction was vested in the bankruptcy court.

The facts which relate to the above points are undisputed, and briefly stated, are substantially as follows:

Qn July 13, 1929, S. T. Turner and wife conveyed the property involved here to Harry L. Hussmann for a consideration of $45,000, cash paid, and $100,000 evidenced by four promissory notes equal in amounts, one payable each year thereafter, each retaining a vendor’s lien, each bearing interest payable semiannually and having the usual accelerating maturity clause upon default, etc. In June, 1931, Hussmann conveyed the property to his wife, she assuming to pay the last three Turner notes above referred to.

On the last-named date Mrs. Hussmann, joined by her husband, conveyed the property to West Texas Real Estate & Investment Company, that company assuming to pay said last- -three Turner notes.

On November 23, 1931, the last two of the Turner notes being-then unpaid, West Texas Real Estate & Investment Company executed bo S. M. Murchison, as trustee, the deed of trust with power of sale involved in this controversy for the purpose' of securing two -notes in the sums respectively of $15,009 and $10,000, payable to Lee H. Orndorff, said notes bearing interest payable semiannually, each waiving grace, protest, and suit, and providing that in case of default in the payment of any installment of principal or interest the principal amount of the note should become immediately due and payable at the option of the holder of the note, and attorney’s fee, if placed in the hands of an-attorney for collection. The deed of trust was duly filed for record on November 27, 1931. .

On the date of its execution Seth B. Orn-dorff became the owner of the $10,000 note.

On April 12, 1932, Seth B. Orndorff, for a consideration of $6,000, indorsed the note to Mrs. Grace L. Murchison, as her sole and separate estate, and on the same date conveyed to Mrs. Murchison the liens securing the payment of said note. At the time of the transfer of said note there was an understanding between Mrs. Murchison and Om-dorff that she should own the note and lien, but that any amount she should realize over and above the amount paid by her for the note she would pay to Orndorff.

Prior to April 12,1932, the $15,000 was discharged. On November 23, 1932, the semiannual interest on the $10,000 -note became due; at that time Mrs. Grace D. Murchison was the legal owner and holder; default was made in the payment of the interest due. Thereafter and prior to the 2d day of December, 1932, Mrs. Murchison, with the consent of Orndorff, elected to mature the note and declare same due and payable, and thereupon placed the note in the hands of an attorney for collection, and, joined' by her husband, requested the trustee in the deed of trust to proceed to sell the property involved here in accordance with the terms of the deed of trust.

Thereafter, on December 2, 1932, the trustee, Murchison, duly posted notices that he would sell the said property under the terms of the deed of trust, and on said day duly mailed a copy of said notice of sale to West Texas Real Estate & Investment Company at El Paso, Tex., and likewise' mailed a copy of said notice of sale to others interested in the title to said property, and which notice was received by the West Texas Real Estate & Investment Company on December 4, 1932.

On the 24th day of December, 1932, West Texas Real Estate & Investment Company filed a voluntary petition in bankruptcy in the District Court of the United States for the Western District oí Texas, El Paso Division, and, on the 27th day of December, 1932, in said proceeding, was duly adjudicated a bankrupt, and Charles F. Saunders, appellant in this suit, was duly appointed trustee 'of the estate of said bankrupt.

On the first Tuesday of January, 19-33, a hearing was held in the United States District Court for the Western District of Texas, El Paso Division, before the Honorable Charles A. Boynton, judge of said court,- upon an application and petition filed by Charles F. Saunders, trustee o-f said estate,-requesting an injunction to prevent the trustee' in the said deed of trust from selling said property under foreclosure proceedings under said deed of trust; on a hearing the court refused to grant said relief, and the petition of said trustee was dismissed without prejudice to any claims -of the trustee, and without reference to the validity of the trustee’s sale under the deed of trust, as referred to in the bankruptcy trustee’s petition for the injunction. The record does not show that any appeal was taken from that order, or that any proceeding -other than the above was had in the federal court.

Thereafter on the first Tuesday in January, 1933, S. M. Murchison, trustee in, the deed of trust, proceeded to sell the property at, public auction, and on said day did sell same within the hours prescribed by law, and in accordance with the terms of said deed of trust, and at said sale, Charles Given bid $6,500 for said property'; he was the highest and best bidder at said sale, and the trustee struck said property -off to said Given for said sum, and on its payment the trustee, on January 10, 1932, executed and delivered to Given a trustee’s deed to said property, at which time Given took possession, and at all times since has been in possession.

. The trial court found against appellant’s contention and we accept said finding that “no facts exist sufficient to have estopped Grace L. Murchison from accelerating the maturity of the $10,000.00 note, or from selling the property involved in this suit, or from having the property involved in this suit sold by the said S. M. Murchison, trustee.”

The trial court further found that due to the financial depression then and now existing in this community, the -reasonable market value of the property on the day of the sale did not exceed $55,000.

The record shows that at all times mentioned above the property involved was -occupied in part by Given Bros. Shoe Company, under a several years’ lease by West Texas Real Estate & Investment Company; part of the building was leased by that company to Julius Kantor; part of the building was unoccupied.

The trial court concluded as a matter of law that the foreclosure proceeding under the deed of trust having been initiated before the adjudication in bankruptcy, the power and right of the trustee to proceed was unaffected thereby, and that the sale by the trustee under the foreclosure proceedings passed to Charles Given all title held by the West Texas Real Estate & Investment Company as of the date of the deed of trust.

The first question presented under the plea to the jurisdiction, the, facts as stated being undisputed, is whether the state court, when its jurisdiction is challenged, can entertain jurisdiction to determine the validity of the sale in a suit by the purchaser against the bankruptcy trustee, sued without leave of the bankruptcy court.

The facts here show that more than a year had elapsed between the giving of the deed of trust by the bankrupt and the adjudication of bankruptcy of the West Texas Real Estate & Investment Company.

It seems to be the settled rule of decision that the jurisdiction of the bankruptcy court is paramount and exclusive, and a proceeding in foreclosure of a deed of trust, by the trustee, may be enjoined by the bankrupt court where such a course is necessary for the proper exercise of its own jurisdiction, or the effective administration of the bankruptcy estate. Such would seem necessarily to follow where the state and the bankruptcy court each have concurrent jurisdiction. Here the bankruptcy court had not at any time undertaken to exercise any jurisdiction in the administration of the bankruptcy estate prior to proceedings taken by the trustee in the deed of .trust to foreclose the deed of trust lien, and, so far as the record shows, the bankruptcy court has at no time and in no way asserted or assumed jurisdiction over, or the administration of, the property in controversy as a part of the estate of the bankrupt.

The recoj-d shows that on the 3d day of January, 1933, the day on which the property was to be sold under the deed of trust, appellant trustee made application to the bankruptcy court for an injunction to restrain the sale by the deed of trust trustee, and in the application stated that he was informed and believed that the bankrupt estate had a substantial equity in said property an