Continental Securities Corp. v. Wetherbee ( 1936 )

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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] This is a suit for partition by licitation of approximately 8,300 acres of land situated in the parish of Bossier in this state.

Judgment was rendered in the lower court against George W. Wetherbee, defendant, recognizing plaintiff, Continental Securities Corporation, and intervener, M. Risinger, to be owners, in indivision, in the proportion of an undivided one-half each, of all the lands described in plaintiff's petition. The judgment further orders that partition be made by licitation; that all costs be borne by the mass; and that the balance of the proceeds of sale, after payment of costs, be equally divided between plaintiff, Continental Securities Corporation, and M. Risinger, intervener.

From this judgment, defendant George W. Wetherbee has prosecuted a devolutive appeal to this court.

The defendants George W. Wetherbee and Abel Bliss acquired all of this property, except an 80-acre tract, from Simon Hamburg, by recorded deed of date September 10, 1910, and these defendants later acquired this tract also from N.E. Muggah by recorded deed of date February 17, 1913. On June 26, 1923, defendant Abel Bliss sold and conveyed to defendant George W. Wetherbee all of his right, title, and interest in the property; and George W. Wetherbee, at that date, acquired the full ownership of all the property described in plaintiff's petition.

The Continental Securities Corporation alleges the above facts in its petition, and avers that on August 5, 1933, it acquired at sheriff's sale, under executory process, an undivided one-half interest in the entire property in cause No. 11,622 in the district court of Bossier parish, entitled "Continental Securities Corporation v. George W. Wetherbee," being the same Wetherbee, defendant herein.

The Continental Securities Corporation also alleges that defendant Abel Bliss is the owner and holder of a mortgage duly recorded, bearing against the undivided one-half interest in the property described in article I hereof, owned by the said George W. Wetherbee, and should be made a party defendant in order to protect whatever interest he may have in the premises.

Alleging that petitioner and defendant George W. Wetherbee are co-owners, in indivision, in the proportion of an undivided one-half interest each of the entire property, Continental Securities Corporation prays for citation to George W. Wetherbee and Abel Bliss; that petitioner and George W. Wetherbee be recognized as owners in indivision of the property described in article I hereof; that the property be partitioned by licitation, and proceeds of sale be divided between the parties in accordance with their interest therein. In the alternative, petitioner prays for a partition in kind.

(1) In the answer and amended answer of defendant George W. Wetherbee, to plaintiff's petition, defendant admits that he acquired all of the property as set forth in plaintiff's petition, but denies that plaintiff acquired any interest by the sheriff's sale therein referred to.

Assuming the position of plaintiff in reconvention, defendant attacks the sheriff's sale, the basis of plaintiff's title, as null and void for the following reasons:

(a) The foreclosure proceedings and the ensuing sheriff's sale went beyond the provisions of the mortgage in not excepting therefrom the right of defendant George Wetherbee, mortgagor, to produce oil from the premises.

(b) The mortgage, and the ensuing sheriff's sale based thereon, covered the entire undivided interest in the property and not merely an undivided one-half interest therein; and

(c) There was no actual seizure of the property by the sheriff preceding the sale.

(2) As to the first ground of attack on plaintiff's title. On September 10, 1910, Bliss and Wetherbee purchased from Simon Hamburg, and from N.E. Muggah on February 17, 1913, approximately 8,300 acres of land in Bossier parish.

Thereafter, on June 26, 1923, Wetherbee bought all the right, title, and interest of Bliss in the property in question (Tr., Vol. 1, p. 93) for $250,000, part of which was paid in cash and the balance on terms of credit. (Tr., Vol. 1, p. 96). To secure the credit portion of the price, a special mortgage and vendor's lien was stipulated "on said property." Tr., Vol. 1, p. 97.

On May 27, 1927, defendant Wetherbee executed a mortgage covering the entire property to secure two notes of $50,000 each, later acquired by the plaintiff, Continental Securities Corporation. Tr., Vol. 2, pp. 11, 12.

After describing in detail the property covered by this mortgage, the following clause is contained therein: "* * * together with all buildings and improvements on all the lands described hereinabove of whatever nature and kind, including any and all oil wells, or any interest therein owned by said mortgagor, together with all equipment and appurtenances thereunto belonging.

"It is specifically agreed and understood that this act of mortgage does not, in any way, affect or apply to the oil and/orgas which has been or may be produced from the above property, and that the said George W. Wetherbee shall have the right to sell said oil and/or gas and to collect and receive the proceeds thereof free from any lien, privilege, or incumbrance resultingfrom this mortgage; and the Standard Oil Company of Louisiana, orany other person, firm or corporation which may purchase said oil and/or gas, is hereby authorized to remit the purchase price tothe said George W. Wetherbee." (Italics ours.) Tr., Vol. 2, p. 15.

This mortgage was given by Wetherbee to the Commercial National Bank of Shreveport, La. The act of mortgage was prepared by the attorney for the bank, and the notes were later acquired by plaintiff. It is the mortgage which was foreclosed by plaintiff, and plaintiff's title is based on this foreclosure proceeding.

Defendant Wetherbee contends that the mortgage foreclosed did not in any way affect or apply to the oil and/or gas which hasbeen or may be produced from the above-described premises, and that, in this foreclosure proceeding, plaintiff completely ignored the exception of the oil and gas from the property mortgaged, and proceeded as though this exception did not exist.

Plaintiff, as assignee of the bank, takes the position that the sole purpose of this exception was to enable Wetherbee to sell the oil which he was then producing from the property to the Standard Pipe Line Company and receive the price.

But a mere reading of the exception in question shows that its scope is much broader and that more was intended by the parties thereto. The provision in the exception "that this act of mortgage does not in any way affect or apply to the oil * * *which has been or may be produced from the above described property * * *," clearly conveys the idea that the mortgage does not in any way affect or apply to the oil which might be produced from the described lands. It is true, under the established jurisprudence of this state, that the owner of the land or the owner of the mineral rights does not own oil and gas in place;but he does own the right "to draw them from the soil and thereby become the owner," as held in the following cases: Frost-Johnson Lumber Company v. Salling's Heirs, 150 La. 756, at page 863, 91 So. 207; Lieber v. Ouachita Natural Gas Oil Co., 153 La. 160, at page 165, 95 So. 538; Wemple v. Nabors Oil Gas Co.,154 La. 483, 97 So. 666.

Construing the language of the above clause, in connection with the jurisprudence of this state, its import becomes apparent that the parties did not intend that the mortgage should cover or affect the right to produce oil from the premises.

The fact that Wetherbee mortgaged the buildings and improvements on the land and any and all oil wells thereon, together with the equipment and appurtenances thereto belonging shows only, in our opinion, that he intended to mortgage the land and everything thereon. By stipulating that the oil wells were mortgaged, the idea conveyed is that such wells were an improvement on the premises, and that the physical property which went into the wells, namely, the pipe, rigs, etc., was mortgaged.

This general clause in the mortgage describing the property mortgaged is followed immediately by a special clause, specifically stating that Wetherbee did not intend to mortgagethe right he had to produce oil from the premises. In the face of this special clause, specifically excepting "the oil whichhas been or may be produced" from the property mortgaged, the conclusion drawn by plaintiff that, since Wetherbee mortgaged the oil wells, he must have intended to mortgage his right to produce oil therefrom is clearly a non sequitur.

It follows, necessarily, that plaintiff corporation had no right to foreclose in such a manner as to have the land and the right to produce oil therefrom sold, as though the mortgage covered both. It must be conceded that the holder of a mortgage has no right in a foreclosure proceeding to have adjudicated to him something of great value which was not included in the mortgage and claim title thereto.

The order granting executory process to plaintiff in this case adjudicated to that corporation only what is secured to it by its authentic act of mortgage. Mitchell v. Logan, 34 La.Ann. 998, at page 1002; McCoy v. Hunter, 167 La. 1032, at page 1036,120 So. 767.

There is no confession of judgment behind the seizure and sale of the excepted property in this case. The only judgment is that contained in the authentic act of mortgage, in which the right to produce oil and gas from the premises was specifically excepted. The seizure and sale of property, that is not specifically described in the act confessing judgment, is null and void for the reason that it is the taking of property without due process of law, which is prohibited alike by both State and Federal Constitutions (Const.La. 1921, art. 1, § 2; Const. U.S. Amend. 14). There was no error on the part of plaintiff in making this seizure. On the contrary, the seizure was deliberately made, and its validity is zealously asserted here by plaintiff.

In Gusman v. De Poret, 33 La.Ann. 333, cited by counsel for plaintiff, it is held that it is no valid ground of injunction for the defendant in execution that the sheriff has seized property that does not belong to him. Nor is the case at bar a case in which the sheriff has seized property of the debtor in excess of the amount called for by the writ, and recourse must be had for a reduction of the seizure. Nor is the case at bar a case in which the property of a third person has been seized along with that of the debtor, and the seizure and sale must be restrained as to so much of the property as does not belong to the debtor. The property illegally seized in this case belongs to the debtor, but is excepted from the property hypothecated to the creditor in the authentic act of mortgage, and there was no due process of law at all authorizing its seizure.

The chief value of the lands seized consist of the minerals and mineral rights. The land itself is appraised by the experts appointed in the partition proceedings at $3 per acre. The excepted real right of Wetherbee, the mortgagor, to produce oil from the premises, seized by plaintiff in this case, clearly constitutes the actual basis of the value of the lands mortgaged and seized.

(3) The second ground of attack upon plaintiff's title is that the mortgage held by plaintiff covered the entire 8,300 acres, less the right to produce oil and gas therefrom, and that plaintiff, as the foreclosing creditor, had no right to proceed against an undivided half-interest in the property.

It is well settled, under the jurisprudence, that the holder of a conventional mortgage does not have to foreclose against all the property covered by the mortgage, but may proceed against a distinct tract therein included.

But here we have an entirely different case. The position of the foreclosing creditor is that, as the holder of a conventional mortgage, it has the right to proceed against an undivided half-interest in the property covered by the mortgage, and the debtor cannot complain.

Plaintiff alleges in its petition that the property is indivisible in kind and must be sold as a whole to effect a partition; that a division of the property will result in a material diminution of its value; that a portion of the property is in cultivation and has buildings and improvements thereon, while a portion of same is in the woods and it is impracticable to make a partition thereof, so as to give to each co-owner in full ownership property equal in value to his half-interest.

Plaintiff secured the appointment of two appraisers, who reported that, because of the character of the land, the timber thereon, and the mineral values thereunder, the tract is indivisible (Tr., Vol. 1, p. 35); and produced witnesses who established to the satisfaction of the court below that the property cannot be handled in separate tracts or divided, because it had a greater value, owing to its timber and mineral rights, as a unit.

The record shows that, in the foreclosure sale, plaintiff, the seizing creditor, purchased an undivided one-half interest in the 8,300 acres of land in question for $8,000 (Tr., Vol. 1, pp. 22, 26); and, after the seizing creditor had acquired this undivided one-half interest, it brought this partition suit, secured judgment thereon, and the entire property was sold to the Lodwick Lumber Company for $82,500 (Tr., Vol. 1, p. 152). In other words, there is a difference between the price brought as to an undivided one-half interest of $33,250.

Under these circumstances, to permit a mortgagee to disregard the terms of the mortgage and to elect, at his will, as to what undivided interest he will proceed to foreclose upon, and have such interest adjudged to himself would, in many cases, amount to an oppression of the debtor and materially harm him.

The Supreme Court recognized the principle that a mortgage creditor cannot proceed against an indivisible portion of the mortgaged premises in Stinson v. Lelievre, 22 La.Ann. 191, where syllabus states the rule as follows: "Where three lots of ground lying contiguous to each other in the city of New Orleans, designated as lots Nos. 1, 2 and 3, have been specially mortgaged to secure a debt, and it is shown that lots Nos. 1 and 2, of the series, are incumbered by prior mortgages, and are entirely covered by a building used as a hotel, and that lot No. 3 forms the yard for the hotel, lot No. 3 can not be sold separately from that of Nos. 1 and 2 for the benefit of the mortgage for which all three stand pledged."

The legal situation as to the property in this case is similar to that in the case above cited. In the sale from Bliss of his undivided half interest to Wetherbee on June 26, 1923, a special mortgage and vendor's lien was stipulated "on said property." (Tr., Vol. 1, p. 93). On May 27, 1927, defendant Wetherbee executed a second mortgage on the entire property, already affected by the prior mortgage of Bliss on his undivided interest. The property is indivisible in kind in both cases, and the same rule must be applied in this case that was applied in Stinson v. Lelievre, 22 La.Ann. 191, cited supra.

To say that the holder of the mortgage can take the position that the indivisible nature of the contract is in his favor alone and that he may entirely disregard the rights of the other contracting party, even to the extent of injuring and oppressing the debtor, is not sound law, and cannot be countenanced by this court.

Nor does the case of Slidell Savings and Homestead Association v. Seal et al., 2 La.App. 617, relied upon by counsel for plaintiff, so hold, when properly analyzed. The Court of Appeal, in deciding that case, said: "No decision of our Supreme Court ina case parallel with this one has been cited in argument, nor canwe find any. There are Louisiana decisions, though, holding that the mortgagee may foreclose on part only of the property. Burgess v. Gordy, 32 La.Ann. 1296; Powell v. Hayes, 31 La.Ann. 789. But in each of these cases the part of the property referred to was a divided part.

"The Court of Cassation, in France, construing Article C.N. 2114, which corresponds with our Article C.C. 2382, says: It is well established that the indivisibility of the mortgage exists for the benefit of the creditor and cannot be invoked against him, and that such indivisibility is in the interest of thecreditor and cannot be used to deprive him of the payment of hisclaim. Cass., Nov. 9, 1847. To the same effect is the opinion of Laurent, Vol. 30, No. 178. We are unable to see how the division of the mortgage by plaintiff creditor, when it released from such mortgage the undivided half of the property owned by the Succession of Willis, can or could in any manner harm orprejudice the rights of Mrs. Seal.

"The question under discussion is one of the most abstruse in the civil law, and, though with a certain amount of diffidence, we have reached the conclusion that in consenting to andaccepting a division of the mortgage plaintiff has lost none ofits rights against Mrs. Seal." (Italics ours.)

Counsel for plaintiff, relying upon this decision, takes the position that plaintiff, as the holder of a conventional mortgage covering the whole property, may seize an undivided one-half interest in the property to satisfy the entire debt, because the indivisibility of the mortgage exists for the benefit of the creditor "and cannot be invoked against him to deprive him of thepayment of his claim," whether or not the debtor is harmed.

In the Slidell Homestead Association Case, it appears that the plaintiff held a mortgage on some property which belonged to a Mrs. Seal and H.J. Willis jointly. The note given by these two to secure the indebtedness was not an in solido obligation, but a joint obligation, that is, each was liable for one-half only of the debt. Then Willis died and, in the administration of his succession, his half interest in the property was sold to pay the debts, and the proceeds of the sale were given to the Slidell Homestead Association to apply on the indebtedness that Willis owed it. Subsequently, the Slidell Homestead Association brought suit against Mrs. Seal on the indebtedness owed by her to it and, as she owned only an undivided one-half interest in the property and the other half had already been freed from the mortgage by the succession sale, and the Slidell Homestead Association received the proceeds thereof, it proceeded against the half interest that Mrs. Seal owned, which was the only half the mortgage then covered.

Under these facts, the Court of Appeal held that the rights of Mrs. Seal were not in any manner harmed or prejudiced by the action of the Slidell Homestead Association proceeding against the undivided one-half interest which belonged to her. After distinguishing the cases relied on by the plaintiff in the case at bar, by stating that in such instances the part of the property under mortgage foreclosed on was "a divided part," the Court of Appeal referred to the French authorities to the effect that the indivisible nature of a mortgage is in the interest of the creditor and cannot be used to deprive him of the payment of his claim. The reference made in the opinion of the Court of Appeal to Laurent shows that the only thing which the French commentators had in mind was that, when the creditor died, each of his heirs had a right to demand his portion of the debt, but that, if the debtor paid each, he could not require a release of the mortgage until the entire mortgage was paid; that the mortgage rested on all the property until the entire and indivisible debt was discharged.

And we must not overlook the fact that the proof in the record in this case, particularly the judicial allegations of the plaintiff itself, establishes that the property here involved is indivisible and is worth more on the market as a unit, and that to divide it would be to materially lessen the value of each of its parts. It is clear, therefore, that the attempt of the plaintiff in this case to foreclose the mortgage only on a one-half undivided interest in the property, while the mortgage rested upon the whole, would harm and prejudice the rights of Wetherbee, the mortgagor. This is also another fact that differentiates this case from the Slidell Homestead Association Case.

The plaintiff had full authority, under C.P. art. 684, to foreclose its second mortgage on the entire property instead of on a half interest therein, but did not do so, for the reason that there could have been no adjudication or sale without a bid sufficient to cover the prior mortgage of Bliss. However, this fact did not justify plaintiff in the foreclosure of its mortgage on an undivided half interest in the property, to the harm of Wetherbee, the mortgagor, and to the prejudice of his rights.

The suit for partition was filed in this case October 25, 1933. The original answer of the defendant George W. Wetherbee to plaintiff's petition was filed November 2, 1933, and the amended answer and reconventional demand of this defendant, attacking the title of plaintiff, was filed December 14, 1933. At that time, the property was still claimed by the plaintiff in the foreclosure proceedings; the rights of no third party hadintervened. When the defendant filed its answer to the partition suit, setting up its defense that the plaintiff did not own any interest in the property, that the foreclosure proceedings under which the plaintiff claimed were illegal, he likewise filed a notice of lis pendens, advising the public that the defendant claimed to own the property involved, and that the foreclosure proceedings and sheriff's sale under which plaintiff claimed title were invalid (Tr., Vol. 1, p. 164). This notice also was in the mortgage certificate which was read out at the sheriff's sale, advising all prospective bidders of the defendant's defense and counter-attack. (Tr., Mortgage Certificate, Vol. 1, pp. 156 to 165.) The mortgage which plaintiff foreclosed was recorded and its recordation gave notice to all persons of its provisions and protected the mortgagor in his rights under the mortgage he had given. (Tr., Vol. 2, pp. 11 to 17.)

The purchase of the property at the partition sale by Lodwick Lumber Company was therefore done with knowledge of the contentions of the defendant that the title of the plaintiff was invalid. Consequently the Lodwick Lumber Company acted at its peril in making this purchase and took whatever title it acquired subject to the action of this court on appeal.

In Viley v. Wall, 154 La. 221, at page 229, 97 So. 409, 411, the contention was there made just like it is here urged: that the sole remedy of the foreclosed debtor was by appeal or to enjoin, and the court in answer said: "We have carefully examined the jurisprudence and have been unable to find any decision sustaining this view; nor have defendants cited any case so holding where the property had not passed out of the hands of thepurchaser at such sale, and who was charged with knowledge of and participation in the fraud and conspiracy, or other nullities orillegalities upon which the same was attacked. On the other hand, our reports are full of cases where such suits have been brought and decided, in which the proceedings and sales under executory process have been assailed after the sale, and the rights of the parties determined by the merits of each case." (Italics ours.)

The case at bar, therefore, falls clearly within the scope of Viley v. Wall, above cited, and defendant Wetherbee had the right to attack plaintiff's title.

Plaintiff's position is that, even though the foreclosure proceedings by which it acquired the property be illegal and invalid, still defendant Wetherbee cannot here show that plaintiff does not have title to the property upon which it comes into court.

In bringing the partition suit, plaintiff must necessarily show that he is a co-owner with the defendant Wetherbee; otherwise, plaintiff has no standing to request the court to partition the property.

"In partition suit, ownership must be alleged and proved, and defendant may inquire into validity of proceedings whereby plaintiff acquired title upon which he sues." Bauman v. Pennywell, 160 La. 555, 107 So. 425; Samuels v. Parsons,146 La. 262, 83 So. 548.

Particularly is this the case where plaintiff claims to have acquired the property by executory process, as in the case at bar, for "in proceedings viâ executivâ the creditor must bring himself within the letter of the law." Robb v. Potts, 2 La.Ann. 552; Bank of Leesville v. Wingate, 123 La. 386, 48 So. 1005.

It cannot be argued seriously in this case that the order of the judge, authorizing the writ of executory process to issue in the proceedings provoked by plaintiff against the defendant, foreclosed all inquiry into the validity of these proceedings.

The answer to such contention is that executory process lacks the following elements of a judgment:

"1. It is not preceded by citation, the foundation of a judgment.

"2. It creates no issue.

"3. It decides no issue, and requires no answer or default.

"4. It adjudicates to the plaintiff no right which is notsecured by his notarial act, nor deprives him of any thussecured. * * *

"7. It cannot support the plea of res judicata or lis pendens." (Italics ours.) Mitchell v. Logan, 34 La.Ann. 998, at page 1002. See, also, McCoy v. Hunter, 167 La. 1032, 1036, 120 So. 767.

Defendant clearly has the right to attack plaintiff's title in the present suit.

Our conclusion is that the title upon which plaintiff predicates its right to a partition is invalid. Then the sale to Lodwick Lumber Company automatically falls. Plaintiff is defendant in reconvention and obtained in the court below judgment for title and partition by licitation, and the property was sold to the lumber company. The legal situation in the case is the same as obtains where the defendant sells property which is in litigation, after a decision of the trial court, which is reversed on appeal. In such cases where a notice of lis pendens is recorded, the purchaser takes title subject to the action of this court on appeal.

The dismissal of plaintiff's suit would bring about the dismissal of the intervention of M. Risinger, who holds under the foreclosure of Abel Bliss of his mortgage against George W. Wetherbee. Gorman v. Gorman, 158 La. 274, at page 276,103 So. 766, and cases there cited.

On August 27, 1936, Mrs. Nettie L. Bliss, executrix of the succession of Abel Bliss, deceased, was substituted as party defendant in this case by the order of this court.

We do not find it necessary to pass upon the third ground of attack upon plaintiff's title made by the defendant George W. Wetherbee that there was no actual seizure of the property preceding the sale.

It is ordered that the judgment appealed from be annulled and reversed.

It is now ordered that there be judgment in favor of defendant George W. Wetherbee and against Continental Securities Corporation, plaintiff, declaring and decreeing null and void and without effect the title of plaintiff to an undivided one-half interest in all the property described in plaintiff's petition, alleged to have been acquired by plaintiff from defendant George W. Wetherbee August 5, 1933, under executory process, in suit No. 11,622 on the docket of the district court for the parish of Bossier, and that plaintiff's suit be dismissed at its costs.

It is further ordered that the intervention of M. Risinger be also dismissed at his cost, reserving to intervener whatever right he may have to proceed by a separate action.

On Rehearing.