Viersen v. Boettcher , 1963 Okla. LEXIS 534 ( 1963 )

JACKSON, Justice.

In the trial court, plaintiffs Henry Boettcher and Catherine Boettcher Converse sued the defendants, Sam K. Viersen, R. W. Viersen, Edith Viersen Terry, the Central National Bank of Okmulgee, Oklahoma, and the Cal-Cul Oil Company, a “can-celled corporation”, in an action to quiet their title to the mineral (royalty) interest under a described quarter section of land in Roger Mills County. The Cal-Cul Oil Company filed no answer and took no part in the proceedings in the trial court and did not appeal; the other defendants filed an answer in the nature of a general denial, and a cross petition in which they claimed an undivided one-half mineral interest in the lands concerned and asked that their title be quieted. Both plaintiffs and defendants pleaded that they were in possession, and based their claims upon separate chains of title to be hereinafter described. We will continue to refer to the parties as they appeared in the trial court, or by name.

Most of the facts were stipulated. In 1922 the then owner of the entire interest in the premises mortgaged the same to the Federal Mortgage Loan Company, and the mortgage was thereafter assigned to William Sharp. In 1930 the then owners of the premises, subject to the mortgage, sold an undivided one-half interest in the minerals (hereinafter referred to as the severed minerals), and such interest descended by mesne conveyances to the Cal-Cul Oil Company. In 1933 the Cal-Cul Oil Company was adjudged a bankrupt in proper proceedings in the United States District Court, and a trustee in bankruptcy was appointed. In the schedules filed by or on behalf of the bankrupt, the severed minerals were listed as an asset of Cal-Cul, but apparently there was no notation that they were subject to a prior mortgage. In 1937 the trustee, after proper proceedings, sold “all of the assets” of the bankrupt, including the severed minerals, to some of the defendants in this case. The holder of the mortgage was not served with any notice of the bankruptcy proceedings, or of the trustee’s sale in connection therewith. The claims of defendants herein rest upon the validity and effect of the trustee’s sale, under which they claim.

In 1935, William Sharp, the holder of the mortgage previously mentioned, instituted mortgage foreclosure proceedings in the district court of Roger Mills County. Mr. Sharp apparently had no actual knowledge of the bankruptcy proceedings, and no service of notice of the mortgage foreclosure proceedings was had upon the trustee, although there was a personal service of notice upon the president of the bankrupt Cal-Cul Oil Company. The sheriff’s sale, pursuant to the mortgage foreclosure judgment, was not had until 1938, and the trustee in bankruptcy had no notice of the sale. Plaintiffs herein claim under the sheriff’s sale.

Judgment of the trial court was for plaintiffs and defendants appeal. They here argue several propositions, all of which concern the relative effect and validity of the two sales under which the parties claim.

Since the 1937 trustee’s sale was first in point of time, we will consider it first, and in that connection we take note of the following well established rules with regard to federal court bankruptcy proceedings and sales:

“The rule ‘caveat emptor’ prevails in bankruptcy sales, as in all judicial sales, unless special direction otherwise is made in the order of sale. Generally, unless the sale is specifically free from liens, only such rights, title and interests as the bankrupt held and owned at the time of his adjudication in bankruptcy, and as passed on to the trustee, are acquired, subject to any outstanding liens, charges or encumbrances valid and enforceable as against the trustee.” Remington on Bankruptcy, Vol. 6, Sec. 2569.

‘.‘If the sale is not expressly ordered to be free and clear of liens, it is a sale subject to liens.” Remington on Bankruptcy, Vol. 6, Sec. 2576.

“ * * * the trustee has no superior rights or greater interest in the property and occupies no better position with respect thereto than the bankrupt.

* * * the trustee takes the property, not as an innocent purchaser for value, without notice, but as the debtor had it at the time of bankruptcy, subject to all valid claims, liens, and equities.” 8 C.J.S. Bankruptcy § 199.

“A purchaser from the trustee in bankruptcy takes no better title than the bankrupt or trustee had.” Higgs v. Renfrow, 195 Okl. 545, 159 P.2d 749.

“ * * * Title to assets vests in the trustee on filing of a petition under the Act, and that title is not subject to divestiture by judgment in an action against the bankrupt, commenced after bankruptcy, to which the trustee is not a party.” Remington on Bankruptcy, Vol. 3, Sec. 1402; Hull v. Burr, 61 Fla. 625, 55 So. 852, 26 ABR 897.

Under the above rules of law and the undisputed facts in this case, it may be said that the trustee’s sale had exactly the same effect as if the bankrupt corporation itself had sold the severed minerals prior to the adjudication in bankruptcy. Insofar as the question of title is concerned, the trustee in bankruptcy stood in the shoes of the bankrupt, and took no better title than the bankrupt had. It is conceded that the bankrupt corporation held the severed minerals subject to the prior mortgage; the trustee sold it the same way. It is not alleged, and the record does not show, that the order authorizing the trustee to sell the severed minerals specifically directed him to sell them free of liens or encumbrances, or that the trustee’s sale was had with the consent of the mortgage holder.

We therefore hold that the purchasers at the trustee’s sale, and those claiming under them, held the severed minerals here concerned subject to the prior mortgage. Such being the case, the mortgage, with the related right to foreclose upon non-payment of the debt it secured, was still valid as to the severed minerals.

We now consider the 1938 sheriff’s sale pursuant to the mortgage foreclosure proceedings. At that time, title to the severed minerals had passed from the bankrupt corporation to the trustee in bankruptcy, and from the trustee to the purchasers at the trustee’s sale. It is undisputed that no notice of the mortgage foreclosure proceedings, or of the resulting sale, was served upon the trustee in bankruptcy or his successors in interest.

It is well settled that when a real estate mortgage is foreclosed by action, and the owner of an interest in the property is not made a party defendant, the interest of such owner is not foreclosed. Rives v. Stanford, 188 Okl. 108, 106 P.2d 1101. The same rule is applicable where the separate interest consists of a severed mineral interest. Deruy v. Noah, 199 Okl. 230, 185 P.2d 189.

Since defendants herein, claimants under the trustee’s sale, were not parties to subsequent mortgage foreclosure proceedings and sheriff’s sale, we hold that their severed mineral interest was not foreclosed thereby, and that plaintiffs herein, claimants under the sheriff’s sale, acquired no interest therein.

In their answer brief filed herein, plaintiffs in the trial court (defendants in error herein) present counter propositions to the general effect that (1) the foreclosure judgment is not void on the face of the judgment roll and cannot be collaterally attacked in this action, and (2) therefore, the defendants below are barred by the 5 and 15 year statutes of limitation.

While it is generally true that a judgment which is valid on its face may not be “collaterally attacked”, plaintiffs overlook the fact that it was the plaintiffs who put the validity of the mortgage foreclosure proceedings in issue in this case. They asserted the validity of the foreclosure proceedings and sheriff’s deed in their petition as the basis of their title, and introduced the mortgage foreclosure proceedings in evidence in support of their pleadings; the validity of which was denied by defendants by appropriate pleadings. In Mayfield v. L. V. French Truck Service, Inc., Okl., 369 P.2d 461, we said that the jurisdiction of any court exercising authority over any subject may be inquired into in every other court when the proceedings of the former are relied on and brought before the latter by a party claiming the benefit of such proceeding.

As heretofore observed, the trustee in bankruptcy was not a party to the mortgage foreclosure proceedings and had no notice thereof. We think it follows that the foreclosure proceedings as to the trustee, and those claiming under him, were void. Barrett v. Board of County Com’rs of Tulsa County, 185 Okl. 111, 90 P.2d 442; Greco v. Foster, Okl., 268 P.2d 215; and Grisham v. Commissioners of the Land Office, Okl., 324 P.2d 278.

On the question of whether the defendants are barred from recovery on their cross-petition by the limitation provisions contained in 12 O.S.1961 § 93(1), we are of the view that they are not. The Cal-Cul Oil Company was adjudged a bankrupt in 1933, and the title to these severed minerals vested in the trustee in bankruptcy at the time the petition in bankruptcy was filed. Remington on Bankruptcy, Vol. 3, Sec. 1042, supra; Hull v. Burr, 61 Fla. 625, 55 So. 852, 26 ABR 897, supra. The petition for mortgage foreclosure was filed in Roger Mills county on January 7, 1935; alias execution was issued on January 12, 1938; and the mortgaged land was sold on execution sale on February 21, 1938. We think these facts bring this proposition within the rule announced in the second paragraph of the syllabus in Walden-Page Memorial Hospital v. Bentsen, Okl., 370 P.2d 5, wherein we held:

“12 O.S.1951 § 93(1), is not applicable to an action in ejectment brought by a grantee of a prior mortgagor, which mortgagor thereafter became the execution debtor in a mortgage foreclosure proceeding, where the title of such grantee was acquired before the commencement of the foreclosure proceeding, and the grantee was not a party to the foreclosure proceeding.”

We do not find that defendants’ cross-petition, to quiet their title to the severed minerals, is barred by the 15 year limitation period provided for in 12 O.S. 1961 § 93(4). It is not contended that the mineral deed which severed the minerals is ambiguous. The Cal-Cul Oil Company went into constructive possession of this mineral interest when the mineral deed was executed and delivered. Maloy v. Smith, Okl., 341 P.2d 912. The Cal-Cul Oil Company and its successors in interest, which include the defendants herein, thereafter remained in continuous constructive possession until defendants’ cross-petition was filed. In Warner v. Mason, 109 Okl. 13, 234 P. 747, we held that an action to quiet title, where the plaintiff has been in continuous possession of the property, claiming ownership therein, can be maintained at any time, and no statute of limitation bars his right to the relief sought. We think this rule is applicable here.

The plaintiffs, in an effort to show a claim of adverse possession of the severed mineral interest, offered in evidence copies of oil and gas leases covering the premises which were executed in 1947 and 1960 by the plaintiffs, as well as the testimony of agricultural or farm tenants who testified that they had been in possession of the property during substantial periods of time under leases from the fee owners. The execution and recording of oil and gas leases by a mineral co-tenant, standing alone, will not support a claim of adverse possession to severed mineral which are owned by and in the constructive possession of another. See 35 A.L.R.2d 178, and cases there cited. Possession of the surface by the surface owner constitutes no noticeable claim of adverse possession to the owner of the mineral estate. Strickland v. Reeburg, Okl., 362 P.2d 1110; Douglass v. Mounce, Okl., 303 P.2d 430.

In summary, we hold that the 1937 trustee’s sale, under which defendants claim, having been had without notice to, or service upon the holder of the prior mortgage, was not effective to foreclose the interests of the mortgage holder against the severed mineral interest. However, the 1938 sheriff’s sale, conducted pursuant to the mortgage foreclosure proceeding in which the defendants and their predecessors were not made parties, was not effective to divest defendants of their severed minerals.

We are aware of the 1938 amendment of the Bankruptcy Act, commonly called the Chandler Act, which provides for the recording of the petition, decree of adjudication, or order approving trustee’s bond, in every county where the bankrupt owns real property, and further provides that “ * * * Unless a certified copy of the petition, decree, or order has been recorded in such office, in any county wherein the bankrupt owns or has an interest in real property in any State vahóse laivs authorize such recording, the commencement of a proceeding under this title shall not be constructive notice to or affect the title of any subsequent bona-fide purchaser or lienor of real property in such county * * * (emphasis supplied.) However, the Chandler Act was not effective until September 22, 1938; and Oklahoma laws did not authorize the filing of such instruments until 1945. 19 O.S. 1961 §§ 262 and 263. In the case now before us, the trustee’s sale was completed, and the trustee’s deed was recorded, in 1937; the sheriff’s sale was completed, and the deed recorded, in April, 1938. The purchaser at the sheriff’s sale was the mortgagee, and the plaintiffs in the instant case claim their interest in the premises under a quit claim deed from the mortgagee-purchaser to their father in 1941.

Whether the 'mortgage may still he foreclosed as against the severed mineral interest was not presented as an issue in this case, and we express no opinion in regard thereto.

As to an undivided one-half interest in the minerals, the judgment in favor of the plaintiffs is affirmed; as to the other undivided one-half interest in the minerals (the severed minerals), the judgment is reversed and the cause is remanded to the trial court with directions to enter judgment for defendants quieting their title to such interest, subject to whatever rights the plaintiffs may have, if any, under the mortgage.

Or, if appropriate pleadings are filed, and the trial court so elects, the court may, upon notice and hearing, determine whatever rights the plaintiffs may, or may not, have under the mortgage, and enter judgment thereon, concurrently and consistent with the judgment heretofore ordered to be entered upon remand.

BLACKBIRD, C. J., HALLEY, V. C. J., and WELCH, DAVISON and JOHNSON, JJ., concur. WILLIAMS, IRWIN and BERRY, JJ., dissent.