First Southern Properties, Inc. v. Vallone
19 Tex. Sup. Ct. J. 154, 1976 Tex. LEXIS 189, 533 S.W.2d 339 (1976)
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Rule of Law:
Property placed under a court-appointed receivership is considered 'in custodia legis' (in the custody of the law), and any foreclosure sale of that property conducted without the authorizing court's permission is void. This rule applies regardless of whether a lis pendens notice was filed or whether the purchaser had actual or constructive notice of the receivership.
Facts:
- Jerry and Jennye Darnell were involved in a divorce proceeding.
- On April 11, 1973, a Court of Domestic Relations appointed Vince Vallone as a receiver to manage the Darnells' community property, which included a specific tract of real estate.
- This property was subject to a deed of trust securing a purchase money note held by the Oxfords, which Jerry Darnell had executed in 1966.
- The Darnells missed the monthly mortgage payment due on May 1, 1973.
- The Oxfords appointed a substitute trustee who, despite knowing of the receivership, proceeded with foreclosure without notifying the receiver or seeking court permission.
- On June 5, 1973, the substitute trustee sold the property at a foreclosure sale to First Southern Properties, Inc.
- Prior to the sale, First Southern Properties conducted a title search, which did not reveal the receivership because no lis pendens notice had been filed.
Procedural Posture:
- Vince Vallone, the receiver, filed suit against First Southern Properties in the Court of Domestic Relations of Harris County (trial court) to set aside the substitute trustee's deed.
- Following a non-jury trial, the trial court entered a judgment in favor of the receiver, setting aside the deed.
- First Southern Properties, as appellant, appealed to the court of civil appeals (intermediate appellate court).
- The court of civil appeals affirmed the trial court's judgment.
- First Southern Properties then brought this appeal to the Supreme Court of Texas (highest court).
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Issue:
Does a foreclosure sale of property under a court-appointed receivership convey valid title to a bona fide purchaser for value who lacked notice of the receivership, when the receiver failed to file a statutory lis pendens notice?
Opinions:
Majority - Daniel, Justice.
No, a foreclosure sale of property under a receivership does not convey valid title, even to a bona fide purchaser, because property 'in custodia legis' cannot be sold without the supervising court's permission. The court reasoned that the appointment of a receiver places the property into the court's exclusive jurisdiction and custody. This doctrine of 'custodia legis' is a long-standing rule of property law, distinct from and not superseded by the lis pendens statutes (Articles 6640-6642). The purpose of the 'custodia legis' rule is to ensure the orderly administration of justice and prevent interference with the court's control over the property. Therefore, a trustee has no authority to convey title to such property, and any attempted sale is void, not merely voidable. The purchaser's status as a bona fide purchaser is irrelevant because the lis pendens statutes were not intended to oust a court's jurisdiction over property in its custody.
Analysis:
This decision firmly establishes the supremacy of the 'custodia legis' doctrine over statutory notice requirements like lis pendens in the context of real property receiverships. It clarifies that a court's control over property in its custody is absolute and does not depend on public notice filings. This creates a significant risk for purchasers at foreclosure sales, as a standard title search may not reveal a receivership, potentially leading them to purchase a void title. The court's acknowledgment of this 'apparent harshness' and its recommendation for legislative action highlights the tension between protecting judicial authority and maintaining the reliability of public land records for bona fide purchasers.
