Lexplug logoLexplug

Lawson v. Gibbs

Court of Appeals of Texas
591 S.W.2d 292 (1979)
ELI5:

Rule of Law:

A collateral assignee of a promissory note who becomes the 'holder' through indorsement and delivery from the original payee has the authority to appoint a substitute trustee and initiate foreclosure under a deed of trust that grants this power to the note's 'legal owner and holder.'


Facts:

  • William H. Craig sold a tract of land to Wortham Investments, Inc., retaining a $10,000 vendor's lien secured by a deed of trust.
  • Craig then collaterally assigned the $10,000 note to Main Bank of Houston to secure a separate debt he owed to the bank.
  • At the same time, Craig formally indorsed and physically delivered the note to Main Bank.
  • Subsequently, Wortham Investments, Inc. sold the property to David K. Gibbs.
  • When the note went into default, Main Bank appointed Terrance Baggott as a substitute trustee.
  • Baggott conducted a non-judicial foreclosure sale, and David A. Lawson, Trustee, purchased the property as the highest bidder.

Procedural Posture:

  • David K. Gibbs filed a suit in a Texas trial court against David A. Lawson to quiet title and declare a foreclosure sale void.
  • Both Gibbs and Lawson filed competing motions for summary judgment.
  • The trial court granted summary judgment for Gibbs, holding the foreclosure sale was void, and denied Lawson's motion.
  • Lawson, as appellant, appealed the trial court's judgment to the Texas Court of Civil Appeals, with Gibbs as appellee.

Locked

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

Does the collateral assignee of a promissory note, who receives the note via indorsement and delivery, have the legal authority to appoint a substitute trustee and conduct a foreclosure sale when the governing deed of trust grants such power to the 'legal owner and holder' of the note?


Opinions:

Majority - Junell, Justice

Yes. The collateral assignee of an indorsed and delivered promissory note has the authority to appoint a substitute trustee because the negotiation makes the assignee the legal 'holder' of the note. The court reasoned that under the Texas Business & Commerce Code, negotiation (indorsement plus delivery) transfers the instrument and makes the transferee a 'holder.' As the holder, Main Bank could enforce the note in its own name. Since the security (the deed of trust) follows the debt (the note), and the deed of trust granted the 'legal owner and holder' the power to appoint a trustee, Main Bank validly exercised this power. The court distinguished this case from prior precedents like Merit Homes, where the notes were assigned but not indorsed, leaving the assignor as the holder with the power to appoint.



Analysis:

This decision clarifies the rights of secured parties who take possession of promissory notes as collateral. It establishes that the act of indorsement is critical in transferring the full rights of a 'holder,' including the power to enforce the security instrument non-judicially. This provides certainty for lenders, confirming that if they take a note via indorsement, they can directly exercise foreclosure rights granted in the deed of trust without needing the original payee's involvement. The case underscores the crucial distinction between a mere collateral assignment (a security interest under UCC Article 9) and a full negotiation of the instrument (a transfer of holder status under UCC Article 3).

🤖 Gunnerbot:
Query Lawson v. Gibbs (1979) directly. You can ask questions about any aspect of the case. If it's in the case, Gunnerbot will know.
Locked
Subscribe to Lexplug to chat with the Gunnerbot about this case.

Unlock the full brief for Lawson v. Gibbs