Mercer v. Daoran Corp.
1984 Tex. LEXIS 371, 27 Tex. Sup. Ct. J. 470, 676 S.W.2d 580 (1984)
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Rule of Law:
A junior lienholder who acquires a lien at a time when a senior lien is valid and of record is bound by a subsequent, unrecorded agreement between the property owner and the senior lienholder to renew and extend the senior lien. Such a junior lienholder is not a 'bona fide third person' entitled to protection under recording statutes that void unrecorded extensions.
Facts:
- In August 1974, Pauline and Charles Ducroz executed a promissory note to the First National Bank of Angleton, secured by a recorded deed of trust on their fifteen-acre property.
- In February 1975, Jon Mercer obtained a judgment against Charles Ducroz and properly recorded it, creating a judgment lien against Charles's interest in the property.
- In September 1975, the Ducrozes executed a new note and deed of trust to the Bank, but this document did not state that it was a renewal or extension of the original 1974 debt and lien.
- Between 1976 and 1978, subsequent deeds of trust were executed which did expressly recite they were in 'renewal and extension' of the previous debt.
- The four-year statute of limitations on the original 1974 lien expired in August 1979.
- In September 1979, Mercer foreclosed on his 1975 judgment lien and purchased Charles Ducroz's one-half interest in the property at a sheriff's sale, recording his deed.
- In 1980, after Pauline Ducroz defaulted on the 1978 note, the Bank foreclosed on its lien, purchased the entire property, and later deeded it to Daoran Corporation in 1981.
Procedural Posture:
- Jon Mercer filed a partition suit against Daoran Corporation in the trial court to establish his ownership of a one-half interest in the property.
- Daoran Corporation moved for summary judgment, which the trial court granted.
- Mercer, as appellant, appealed the summary judgment to the court of appeals.
- The court of appeals affirmed the trial court's judgment in favor of Daoran Corporation, the appellee.
- Mercer then appealed to the Supreme Court of Texas.
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Issue:
Is an unrecorded agreement to renew and extend a senior mortgage lien effective against a junior lienholder who acquired their lien before the senior lien appeared to be expired on the public record?
Opinions:
Majority - Justice Campbell
Yes, an unrecorded renewal of a senior lien is effective against a junior lienholder who acquired their lien when the senior lien was still valid of record. The statutes protecting 'bona fide third persons' from unrecorded lien extensions do not apply to a junior lienholder who acquired their interest with record notice of a valid, pre-existing senior lien. Mercer acquired his lien in 1975, when the Bank's 1974 lien was clearly valid on the record; therefore, his rights were always subject to the Bank's senior position. As such, Mercer is bound by any valid extension agreement between the Ducrozes and the Bank, regardless of whether that extension was recorded. However, the summary judgment for Daoran was improper because Daoran failed to provide competent summary judgment evidence proving a valid extension agreement actually existed. The bank president's affidavit contained only a legal conclusion that the debt was 'renewed,' and the attached 'copy' of the renewal note was not a copy of an executed document, thus violating the best evidence rule.
Analysis:
This decision clarifies the scope of protection afforded by recording statutes, establishing that the critical moment for determining a lienholder's rights is when their lien is acquired. It reinforces the principle that a junior lienholder takes their interest subject to all existing, valid senior encumbrances and cannot elevate their priority due to a senior lienholder's subsequent failure to record an extension. The case also serves as a crucial lesson in civil procedure, demonstrating that possessing a superior legal right is meaningless without presenting competent, admissible evidence to prove the underlying facts, especially in the context of summary judgment where evidentiary standards like the best evidence rule are strictly applied.
