Slaughter v. Morris
291 S.W. 961 (1926)
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Rule of Law:
A purchaser of property who takes title "subject to" existing mortgage liens, but does not assume the underlying debt, is not personally liable for that debt. Therefore, such a purchaser may buy the property at a foreclosure sale initiated by a senior lienholder and acquire title free and clear of any junior liens.
Facts:
- O. M. Morris sold a parcel of real property to A. D. Hamilton.
- The property was encumbered by three liens: a first, a second, and a third lien securing a $610 note held by A. L. Slaughter.
- The deed of conveyance stated the purchase price and recited that the transfer was "subject to" all three existing notes.
- Morris and Hamilton had a contemporaneous oral agreement, confirmed by the drafting attorney, that Hamilton would not personally assume liability for any of the notes.
- The holder of the second lien initiated a foreclosure sale due to a default in payment.
- A. D. Hamilton attended the foreclosure sale and placed the winning bid, purchasing the property.
- J.T. Wood, a co-owner of the third lien note, also attended and bid on the property at the foreclosure sale.
Procedural Posture:
- A. L. Slaughter sued O. M. Morris and A. D. Hamilton in a trial court for the balance on a note and to foreclose a third lien on property Hamilton now owned.
- J. T. Wood was permitted to intervene as a co-plaintiff.
- The case was tried before the court without a jury.
- The trial court found that Hamilton had not assumed the note and that the foreclosure sale under the second lien extinguished the third lien.
- The trial court entered judgment that Slaughter and Wood take nothing and that the cloud on Hamilton's title from the third lien be removed.
- Slaughter and Wood, as appellants, appealed the judgment to the Court of Civil Appeals of Texas; Hamilton is the appellee.
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Issue:
Does a property owner who purchases property "subject to" a senior and junior mortgage, without contractually assuming the underlying debt, extinguish the junior mortgage by purchasing the property at a valid foreclosure sale under the senior mortgage?
Opinions:
Majority - Blair, J.
Yes, a non-assuming owner's purchase at a senior foreclosure sale extinguishes junior liens. The recitation of consideration in a deed, including language that a conveyance is "subject to" an existing debt, is not contractual in nature and can be clarified by parol evidence. Here, undisputed testimony showed an express agreement that Hamilton would not assume the debts, so no implied assumption arose from the deed's language. Because Hamilton was not personally obligated to pay the second lien, he was not in default, and he was entitled to bid at the foreclosure sale like any third party. A valid foreclosure by a senior lienholder extinguishes all junior liens, and Hamilton's purchase at that sale therefore gave him title free from Slaughter's third lien.
Analysis:
This case solidifies the critical legal distinction between taking property "subject to" a mortgage and "assuming" a mortgage. It affirms that parol evidence is admissible to prove the parties' true intent regarding liability when the deed's consideration clause is a mere recital and not contractual. The decision establishes that a grantee who does not assume a senior mortgage has no duty to the junior lienholder to prevent foreclosure and can participate in the sale to protect their own interest, effectively clearing the title of junior encumbrances.
