Gary Wojcik and Tim Washmon v. John Cooke

Washmon IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS, AT AUSTIN NO. 3-92-551-CV GARY WOJCIK AND TIM WASHMON, APPELLANTS vs. JOHN COOKE, APPELLEE FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT NO. 91-3436, HONORABLE PETE LOWRY, JUDGE PRESIDING John Cooke ("Cooke") brought this declaratory judgment suit against Gary Wojcik and Tim Washmon ("appellants") to quiet title to real property and to void appellants' lien against Cooke's property. Appellants counterclaimed, seeking a declaratory judgment recognizing their lien right to foreclose against Cooke's property. Following a bench trial, the district court rendered judgment granting Cooke legal title to the property in fee simple. The district court denied appellants the right to foreclose under the deed of trust as security for the note, but held that appellants were entitled to recover against Cooke on the note and awarded appellants limited attorney's fees. Appellants appeal from that part of the judgment declaring that Cooke was entitled to legal title to the property in fee simple and denying appellants the right to foreclose. Appellants also appeal from the limited award of attorney's fees. We will reverse the district court's declaratory judgment granting Cooke legal title to the property in fee simple and denying appellants the right to foreclose under the deed of trust. We will affirm the remainder of the judgment. BACKGROUND The Internal Revenue Service ("IRS") seized Cooke's property for federal income tax deficiencies. On September 5, 1990, the IRS held an auction at which appellants were the high bidders for Cooke's property. The IRS issued a Certificate of Sale of Seized Property to the appellants. Under the terms of the certificate of sale, Cooke was given 180 days after the sale to redeem the property; if Cooke failed to redeem the property in that time, appellants could surrender the certificate of sale to the IRS in exchange for a deed to the property. Shortly after the IRS auction, the bank that held Cooke's promissory note and the deed of trust on the property contacted appellants and offered to sell the note to appellants. (1) Appellants purchased the note and thereby acquired the deed of trust to the property. Appellants then paid off the accumulated property tax arrearages and gave Cooke notice of acceleration of the note. On the 180th day, March 4, 1991, Cooke tendered the IRS sale redemption funds to appellants. Appellants called the IRS to verify if the tender was made within the redemption period. After the IRS told appellants that the tender was a day late, appellants returned Cooke's tender. The IRS then issued appellants a quitclaim deed to the property, which appellants filed in the Travis County deed records. On March 7, 1991, Cooke filed suit to quiet title to the property. Within a week, appellants filed an answer and a counterclaim for foreclosure under the deed of trust. Shortly thereafter, the IRS informed appellants that, contrary to its earlier advice, Cooke's tender had been timely filed. (2) On March 27, appellants notified Cooke that they would accept the redemption tender. In return, appellants gave Cooke a "special warranty deed" to the property, dated April 1st, that conveyed from appellants to Cooke any interest in the property that appellants had acquired through the quitclaim deed executed by the IRS. Cooke then filed a supplemental petition, seeking a declaratory judgment that appellants' rights under the deed of trust had been extinguished and that the note held by appellants was void as a matter of law through the doctrine of merger. After a bench trial, the district court found that the doctrine of merger extinguished appellants' right to foreclose against the deed of trust as security for the note. The district court rendered judgment granting Cooke legal title to the property in fee simple and denied appellants the right to foreclose against the deed of trust as security for the note. However, the district court also rendered judgment that appellants were entitled to recover against Cooke on the note, and awarded them limited recovery of attorney's fees. Appellants complain of the denial of their right to foreclose under the deed of trust and the limited award of attorney's fees. DISCUSSION In their first point of error, appellants contend that the trial court's holding that the doctrine of merger extinguished appellants' equitable title rights is in error because no merger can occur where there is an impediment to taking title. Here, appellants argue that such an impediment prevented the conveyance of title and precluded the application of the doctrine of merger. We agree. By definition, there can be no merger where the equitable and legal estates rest with different parties. An essential element of the doctrine of merger is that both estates must unite in the same owner. Flag-Redfern Oil Co. v. Humble Exploration Co., Inc., 744 S.W.2d 6, 9 (Tex. 1987). "There must be two valid estates existing in the same right in the same party before the law will effect a merger, and, if one is void, the rule does not apply." Huselby v. Allison, 25 S.W.2d 1108, 1112 (Tex. Civ. App.--Amarillo 1930, writ dism'd w.o.j.). The two estates in question here are the legal and equitable estates in the Cooke property. When Cooke purchased the property in 1972, he secured the note with a deed of trust to the property. Cooke thus took legal title to the property and the note-holder acquired the equitable title. When the appellants bought Cooke's note from the bank, they acquired equitable title to the property. When appellants bid on the property at the IRS auction, they bought only an opportunity to acquire the legal title--an opportunity that would ripen only if and when the IRS acquired and properly conveyed full legal title. The evidence is undisputed that the IRS could convey no title before the expiration of the 180-day period. It is further undisputed that the IRS's attempt to convey the property before the expiration of the 180-day period was mistaken. Because Cooke tendered his redemption funds in time, the IRS never acquired full legal title to Cooke's property. Therefore, the IRS could not convey legal title to appellants. Cooke's tender of the redemption funds constituted an impediment to the IRS acquiring or conveying the title to Cooke's property. Consequently, appellants never owned both the legal and equitable estates and, as a matter of law, no merger could have occurred. Cooke further contends that the appellants' execution of a "special warranty deed" to him constituted a fee simple conveyance. We disagree. After Cooke's redemption tender was accepted, Cooke was concerned that the quitclaim from the IRS to appellants clouded his title. Appellants, therefore, obliged Cooke and transferred to him such interest as the IRS had conveyed to appellants. The face of the special warranty deed explicitly "conveys that interest in the described property acquired through that certain QuitClaim Deed to the Grantor, executed by the . . . Internal Revenue Service . . . ." (emphasis added). The special warranty deed indicates nothing more or less than a conveyance by the appellants of any interest acquired from the IRS. As we have concluded that the IRS did not acquire full legal title and the IRS had nothing to convey to appellants, the appellants could not convey a fee simple title to Cooke by special warranty deed. (3) Because no full legal title ever passed from the IRS to appellants, no merger occurred and appellants' quitclaim to Cooke did not pass fee simple title. Accordingly, appellants' first point of error is sustained. Appellants' second and third points of error concern the admissibility of parol evidence to determine whether a merger occurred and to construe the quitclaim and special warranty deeds. Our conclusion that the trial court erred on the merger issue comes from examining the evidence within the four corners of the quitclaim and special warranty deeds. Therefore, we need not reach the parol evidence issues raised by points of error two and three. In their fourth point of error, appellants contend that the trial court abused its discretion in limiting the award of attorney's fees. We disagree. The note on Cooke's property, held by appellants, provides that if "said note is placed in the hands of an attorney for collection or is collected through . . . legal proceedings, the makers agree to pay, as attorneys fees, an additional amount equal to ten per centum (10%) of the amount then owing on said note." In addition to the ten percent, appellants requested "reasonable fees" pursuant to the declaratory judgment. See Tex. Civ. Prac. & Rem. Code Ann. § 37.009 (West 1986). The trial court clearly did not abuse its discretion in limiting its award of attorney's fees to the contractual ten percent provision. Attorney's fee awards pursuant to the Declaratory Judgment Act are entirely discretionary and will not be overturned absent a clear showing that the trial court abused its discretion. Tex. Civ. Prac. & Rem. Code Ann. § 37.009 (West 1986); Oake v. Collin County, 692 S.W.2d 454, 455 (Tex. 1985). Appellants urge this Court to hold that the reasonableness of the fees requested overrides the contractual language of the note but make no showing that the trial court abused its discretion in limiting the fees awarded to the contractual provision. Nor does a review of the record show an abuse of discretion. Accordingly, appellants' fourth point of error is overruled. In their fifth point of error, appellants contend that the district court erred in entering findings of fact and conclusions of law after the expiration of the time period permitted under Rule 297 of the Texas Rules of Civil Procedure, and after signing a bill of exceptions that no findings of fact or conclusions of law had been timely filed. "[T]he trial court's duty to file findings of fact and conclusions of law is mandatory, [and] the failure to respond when all requests have been properly made is presumed harmful, unless the record before the appellate court affirmatively shows that the complaining party has suffered no injury." Cherne Indus., Inc. v. Magallanes, 763 S.W.2d 768, 772 (Tex. 1989). Since the district court did enter the findings of fact and conclusions of law before we considered the case on appeal and the appellants suffered no harm on appeal as a result of the late filing by the district court, appellants' fifth point of error is overruled. CONCLUSION We reverse the judgment of the district court with regard to the title to the property and render judgment that appellants may pursue their right to foreclose against the deed of trust as security for the note. The remainder of the judgment is affirmed. Mack Kidd, Justice [Before Justices Powers, Kidd and B. A. Smith] Affirmed in Part; Reversed and Rendered in Part Filed: August 11, 1993 [Do Not Publish] 1. The original note was executed in 1972 when Cooke purchased the property from Nettie Kueneke. Cooke made a down payment on the property and gave Kueneke an installment note for the balance, with the deed of trust as security. In 1990, Frost National Bank of San Antonio, as successor to Kueneke and trustee of the Kueneke estate, entered into a "Modification, Renewal, and Reinstatement of Real Estate Note and Lien" with Cooke. 2. The record is unclear as to whether the IRS's miscalculation of days occurred because the 180th day after the IRS auction fell on a Sunday or because the IRS initially counted the day of the sale, rather than the day after, as the first day of the 180-day period. In any event, Cooke made his tender of redemption funds on Monday, March 4, 1991, and the IRS misinformed appellants that the tender was untimely. 3. Although entitled "special warranty deed," the document in question is really a quitclaim deed. A conveyance instrument is a quitclaim rather than a special warranty deed when the document refers to the estate or title sold and not to the land itself. Harrison v. Boring, 44 Tex. 255, 263 (1875). It is well established in Texas that a quitclaim "purports to convey . . . no more than a present interest of the grantor; and does not operate to pass an interest such as may afterwards vest." Rodgers v. Burchard, 34 Tex. 441, 452 (1870); see Taylor v. Harrison, 47 Tex. 454, 461 (1877) (limiting the holding of Rodgers to quitclaim conveyances). In Rodgers, the Texas Supreme Court held that a purchaser at a judicial sale takes only such interest as the debtor actually had. Id. at 453. In this case, the IRS seized Cooke's property and placed a lien against Cooke's property for payment of back taxes. The lien could mature into title to the property only if Cooke failed to redeem the property within 180 days after the sale. See 26 U.S.C.A. § 6337(b) (1989). Since Cooke's tendered redemption of funds was timely made, the IRS acquired no title to the property.