Case Name: GARRETT et al. v. KATZ
Court: Texas Courts of Civil Appeals
Jurisdiction: Texas
Decision Date: 1929-11-27
Citations: 23 S.W.2d 436
Docket Number: No. 10451
Parties: GARRETT et al. v. KATZ.
Judges: 
Reporter: South Western Reporter Second Series
Volume: 23
Pages: 436–442

Head Matter:
GARRETT et al. v. KATZ.
(No. 10451.)
Court of Civil Appeals of Texas. Dallas.
Nov. 27, 1929.
Rehearing Denied Jan. 13, 1930.
Second Motion for Rehearing Denied Feb. 10, 1930.
Crate Dalton and Paul L. Raish, both of Dallas, for appellants.
J. L. Lipscomb and Cockrell, McBride, O’Donnell & Hamilton, all of Dallas, for ap-pellee.

Opinion:
LOONEY, J.
R. L. Garrett and wife, Flora Garrett, and Crate Dalton, their attorney, to whom they conveyed, subsequent to the transaction here involved, half interest in the property in controversy, sued Jenkins-Cobb & Massey Lumber Company, a corporation, M. Katz, and J. R. Cobb, to recover title to a parcel of land 46x108 feet, off the rear ends of lots 10 and 11, block 6, Ross addition to Dallas ; to cancel a certain deed dated February 23, 1926, executed by Garrett and wife, conveying said lot to the lumber company; and to cancel certain notes and trust deeds held by Katz and Cobb, claimed by them to constitute a valid mechanic's lien on the land and the eight-room duplex residence located thereon. Plaintiffs alleged that the land was the homestead of Garrett and wife; that the conveyance by them to the lumber company, while in form a deed, was in fact a mortgage; that the notes held by Katz and Cobb arose from a pretended mechanic's lien contract executed by.Garrett and wife, as owners, and John Schmitt, as contractor, purporting to fix a mechanic's lien for improvements to be erected on the premises, while in truth the contract was simulated and intended as an incumbrance upon the homestead for money to be used for other purposes.
The defendants all answered the suit. Katz answered by the general issue, and specially pleaded that the land in question was never in fact owned by Garrett and wife; that, while the record title stood in their names, the land belonged to the lumber company and was held in trust for it, therefore as Garrett and wife owned no interest in the land, they could- have no homestead interest therein; that it was intended by all parties that the contract signed by Garrett and wife and Schmitt should fix a valid lien for $5,000 on the property; that the note executed would be sold to an innocent purchaser; and further that, at the time he purchased the interest of $4,000 in the note, he had neither knowledge or notice of the facts above stated. Further pleading, Katz set up the mechanic's lien contract of date October 23, 1924, between Garrett and wife and John Schmitt, and alleged that on August 6, 1925, Schmitt, in consideration of $4,000 cash paid by said defendant, conveyed to him a $4,000i interest in the note, together with the lien securing same. The remaining $1,000 interest in the note, it seems, was assigned to defendant Cobb. Katz alleged, that his $4,000 interest in the note and lien was renewed and extended by Garrett and wife executing their five promissory notes, four in the sum of $250 each' and one for $3,000, due, respectively, one, two, three, four, and five years after date, all payable to said defendant, with interest, attorney fees, and providing for accelerated .maturity in case of default, which was alleged; that the notes were secured by a trust deed that recognized and extended the mechanic's lien for their security. He specially pleaded that he was an innocent purchaser of the $4,000 interest in the note; that he was induced to purchase same on the sworn representations of Garrett and wife to the effect that the debt constituted a valid mechanic's lien on the premises; that they made said representations for the purpose of inducing him to make such purchase; that -he relied upon said representations, and was innocent of any knowledge to the contrary; therefore prayed that plaintiffs be estopped to assert the invalidity of the mechanic's lien.
Dallas Title & Guaranty Company, by leave of court, intervened, adopted the pleadings of Katz, and alleged that it was induced to issue its mortgage policy in his favor upon the record title and upon the representations of Garrett and wife, made in the form of their sworn statement, that by reason thereof intervener had become obligated to I-iatz in the sum of $4,000, and pleaded estoppel against appellants from asserting against it or against Katz the claim set forth in their petition.
On the findings of the j.ury and the facts ascertained by the court, judgment was rendered in favor of plaintiffs against the lumber company, canceling the deed as prayed for, and against defendant Cobb canceling the mechanic's lien contract as to the $1,000 interest in the original alleged mechanic's lien note and the renewals and trust deed executed by Garrett and wife to secure same, and for recovery of the land as against said defendants. The court also rendered judgment in favor of Katz that plaintiffs take nothing on their plea against him for cancellation of the mechanic's lien contract, that he recover from Garrett and wife the amount due on the renewal notes, interest, and attorney's fees, with foreclosure of the mechanic's lien on the land for the amount of the judgment, less attorney's fees, and that plaintiffs be estopped, as to Katz and the Dallas Title & Guaranty Company, to assert the invalidity of the mechanic's lien.
This appeal is prosecuted by plaintiffs from the judgment against them in favor of Katz.
The facts are .undisputed to the effect that the land in question was, at and prior to the inception of the purported mechanic's lien contract between Garrett and wife and John Schmitt, their homestead; that the residence thereon had been recently converted from a six-room house into an eight-room duplex, and was free from incumbrance. Garrett and the lumber company, to whom he was indebted for labor and material used in improving the duplex residence and in constructing an apartment house on an adjoining lot, conceived the idea of having a pretended mechanic's lien contract executed, and used Schmitt, a carpenter who had formerly worked for Garrett, as the pretended contractor to whom the $5,000 note was made payable. Mrs. Garrett was cognizant of these facts when she joined in the execution of the lien contract.
The'material question for our decision is this, Were plaintiffs, under the facts and circumstances, estopped'to set up, in defense of the claim of Katz for foreclosure, the invalidity of the mechanic's lien contract? -
In response to a special issue the jury found that Katz was without knowledge of any vice in the transaction at the time he accepted and paid $4,000.00 for an interest in the note, and, in addition to this finding by the jury, the court found as follows: " ^nd jj- further appearing to the court that on or about August 12, 1925, the defendant, M. Katz, purchased $4,000.00 of the amount due .upon said mechanic's lien note * ⅜ ⅜ and that the said M. Katz had no notice or knowledge of the true facts concerning and surrounding the execution of said note and contract, and purchased same and advanced the sum of $4,000.00 thereon without knowledge or notice of the fact that the material and labor provided for in said, contract had not been purchased and performed in accordance therewith that Katz in doing so relied upon the representations of the plaintiffs, R. L. Garrett and wife, Flora Garrett to the effect that the improvements provided for in the mechanic's lien contract had been completed to the entire satisfaction of the plaintiffs, Garrett; that the said Schmitt (ostensible contractor) had carried out all .of the terms of his contract; that said contract was executed . and acknowledged by said plaintiffs Garrett prior to the placing of any material or the performing of any labor upon said real property, and that all bills for labor and material had been fully paid and that in so relying neither of said defendants (the plural includes Dallas Title & Guaranty Company, not involved in this appeal) had any knowledge or notice that said representations were false, which they were, and had no' knowledge or notice of any facts sufficient to put them (plural again) upon notice of the falsity of said representations and that all of said plaintiffs are estopped to set up any invalidity of the lien securing the aforesaid notes held by the defendant Katz an¿i are likewise estopped to set up as a defense the failure of consideration of said notes or any other vice therein."
These findings, by jury and, court, are sustained by evidence, and, in our opinion, justified the judgment in favor of Katz, unless propositions urged by plaintiffs, which we will now discuss, can be maintained.
Plaintiffs make the broad, contention that the simulated mechanic's lien contract, void under the provisions of the Constitution (section 50, art. 16), cannot be enforced even in the hands of an innocent purchaser, or given any validity under the doctrine of estoppel; in other words, that the sound public policy that inheres in the homestead protective provisions of the law should not be made to yield to the exigencies of private bargaining.
It is apparent, from the generous homestead provisions of our laws and the liberality manifested by courts in adjudicated cases, that homesteads are favorites of the law; yet we think it will be found that the doctrine broadly contended for by plaintiffs is against the law as settled in this state.
In a number of cases, where simulated or fictitious transactions, giving rise to ostensible liens on homesteads, were involved, our appellate courts have repeatedly held that bona fide purchasers of such liens should be protected. See Hurt v. Cooper, 63 Tex. 362; Love v. Breedlove, 75 Tex. 649, 13 S. W. 222; Eylar v. Eylar, 60 Tex. 315, 320; Graves v. Kinney, 95 Tex. 210, 66 S. W. 295; Harrison v. First National Bank (Tex. Civ. App.) 224 S. W. 269.
The doctrine is also well settled that, where a void lien emerges from an illegal transaction, such as the one involved in this controversy, the maker will be estopped - to set up its invalidity (Where he has induced a stranger ,to become its purchaser on representations that asserted its validity. See Buchanan v. Burnett, 102 Tex. 492, 119 S. W. 1141, 132 Am. St. Rep. 900; Cain v. Bonner (Tex. Civ. App.) 149 S. W. 702; Melcher v. Higbee (Tex. Civ. App.) 165 S. W. 478, 481; Moore v. Beakley (Tex. Com. App.) 215 S. W. 957; Baxter v. Baxter (Tex. Civ. App.) 225 S. W. 204; Farmers' State Bank v. Welch (Tex. Civ. App.) 279 S. W. 481; Bernstein v. Hibbs (Tex. Civ. App.) 284 S. W. 234; Barron v. Theophilakos (Tex. Civ. App.) 13 S.W.(2d) 739.
The findings of the jury and court are to the effect that, at the time Katz purchased the $4,000 interest in the mechanic's lien contract, he was without knowledge of any vice therein; that he relied upon representations of Garrett and wife to the effect that the improvements provided for in the mechanic's lien contract had been completed to their entire satisfaction and that Schmitt, the contractor, had carried out all the terms of the contract, that same had been executed and acknowledged by Garrett and wife prior to the placing of any material or the performing of any labor upon the real estate, and that all bills for labor and materials had been fully paid. These findings, in our judgment, fully justified the trial court in holding that plaintiffs were estopped to urge the invalidity of the mechanic's lien contract.
Another doctrine also recognized by the courts of this state is that, where a party by silence allows another to contract to his injury on the belief that certain facts exist which can be contradicted by the reticent party, the latter will be estopped to dispute the facts against the person whom he has thus assisted in deceiving. Burnett v. Atteberry, 105 Tex. 119-130, 145 S. W. 582, 587. On this phase of the case, the court made the following findings: "And it further appearing to the court that in addition to the fraudulent representations made by the plaintiffs, Garrett, the said plaintiffs purposely suppressed all information by which the defendant M. Katz and the defendant Dallas Title & Guaranty Company might have ascertained the true facts with relation to the lien securing said notes and that whatever right, title or interest the plaintiff Crate Dalton has in said property, he acquired with full notice and knowledge of the aforesaid conduct of his co-plaintiffs, and he holds no higher rights as to the defendants Katz and Dallas Title & Guaranty Company, than do his co-plaintiffs, and that all of said plaintiffs are estopped to set up any invalidity of the lien securing the aforesaid notes held by the defendant Katz and insured by the defendant Dallas Title & Guaranty Company, and are likewise estopped to set up as a defense the failure of consideration of said notes or any other vice therein."
In support of the doctrine of estoppel by silence, our Supreme Court, in Burnett v. Atteberry, supra, quoted at length from standard law-writers and leading cases the following:
"An estoppel may arise as effectually from' silence, where it is a duty to speak, as from words spoken. One may be induced to act to his injury on account of the silence of one interested in a transaction, and when such course of action is permitted with the knowledge of the interested party or induced- by silence or tacit acquiescence, the doctrine of estoppel may be invoked. The rule is tersely but accurately stated by Mr. Bigelow in the following sentence: 'A representation in the nature of a negative of one's rights may, as we have seen, arise from pure silence; and from pure but misleading silence with knowledge, or passive conduct joined with a duty to speak, an estoppel will arise.' Bigelow on Es-toppel, p. 564. See cases cited in footnote 3.
"Again, the same author, page 565, quoting from Lord Denman in Pickard v. Sears [6 A. & E. 469, 2 N. & P. 488] says: 'A party who negligently or culpably stands by and allows another to contract on the faith and understanding of a fact which he can contradict cannot afterwards dispute that fact in an action against the person whom he has himself .assisted in deceiving.'
, "As said by Chancellor Kent: 'There is no principle better established in this court, nor •one founded on more solid considerations of equity and public utility, than that which declares that if one man knowingly, though he 'does it tacitly, by looking on, suffers another to purchase and expend money on land under .-an erroneous opinion of title, without making known his claim, he shall not afterwards be permitted to exercise his legal right against such person. It would be an act of fraud and > injustice, and his conscience is bound by this equitable estoppel.' Wendell v. Van Rensselaer, 1. Johns. Ch. (N. Y.) 353.
"No less forceful is the principle of estop-! pel as here contended for laid down by Justice Swayne in the following language: 'The appellee insists that the record discloses a case of estoppel in pais, and that the appellant is thereby barred from maintaining the claim which he seeks to enforce in this litigation. The principle is an important one" in the administration of the law. It not-infrequently gives triumph to right and justice where nothing else could save them from defeat. It proceeds upon the ground that he Who has been silent as to his alleged rights when he ought in good faith to have spoken, shall not be heard * ⅜ * when he ought to be silent. Bank v. Lee, 13 Pet. 107, 10 L. Ed. 81.' Morgan v. Chicago & Amr. Co., 96 U. S. 716, 24 L. Ed. 743.
" 'Estoppel by silence arises where a person, who by force of circumstances is under a duty to another to speak, refrains from doing so and thereby- leads the other to believe in the existence of a state of facts in reliance upon which he acts to his prejudice.' 16 Cyc. 680, footnote 10.
"The doctrine laid down in the foregoing authorities is undoubtedly approved by our own court. Love v. Barber, 17 Tex. 318: Kagsdale v. Gohlke, 36 Tex. 287; Bynum v. Preston, 69 Tex. 288, 6 S. W. 428, 5 Am. St. Rep. 49; Waggoner v. Dodson, 96 Tex. 423, 73 S. W. 517."
The court's finding to the effect that Garrett and wife by silence permitted Katz to invest money in the obligation in suit was sustained by evidence, and, in our opinion, furnished an additional ground for the decree thpt estopped plaintiffs from asserting the invalidity of the mechanic's lien.
Plaintiffs insist, however, that, as Katz purchased an interest in the note after its maturity, he held the lien subject to all defenses that could have been urged by them if the suit had been brought by the original payee.
As before shown, the mechanic's lien contract and the note for $5,000 w.ere in fact executed in August, 1925, but were given a fictitious dating, as of October 23, 1924, and the note by its terms matured 60 days from that date. Under the findings of the court and jury, the transaction, so far as Katz was concerned, was real; therefore he became a purchaser several months after the maturity of the note, hence, under a well-established 'rule of law, would have been visited with notice of the invalidity of the mechanic's lien (Hill v. Jones Lbr. Co. [Tex. Civ. App.] 178 S. W. 28; Seay v. Fennell, 15 Tex. Civ. App. 261, 39 S. W. 181), but for the silence of Garrett and wife at a time when they should have spoken, and the false representa tions made when they did speak that induced Katz to invest money to his injury. See Farmers' State Bank v. Welch (Tex. Civ. App.) 279 S. W. 481; Bernstein v. Hibbs (Tex. Civ. App.) 284 S. W. 234.
Plaintiffs make the further contention that John Schmitt's signature to the transfer of the note was forged, and that Katz failed to prove title to any interest therein. On this issue Katz alleged: " That at the same time (when mechanic's lien contract was executed) the said Garrett and wife did execute to the said Schmidt their negotiable promissory note for $5,000.00, payable sixty days from its date; that to wit, August 6, 1925, the said John Schmitt, for value received, to wit, $4,000.00 cash in hand paid, did convey unto this defendant $4,000.00 interest in said $5,000.00 note, and all liens against said property to secure same, which instrument was filed for record on- August 12, 1925, with the county clerk of Dallas County after having been duly acknowledged by the said John Schmitt."
Plaintiffs failed to deny under oath the genuineness of the alleged written assignment from Schmitt to Katz, as required by article 2010, subd. 9, Rev. St. 1925, and failed to file with the papers of the cause an affidavit to the effect that they had good cause to believe and did believe that the alleged assignment from Schmitt to Katz was forged. Article 573, Rev. St. 1925, reads: "When suit is brought by an assignee or indorsee of a written instrument, the assignment or indorsement thereof sháll be held as fully proved, unless the defendant shall file with the papers in the cause an affidavit stating that he has good cause to believe, and does believe that such assignment or indorsement is forged."
Plaintiffs, having failed to raise the issue of forgery, by a sworn plea, cannot now contend that the assignment by Schmitt to Katz was a forgery.
Aside, however, from this consideration, it appears from the evidence that Schmitt's name to the papers was not in fact forged. As before shown, he had no interest in the matter — was a mere figurehead arbitrarily selected by Garrett to sign the instruments. When the papers were presented, Schmitt happened to be at work on top of a garage, and, under these circumstances, requested a Mr. Lon Crosby, who was standing on the ground just below, ,ito sign the papers for him.
Inspection of the judgment reveals the fact that the court not only decreed foreclosure _ of the mechanic's lien, as against plaintiffs, but rendered personal judgment for the frill amount of the debt against both Garrett and his wife, Flora Garrett. Mrs. Garrett has not complained of the personal judgment against her, but the same is error apparent and fundamental, which we cannot overlook, as the facts did not authorize personal judgment against her for debt.
We have carefully considered all assignments and propositions urged by plaintiffs, but find no error, save in the respect just mentioned; therefore the judgment of the court below is reformed as indicated, and, as reformed, is affirmed.
Reformed and affirmed.