Court Opinion

ID: 9641237
Source: CourtListenerOpinion
Date Created: 2023-08-22 17:26:05.915126+00
Date Added: 2024-06-11T18:10:35.939773
License: Public Domain

BAKER, Justice,
dissenting.
In the beginning, the majority finds that as both real and personal property secured the $200,000 Van Brunt note, BancTexas had the option under section 9.501(d) of the Texas Business and Commerce Code 1 to proceed separately as to the personal property and later proceed under the Texas Property Code as to the real property securing the Van Brunt indebtedness. In the end, the majority holds that any defect in BancTexas’s foreclosure under the Code has no effect on its rights under the real estate mortgage, including its right to seek a deficiency under real property law. In my view, the majority lost its way between the beginning and end. Consequently, I respectfully dissent.
Section 9.501(d) provides that if the security agreement covers both real and personal property, the secured party may proceed as to both in accordance with his rights and remedies in respect to the real property or the secured party may proceed under the Code as to the personal property. If the secured party proceeds as to both real and personal property in accordance with his rights and remedies in respect to the real property, then the Code default rules do not apply. The majority concludes, in accordance with the holdings of other jurisdictions, that when both real and personal properties secure a debt, section 9.501(d) gives secured creditors the option, upon a debtor’s default, to proceed against both the real and personal property collateral in separate actions, whether concurrently or successively. E.g., Kramer v. Exchange Nat’l Bank of Chicago, 118 Ill.2d 277, 113 Ill.Dec. 248, 252, 515 N.E.2d 57, 61 (1987).
However, the flaw in the majority’s analysis is that the majority wholly and consistently ignores the statutory requirement that the secured party must proceed as to both the real and personal property in accordance with its rights and remedies under real property law if the secured party wishes to avoid application of the Code default provisions as to the personal property. See § 9.501(d). The comment, also relied upon by the majority, makes this clear by suggesting that the secured party can proceed against the real property in one action and “in a separate action against the personal property in accordance with his rights and remedies against the real estate.” See § 9.501(d), comment 5.
The record reflects that when the Van Brunts executed the $200,000 note, Banc-Texas chose to secure it only with a deed of trust against the four-acre tract of land in Collin County. Subsequently, in November 1985, BancTexas chose to eross-eollateralize the $200,000 note with a personal property security interest in all of the assets of *131Labels Unlimited. When BancTexas gave notice to the Van Brunts of its intention to sell Labels Unlimited’s collateral under the security agreement, BancTexas chose to include the $200,000 note as one of the debts involved in the foreclosure proceeding. BancTexas chose to withdraw the collateral from the public sale previously noticed and proceed with a private sale without further notice to the Van Brunts. The record clearly reflects that BancTexas chose to proceed as to the personal property and all of the indebtedness in accordance with the Code provisions concerning default. There is no indication in the record that BancTexas attempted to sell the personal property in a manner consistent with a trustee’s sale of real property. In other words, BancTexas clearly did not do what it needed to do in order to avoid application of the Code provisions.
We held in the original opinion that because BancTexas failed to give proper notice of the private sale of the personal property, it could not seek a deficiency for the unpaid balances. See Tanenbaum v. Economics Laboratory, Inc., 628 S.W.2d 769, 772 (Tex.1982). If the protection provided to debtors by Tanenbaum is to be meaningful in cases where a debt is secured by both personal and real property and where the secured party has not taken the necessary action to avoid application of the Code provisions on default, the Tanen-baum principles must apply to prohibit a creditor from seeking a deficiency judgment after the sale of the real property. The majority’s holding eviscerates the Tanenbaum holding in any case where a debt is secured by both real and personal property, regardless of whether the secured creditor acted properly to opt out of the Code provisions regarding default. In cases where a creditor fails to comply with the applicable notice requirements of section 9.504, the majority effectively holds that Tanenbaum’s prohibition against suing for a deficiency is really not a prohibition if the debt was also secured by real property, despite the fact that the creditor has not complied with the provisions of section 9.501(d) allowing avoidance of the Code default provisions as to the personal property.
Contrary to the majority’s assertion, I do not read Hildner2 to suggest that the failure to notify a debtor of a foreclosure on personal property under the Code requires cancellation of a real estate mortgage taken as additional security. What I do read Hildner to say is that if a secured creditor chooses, as BancTexas did here, to proceed under the Code as to the entire indebtedness, including debt cross-collateralized by real property, by repossessing and selling the personal property, such course of action binds that creditor to any other applicable sections of the Code. See Hildner, 308 N.E.2d at 303.
The majority contends that the dissent’s position leads to the conclusion that Banc-Texas is precluded from foreclosing on its real property lien because the sale of the personal property would have satisfied all indebtedness. In my view, the fact that Tanenbaum prevents BancTexas from seeking a deficiency due to its failure to give adequate notice does not mean that BancTexas is precluded from foreclosing on its real property lien. The proceeds of the sale of the personal property did not satisfy all of the Van Brunt indebtedness. The unsatisfied balance remained as a deficiency, but because BancTexas failed to give adequate notice, Tanenbaum precludes it from asserting a cause of action for that unsatisfied deficiency. Foreclosing on the real property is not the seeking of a deficiency, so such action is not barred by Tanenbaum.
The Hildner rationale does not require the conclusion that the real estate mortgage is canceled, nor does it require the conclusion that the secured creditor is precluded from posting the real property and foreclosing under its deed of trust; it only compels the conclusion that after these actions are taken BancTexas is precluded from taking any action against the Van Brunts for any remaining deficiency on the note. This result is consistent with Tanen-baum. The majority’s suggestion to the *132contrary is based upon their erroneous construction of Tanenbaum. Under the particular facts in Tanenbaum, the Supreme Court held that when the creditor took possession of the collateral and scrapped it without giving notice of such disposition to the debtor, the creditor was deemed to have elected to retain the collateral in full satisfaction of the indebtedness under section 9.505 of the Code. See Tanenbaum, 628 S.W.2d at 772; § 9.505(b). Such is not the situation in the case before us. Banc-Texas did not destroy the collateral. Banc-Texas sold it by private sale without proper notice to the Van Brunts. Therefore, there is no basis for concluding that BancTexas effectively elected to retain the collateral in full satisfaction of the indebtedness in accordance with section 9.505.
BancTexas could have chosen to proceed against all of its collateral in accordance with its rights and remedies with respect to real property, or BancTexas could have chosen to proceed against the personal property collateral in a separate action under the Code provisions and against the real property collateral under the Texas Property Code provisions. In my view, because of the course of action that BancTex-as chose to take, I would hold that although the defect in BancTexas’s foreclosure under the Code does not affect its right to post and foreclose the real property and sell it under its deed of trust lien, BancTexas is precluded from seeking a deficiency of any balance remaining subsequent to such foreclosure.
I respectfully dissent.

. All section and Code references are to the Texas Business and Commerce Code Annotated (Vernon Supp.1990).

. Hildner v. Fox, 17 Ill.App.3d 97, 308 N.E.2d 301 (1974).