GRAHAM & LOCKE INVESTMENTS, Inc., et al., Appellants, v. Thomas Mack MADISON et al., Appellees.
No. 15042.
Court of Civil Appeals of Texas. Dallas.
May 25, 1956.
On Motion for Rehearing Oct. 5, 1956. Further Rehearing Denied Nov. 2, 1956.
Austin S. Dodd and Grady Niblo, Dallas, for appellees.
YOUNG, Justice.
Original opinion herein of date March 9, 1956, is set aside and withdrawn; and the following substituted in its stead:
The suit was initially in trespass to try title by T. B. Madison against Graham & Locke Investments, Inc., B. A. Graham, and J. O. Talley, for recovery of two tracts of land and improvements in vicinity of Central Expressway, Routh and Bryan Streets, Dallas; by amendment becoming an action by T. B. Madison, individually and as trustee, and nephew Thomas Mack Madison, to set aside a deed of B. A. Graham, substitute trustee, dated March 3, 1954; in other words, to vacate and hold for naught a March 2, 1954 proceeding of foreclosure; alleging usury in the $3,000 second lien note declared in default and basis of the public sale, gross inadequacy of sales price, irregularities incident to foreclosure, disqualification of substitute trustee by way of relationship to purchaser, etc. The only answer to plaintiffs’ trial pleading was a plea of not guilty.
On trial to the court, said trustee‘s deed was voided and title to the property reinvested in Thomas Mack Madison as bene-
Prior to July 29, 1952, title to the property in controversy was in T. B. Madison, he conveying same on that date to his nephew and partner in the real estate business, Thomas Mack Madison; the latter on July 31, 1952 executing a promissory note in principal sum of $20,000 to The Praetorians at 6% interest per annum, payable in monthly installments of $255.20 and secured by first lien deed of trust. On August 29, 1952 Thomas Mack Madison reconveyed the property to his uncle, T. B. Madison, trustee, with deed not recorded until May 7, 1954. In June 1953, the Madisons, needing additional funds, consulted with J. O. Talley, a broker in real estate loans. A $3,000 second lien note against the property of date June 19, 1953 was then executed by Thos. Mack Madison, and T. B. Madison “Co-Signor“; with J. O. Talley, payee, interest at 5% per annum, payable in eleven monthly installments of $75 each, balance due in twelve months, the note being held by payors until negotiated by Talley. This broker at once interested one O. L. Nelms in the transaction, who agreed to pay $2,500 for the note, conditioned on furnishing of mortgage policy. The services of Texas Title & Abstract Company, whose attorney was Edgar W. Layton, were engaged for that purpose. The deal was closed by the Title Company on June 22, 1953, Nelms having delivered to it the sum of $2,500; disbursed on letter of Thomas Mack Madison to various parties; inclusive, according to Layton, of a $200 brokerage fee to J. O. Talley on oral instruction of said Madison. Assignment of lien to Nelms from Talley and the Thomas Mack Madison deed of trust securing the note to Edgar W. Layton, Trustee, were dated June 19, 1953 (date of note).
On January 26, 1954 appellant Company purchased this note, paying full value ($2,851.52), with assignment of lien from Nelms, at which time the November, December, and January installments of $75 each were past due. B. A. Graham then visited T. B. Madison and requested him to catch up on these payments which the latter promised to do. About the same time appellant discovered that the Madisons were considerably in arrears on The Praetorian first lien note payments; Graham again going to Madison‘s office on the premises (1014 Routh Street) and inquiring for Mack Madison to no avail; asking for payments past due of T. B. Madison without success; then electing, as he testified, to declare the $3,000 note wholly due after notice to the elder Madison. Appellant Company immediately paid The Praetorians the sum of $1,176 past due on that note; then secured the resignation of Layton as trustee in second deed of trust and appointed B. A. Graham substitute trustee, who posted notices on January 30, 1954 for trustee‘s sale on March 2. At the public sale conducted by the substitute trustee on said date, the property was knocked off to Graham & Locke Investments, Inc., on its bid of $1,000, with trustee‘s deed of March 3, in accordance. By later proceedings in forcible entry and detainer, T. B. Madison was evicted from the property, appellant thereby gaining possession; on the trial duly accounting for rentals received therefrom by the Corporation. Beginning in 1952, Thomas Mack Madison was engaged as a student at Tuskegee Institute in Alabama; then in U. S. Air Force as a pilot; at time of trial, on assignment in Japan, his testimony being in form of deposition taken prior to departure.
In first amended petition plaintiffs had prayed for relief, viz.: Removal of cloud from title to the property by reason of said
The record includes a statement of facts. In addition, the court made lengthy findings of fact and conclusions of law in support of plaintiffs’ judgment, fixing $6,781.06 as the amount they should tender into court for benefit of defendant in adjustment of equities, which deposit was made April 20, 1955; finding the $3,000 note not to be tainted with usury at its inception; dismissing J. O. Talley as defendant and fixing $40,000 as reasonable market value of the property at time of foreclosure. Further conclusions were to effect that the bid of $1,000 for the property at public sale was grossly inadequate, considering its cash market value of $40,000, subject to encumbrances of about $21,000; also concluding “that said inadequate sale price, standing alone, might not be sufficient alone to vacate and set aside said substitute trustee‘s deed and sale; but when coupled with other equitable considerations in the light of all facts and circumstances in evidence in this cause, the same should be set aside and vacated.”
Points of appeal may be summarized, viz.: The trial court‘s error in finding that sales price of the property at the March 1954 foreclosure was grossly inadequate; that competent evidence was lacking or at least insufficient for the court‘s finding of $40,000 as reasonable market value of the property on date of the trustee‘s sale; that the sales price to appellant was not $1,000, but in fact some $21,000 (balance due on first lien plus moneys advanced thereon by defendant Company and in purchase of the $3,000 note). Further points will be numbered as in appellants’ brief: (5) No irregularity was involved as regards
The settled rule is stated in Sparkman v. McWhirter, Tex.Civ.App., 263 S.W.2d 832, 837, (writ ref.), that a “trustee‘s sale will not be avoided merely because of inadequacy of price. Thornton v. Goodman, Tex.Com.App., 216 S.W. 147; for avoidance and in conjunction, there must be evidence of irregularity, though slight; which irregularity must have caused or contributed to cause the property to be sold for a grossly inadequate price. (Citing authorities.)” In consequence of above quoted principle it is manifest that
We now reach appellants’ fifth point challenging the trial court‘s conclusion of law that the March 1954 foreclosure of property was illegal and void because of the holder‘s failure to exhibit such installment note to the maker before declaring it wholly due. Such conclusion (3-b) recited in part: “The defendant, Graham & Locke Investments, Inc., holder of said note, had no right to declare due the whole sum of said note before starting the said deed of trust foreclosure sale or concluding such sale, having failed to exhibit said note to the person from whom payment was demanded, the evidence being insufficient to show any waiver of right to demand presentment or lack of necessity for exhibiting same. See
T. B. Madison did not testify at the trial; testimony relevant to the foregoing point being from substitute trustee Graham, called to the stand as an adverse witness by counsel for appellees. Excerpts from the testimony of this witness are quoted:
“Q. Now, following the acquisition from O. L. Nelms of the note and deed of trust securing it, what was the next step that was taken? A. The next thing was that I talked to Madison to get him to make the payments, pay the thing up, delinquent payments.
“Q. Well, was that before, was that the next step you took? A. Yes, the next thing I done.
“Q. When did you do that? A. A few days after I discovered he was in arrears with his payments.
“Q. * * * you discovered that at the time you acquired the note, didn‘t you? A. I don‘t believe so. * * * * * *
“Q. * * * Mr. Graham, I believe I have asked you if you ever talked with Thomas Mack Madison and you said, ‘No.’ Did you ever present this note to Thomas Mack Madison for payment? A. No.
“Q. Did you ever exhibit it to the maker, Thomas Mack Madison, before you posted it for sale? A. I talked to this Madison here (indicating) several times before I posted it.
“Q. But you never talked to Thomas Mack Madison, the maker of the note? A. No. * * *
“Q. (By Mr. Dodd) Now, did you have the note with you when you were talking to Thomas B. Madison? A. I wouldn‘t say that I did, because when you go out (Emphasis ours.) * * *
“Q. Now when you talked with Thomas B. Madison what did you tell him as to who the owner of this note was? A. I told him Graham & Locke Investment.
“Q. How much money were you asking at that time? A. I would have to refer to the record; I don‘t recall just how much money I was asking him for. * * *
“Q. Well, can you give me any idea? What is your record? * * * A. He was delinquent on the payments, so I asked him about paying up his payments.
“Q. Is that the only thing you asked about, as to payments, just the delinquent payments? A. That is the only thing I was interested in, was the back payments on the property, yes, sir.
“Q. You didn‘t make any demand on him for the payment of the—for the whole note at that time? A. No.
“Q. You never made any demand on Thomas Mack Madison for the whole note? A. I never seen Thomas Mack Madison * * *
“Q. Mr. Graham, when you conducted this foreclosure you elected to declare the whole second lien note due, didn‘t you? A. Yes.
“Q. You elected to exercise that election beforehand, before you conducted the sale? A. I don‘t understand your question.
“Q. When did you first elect to declare the whole thing due? A. I declared the whole thing due immediately after I discovered that the first lien note was so far behind there that the first lien holder was going to foreclose on it if I didn‘t, and I had to do something to protect myself.
“Q. You elected, then, to declare the whole $3,000 note due? A. Yes. * * * A. I had to do that to defend myself, and if the first lien holder had foreclosed I would have lost my money.
“Q. Did you give Thomas Mack Madison notification you elected to declare that $3,000 wholly due? A. I certainly did.
“Q. Now, how did you do that? A. By going to his office, telling him that it was due and—
“Q. I asked you if you notified Thomas Mack Madison? A. Oh, no, Thomas B. Madison, I did.
“Q. But Thomas Mack Madison, who signed the note, you never saw? A. No.
“Q. Never had any communication with him? A. No.
“Q. Never sent him any notice of any kind that you elected to declare that whole note due? A. I went by the address he gave me on the note to see Thomas Mack Madison and Thomas B. Madison, I told him my mission.
“Q. I didn‘t ask you that. You made no inquiry about where Thomas Mack Madison was? A. I certainly did, yes.
“Q. What inquiry? A. I asked Thomas B. Madison where—I told him I wanted to see Thomas Mack Madison. He said, ‘he is not here.’
I said, ‘I am out here about this note. It is way past due.’ He says, ‘Well, I will get you the money shortly. I will take care of that,’ and I went by twice, two or three times.
“Q. You haven‘t answered the question. Did you learn where he was? A. No. Thomas B. Madison told me, he said, ‘I will take care of that.’ I didn‘t talk to him about his being in the service. I didn‘t know he was in the service until his deposition was taken and I learned through my attorney he was in the service. Nobody told me differently. I don‘t know he was in the service.”
It is not disputed that Thomas Mack Madison was out of Dallas County at time of above occurrences, he having authorized T. B. Madison to act for him on all business matters during the interim and that such was the purpose of his 1952 conveyance of the property to his uncle as trustee. Further, that the second lien deed of trust did not authorize the trustee named therein or his substitute to accelerate payment of said $3,000 note for any default in first lien installment payments, but that the following proviso constituted a part of such second lien deed of trust: “It is specially agreed that in case of any sale hereunder, all prerequisites to said sale shall be presumed to have been performed, and that in any conveyance given hereunder all statement of facts, or other recitals herein made, as to the non-payment of money secured, or as to the breach or non-performance of any of the covenants herein set forth, or as to the request of the trustee to enforce this trust, or as to the proper and due appointment of any substitute trustee, or as to the advertisement of sale, or time or place or manner of sale, or as to any other preliminary act or thing, shall be taken in all courts of law or equity as prima facie evidence that the facts so stated or recited are true.”
Recurring again to the trial court‘s conclusion of law (3-b), same obviously has its basis in the established rule restated in Faulk v. Futch, Tex.Civ.App., 209 S.W.2d 1008, 1010, affirmed 147 Tex. 253, 214 S.W.2d 614, 5 A.L.R.2d 963, that “Where the acceleration clause in a promissory note leaves it optional with the holder whether he shall declare the whole amount due upon failure to pay any installment of principal or interest, such holder cannot without presentment for payment, exercise his option to declare the whole amount due, if no specific place of payment is expressed in the note, until it has been presented to the payer at the latter‘s known place of business“; and
No failure of presentment or exhibition of note as a prerequisite of the holder‘s right to mature an installment note was affirmatively pled by appellees. This issue would therefore appear as having been waived unless preserved, in view of Rule 67, Texas Rules of Civil Procedure; and certainly, the point was insufficiently developed at the trial, Madison, the co-maker and representative of Thomas Mack Madison, not even testifying. A presumption consistent with presentment of note may be inferred from his silence, together with above quoted recitals of appellees’ second deed of trust that all prerequisites necessary to trustee‘s sale shall be presumed to have been performed. See Faine v. Wilson, Tex.Civ.App., 192 S.W.2d 456; Cunningham v. Paschall, Tex.Civ.App., 135 S.W.2d 293; Slaughter v. Qualls, 139 Tex. 340, 162 S.W.2d 671, affirming Tex.Civ.App., 149 S.W.2d 651.
Be this as it may, the repeated demands of Graham upon Madison for payment of delinquent installments were fruitless, presenting a situation identical with that dealt with in Faulk v. Futch, supra, where the San Antonio Court, construing
Likewise the trial court erred in its conclusion that B. A. Graham, officer and principal stockholder in the corporation beneficiary under the deed of trust, was thereby disqualified from acting as substitute trustee with the beneficiary corporation as the successful bidder. “A deed in trust to secure a debt is in legal effect a mere mortgage with power of sale. McLane v. Paschal, 47 Tex. 365. Interest in the debt secured does not disqualify one from acting as trustee. The mortgagee may himself act as trustee, and become the purchaser under such sale. (Citing authorities.) In view of this holding by our Supreme Court, the Circuit Court of Appeals of the Fifth Circuit, in Randolph v. Allen, 73 F. 23, 37, 19 C.C.A. 353, 367, held a sale by a trustee, an employe of the beneficiary, and at his direction, valid.” Thornton v. Goodman, supra [216 S.W. 148]. See also Heiner v. Homeland Realty Co., Tex.Civ.App., 100 S.W.2d 793; Dall v. Lindsey, Tex.Civ.App., 237 S.W.2d 1006; Southern Trust & Mortgage Co. v. Daniel, 143 Tex. 321, 184 S.W.2d 465.
We reach appellees’ cross-assignments complaining of certain adverse court rulings; first, by exception thereto in the judgment and now presented in appropriate points; in which connection appellants’ motion to dismiss the cross-appeal is overruled. Graham & Locke Investments, Inc., has brought up the entire judgment for review, to which the adversaries’ right to file cross-assignments at once attached. 3-B Tex.Jur., Appeal and Error, p. 156; Ward v. Scarborough, Tex.Com.App., 236 S.W. 441; Bowman v. Puckett, 144 Tex. 125, 188 S.W.2d 571; Rule 420, T.R.C.P.
Appellees’ first and second cross-assignments are to effect that the mentioned second lien note was usurious in its inception, they receiving only $2,300 as result of the transaction; the note thereby not being in default at time of foreclosure if credited with the $700 alleged unlawful charge. The trial court found to the contrary, dismissing J. O. Talley, original payee. The latter defendant was not made party to this appeal, with resulting finality of judgment as to him. Also the record undisputedly reveals that the $200 payment to Talley was by way of brokerage, paid by the borrower negotiating the note. “A commission paid to the agent or broker of a borrower, for services rendered in re-
Appellees’ third cross-point asserts usury in inception of the note as regards the Nelms part of the transaction; in effect, that same evidenced a $3,000 obligation of the Madisons, and negotiated by their broker Talley to Nelms for $2,500; constituting usury; in consequence, that no part of the principal debt was due at time of the foreclosure sale, thereby rendering premature and void the entire proceedings. In this connection we must further examine the note, the circumstances of its execution, and brief history. It was dated June 19, 1953, contemporaneously with the Mack Madison deed of trust and assignment by Talley to Nelms. Although Talley was the payee, the proceeds ($2,500) were disbursed to the Madisons or on their order; said “payee” never having had possession of the note, with the deal completed upon processing by the Abstract Company, inclusive of the mortgage policy required by Nelms. The latter then assigned the paper to Republic National Bank of Dallas as collateral; on January 26, 1954 transferred back to him and over to Graham & Locke Investments, Inc. Nelms, testifying, stated that he was in the business of finance and real estate; recalling no more than that he had acquired the $3,000 note from Talley for $2,500, not remembering to whom his check was made payable. Talley further stated that he was acting as broker for the Madisons throughout the deal; i. e., to find a purchaser for the note on terms satisfactory to them; and for which service he was to receive a commission; also that Madison furnished the mortgage policy. The second lien deed of trust securing the $3,000 note was filed for record on June 24, 1953.
Turning to the case at bar, the trial court correctly held that a commission paid to the broker or agent of the borrower for services rendered in respect to the transaction will not render the loan usurious, if the lender is not interested. 42 Tex.Jur., supra. But in our opinion, the $500 differential between face of the note and money advanced by Nelms for its purchase, presents quite another situation. Cross-appellee argues the nonexistence of usury; that the case is one of simply a bona fide purchase at a discount. Otherwise stated, that this Honorable Court has before it a situation “where the makers of a negotiable promissory note executed it without consideration naming as payee
The contention must be overruled. Under undisputed facts the role of Talley as mortgagee in the transaction is conclusively shown to be a simulated one; and as cross-appellee tacitly admits, sale of the note to Nelms was by the Madisons through their agent Talley. The conclusion is inescapable that Nelms was chargeable with notice that his advancement of money was going to the Madisons and that Talley was but an intermediary whose only interest was to obtain a commission for negotiating the loan.
As a result, Nelms was actually the purchaser of a note from, or the lender of the money to, the Madisons, exacting an obligation of a larger amount; in either event, a manifestly usurious transaction. 42 Tex.Jur. 906. “When the chose discounted is obtained directly from the maker or before it has acquired validity by a transfer for value, it can be be nothing more than the maker‘s promise to pay, and the purchase of such a promise at a discount exceeding the lawful rate of interest is merely making a loan at a usurious rate.” 91 C.J.S., Usury, § 19, p. 595. 55 Am.Jur., p. 345; Annotations, 165 A.L.R., p. 642; Morris v. First State Bank of Dallas, Tex.Civ.App., 192 S.W. 1074. “If the transaction was in substance and fact a loan of money by appellees to Crozier, the mere fact that the note was made payable to Gribble, and by him indorsed to them, will not alter its legal features nor serve to avoid the consequences of usury. If a note is offered for discount by the maker, it is plainly usurious as between him and the party to whom it is delivered, if the discount from its face value were greater than that allowed upon a loan.” Wilson, Texas Civil Cases, sec. 802, p. 706.
Under
If we be correct in the foregoing conclusions, it is evident, as cross-appellants point out, that the trial court has required an excessive cash deposit in its judgment; itemized as follows: $346.24 as 10% interest charged on the unpaid principal of $2,813.33 (Original $3,000 note), and $41.33 credited to interest on back of said note. Complaint is made of further items making up the deposit of $6,781.06 as of April 18, 1955, as follows: $451.25, being 25% of $1,805 of rents collected from the property, as a reasonable service charge due Graham & Locke Investments, Inc.; also failure to charge said defendant with legal interest on rents collected. Concerning these items, there is no pleading or proof in support of the trial court‘s credit to defendant corporation of a 25% charge for rent collections and same should be disallowed. In the adjustment of equities said rental item of $1,805 should be deducted from credits due the corporation for payments on first lien, with interest allowed only on the difference or balance of payments. The judgment requiring cross-appellants to deposit $6,781.06 is accordingly reformed and corrected by reduction of the deposit to
Otherwise, we hold that the trial court properly ruled in favor of Thomas Mack Madison herein, although on grounds other than stated in its findings and conclusions; and as modified and reformed in the particulars just mentioned (reduction of deposit), the said judgment must be affirmed.
Affirmed.
On Motion for Rehearing.
Under the foregoing construction of
Above conclusions would render unnecessary any discussion of points 1 to 9 as presented by cross-appellees; but relative thereto the following may be stated briefly: (1) It is still our view that Nelms was chargeable with notice of the Title Company transactions concerning manner in which his check for $2,500 was disbursed. According to Mr. Layton, on his books the entire deal was “charged to T. B. Madison” with disbursements by checks as follows: Mortgage policy premium $42; $5 escrow fee; County Clerk $3.25 recording and transfer fee; attorney‘s fee $5; to Collector of Internal Revenue $500; Merchants State Bank $531.33; J. O. Talley $200; City Tax Collector $225.76; Thos. B. Madison, three items totaling $987.66. A trial court finding that Nelms was not the lender, but a purchaser of the original note in good faith, would be to “ignore the realities“; as was observed in Elliott v. Schlein, D.C.Mun.App., 104 A.2d 418, 420, under almost identical facts. So, also, in Schanz v. Sotscheck, 86 Misc. 121, 149 N.Y.S. 145, Id., 167 App.Div. 202, 152 N.Y.S. 851. (2) In point 9 cross-appellees assert that the Madisons, not coming into court with clean hands, are in no position to ask relief from the courts. A defense of equitable estoppel is thus raised, not affirmatively pled. Rule 94, T.R.C.P.
However, on grounds first above assigned, cross-appellees’ motion for rehearing must be sustained, our order of affirmance set aside, and instead, that judgment of the trial court be here reversed and rendered for original appellants; except that the Madisons are entitled to withdrawal of their court deposit (actually $6,792.16), which the District Clerk is ordered to return to them, taking due receipt therefor.
Reversed and rendered.