American Century Mortgage Investors v. Regional Center, Ltd.

• Decision Date: 02 October 1975
• Docket Number: No. 18703,18703
• Citation: 529 S.W.2d 578
• Parties: AMERICAN CENTURY MORTGAGE INVESTORS and Dan M. Cain, Substitute Trustee, Appellants, v. REGIONAL CENTER, LTD., Appellees.
• Court: Texas Court of Appeals

Page 578

529 S.W.2d 578

AMERICAN CENTURY MORTGAGE INVESTORS and Dan M. Cain Substitute Trustee, Appellants, v. REGIONAL CENTER, LTD., Appellees.

No. 18703.

Court of Civil Appeals of Texas Dallas.

Oct. 2, 1975.

Rehearing Denied Oct. 22, 1975.

Mark T. Davenport, Atwell, Cain & Davenport, Dallas, for appellants.

Christopher M. Weil, Weil, Craig & Fischman, Dallas, for appellees.

GUITTARD, Justice.

This appeal is from a temporary injunction restraining a trustee's foreclosure sale under a deed of trust. The principal ground alleged for injunctive relief is that the loan secured by the deed of trust was usurious because the note provided for interest at a rate permitted only for a corporate borrower, and that the actual borrower was not the corporation which had signed the note and deed of trust but was a limited partnership for whose benefit the corporation was acting. ¹ We reverse the trial court's order and dissolve the temporary injunction because we hold that no probable right of recovery was shown by the evidence at the temporary injunction hearing. More specifically, we hold that there is no evidence to support an implied finding by the trial court that the lender knew that the arrangement was a subterfuge to cloak a usurious transaction, and we hold also that in the absence of such knowledge, the transaction cannot be held usurious because of failure of the lender to go behind the loan documents and the legal record of the title and inquire whether the loan to the corporation was a subterfuge.

We consider first the evidence bearing on the issue of whether the lender knew that the corporation was not the actual borrower. The facts on this point are without serious dispute. The moving party behind the transaction was Frank Campbell, an experienced real estate broker engaged in the business of promoting and managing joint ventures in real estate. He was president of the ostensible borrower, Investment Real Estate Company, Inc., a corporation organized in 1970 and used by him in his business. There is no contention that Investment Real Estate Company was not at all relevant times a legitimate, functioning corporation.

In November 1971, Campbell acquired the right to purchase approximately twenty-seven acres of undeveloped land adjacent to Carpenter Freeway in Irving, Texas. Several days later he agreed in writing to contribute his rights in this land to a joint venture consisting of himself and several other investors. In accordance with this agreement, he took title to the land in January 1972 in the name of 'Frank C. Campbell, Trustee,' and about the same time he and the joint venturers joined with additional investors in signing articles of limited partnership for an enterprise known as 'Regional Center, Ltd.,' of which Campbell and six others were general partners. Evidently the principal purpose of the limited partnership was the acquisition and development of the land in question.

The purchase money was originally borrowed from a bank on a one-year note. Subsequently, Campbell and other general partners of Regional Center, Ltd. sought financing for a longer period. They approached representatives of Wintex Mortgage Company concerning a loan, and on November 4, 1972, Wintex obtained a commitment from the present defendant, American Century Mortgage Investors, to lend two million dollars to Regional Center, Ltd. at a rate of four and one-half percent above the prime interest rate established from time to time by Chase Manhattan Bank of New York. The commitment letter further required a deed of trust on the twenty-seven acres of land and a continuing guaranty of the loan by several of the general partners of Regional Center, Ltd.

When the commitment letter of November 4 was received, Wintex advised Campbell that the lender would require a corporate borrower. After consulting with Campbell, Wintex wrote a letter to American Century requesting several changes from the original commitment. Among the changes requested were that the name of the borrower be Investment Real Estate Company, Inc., that the loan be reduced to one million eight hundred thousand dollars because part of the land had been sold, and that the deed of trust cover the remaining land, consisting of approximately twenty-five acres.

These modifications in the commitment were accepted by American Century, and the loan was closed at the office of Dallas Title Company in Irving on January 19, 1973. As a part of the closing transaction, Campbell as trustee signed a warranty deed conveying the land to Investment Real Estate Company, Inc. In his capacity as president of the corporation he also signed a promissory note for one million eight hundred thousand dollars payable to American Century with interest at the rate of four and one-half percent above the prime lending rate as established by Chase Manhattan Bank of New York. The interest was payable monthly and the entire principal balance was payable at the end of two years. Campbell also signed, on behalf of the corporation, a deed of trust in favor of Harlon P. Sisk, trustee, for the benefit of American Century. Several of the general partners of Regional Center, Ltd. signed a continuing guaranty of the corporate note. This guaranty expressly limited their liability for interest to a maximum of ten percent per annum.

About the same time the loan was closed, three other documents were executed but were not disclosed to any representatives of the lender. One was a corporate resolution of Investment Real Estate Company, Inc., authorizing the corporation to take title to the land from Frank Campbell, trustee, and also authorizing Campbell as president of the corporation to execute the note and deed of trust in question. This resolution further provided that the corporation would hold the title as trustee for Regional Center, Ltd., and authorized Campbell to execute a deed conveying the land to Regional Center, Ltd. The second document not disclosed to the lender was a deed signed by Campbell as president of the corporation conveying the land to Regional Center, Ltd. in accordance with the resolution. The third was a letter to Gene Schutze, attorney for the corporation, instructing him to hold the deed in escrow and to file it for record in certain prescribed circumstances.

The evidence shows that the representatives of the borrower were careful not to disclose these three documents to any of the representatives of the lender or of the title company which insured the title of the borrowing corporation. This nondisclosure was explained at the temporary-injunction hearing by the corporation's attorney, Mr. Schutze, who testified that if these documents had been called to the attention of the title company, the loan could not have been closed. Also the lender's attorney, Mr. Poitevant, testified that if he had seen them at the time of the closing he would have 'bounced off the ceiling.'

The present suit was not brought by the corporate borrower but by the limited partnership, Regional Center, Ltd., alleging that it was the equitable owner of the land and that the loan was usurious because defendant American Century had contracted with the corporation and with plaintiff Regional Center, Ltd. for interest at a greater rate than that allowed by Texas law. Plaintiff further alleged that because of the 'contrivances, devices, and artifices' of defendant American Century, plaintiff was unable to exercise its rights in the land, make payments, or discharge encumbrances on the land. The only reason specified to support the alleged inability to discharge encumbrances is 'the impossibility of determination of exact amount, if any, due thereon, much less if any amount is due by reason of the aforesaid usurious transactions.'

The order granting the temporary injunction does not specify the ground of probable right to restrain the trustee's sale. The principal contention of defendant American Century on this appeal is that plaintiff has failed to establish a probable right of recovery because it failed to plead and prove a prima facie case establishing that defendant contracted for or received interest in an amount greater than the amount authorized by law. We agree.

Plaintiff argues that a probable right of recovery for usury is established by evidence showing: (1) that Regional Center, Ltd. has always been the equitable owner of the land; (2) that it is not a corporation; (3) that it was at all times the borrower-beneficiary-obligor of the loan; (4) that American Century directed that the loan commitment be changed to the corporation; (5) that as between the corporation and the partnership, American Century 'carefully sought no...