Federal Mortgage Co. v. State Nat Bank

• Decision Date: 05 July 1923
• Docket Number: (No. 993.)
• Citation: 254 S.W. 1002
• Parties: FEDERAL MORTGAGE CO. et al. v. STATE NAT. BANK OF CORSICANA et al.
• Court: Texas Court of Appeals

254 S.W. 1002

FEDERAL MORTGAGE CO. et al. v. STATE NAT. BANK OF CORSICANA et al.

(No. 993.)

Court of Civil Appeals of Texas. Beaumont.

July 5, 1923.

Rehearing Denied October 10, 1923.

Appeal from District Court, Navarro County; Hawkins Scarborough, Judge.

Action by G. A. McElvany and wife against the Federal Mortgage Company, the State National Bank of Corsicana, and others. From the judgment rendered, the defendants other than the State National Bank of Corsicana appeal, and the plaintiffs cross-appeal. Reversed and rendered.

Thompson, Knight, Baker & Harris, of Dallas, for appellants.

L. Treadwell, Richard Mays, and Callicutt & Johnson, all of Corsicana, for appellees.

WALKER, J.

This suit is the result of a long series of business dealings among the interested parties, and on a trial to a jury resulted in a verdict, under instructions of the court, in favor of State National Bank against G. A. McElvany and wife for the amount claimed by it, and a foreclosure of its deed of trust liens against certain lands belonging to McElvany and wife against the appellants, the Federal Mortgage Company and the Underwriting Fund of the Merchants' Reciprocal Underwriters, hereinafter designated as underwriters, who were also asserting a lien. So far as this record shows, this was all of the land owned by McElvany and wife, and was covered by all the liens involved in this litigation, and will be referred to simply as their land. As no complaint is made by any one against the judgment in favor of the bank, it is not necessary to give the details of its action, except that it held that part of its claim which constituted a first lien on the land under a transfer and assignment from H. P. Drought & Co.

The issues on this appeal arise under the pleadings of McElvany and wife to have certain transactions had by them with the Federal Mortgage Company and the underwriters declared usurious, and the answers of these companies and their cross-action praying for judgment on their notes and forclosure of their liens on the same property covered by the liens of the State National Bank. From the record before us, we make the following conclusions of fact:

(1) On January 1, 1917, McElvany and wife owed certain debts, aggregating $13,334.10, which were secured by a lien upon their lands second to the Drought lien, owned when this case was tried, by the State National Bank, which at that time amounted to about $14,000. On that date, McElvany and wife executed to the Federal Mortgage Company their note for $30,000, and secured it by a deed of trust on their land under an agreement whereby the Federal Mortgage Company was to pay off and take over all the liens against the land, and advance them in money the difference between the amount of the liens and the face of the note. In execution of this agreement the Federal Mortgage Company paid to the holders of the second liens $13,334.10, being the full amount due thereon, and used all reasonable diligence to take up the first lien held by Drought, going to the extent of offering to pay him the interest that would accrue thereon in the future, which would have been about $4,000, but he refused to surrender his notes or to make any settlement except according to terms of the contract. The assignments transferring the second liens to the Federal Mortgage Company were dated January 1, 1917. At that time they were past due.

(2) The deed of trust executed by McElvany and wife to secure the payment of the $30,000 note contained the following provisions:

"The note secured hereby is given in renewal and in lieu of four notes for $500 each, and one note for $12,000 and accrued interest thereon, dated January 2, 1915, due January 1, 1919, 1920, 1921, and 1922, respectively, given by G. A. McElvany and wife to H. P. Drought & Co., and fully described in deed of trust of even date therewith to H. P. Drought, trustee, recorded in the deed of trust records of said county, and in renewal and in lieu of one note for $5,000 dated January 29, 1915, due December 15, 1915, given by G. A. McElvany and wife to Z. N. Foster, and fully described in deed of trust of even date therewith to C. L. Jester, trustee, recorded in the deed of trust records of said county, and in renewal and in lieu of one note for $6,160 and one note for $532.50 and one note for $319.50 and one note for $260 dated December 12, 1916, given by G. A. McElvany and wife to the First National Bank of Kerens, Tex., and fully described in deed of trust of even date therewith to C. L. Jester, trustee, recorded in the deed of trust records of said county, and it is agreed and understood that the Federal Mortgage Company is hereby subrogated to all the rights, liens, equities and remedies securing the original holders of said notes so renewed."

In its efforts to execute its contract with McElvany and wife, the Federal Mortgage Company paid off one of the interest and one of the principal notes held by Drought, and described in the deed of trust just referred to, which, with accrued interest, at the time of the payment amounted to $1,633.05. In executing its contract, by which the $30,000 note was executed, the Federal Mortgage Company paid off claims in the sum of $15,000 against the lands of McElvany and wife, all of which items were specifically named in the deed of trust just referred to.

(3) Because of its inability to take over the Drought lien, the Federal Mortgage Company complained to McElvany and wife that it was forced to hold a second lien, which was forbidden by its charter, and, unless they adjusted these items, it would be forced to sue on the claims which it had assumed. However, its general agents proposed to place the loan with the company that could carry second liens, and to charge McElvany and wife for their services in so doing the sum of $4,000, which was to be added to the $15,000 and included in a new note.

(4) At that time certain of the general agents of the Federal Mortgage Company were also general agents of the underwriters. The general agents of these two companies were fully advised that McElvany and wife would pay a commission of $4,000 to a broker for placing this loan. They then agreed among themselves, acting within the scope of their authority as general agents of their respective companies, and for and on behalf of their respective companies, to reduce the $30,000 held by the Federal Mortgage Company to $19,000, which was done without the knowledge or consent of McElvany and wife, and to transfer the $30,000 note in that sum to the underwriters, which was to give its check in payment thereof to the Federal Mortgage Company. That company was to appropriate $15,000 of the proceeds in satisfaction of the claims which it had paid for the account of McElvany and wife, $1,000 for the trouble it had incurred in handling the transaction, and the other $3,000 was to be divided among the general agents and officers of the two companies who had consummated the transaction. All this was done on the 2d day of February, 1919, by the underwriters paying to the Federal Mortgage Company $19,169.30, which represented the $19,000 and accrued interest thereon from January 1, 1919. McElvany and wife had paid all interest to the Federal Mortgage Company as it had accrued. The proceeds of the check of the underwriters were in fact distributed by the general officers of the two companies, who received the brokerage, and who, as witnesses upon the trial of this case, described the $4,000 item as a "rakeoff."

(5) On February 28, 1919, after the above transaction was fully consummated, on the request of one of the general officers of the Federal Mortgage Company, McElvany and wife executed to H. D. Ardrey, as trustee for the underwriters, their promissory note in the sum of $19,000, which they secured by a deed of trust covering their lands. This note and deed of trust bore date January 1, 1919, but were in fact executed on the 28th of February following. On the same day that the note was executed McElvany and wife executed and delivered to the general officers of the Federal Mortgage Company just referred to the following order:

                                        "February 28, 1919
                

"Merchants' Reciprocal Underwriters, Dallas, Texas — Gentlemen: You are hereby authorized to disburse the proceeds of the loan of $19,000.00 which you are making to me, as evidenced by my note dated January 1, 1919, due January 1, 1923, and secured by deed of trust on 1,118 acres of land in Navarro county, Tex., in the following manner, and to the following parties:

"(1) You will pay to the Federal Mortgage Company of Dallas, Texas, the sum of fifteen thousand ($15,000.00) dollars, which is the amount due them on my note to them for thirty thousand ($30,000.00) dollars.

"(2) You will pay the balance of four thousand ($4,000.00) dollars, to R. A. Kelknap and C. R. Miller of Dallas, Texas, which is the amount I have agreed to pay them as a brokerage for securing said loan of nineteen thousand ($19,000.00) dollars from your company, for me.

                    "Yours truly,     G. A. McElvany
                                    "Nancy S. McElvany."
                

(6) On January 1, 1920, McElvany and wife paid to the Federal Mortgage Company, for the use and benefit of the underwriters, $1,520 as interest on the $19,000 note, which was received by it as interest and appropriated to the payment of one year's interest on that note at the rate of 8 per cent. per annum, being the rate stipulated for therein. In assigning its claim against McElvany and wife to the underwriters, the Federal Mortgage Company guaranteed the payment thereof, promised to take it over at any time that the underwriters might become dissatisfied with it, and further agreed to collect and remit all interest thereon as it matured. It was intended by the parties that the $19,000 note should take the place of all other claims held by the Federal Mortgage Company against McElvany and wife, both the original indebtedness and the...