Kelley v. Guaranty Bond State Bank

• Decision Date: 16 January 1928
• Docket Number: (No. 3494.)
• Citation: 2 S.W.2d 572
• Parties: KELLEY et ux. v. GUARANTY BOND STATE BANK OF MT. PLEASANT.
• Court: Texas Court of Appeals

2 S.W.2d 572

KELLEY et ux. v. GUARANTY BOND STATE BANK OF MT. PLEASANT.

(No. 3494.)

Court of Civil Appeals of Texas. Texarkana.

January 16, 1928.

Rehearing Denied February 9, 1928.

Appeal from District Court, Titus County; R. T. Wilkinson, Judge.

Suit by the Guaranty Bond State Bank of Mt. Pleasant against W. L. Kelley and wife. From a judgment in favor of plaintiff, defendants appeal. Reformed, and, as reformed, affirmed.

Appellants W. L. Kelley and Olive Kelley, husband and wife, owned a small tract of land situated about one-half of a mile from the courthouse in Mt. Pleasant, and on January 15, 1920, were occupying and using same as their homestead. By an instrument of that date, duly recorded February 11, 1920, purporting to be a general warranty deed, they conveyed the land to Q. S. Loveless. The consideration for the conveyance (it appeared from recitals in the instrument) was the assumption by Loveless of the payment of $480 appellant W. L. Kelley owed on a promissory note held by Mrs. Sarah Lilienstern, and four promissory notes (three for $1,000 each, and the other for $1,520) then made by Loveless, payable January 15, 1921, 1922, 1923, and 1924, respectively, to W. L. Kelley's order, and secured by a vendor's lien retained on the land. By an instrument dated January 20, 1920, duly recorded the same day, W. L. Kelley, to secure a promissory note for $5,400 made by him to appellee, then doing business under the name "Guaranty State Bank," transferred the Loveless notes to it, and by the same instrument conveyed to appellee all the "right, title, and interest" he owned in the land as the holder of the notes. By a deed dated May 20, 1920 recorded December 31, 1923, said Q. S. Loveless reconveyed the land to W. L. Kelley, in consideration, it was recited in the instrument, of the assumption by Kelley of the payment of the five notes mentioned above. Alleging that $3,690 of the $5,400 note, and interest thereon, made to it by Kelley remained unpaid and was due, and that the note for $1,000 made by Loveless and due January 15, 1921, had been paid, appellee sought by this suit to recover of W. L. Kelley the amount of the other three notes made by Loveless, payable January 15, 1922, 1923, and 1924, respectively, alleged to be unpaid, and a foreclosure of the vendor's lien retained to secure them as against both the appellants. In their answer to the suit appellants alleged that the land was their homestead at the time they made the deed to Loveless, and that the making of that deed, transfer of the notes to appellee, and reconveyance of the land to W. L. Kelley by Loveless was, and was known by appellee to be, in pursuance of a scheme to create a lien on their homestead to secure the $5,400 note executed by W. L. Kelley to cover, it was alleged, a loan of that sum made to him by appellee. At the trial the court submitted to the jury special issues as follows, which they answered as indicated:

"(1) Do you find from a preponderance of the evidence that the plaintiff bank did not have knowledge that the deed from W. L. Kelley and wife to Q. S. Loveless was intended only as a means of borrowing money on the purchase-money notes, at the time they acquired the notes sued on? Answer yes or no. Answer. Yes.

"(2) Do you find from a preponderance of the evidence that the plaintiff bank did not have notice of any fact or circumstance which would have been sufficient to put a reasonably prudent person on inquiry, which if pursued with reasonable diligence would have led to a knowledge of the fact that the deed from W. L. Kelley and wife to Q. S. Loveless was intended only as a means of borrowing money on the purchase-money notes, at the time it acquired the notes sued on? Answer yes or no. Answer. Yes."

The appeal is from a judgment as follows: In appellee's favor against W. L. Kelley (1) for $4,203.05 as the amount, principal, and interest, and $420.30 as the amount of attorney's fees, unpaid on the $5,400 note made by said W. L. Kelley to appellee, and (2) for $5,016 as the amount, principal, and interest, and for $501.60 as the amount of attorney's fees, unpaid on the three notes made by said Q. S. Loveless to said W. L. Kelley; and in appellee's favor against said W. L. Kelley and his wife, Olive Kelley, for a foreclosure of the vendor's lien retained on the land, and directing the proceeds of a sale ordered thereof to be applied to the payment of the $4,203.05 and $420.30 adjudged to appellee on account of the $5,400 note, and that such payment and any others made on account of that note should operate as credits against the amount found to be unpaid on the Loveless notes.

Hutchings & Williams, of Mt. Pleasant, for appellants.

J. A. Ward, of Mt. Pleasant, for appellee.

WILLSON, C. J. (after stating the facts as above).

Appellants insist the trial court erred when he refused their request that he instruct the jury to return a verdict in their favor so far as the suit was to foreclose the lien asserted on certain land. We think the contention should be sustained. It appeared without dispute in the evidence heard at the trial that at the time appellants executed the instrument purporting to be a deed conveying the land to Q. S. Loveless, and at the time appellee made the loan to appellant W. L. Kelley and accepted the Loveless notes as security therefor, they (appellants) were, and during several years immediately before that time had been, occupying and using the land as their homestead. The effect of such occupancy was to put appellee on inquiry at the time it accepted the notes to ascertain by what claim of right appellants were then occupying and using the land, and to charge it with notice of what such inquiry diligently pursued would have disclosed. Eylar v. Eylar, 60 Tex. 315; Chamberlain v. Trammell, 61 Tex. Civ. App. 650, 131 S. W. 227; Bryant v. Sons of Hermann (Tex. Civ. App.) 152 S. W. 714; King v. Lane (Tex. Civ. App.) 186 S. W. 392; Brooker v. Wright (Tex. Civ. App.) 216 S. W. 196; Astin v. Martin (Tex. Civ. App.) 289 S. W. 442. In the case last cited the court said the general rule is that:

"Possession carries with it notice of the rights in the property claimed by the possessor, and requires those dealing with the property to make such inquiry to ascertain those rights as an ordinarily prudent person would make under the same or similar circumstances. The exceptions to this rule are where the party in possession has executed some conveyance, or has caused some instrument to be placed of record, which if accepted as evidence of his rights would be inconsistent with the claim he otherwise asserts."

It was undisputed in the evidence that appellee made no inquiry whatever to ascertain by what claim of right appellants were then on the land — except that its president, E. S. Lilienstern, testified that before he made the loan he inquired at the county clerk's office to ascertain if the deed to Loveless had been filed there. The fact that it had not been, then made known to Lilienstern, should have caused appellee to pursue the inquiry further instead of causing it to abandon it, as it seems it did. We think it should have been assumed that inquiry, properly pursued, would have disclosed to appellee what uncontradicted evidence heard at the trial showed to be facts, to wit, that the transaction between appellants and Loveless was in pursuance of a scheme to mortgage appellants' homestead to secure a contemplated loan of $5,400 by appellee to appellant W. L. Kelley, and further, that the transaction was incomplete at the time appellee made the loan, in that the deed to Loveless had not been delivered to him, but was in the possession of appellee Olive Kelley. If inquiry, properly pursued, would have disclosed such facts to appellee, it was not in the attitude of an innocent purchaser of the Loveless notes, and therefore was not entitled to a foreclosure of the lien it asserted on appellants' homestead. 19 C. J. 200; Collum v. Sanger Bros., 98 Tex. 162, 82 S. W. 459, 83 S. W. 184; Moore v. Chamberlain, 109 Tex. 64, 195 S. W. 1135; Steffian v. Bank, 69 Tex. 513, 6 S. W. 823; Garner v. Risinger, 35 Tex. Civ. App. 378, 81 S. W. 343; Walker v. Erwin, 47 Tex. Civ. App. 637, 106 S. W. 164; Cox v. Payne, 107 Tex. 115, 174 S. W. 817; Cardwell v. Shifflet (Tex. Com. App.) 294 S. W. 519.

That the case was within the general rule and not within either of the exceptions thereto stated in Astin v. Martin, referred to above, was established by uncontradicted evidence showing that the deed to Loveless had not been delivered to him nor recorded or filed for record in the county clerk's office at the time appellee loaned the money to W. L. Kelley and accepted the Loveless notes as security for the repayment of the loan.

Whatever may be said about the conduct of appellant W. L. Kelley in the transaction between him and appellee, there is nothing in the record before us showing appellant Olive Kelley to have done or said anything appellee was entitled to claim excused it from making inquiry to ascertain by what claim of right she was in possession of the land. That being true, appellee was not entitled to invoke the doctrine of estoppel as against her. Simkins on Equity, 319 et seq.; Cosgrove v. Nelson (Tex. Civ. App.) 269 S. W. 891.

The judgment will be so reformed as to deny appellee a foreclosure of the lien it asserted on appellants' homestead, and as so reformed will be affirmed.

HODGES, J.

I do not concur in the disposition made of this case. I think the judgment of the trial court should be affirmed.

In presenting my reasons for not concurring in the disposition made of this appeal, I shall restate some of the material facts in detail.

Some time before the notes sued on were executed Kelley and his wife had discussed between themselves the propriety of borrowing money from the bank in order to enable Kelley to engage in the grocery business. The evidence supports the conclusion that they were...