Motor & Industrial Finance Corporation v. Hughes

• Decision Date: 08 May 1957
• Docket Number: No. A-6078,A-6078
• Parties: MOTOR & INDUSTRIAL FINANCE CORPORATION, Petitioner, v. Emery H. HUGHES et ux., Respondents.
• Court: Texas Supreme Court

Page 386

302 S.W.2d 386

157 Tex. 276

MOTOR & INDUSTRIAL FINANCE CORPORATION, Petitioner, v. Emery H. HUGHES et ux., Respondents.

No. A-6078.

Supreme Court of Texas.

May 8, 1957.

Rehearing Denied June 12, 1957.

Cecil C. Rotsch, Louis Scott Wilkerson, Austin, for petitioner.

Cofer & Cofer, Austin, for respondents.

SMITH, Justice.

Motor & Industrial Finance Corporation, hereinafter referred to as plaintiff, brought this suit against Mr. and Mrs. Emery H Hughes, hereinafter referred to as defendants, to recover on three certain promissory notes and for a declaratory judgment as to the validity of such notes and their supporting deeds of trust. Plaintiff alleged that the notes and deeds of trust were executed by defendants while Mr. Hughes was the principal executive officer of the plaintiff corporation, and while both he and Mrs. Hughes were members of its Board of Directors and stockholders in the corporation. The principal property involved in the several deeds of trust was and is the separate estate of the defendant, Mrs. Hughes. Note Number One dated November 16, 1951, was for the principal sum of $99,900, together with interest at the rate of 2% per annum, the interest 'in any event' payable quarterly (meaning at each three-month interval) as it accrued. The note provided that the principal was to be due and payable on November 16, 1961 and that all past due interest would bear interest at the rate of 4% per annum and for attorney's fees of 3% of the principal and interest, if placed in the hands of an attorney for collection, or if suit was brought thereon. The deed of trust mortgage recited the indebtedness owing from the defendants to the plaintiff as evidenced by said note. The note was quoted and set forth in said deed of trust mortgage and the deed of trust contained a provision that 'whereas the Grantors are justly indebted to the Motor & Industrial Finance Corp., hereinafter called the beneficiary,' and the further provision:

'Now, therefore, should the grantors not breach any of the covenants undertaken by them and make punctual payment of said note when demand is made on them for such payment, this deed shall be null and void and of no effect, but if the grantors make default in the payment of the said note on demand or fail to perform any of the covenants undertaken by them therein, it shall thereupon or at any time thereafter be the duty of the trustee or any successor or substitute thereto as hereinafter provided at the request of the beneficiary to enforce this trust * * *.'

The deed of trust mortgage described sixty-six lots in Block B, twenty-one lots in Block C; ten lots in Block D, and five lots in Block E, a total of 102 lots in the Rosemarie Addition to Hearne, Robertson County, Texas. The deed of trust mortgage further provided that the trustee agreed to release the deed of trust lien 'whenever as much as the sum of $900.00 shall be paid by the obligors of said note to the owners or holders of said note for each lot upon which a release is demanded * * *.'

Note Number 2 was for the principal sum of $14,000 dated March 20, 1952, due and payable November 20, 1962, and provided for the same percentage rates of interest and attorney's fees, and the deed of trust contained the same foreclosure clause as the deed of trust securing Note (1). The deed of trust mortgage of the same date as that of the note conveyed to the trustee for the benefit of plaintiff, as beneficiary, sixteen lots in Block B, in the same addition as described in the deed of trust securing Note (1) and also contained the same clause with reference to releases of lots upon demand, by the payment of $900 for each lot sought to be released.

Note (3) was for the principal sum of $9,376.37, dated May 27, 1953, with interest at the rate of 4% per annum, and due and payable: 'The interest as it accrues, and the principal, payable: 20% of such total amount each year thereafter until paid in full.' It was further provided that all past due interest should bear interest at the rate of 6% per annum, and the attorney's fees provision was the same as that contained in the two other notes herein mentioned.

The deed of trust mortgage executed on the same date as the note conveyed in trust to the trustee for the benefit of the plaintiff certain lots situated in Robertson County, Texas, identified and described as 'Commercial Lot No. 1 and Commercial Lot No. 2 * * * in the Rosemarie Addition to Hearne * * *.' This deed of trust contained the same foreclosure clause as contained in the deeds of trust previously mentioned, but contained no provision authorizing sale of the lots and release of the lien.

The plaintiffs asked for judgment against the defendants, jointly and severally, for the principal amount of each of said notes, taking into consideration a credit of $900 on Note (1), and judgment for interest and attorney's fees, and for the foreclosure of its liens on the lots described in the three deeds of trust, and for a 'full and complete declaration with regard to the above described notes and mortgages as alleged herein with respect to the rights, status and legal relations of the parties, and that the court authorize the foreclosure of each of said mortgages to the extent necessary to satisfy the judgment. * * *' The plaintiff, in the alternative, prayed that if the notes or any part of either of them were not due and payable under the foreclosure clause contained in the deeds of trust, but that the notes and liens were valid obligations against the defendants, then and in that event, the court was requested to order in its judgment that further sales be allowed from time to time as necessary to obtain sufficient funds to satisfy payment of said notes as the same shall become due, and 'that the court grant sufficient further relief in law and in equity as is necessary for the plaintiff to collect the full amount due under the terms of said notes and to foreclose said mortgages to the extent and in the manner and at the times necessary to satisfy full payment of said notes * * *.'

The defendants admitted execution of the three notes and deeds of trust, and admitted payment of the sum of $900 on Note (1). Despite such admissions, the defendants plead several defenses in bar of plaintiff's alleged cause of action. Briefly stated, those pleas were: (1) that the signatures on the three notes and deeds of trust were mere accommodation signatures, and denied that such instruments were executed 'so as to create, or intended to create, note and deed of trust obligations in favor of the plaintiff against the defendants;' (2) that the notes and deeds of trust were executed without consideration; (3) that the notes and deeds of trust were executed as a means of effectuating a gift by defendant, Katherine Hughes, of the proceeds of the sale of her separate property, and that the gift was executory, conditioned that such agreement and willingness to give the money which should be realized from the sale of said lots, so long as the defendant Emery H. Hughes, remained the President and managing officer of the plaintiff-corporation, and until all of the money realized from such sales had actually been donated to the corporation. In this connection, defendants claim the plaintiff violated a controlling condition of such gift on May 10, 1954, by entering an order through its Board of Directors discharging the defendant, Emery H. Hughes, as President and manager of the plaintiff-corporation, and that such action constituted 'wholly a failure of consideration upon which said gift and promise was made upon the part of the defendants', and, therefore, not binding upon the defendants; (4) that the defendant Mrs. Katherine Brady Hughes plead coverture at all times involved here and that she is and was under legal incapacity and was under legal incapacity at the time said instruments were signed by her, and that the three notes and deeds of trust were not executed for the benefit of her separate estate or for necessities for herself and children and that as a married woman she was not bound and was not liable as surety for her husband and not bound in any manner to pledge her separate estate to secure the accommodation notes, and that her separate estate is not liable as a pledge to secure said accommodation notes where the consideration and condition upon which the 'gift' that he and she had agreed to make had failed.

The trial court sitting without a jury entered its judgment that plaintiff take nothing as to the notes in the sum of $99,000 and $14,000 and declared that they and their respective deeds of trust were void and of no effect as between the parties. The trial court held as to Note (3), dated May 27, 1953, in the principal amount of $9,376.37, that it constituted a valid and binding obligation against the defendant, Emery H. Hughes; that only 40% thereof was then due and payable, including principal, interest and attorney's fees, and, therefore, entered its judgment against the defendant, Emery H. Hughes, and ordered a foreclosure sale of as much of the security as might be necessary to satisfy the amount then due on Note No. 3. Plaintiff acquiesced in the action of the trial court in sustaining Mrs. Hughes' plea of coverture in so far as her personal liability on the third note was concerned.

The Court of Civil Appeals held that all three notes and their respective deeds of trust are valid and that both defendants are personally liable as makers of notes (1) and (2). That court affirmed the judgment of the trial court as to note (3). Although the Court of Civil Appeals rendered judgment that notes (1) and (2) and the deeds of trust securing their payment were valid and binding obligations of both defendants, the cause was reversed and remanded to the trial court as to notes (1) and (2), the court holding that the plaintiff failed to prove a demand and the refusal of payment of the principal, interest, and attorney's...