Trinity Fire Ins. Co. v. Kerrville Hotel Co.

• Decision Date: 17 March 1937
• Docket Number: No. 7187.,7187.
• Citation: 103 S.W.2d 121
• Parties: TRINITY FIRE INS. CO. et al. v. KERRVILLE HOTEL CO. et al.
• Court: Texas Supreme Court

Page 121

103 S.W.2d 121

TRINITY FIRE INS. CO. et al. v. KERRVILLE HOTEL CO. et al.

No. 7187.

Supreme Court of Texas.

March 17, 1937.

Error to Court of Civil Appeals of Eighth Supreme Judicial District.

Suit by the Kerrville Hotel Company and others against the Trinity Fire Insurance

Company and others. A judgment for plaintiffs was affirmed by the Court of Civil Appeals [91 S.W.(2d) 973], and defendants bring error.

Judgments affirmed.

William M. Light, L. G. Seeligson, L. M. Patterson, Pfeiffer & Sanders, Bennett & Klein, Henry, Bickett & Bickett, and W. B. Jack Ball, all of San Antonio, Davidson, Randall & Gray, Goggans & Keith, and Touchstone, Wight, Gormley & Price, all of Dallas, and Coleman Gay, of Austin, for plaintiffs in error.

Boyle, Wheeler, Gresham & Terrell and H. M. Parker, all of San Antonio, for defendants in error.

CRITZ, Justice.

This is a usury suit. It was filed in the district court of Bexar county, Tex., by Kerrville Hotel Company, a Texas corporation, H. M. Harrison, E. G. Walsh, and Jessie G. Burney, independent executrix of the estate of R. L. Burney, deceased, against Trinity Fire Insurance Company, a corporation, and numerous other parties, corporate and private. The basic purpose of the suit is to declare certain bonds originally given by Kerrville Hotel Company et al. and originally negotiated to J. E. Jarratt Mortgage Company, a private corporation, tainted with usury. The case was submitted to the jury in the trial court on two special issues, and, based on the jury's findings to such issues, judgment was entered, in effect adjudging the above-mentioned bonds tainted with usury. On appeal this judgment was affirmed by the Court of Civil Appeals. 91 S.W.(2d) 973. Trinity Fire Insurance Company et al. bring error.

The facts and contracts involved in this litigation are rather complicated, but we will do our best to make such statement of the facts and issues as is necessary to decide the questions of law presented in the application.

As already stated, this suit was filed by the Hotel Company et al. against the above-named Fire Insurance Company et al. alleging that a certain loan, which we shall later more fully describe, made by J. E. Jarratt Mortgage Company to the Hotel Company et al. was and is usurious. The petition of the Hotel Company seeks certain statutory relief from such loan in case it is held to be usurious.

The Fire Insurance Company et al. are the holders of the bonds representing the above loan. We shall not attempt to detail their pleadings. It is enough to say that we treat the pleadings of all parties as sufficient to raise the issues of law we shall later discuss and decide.

The evidence contained in this record establishes the following facts:

Certain citizens of the city of Kerrville were interested in securing the erection of a new and modern hotel for that city. In consummation of this desire these parties made a contract with H. M. Harrison and R. L. Burney whereby Harrison and Burney agreed that they, or a corporation to be formed by them, would build such hotel. In this contract it was agreed that construction of the hotel would begin in six months from the date of the contract. It was also agreed that Harrison and Burney were to receive as a bonus for building such hotel a lot in Kerrville valued at $60,000, on which the hotel was to be built, and $10,000 in money. In case such hotel was not started within six months from the date of this contract the promoters were not to get the lot or the $10,000 bonus money, but on the contrary were to pay to the Kerrville citizens a sum of $10,000 as liquidated damages.

It appears that Harrison and Burney then approached J. E. Jarratt Mortgage Company, a corporation, of San Antonio, Tex., and sought a loan to construct the above hotel. We will not attempt to detail all the negotiations leading up to the loan as actually made. It is sufficient to say that such negotiations culminated in the following written contract:

                    "J. E. Jarratt Mortgage Company
                    "Associate Company — J. E. Jarratt
                                Company
                            "San Antonio, Texas
                                      "June 11th, 1926
                "J. E. Jarratt
                    President
                "Geo. G. Murray
                    Vice-Pres. and Manager
                "H. K. Trammel
                    Secretary
                "Messrs. Walsh, Burney & Harrison
                "(Kerrville Hotel Company)
                "City
                

"Gentlemen:

"In reference to your application dated June 11th for a loan of $120,000.00 and to be secured by certain property set out in the application, and which money asked for is to be used in the construction of a modern five story hotel to contain eighty rooms and to be completed in accord with plans and specifications to be placed on file in our office prepared by P. G. Silber:

"We beg to advise that subject to approval of title and plans and specifications, contract for construction and the leases impending, the loan is acceptable to us as follows:

"The loan is to be for $120,000.00, 7% interest payable semi-annually, and the principal repayable as follows:

                     " $6500.00 on August 1st, 1928
                     " $6500.00 on August 1st, 1929
                     " $7500.00 on August 1st, 1930
                     " $7500.00 on August 1st, 1931
                     " $7500.00 on August 1st, 1932
                     " $7500.00 on August 1st, 1933
                     " $8500.00 on August 1st, 1934
                     " $8500.00 on August 1st, 1935
                     "$60000.00 on August 1st, 1936
                

"The loan is to be effective as of August 1st, 1926, and beginning with April 1st, 1927, equal monthly deposits are to be made the first of each month by the Kerrville Hotel Company with the J. E. Jarratt Mortgage Company in sufficient amounts to take care of the amortization and interest each year up to, but not including, the principal amount due the tenth year. The J. E. Jarratt Mortgage Company is to allow 3% interest on such deposits and will apply the amounts so deposited to maturing items under this loan.

"Since this loan is effective as of August 1st, 1926, and the full amount of the loan will not be disbursed at that time, we agree to allow 3% interest on funds remaining in the hands of the J. E. Jarratt Mortgage Company during construction of the building.

"Fire insurance in the amount of not less than $120,000 and tornado insurance in the amount of $100,000 are to be carried in companies acceptable to the J. E. Jarratt Mortgage Company in favor of the loan.

"Since it is estimated that the building will cost $200,000, the Kerrville Hotel Company agrees to place in this building all funds necessary to the completion of the building over and above the amount of the loan herein provided for before any funds will be drawn under this loan. After this is done and proper evidence furnished to such action, we agree to make advances up to eighty-five per cent of the cost of the labor and material as certified to by the supervising architect, but not to exceed eighty-five per cent of the amount of the loan until the building is finally completed. When the building is finally completed and satisfactory evidence is furnished that all bills for labor and material are paid, the additional fifteen per cent of the loan is to be disbursed.

"It is further understood and agreed that since the proposed tenants are under a $50,000 bond to fully equip and furnish the hotel with equipment and furniture not inferior to that of the Robert E. Lee Hotel in Laredo, Texas, and after such furniture and equipment is placed in the hotel it is to be pledged as security for the faithful performance of the lease contract. It is further provided herein that this lease is to be assigned as additional collateral to the loan herein provided for, and since this is the case proper papers are to be prepared conveying all of the rights under the lease to the J. E. Jarratt Mortgage Company or its assigns, as additional collateral to the loan herein provided for.

"This commitment is made on the basis of a lease contract of 25 years signed by F. E. Wallace and Floyd Singleton and with the further agreement that the J. E. Jarratt Mortgage Company reserves the right to approve said lease in so far as the validity of the lease is concerned and also subject to a check as to the moral and financial standing of the lessees as well as their ability to conduct a first class hotel.

"It is a further condition of this loan that a construction bond satisfactory to the J. E. Jarratt Mortgage Company by one of the leading surety companies will be provided guaranteeing the completion of the improvements in accord with the plans and specifications by April 1st, 1927.

"While it is agreed herein that the lease to Floyd Singleton and F. E. Wallace is to be assigned to us as additional collateral we hereby agree that no collections will be made by the holder of the notes under this lease unless the loan is in default.

"In addition to the signature of the Kerrville Hotel Company (to be incorporated with R. L. Burney, E. G. Walsh and H. N. Harrison as stockholders with a capital stock of $140,000 of which $70,000 is represented by common stock fully paid, and $70,000 preferred stock paid in in full) R. L. Burney, E. G. Walsh and H. N. Harrison agree to sign all notes and bonds that may be required severally, individually and as co-makers along with the Kerrville Hotel Company.

"In addition to the interest provided for in the application, the borrowers agree to pay J. E. Jarratt Mortgage Company $12,000.00 for handling the loan; said $12,000 to be paid as follows:

                "$3600.00 in cash at the time of closing the
                            loan
                "$3600.00 on August 2nd, 1927
                "$3600.00 on August 2nd, 1928
                "$1200.00 on August 2nd, 1929
                

Said deferred payments to be represented by notes acceptable to the J. E. Jarratt Mortgage Company, but not to provide for interest until after maturity.

"Parties will have the privilege of paying the loan in multiples of $100 or more, on August 1st, 1931, or on any annual interest paying date thereafter by giving sixty days written notice and paying 2% penalty on amount so prepaid. Prepayments...