Greer v. Franklin Life Ins. Co. , 109 S.W.2d 305 ( 1937 )

On Appellants' Motion for Rehearing. Appellants move for a rehearing, contending that we erred in not sustaining their plea of usury. They reassert the proposition originally relied upon for reversal, that is, that the contract is usurious, in that the bond executed by them provides for the payment of interest at the rate of 10 per cent. per annum after maturity, and that the first deed of trust given to secure same contains a provision obligating them, so long as the lien created by the deed of trust continues, to also pay, prior to November 1st of each year, all taxes then assessed in the state of Texas upon said bond. We think it may be assumed that the taxpaying provision in the first deed of trust renders the contract potentially usurious, — yet appellants, by neither allegation nor proof, attempted to show that, by reason of the bond having been assessed for taxes in the state, the contract became usurious in act or fact, their contention being simply that the provisions of the note and of the first deed of trust render the contract usurious, as a matter of law. Nor is any contention made that the annual interest of 5 1/2 per cent. current prior to maturity, plus taxes assessed against the bond for any year, exceeded 10 per cent., thus rendering the contract usurious; in other words, by neither pleading nor proof do appellants seek to show that the contract was usurious other than for the reason first stated.

We affirmed the judgment below, denying appellants' plea of usury, because of the provision of the second deed of trust, which we construed to be a saving clause determining the amount of interest, not to exceed 10 per cent. per annum, collectible on the bond. The provision (after certain contingencies authorizing the acceleration of maturities) reads: "* * * Then at the option of the owner of said notes, exercised at any time after such default, any or all of said notes (second lien notes) shall at once become due, to the extent that the total thereof, together with the interest on said bond at the rate therein provided shall not exceed an interest charge of 10 per cent per annum on the amount of said bond from date at which its interest began to date of foreclosure under this option. * * *" The decision of the Waco Court of Civil Appeals, and that of the Supreme Court, in Duvall v. Kansas City Life Ins. Co.,96 S.W.2d 793, 797, and Kansas City Life Ins. Co. v. Duvall, 104 S.W.2d 11, did not enter into our consideration in reaching the conclusion first announced. Appellants now earnestly contend that the saving clause in the second deed of trust, involved in the case just mentioned, in effect is the same as the clause under consideration and was there held not to be a limitation upon the amount of interest collectible on the bond and had no bearing thereon. The saving clause involved in the Duvall Case, after enumerating a number of contingencies authorizing the acceleration of maturities, reads: "Or, if the amount of interest paid and accrued on said deed of trust bond, plus the amount of said Note, shall not aggregate more than ten per centum per annum on said bond for the time it shall have run, at the option of the legal owner and holder of said Note, the whole amount thereof shall at once become due and payable, and the trustee may sell said premises * * * subject, however, to the lien of said first deed of trust and to the lien of this instrument for unmatured notes or installments of the indebtedness hereby secured, and shall receive the proceeds of sale, which we shall pay and disburse as follows, to-wit." We have reached the conclusion that appellants' contention that the saving clause involved in the Duvall Case and that involved in the instant case, in effect, have the same meaning and were intended to accomplish the same purpose, is correct. After quoting at length the saving clause involved in the Duvall Case, the Waco court said: "We do not think an extensive or argumentative analysis of the foregoing excerpt is necessary to demonstrate that its provisions have no application to the obligation assumed by appellants in the first deed of trust to pay taxes on the principal notes and that they do not constitute any limitation on the amount which appellants would be required to pay in discharge of such obligation. * * *" This holding was approved by the Supreme Court. 104 S.W.2d 11. Therefore, in harmony with these decisions, we now hold that the saving clause in the second deed of trust here involved, whatever its meaning or bearing otherwise may be, is not a limitation on the amount of interest collectible under the provisions either of the bond or of the first deed of trust.

So we are brought to a reconsideration of appellants' contention from an angle not heretofore considered, because not deemed necessary, in view of our former holding. The pertinent portion of the bond in suit is as follows: "Sherman, Texas, February 21, 1930. On the first day of November, 1940 (without grace) for value received, I, we, or either of us, promise to pay to the order of A. Y. Creager Co., Eighty-Two Hundred and no/100 Dollars at the Merchants and Planters National Bank at Sherman, Texas, with exchange on New York and with interest from March 1st, 1930, until maturity at the rate of 5 1/2 per cent per annum payable annually which is evidenced by interest coupon hereto attached and with interest after maturity at the rate of ten per cent per annum. If default be made in payment of any interest when due, then the holder hereof may declare the whole amount of this note due. Should this note be placed with an attorney for collection after maturity or collected through proceedings in any court, I, we, or either of us, agree to pay ten per cent additional as attorney fees on the amount of the principal and accrued interest. This note is secured by First Deed of Trust made by J. V. Greer et ux. to F. W. Creager, Trustee, conveying real estate in Collin County, Texas." The first deed of trust provides a number of contingencies and obligations to be performed by the debtor, among others, the tax obligation, as follows: "That so long as this lien continues, grantors will, prior to November first each year, pay all taxes then assessed in the State of Texas, upon said * * * bond * * *." It also contains the following: "* * * should there be any failure or default in the performance of any of the covenants or agreement herein contained, or if any part of said debt is not paid when due * * * any or all of said bond and interest shall become due and payable without further notice, at the election of the owner of said bond exercised at any time after such default or failure or the happening of any of said events," etc. Thus it appears that the bond will bear interest at the rate of 10 per cent. per annum only after its maturity date, that is, the 1st day of December, 1940; prior thereto, the annual interest burden is 5 1/2 per cent., plus the amount of taxes (considered interest) assessed upon the bond for any year. In view of these provisions of bond and first deed of trust, we think it obvious that at the maturity date of the bond (if not theretofore paid) it would bear a new rate of interest, superseding all other interest paying provisions, that is, 10 per cent. per annum in lieu of the current rate of 5 1/2 per cent. and the obligation to pay annual taxes assessed. We so construed a similar provision in Peoria Life Insurance Co. v. Harton, 84 S.W.2d 864 (writ refused). However, appellants insist that, by reason of the language of the tax-paying clause, to wit: "so long as this lien continues, grantors will, prior to November first each year, pay all taxes, etc.," that the obligation to pay taxes assessed upon the bond, in addition to 10 per cent. interest, persists even after its maturity. We cannot accept as correct this construction. As before stated, we think the current tax-paying provision of the first deed of trust, and its maturity accelerating provisions, pass out and are superseded by the provision for the payment of 10 per cent interest on the bond after maturity. Clearly, it was the legal duty of appellants to pay the bond at or before its maturity. We do not think they should be permitted, by reason of their failure to discharge this legal duty, to force a construction rendering the contract usurious, predicated, not upon the exercise of an option by the owner of the bond, but alone upon their own wrong. So, while the basis of our holding is shifted, the conclusion reached is the same as first announced. We therefore overrule appellants' motion for rehearing.

On Appellee's Motion for Rehearing. After more mature consideration, we have concluded that error was committed by us in holding that appellants (Greer and wife) were not estopped to deny the validity of the lien of the trust deed upon the 48.16-acre tract. In reaching that conclusion, we followed the rule announced by the Supreme Court in Texas L. L. Co. v. Blalock,76 Tex. 85, 13 S.W. 12, 13, but have concluded that the rule there announced is neither applicable to nor controlling in the instant case. It seems that, at the time Blalock and wife executed the mortgage, they were physically residing upon the mortgaged property, exclusively using the same at their home, and were neither actually nor pretendedly using any other property in a manner as to render possession and use of the homestead property either doubtful or ambiguous. They represented that the property mortgaged was not their homestead, but that the same was upon another tract of land on which they did not reside and had never resided. So, in view of the unambiguous nature of the tenure of the mortgaged property, the court held that, in fact and in law, it constituted their homestead and could not be mortgaged, and, further, that the declaration of husband and wife, to the effect that the mortgaged property was not their homestead, could not be relied upon by the creditor.

We have an entirely different situation in the instant case. As shown in the original opinion by Mr. Bond, Associate Justice, from the beginning of the transactions, by false and deceptive statements and conduct, appellants sought to obscure the fact that the 48.16-acre tract constituted a part of their homestead, in order to induce Creager Company to accept same as security for the loan sought. At the time Greer first applied for the loan (January 28, 1930) he and family were residing upon the 48.16-acre tract, but stated in the application that his homestead consisted of 40 acres, a part of the 78-acre tract, and the 160 acres situated about two miles distant, to which he intended to move in a few days. On February 19th, Mr. Russell, the Creager Company agent, through whom the negotiations were being conducted, made a trip of inspection, found both Greer and R. H. McCoy on the 48.16-acre tract (McCoy being Greer's tenant, occupying the 160-acre tract just mentioned), and was informed by Greer that he and wife had already two days before moved from the 48.16-acre tract to the 160 acres, with the view of making it their future home; also was informed that McCoy had rented the 48.16-acre tract for the year 1930, and a written lease contract between Greer and McCoy to that effect was exhibited to Russell. On February 21st, Greer and wife executed the joint affidavit copied at length in the original opinion, stating that on February 17th they had moved from the 48.16-acre tract to the 160-acre tract, and were using and cultivating same. On February 24th (the day the loan was closed) Russell made his final inspection before closing the loan, and found Greer and wife occupying the 160-acre place, Mrs. Greer engaged at domestic duties in the house, and Greer plowing in the field, to all appearances they were at home and perfectly domesticated, and McCoy and wife occupied and apparently were similarily domesticated on the 48.16-acre tract. At the trial Greer admitted, in effect, that their representations regarding the homestead were false and made to deceive the lender and obtain the loan. Mrs. Greer testified that, acting under the advice of Russell, Creager Company's agent, they vacated (temporarily) the 48.16-acre tract and occupied the McCoy home on the 160-acre tract and, as it appears, took from their home on the 48.16-acre tract a wolf-skin rug, previously observed by Russell, placing it upon the floor of the McCoy house, that Russell might observe as evidence that they had moved. After the inspection by Russell, as just detailed, the parties immediately (the same day) went to the bank, executed the written documents, and closed the loan.

We think that, in view of the false representations by Greer and wife and their pretended removal from the 48.16-acre tract to and physical occupancy of the 160-acre tract, all for the purpose of obscuring the homestead status of the 48.16-acre tract and to induce Creager Company to make the loan (which in fact did deceive and induce the loan), they estopped themselves to deny the validity of the mortgage.

Notwithstanding the constitutional provision forbidding the mortgaging of the homestead (except for certain purposes), it is settled law in this state that it may be lost, not because a mortgage or lien attempted to be placed thereon is valid, but because homesteaders may estop themselves to deny the truth of their declarations as to the status of the homestead, or claim the protection afforded by the Constitution, in instances, among others, where, at the time of the execution of the mortgage, the property is being used in such an ambiguous manner as to render its status doubtful. It was held in Carstens v. Landrum, 17 S.W.2d 803, by the Commission of Appeals, that declarations in a deed of trust by husband and wife, with respect to which of the two places was intended as their homestead, raised the issue of estoppel against them to deny the truth of their declarations where the occupancy by the husband of the mortgaged place was palpably ambiguous in respect to homestead intention. To the same effect see: Dallas B. L. Ass'n v. Patterson (Tex. Civ. App.)48 S.W.2d 657 (writ refused) and authorities cited; also First Texas, etc., Bank v. Chapman (Tex. Civ. App.) 48 S.W.2d 651 (appeal dismissed).

The evidence tends to show, and would justify the conclusion, that Russell, the Creager Company agent, knowing that the 48.16-acre tract was a part of appellants' homestead, advised and fostered the deception perpetrated; on the other hand, Russell denied any knowledge of the homestead character of the 48.16-acre tract, testifying that he knew nothing of the pretended exchange of places between the Greers and McCoys, that apparently Greer and wife were in actual possession of the 160-acre tract, using and cultivating same, and that McCoy and wife were similarly in possession of and using the 48.16-acre tract. However, we do not think the conflict in evidence on the point just mentioned is material. It is undisputed that, relying upon the truth of representations, in the application for the loan, in the affidavit by appellants setting up, among other things, that they had actually moved from the 48.16-acre tract and were occupying the 160 acres, and similar representations in the deed of trust, and the information furnished by Russell, to the effect that the Greers had actually moved from the 48.16-acre tract and were residing upon the 160-acre tract, Creager Company was induced to make the loan. So, if Russell, the agent, was deceived and acted prudently, in good faith, without knowledge that the representations by Greer and wife were false and the exchange of places a mere sham and pretense to obscure the facts, clearly, we think appellants would be estopped to set up the homestead character of the 48.16-acre tract to defeat the mortgage lien. In Blum v. Merchant, 58 Tex. 400, Judge Willie, speaking for the Supreme Court, said: "A false representation, or concealment of material facts, made with a knowledge of the facts; ignorance on the part of the person to whom the representations are made, or from whom the facts are concealed; intention that such person should act upon it, and action on his part induced thereby," are the elements of estoppel. In Davis v. Allison, 109 Tex. 440, 211 S.W. 980, 984, speaking for the Supreme Court, Judge Phillips used the following pertinent language, he said: "Estoppel is a doctrine for the prevention of injustice. It is for the protection of those who have been misled by that which upon its face was fair, and whose character as represented parties to the deception will not, in the interest of justice, be heard to deny. But one entitled to its protection must have been misled." Therefore, if the situation, as presented by the testimony of Russell, be accepted as true, that is, that he was innocent of any knowledge of or participation in the deceptive scheme of the Greers, under the doctrine announced by Judges Willie and Phillips, appellants, in our opinion, would be estopped to deny the validity of the mortgage placed by them upon the 48.16-acre tract, although at the time the loan was closed it constituted a part of their homestead. On the other hand, if the conclusion (which is supported by evidence) is reached that Russell, being fully cognizant of the facts, advised the Greers and McCoys to make the pretended exchange of places, and thereafter reported to his principal that the Greers actually had moved from the 48.16-acre tract to the 160 acres to make it their home, Creager Company would not be affected by Russell's knowledge because of his participation in the fraud and deception practiced by the Greers. See First Texas, etc., Bank v. Chapman (Tex. Civ. App.) 48 S.W.2d 651, 654 (appeal dismissed), and authorities cited. So, we conclude that under either theory appellants were estopped to plead homestead exemption for the purpose of defeating the mortgage lien upon the 48.16-acre tract; therefore, sustain appellee's motion for rehearing.

Conclusion. In harmony with the foregoing, we overrule appellants' motion for rehearing; sustain appellee's motion, set aside our former holding affirming the judgment of the trial court wherein appellee was denied foreclosure upon the 48.16-acre tract, reverse the judgment of the trial court in that respect, and here render judgment for appellee against appellants, foreclosing its said lien upon the 48.16-acre tract, as well as upon the 78 acres, and affirm the judgment below in other respects. All costs of this and of the court below will be taxed against appellants.