Woodcrest Associates, Ltd. v. Commonwealth Mortg. Corp.
| Citation | 775 S.W.2d 434 |
| Decision Date | 01 August 1989 |
| Docket Number | No. 05-88-01239-CV,05-88-01239-CV |
| Court | Court of Appeals of Texas |
| Parties | WOODCREST ASSOCIATES, LTD., Appellant, v. COMMONWEALTH MORTGAGE CORPORATION, Appellee. |
Patrick F. McManemin, William A. Smith, Dallas, for appellant.
Larry M. Lesh, Dallas, for appellee.
Before McCLUNG, ROWE and BURNETT, JJ.
Appellee Commonwealth Mortgage Corporation [Commonwealth] brought this action against Woodcrest Associates, Ltd. [Woodcrest] to secure possession and control of an apartment complex which Woodcrest had pledged as security for a loan. Woodcrest filed a counterclaim against Commonwealth seeking penalties for usury. After a non-jury trial, the trial court awarded possession and control of the complex to Commonwealth and denied Woodcrest all relief on its counterclaim. In six points of error, Woodcrest complains that: 1) the trial court erred in holding that the "usury savings clauses" in the loan documents precluded Commonwealth from making a usurious charge of interest; 2) the trial court erred in holding that Woodcrest did not have an absolute obligation to repay the loan; 3) there was no evidence or insufficient evidence to support the trial court's finding that the loan commitment fee was paid as separate consideration for Commonwealth's commitment to make and close the loan; 4) the trial court erred in holding that the loan commitment fee was not paid by Woodcrest for the use, forbearance, or detention of proceeds of the loan; 5) the trial court erred in holding that Commonwealth's demand for $14,385,238 did not constitute a charge of additional interest; and 6) the trial court erred in refusing to enter judgment in favor of Woodcrest on its counterclaim. In one cross point, Commonwealth urges that Texas usury law did not apply to the transaction. For the reasons discussed below, we affirm the trial court's judgment.
In January 1983, Commonwealth loaned Woodcrest money to purchase an apartment complex. The proceeds of the loan were allocated as follows:
SITE ALLOCATION $ 4,985,538
(Cash down payment)
LOAN FEES 1,172,004
Loan brokerage and origination 328,230
Commitment fee 328,230
Noncompetition fee 437,641
End-loan commitment fee 78,903
CLOSING ALLOCATION $55,000
CONTINGENCY AND OTHER ALLOCATIONS 2,511,918
REFURBISHING ALLOCATION 284,000
PRIOR DEBT ALLOCATION 5,017,740
-----------
TOTAL LOAN AMOUNT $14,027,200
As security for this loan, Woodcrest executed a deed of trust encumbering the property, an assignment of rents, and an assignment of contracts and sale proceeds. The loan agreement expressly provided that neither Woodcrest nor any of its partners would have any personal liability with respect to the loan and that Commonwealth's sole recourse would be against the property securing the loan.
At the time of this purchase, the apartment complex was subject to a first lien mortgage in favor of Traveler's Insurance Company [Traveler's]. Rather than extinguishing this mortgage, the transaction was structured such that if Woodcrest had no negative cash flow, Woodcrest would make monthly installment payments to Commonwealth which would immediately remit such payments to Traveler's to service the preexisting debt. In addition, the loan proceeds included a prior debt allocation which Commonwealth was entitled to withhold until Traveler's released or transferred to Commonwealth its lien on the apartment complex. In the event that Woodcrest failed to provide adequate funds to service the Traveler's debt, the loan agreement authorized Commonwealth to draw the amount necessary to service the debt from the "Contingency and Other Allocations" funds. If for any reason a default occurred on the Traveler's note, the loan agreement authorized Commonwealth to pay in full the Traveler's debt from the prior debt allocation.
At closing, Commonwealth only advanced $5,040,538 which represented the site and closing allocations. Commonwealth also debited the available balance for the loan fees. Commonwealth did not initially advance funds under the contingency, refurbishing, or prior debt allocations. Subsequently, pursuant to the loan agreement, Commonwealth serviced the Traveler's debt and its own debt with the contingency allocation, eventually exhausting those funds. Commonwealth also exhausted the refurbishing allocation servicing the Traveler's debt.
On April 2, 1986, Commonwealth gave notice to Woodcrest that it was in default for failing to pay monthly installments due on the Commonwealth loan. In April and May, Woodcrest failed to provide any funds to service the Traveler's debt although it had some positive net operating income. On May 27, 1986, Commonwealth gave notice to Woodcrest that if the existing defaults were not cured, Commonwealth would accelerate the maturity of the notes and proceed with foreclosure of the deed of trust. On June 9, 1986, Commonwealth accelerated the maturity of the loan and demanded $14,137,826.15 to satisfy the loan in full. On July 14, 1986, Commonwealth gave notice to Woodcrest that it was exercising its right under the assignment of rents to collect all rental and other income from the property and instructed Woodcrest to pay over to it all such income in Woodcrest's possession. Commonwealth also amended its demand to reflect $14,385,238.00 to pay the loan in full. In a subsequent letter dated July 21, 1986, Commonwealth itemized this demand roughly as follows:
Principal balance owing to Commonwealth $ 8,650,319.87
Amount required to pay in full the Underlying Note to 5,007,273.71
Traveler's
Reimbursement to Commonwealth for interest, tax and insurance 159,824.48
escrows, and late charges paid to Traveler's on April 1, May
1, and June 1, 1986, following Woodcrest's default
Interest owed to Commonwealth on installments due between 567,819.94
February 1 and June 1, 1986, and post default interest on
past due amounts owed after acceleration of the loan
--------------
$14,385,238.00
In reply, Woodcrest denied that a default existed and counterdemanded "that Commonwealth pay over to it $25,742,046.76 as damages for usurious interest demanded in" Commonwealth's July 14, 1986 acceleration letter. As the basis for this counterdemand, Woodcrest claimed that the amount demanded by Commonwealth in its demand letters included interest in excess of that permitted by usury laws. Woodcrest asserts that such sum exceeded the amount actually funded by Commonwealth by more than $6,000,000. In particular, Woodcrest alleged that the amount demanded included $5,007,273.21 to satisfy the Traveler's debt, that the Traveler's debt was not in default, and that Commonwealth was not obligated to satisfy the Traveler's debt. Woodcrest also argued that all of the loan fees were actually disguised interest and that there was no separate consideration for such fees.
At trial, Woodcrest conceded that if Commonwealth's claim did not violate the usury laws, Woodcrest was in default under the loan. The trial court concluded that all of the loan fees other than the loan commitment fee were paid for the use, forbearance, or detention of the loan proceeds. It concluded, however, that Commonwealth's inclusion in its demand letters of the amount necessary to satisfy the Traveler's debt, including the prepayment penalty, and of the amount advanced from the contingency allocation to make the monthly payments did not constitute a charge of additional interest. The trial court also made the following conclusions of law:
1) The loan agreement, notes, and deed of trust contained enforceable clauses that precluded Commonwealth from charging or receiving usurious interest on the loan.
2) Woodcrest did not have an absolute obligation to pay the notes or other sums becoming due pursuant to the loan or sums demanded by Commonwealth in its demand letters.
3) Woodcrest is not entitled to the relief sought in its counterclaim.
A lender commits usury if it contracts for, charges, or receives interest greater than the maximum amount allowed by law. TEX.REV.CIV.STAT.ANN. art. 5069-1.06 (Vernon 1987). Woodcrest does not contend that Commonwealth contracted for or received usurious interest. [Brief of Appellant at 18]. Instead, Woodcrest claims that Commonwealth's July 14, 1986 demand letter constitutes a charge of usurious interest. A demand letter sent by a lender's attorney can be a "charge" within the meaning of the statute. Coppedge v. Colonial Sav. & Loan Ass'n, 721 S.W.2d 933, 936 (Tex.App.--Dallas 1986, writ ref'd n.r.e.); Dryden v. City Nat'l Bank, 666 S.W.2d 213, 221 (Tex.App.--San Antonio 1984, writ ref'd n.r.e.); see Danziger v. San Jacinto Sav. Ass'n, 732 S.W.2d 300, 304 (Tex.1987). We must determine, however, whether such "charge" by its terms is for usurious interest.
In its first point of error, Woodcrest claims that the trial court erred in concluding that the usury...
To continue reading
Request your trial
-
IN RE PERRY
...effect if reasonably possible." Kennon v. McGraw, 281 S.W.3d 648, 652 (Tex. App.-Eastland 2009); Woodcrest Assocs., Ltd. v. Commw. Mortgage Corp., 775 S.W.2d 434, 437-38 (Tex.App.-Dallas 1989) (writ den'd). The effect of a savings clause turns on the construction of the terms of the whole t......
-
Outreach v. Ya Global Inv.S
...of usury savings clauses and enforced such clauses to defeat a violation of the usury laws." Woodcrest Assocs., LTC v. Commonwealth Mortg. Corp., 775 S.W.2d 434, 437 (Tex. App. 1989) (citations omitted). However, "the mere presence of such a clause... will not rescue a transaction that is n......
-
Federal Deposit Ins. Corp. v. Claycomb
...basis of Texas law, 8 the district court addressed the defense of usury under state law. Relying on Woodcrest Assocs., Ltd. v. Commonwealth Mortgage Corp., 775 S.W.2d 434, 439 (Tex.App.1989), writs denied, the district court held that the usury savings clause at issue in the present case el......
-
Pentico v. Mad-Wayler, Inc.
...indicates that the spreading of interest should be used to avoid a charge of usury. See Woodcrest Assoc., Ltd. v. Commonwealth Mortg. Corp., 775 S.W.2d 434, 437-38 (Tex.App.--Dallas 1989, writ denied) (citing forty-nine years of case law supporting validity of savings clauses). Unless a con......