Adleson v. B. F. Dittmar Co., s. 1567-1859-6842.

• Decision Date: 27 March 1935
• Docket Number: Nos. 1567-1859-6842.,s. 1567-1859-6842.
• Citation: 80 S.W.2d 939
• Parties: ADLESON et ux. v. B. F. DITTMAR CO.
• Court: Texas Supreme Court

80 S.W.2d 939

ADLESON et ux. v. B. F. DITTMAR CO.

Nos. 1567-1859-6842.

Commission of Appeals of Texas, Sections A and B.

March 27, 1935.

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

Suit by Harry V. Adleson and wife against the B. F. Dittmar Company. To review a judgment of the Court of Civil Appeals which reversed a judgment for plaintiffs rendered by the district court [75 S.W.(2d) 1100], plaintiffs bring error.

Judgment of Court of Civil Appeals reversed, and judgment of district court reformed and, as reformed, affirmed.

DuVal West, Jr., of San Antonio, and J. P. Ellis, of San Benito, for plaintiffs in error.

Jeffers & Gregg, Leo Brewer, A. N. Moursund, and Leroy Jeffers, all of San Antonio, and Bascom Cox, of Brownsville, for defendant in error.

SMEDLEY, Commissioner.

Plaintiffs in error recovered judgment in district court against defendant in error for $3,852, representing double the amount of payments alleged to have been made as interest pursuant to a usurious contract. The Court of Civil Appeals reversed that judgment and adjudged that plaintiffs in error take nothing. 75 S.W.(2d) 1100.

The contract was evidenced by a promissory note executed by plaintiffs in error, payable to defendant in error, for the principal sum of $6,000 in sixty installments of $126 each, including interest, due monthly, with interest on each monthly installment from its due date at the rate of 10 per cent. per annum, and by a deed of trust securing the note. Plaintiffs in error paid all of the monthly installments as they matured.

The meaning and effect of the provisions of the note requiring sixty monthly payments of $126 each, including interest, were that a part of each monthly payment represented interest accrued up to the date of its payment and the balance of each payment represented principal, with the result that the sixty payments regularly made would discharge the principal and interest. The evidence is that the rate of interest agreed to be paid according to the terms of the note was 9.48 per cent. per annum.

Defendant in error, however, through its agent Flynn, who represented it in making the loan, required plaintiffs in error to pay a so-called commission or brokerage in the sum of $240. This Flynn remitted to defendant in error. The trial court and the Court of Civil Appeals correctly held that such charge or deduction was but a device for the collection of additional interest. Deming Investment Co. v. Giddens (Tex. Civ. App.) 41 S.W. (2d) 260; Temple Trust Co. v. Stobaugh (Tex. Civ. App.) 59 S.W.(2d) 916; 66 C. J. pp. 220-223; 27 R. C. L. pp. 238, 239.

Although the note was executed for the principal sum of $6,000, the actual amount of the loan was but $5,760, because at the very time plaintiff in error Adleson received $6,000 from the agent Flynn he paid to Flynn as so-called commission $240. Defendant in error argues that the loan was in fact for $6,000, because the money was used to pay off an existing indebtedness owed by plaintiffs in error to contractors. The evidence is that the loan was closed through a bank in San Benito, that to it the agent Flynn gave a draft for $6,000 payable jointly to plaintiff in error Adleson and the contractors, and that out of the money represented by the draft the bank paid to Flynn $240, paid the contractors a balance due them, paid the bank a debt owed it by Adleson, and placed the small balance to Adleson's credit. Adleson therefore realized from the $6,000 for himself and in the payment of his debts but $5,760. But even if the evidence is to be interpreted as meaning that all of the $6,000 represented by the draft was used to pay Adleson's debt to the contractors, still as a part of the same transaction Adleson paid to Flynn, who drew the draft, $240, and thus he derived benefit from the proceeds of the draft only to the extent of $5,760. Stripped of the formalities of draft and checks, credits and charges, the transaction was that when the agent Flynn paid Adleson $6,000, Adleson took it in one hand and with the other hand gave back to Flynn $240. His note in the principal sum of $6,000 was given for a loan of but $5,760. In such case, for the purpose of testing the contract for usury, the real principal is the amount actually received by the borrower. Rosetti v. Lozano, 96 Tex. 57, 70 S. W. 204; Yonack v. Emery (Tex. Com. App.) 13 S.W. (2d) 667, 70 A. L. R. 684; international Building & Loan Association v. Biering, 86 Tex. 476, 25 S. W. 622, 26 S. W. 39; Temple Trust Co. v. Stobaugh (Tex. Civ. App.) 59 S.W.(2d) 916; Gilder v. Hearne, 79 Tex. 120, 14 S. W. 1031; 66 C. J. p. 211, § 133.

The rate of interest as agreed to be paid by the terms of the note in the making of sixty monthly payments including interest was, when calculated upon the principal sum of $5,760, 11.268 per cent. The contract therefore was usurious.

The Court of Civil Appeals, while holding the contract usurious, concluded that no interest at a greater rate than 10 per cent. per annum was paid within two years before the suit was filed, and that therefore plaintiffs in error were not entitled to recover penalties. It treated the $240 as a payment of interest made in the first year of the contract and considered $6,000 as the principal of the loan. In that view the rate of interest paid after the first year was less than 10 per cent. per annum, but we think, as above indicated, that the real principal was $5,760, and on that principal the rate contracted to be paid and paid throughout the entire term of the contract was 11.268 per cent. Of the sixteen installments of $126 each which were paid by plaintiffs in error within two years before the suit was filed, a total of $154.89 was paid and received as interest. Plaintiffs in error are entitled to recover as penalties double that amount; that is, $309.78.

The trial court accepted, but the Court of Civil Appeals rejected, a theory vigorously presented by plaintiffs in error that since the contract was tainted with usury, all payments made, whether of interest or principal, were by law applied first to the extinguishment of the principal, and that all payments made thereafter became, or should be classified as, interest for the purpose...