Alamo Lumber Co. v. Gold

• Decision Date: 02 November 1983
• Docket Number: No. C-883,C-883
• Citation: 661 S.W.2d 926
• Parties: ALAMO LUMBER COMPANY, Petitioner, v. Addie B. GOLD, Respondent.
• Court: Texas Supreme Court

Page 926

661 S.W.2d 926

ALAMO LUMBER COMPANY, Petitioner, v. Addie B. GOLD, Respondent.

No. C-883.

Supreme Court of Texas.

Nov. 2, 1983.

Rehearing Denied Jan. 11, 1984.

Foster, Lewis, Langley, Gardner & Banack, Ralph Langley and Emerson Banack, Jr., San Antonio, Graves, Dougherty, Hearon & Moody, Robert J. Hearon, Jr. and Thomas I. Davies, Austin, for petitioner.

West & West, Dennis K. Drake, San Antonio, for respondent.

POPE, Chief Justice.

The question presented is whether Alamo Lumber Company charged usury to Mrs The court of appeals reversed the trial court judgment and rendered judgment that Alamo had charged more than double the amount of interest permitted by statute. It remanded the cause to the trial court with instructions to impose the penalties allowable by TEX.REV.CIV.STAT.ANN. art. 5069-1.06. Those penalties were the forfeiture of the entire principal of $82,925.34 in Note 1, the forfeiture of the principal of $30,893.10 in Note 2; cancellation of the liens securing the two notes, a judgment for double the amount of interest which at time of trial was in the sum of $45,177.90, and attorney fees in the sum of $25,000. 623 S.W.2d 453. We affirm the judgment of the court of appeals.

Addie Gold when Alamo purchased Gold's delinquent note for $75,000 plus interest and extended it, upon condition that Gold sign another note to Alamo for the payment of Stetson G. Reed's open account with Alamo. Gold sued Alamo for usury and Alamo counterclaimed for judgment against Gold on a note for $82,925.34 (Note 1). Note 1 was the total of the original Gold note for $75,000 together with interest that had accrued up to the time Alamo bought it. Alamo also counterclaimed on a separate note for $30,893.10 (Note 2), which was the amount originally owed by Mrs. Gold's son and the amount of attorney fees that Alamo paid the attorneys who had instituted foreclosure suit against Mrs. Gold. Both Note 1 and Note 2 were signed by Gold only. The trial court rendered judgment on the verdict that Gold take nothing on her usury action, and instead rendered judgment for Alamo on both notes together with interest.

On December 20, 1974, Gold executed a note, secured by realty in San Antonio, for $75,000 payable to First National Bank of Pleasanton. Mrs. Gold defaulted on the note to First National Bank, so the bank instituted proceedings to foreclose on the San Antonio realty securing the note. In the meantime, Stetson G. Reed, Mrs. Gold's son, had developed an unpaid open account with Alamo totaling $23,552.80.

Stetson G. Reed submitted a proposal to Alamo that Alamo purchase the Gold note owed to the Pleasanton bank and extend the payment date upon the condition that Gold also assume his open account. Alamo agreed, and on January 30, 1976, it purchased Note 1 for the sum of $82,925.34. On the same date, Mrs. Gold signed Note 2 for $30,893.10. Note 2 included the amount that Reed owed Alamo and the additional sum of $7,340.70 for fees that Alamo paid the attorney for the holder of Note 1 in connection with the foreclosure proceedings. To secure Note 2 Alamo took a second lien on the same property that secured Note 1. Both Note 1 and Note 2 recited an interest rate of nine and one-half percent, so the notes were not usurious on their face.

The jury found that as a condition for Alamo's purchase of the $75,000 note from Pleasanton National Bank and extending its due date, Alamo required Gold to assume or pay the debt that Stetson G. Reed owed Alamo. The jury, however, refused to find that Alamo intended to charge or contract for usurious interest in the transaction. We granted the writ to determine the force and effect of these two findings. We conclude that the court of appeals has given the correct legal construction to both findings. Alamo's requirement that Gold assume Reed's independent open account as a condition to Alamo's purchase and extension of Note 1 made the $23,552.80 interest as to Gold.

An officer for Alamo testified that the Alamo Lumber Company would not have purchased and extended Note 1 without Gold's assumption and agreement to pay Note 2. Contrary to Alamo's argument before us, Gold's execution of Note 2 was not an independent collateral transaction. The assumption by Gold of Reed's bad debt was expressly tied to Alamo's purchase of Note 1. That portion of Note 2 that constituted We granted the writ in this case to determine the force of the jury's refusal to find that Alamo intended to charge or contract for usurious interest. Alamo argues that there is a difference between those cases in which the documents show on their face that usurious interest is charged and cases in which the documents are non-usurious on their face. Alamo says that an intent to charge usury is necessary in the latter instance. The evidence is undisputed and supports the jury finding that Alamo would not have purchased Note 1 and given Mrs. Gold additional time to pay it off if she had not assumed Reed's debt by signing Note 2. Alamo's vice-president conceded that those were the conditions of its requirement before it purchased Note 1. We held in Cochran v. American Savings & Loan Association, 586 S.W.2d 849 (Tex.1979), that it is not the lender's subjective intent to charge usury that makes a loan usurious, but rather his intent to make the bargain that was made.

the assumption of Reed's debt is characterized as interest under Laid Rite, Inc. v. Texas Industries, Inc., 512 S.W.2d 384, 389 (Tex.Civ.App.--Fort Worth 1974, no writ). That case did not reach this court, but Stephens v. First Bank and Trust of Richardson, 540 S.W.2d 572 (Tex.Civ.App.--Waco 1976, writ ref'd n.r.e.) relying upon Laid Rite, Inc. did. In Stephens we approved the judgment for usury when a lender requires a borrower to pay the debt that a third party owes the lender. The rule is supported by authorities in other jurisdictions. In Laid Rite, Inc. some of those precedents are collected: Darden v. Schuessler, 154 Ala. 372, 45 So. 130 (1907); Curtiss National Bank of Miami Springs v. Solomon, 243 So.2d 475 (Fla.App., 1971); Simpson v. Charters, 188 Ga. 842, 5 S.E.2d 27 (1939); Winder Nat. Bank v. Graham, 38 Ga.App. 552, 144 S.E. 357 (1928); Canal-Commercial Trust & Savings Bank v. Brewer, 143 Miss. 146, 108 So. 424 (1926); Ferdon v. Zarriello Bros., Inc., 87 N.J.Super. 124, 208 A.2d 186 (1965); Vee Bee Service Co. v. Household Finance Corp., 51 N.Y.S.2d 590 (Sup.1944); and Janes v. Felton, 99 W.Va. 407, 129 S.E. 482 (1925).

We hold that a lender who requires as a condition to making a loan, that a borrower assume a third party's debt, as distinguished from a requirement that the borrower pay another one of his own debts, must include the amount of the third party's debt in the interest computation. At the time of trial, the computations showed that Alamo charged Gold a sum of $45,177.90 as interest which was $27,124.70 in excess of the lawful rate, and was $9,071.50 in excess of double the maximum amount of lawful interest.

We affirm the judgment of the court of appeals.

BARROW, J., dissents joined by CAMPBELL and WALLACE, JJ.

ON MOTION FOR REHEARING

BARROW, Justice, dissenting.

I respectfully dissent. I would hold that a distinction should be recognized between those instances in which the usurious nature of a loan transaction appears from the face of the loan documents and those in which the usury is evident only after going behind the face of the loan documents. In the latter case, I would require a showing of usurious intent on the part of the lender. In addition, I disagree with the majority's adoption of the rule from Laid Rite, Inc. v. Texas Industries, Inc., 512 S.W.2d 384 (Tex.Civ.App.--Fort Worth 1974, no writ). The Laid Rite court failed to correctly state and apply the rule upon which it relied for its decision. The majority perpetuates this error by its holding.

The Role of Intent in Usury Cases

Beginning as early as Walker v. Temple Trust Co., 124 Tex. 575, 80 S.W.2d 935 (1935), the role of intent in a usury case has been stated as follows:

The determination of whether or not usury exists in a contract is a matter involving first and preeminently the principle which is the polestar of construction, to wit: The ascertainment of the dominant purpose and intention of the parties embodied in the contract, interpreted as a whole, in the light of the attending circumstances and the governing rules of law which presumptively they intended to observe and obey in making the contract.

It is fundamental that to constitute usury there must exist an intention to exact more for the use, forbearance, or detention of money than the maximum allowed by law. Of course where the contract "upon its very face imports usury, as by an express reservation of more than legal interest, there is no room for presumption, for the intent is apparent."

Id. at 936. In this manner, the Court established that intent is always important, but it may be found to exist as a matter of law if the very face of the loan instruments provide for usury.

The holding in Walker is an established aspect of Texas jurisprudence and has been followed in numerous cases. See, e.g., Carbajal v. Ford Motor Credit Co., 658 S.W.2d 281, 284 (Tex.App.--Corpus Christi 1983, writ dism'd w.o.j.); Rotello v. International Harvester Co., 624 S.W.2d 249, 251-52 (Tex.App.--Dallas 1981, writ ref'd n.r.e.); Prestonview Co., Ltd. v. State Mutual Investors, 581 S.W.2d 701, 703 (Tex.Civ.App.--Dallas 1979, writ ref'd n.r.e.); American Century Mortgage Investors v. Regional Center, Ltd., 529 S.W.2d 578, 583 (Tex.Civ.App.--Dallas 1975, writ ref'd n.r.e.); Hernandez v. United States Finance Co., 441 S.W.2d 859, 862 (Tex.Civ.App.--Waco 1969, writ dism'd w.o.j.); Sinclair v. Mack Trucks, Inc., 355 S.W.2d 563, 565 (Tex.Civ.App.--Fort Worth 1962, writ ref'd n.r.e.).

In addition, this Court has recognized the viability of Walker in cases arising after changes in the usury statutes. Smart v. Tower Land...