Atwood v. Deming Inv. Co.

• Decision Date: 13 January 1932
• Docket Number: No. 6374.,6374.
• Citation: 55 F.2d 180
• Parties: ATWOOD et ux. v. DEMING INV. CO. et al.
• Court: U.S. Court of Appeals — Fifth Circuit

55 F.2d 180 (1932)

ATWOOD et ux. v. DEMING INV. CO. et al.

No. 6374.^*

Circuit Court of Appeals, Fifth Circuit.

January 13, 1932.

A. R. Stout, of Ennis, Tex., and Jack F. Hyman, of Dallas, Tex., for appellants.

W. M. Bates, of Dallas, Tex., and Earl Bohannon, of Oswego, Kan., for appellees.

Before BRYAN, FOSTER, and HUTCHESON, Circuit Judges.

HUTCHESON, Circuit Judge.

Appellants on December 22, 1930, brought this suit in the state court of Dallas county, Tex., alleging that on February 1, 1922, the defendant investment company loaned them $47,000; the contract of loan being evidenced by promissory notes for principal and interest, and deeds of trust upon certain land; that the notes and land were fully described in deeds of trust (A) and (B) attached and made a part of the pleadings; that these contracts make provision permitting the holders of the notes to exact from plaintiffs compensation for the detention of the money loaned at a rate in excess of 10 per cent. per annum, and they are therefore, as to the interest provided for, void. Plaintiffs further alleged that since February 1, 1922, payments have been made in the aggregate sum of $32,541.83 reducing the principal until there remains a balance due on the loan of only $14,458.17, which amount plaintiffs tender in satisfaction and discharge of it; that the deeds of trust constitute a cloud upon plaintiffs' title, and they pray for an order canceling them and removing the cloud.

The deed of trust, Exhibit A, secured notes aggregating $76,500; of these there was one principal note for $45,000 due February 1, 1932, and ten interest notes of $3,150 each, one due February 1, 1923, and one each year thereafter. The deed of trust described the amounts above referred to as follows: One note for $45,000 due February 1, 1932, together with interest from February 1, 1922, until maturity at the rate of 7 per cent. per annum, payable in annual installments on the 1st day of February in each year thereafter, according to the tenor and effect of ten interest notes of even date thereto attached, principal and interest not paid when due bearing interest from date due at the rate of 10 per cent. per annum. It contained a clause accelerating the maturity of the whole debt in the event either of default in the payment of the notes or of any installment of interest, or in the performance of any of the covenants, agreements, terms, or conditions of the instrument, or of the imposition by the state of any tax upon the mortgage, or upon the judgment of a court finding illegal or inoperative the agreement of the borrower to pay the taxes assessed upon the property, or the instrument of indebtedness. This clause provided: "The whole sum of money herein secured and all interest thereon to the date of payment thereof to be computed at ten per cent. per annum from the date of the exercise of the option herein, may at the option of the holder of the note hereby secured, and without notice, be declared due and payable at once, and on application of the holder of the note the trustee may sell the property." The instrument further provided that "from the proceeds of the sale he shall pay (1) * * * (2) the debt and all sums of money due or to become due hereunder with interest as agreed." The deed of trust, Exhibit B, described the indebtedness secured by it as follows: To secure the payment of five promissory notes aggregating $6,740.00; note 1 for $2,060, due February 1, 1923; (2) $1,980 due February 1, 1924; (3) $900 due February 1, 1925; (4) $900 due February 1, 1926, $900 due February 1, 1927 — each of said notes bearing interest after maturity at the rate of 10 per cent. per annum. The instrument further provided, after stating that the Deming Investment Company was merely acting as agent to negotiate a loan for the borrowers, that its lien was subordinate to the first deed of trust, Exhibit A, and "the notes secured by this deed of trust represent the earned commission which the party of the first part agrees to pay for the negotiation of said loan." This deed of trust contained a clause for the acceleration of maturity upon the same happenings as in the first deed of trust. It provided that upon the happening of any of the contingencies "the whole sum of money herein secured may at the option of the holder of the notes and without notice, be declared due and payable at once, and this mortgage may thereupon be foreclosed immediately for the whole sum of money, interest and costs" and the trustee may at once sell the property, "applying the proceeds (1) * * * (2) * * * (3) to the payment and satisfaction of all sums herein secured."

The cause having been removed to the federal court, a motion to dismiss was filed. The motion had three grounds: (1) The general one that the facts stated presented no cause of equitable cognizance. (2) The specific point that the petition was insufficient in equity, which it made by setting out four grounds (a) the suit was premature, the principal debt not being due until February 1, 1932; (b) the contract set out in the petition does not provide for usurious interest; (c) the petition is without equity, because the second deed of trust which it sets out as part of the contract making usury shows on its face that the notes therein referred to were part principal and part commission notes, and represented no interest at all; (d) the tender of plaintiffs was insufficient because not an actual tender, and because the sum of money referred to as tendered was less than the real amount due. The third ground of the motion presents the point that there is no equity in the claim to offset the payments against the principal, because there is no statute in Texas so authorizing. The District Judge without opinion dismissed the bill. The case is here on appeal from the judgment.

Brief as its allegations are, the petition presents fully enough, as against the motion to dismiss, the contention that the notes secured by the second deed of trust were interest notes, and not payments of commission, and the great contention that because of the clause in each, particularly in the first deed of trust, accelerating the maturity of the interest notes, thus making the whole sum, not only the principal, but the interest to maturity, thereupon bear interest at 10 per cent., the contract was usurious; that in short appellees, having exacted from appellants not only principal notes themselves providing for interest after maturity at 10 per cent., but interest notes payable annually and providing for interest after maturity at 10 per cent., had by writing into the contract a clause effecting acceleration of payment in the event of default stipulated for interest for the detention of the actual money loaned far in excess of the 10 per cent. allowed by law.

It is appellants' position that under the statutes of Texas, art. 5071 R. S. 1925,¹ construed in Shropshire v. Commerce Farm Credit Co. (Tex. Sup.) 30 S.W.(2d) 282, Id. (Tex. Sup.) 39 S.W.(2d) 11, Deming Investment Co. v. Giddens (Tex. Sup.) 30 S.W.(2d) 287, also Bothwell v. Farmers' & Merchants' State Bank & Trust Co. (Tex. Sup.) 30 S.W.(2d) 289, this provision for a greater rate of interest than 10 per cent. avoids the agreement to pay interest, and permits only the principal sum to be recovered.

Appellees vigorously contest the authority of these cases. They urge that their holding is not in accord with the weight of authority; that these decisions violate a rule of property established by earlier ones; that they are not in point, for that the clauses in question here reasonably construed do not accrue the interest notes, do not provide for the payment of interest on unearned interest, and finally, they say that, if there was at any time potential usury in the contract, that is, if the contract did provide for the...