Braniff Inv. Co. v. Robertson, s. 1565-1857-5838.

• Decision Date: 27 March 1935
• Docket Number: Nos. 1565-1857-5838.,s. 1565-1857-5838.
• Citation: 81 S.W.2d 45
• Parties: BRANIFF INV. CO. v. ROBERTSON.
• Court: Texas Supreme Court

Page 45

81 S.W.2d 45

BRANIFF INV. CO. v. ROBERTSON.

Nos. 1565-1857-5838.

Commission of Appeals of Texas, Sections A, B.

March 27, 1935.

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

Suit by F. M. Robertson against the Braniff Investment Company, which brought a cross-action. A judgment for plaintiff was affirmed by the Court of Civil Appeals [74 S.W.(2d) 425], and defendant brings error.

Reversed and remanded for entry of judgment for defendant.

Harrell & Allison, of Breckenridge, for plaintiff in error.

Davis & Davis and F. M. Robertson, all of Haskell, and E. V. Hardwick, of Stamford, for defendant in error.

TAYLOR, Commissioner.

Defendant in error, F. M. Robertson brought this suit to cancel the interest on the loan involved herein on the ground of usury. Plaintiffs in error, by cross-action, declared the entire debt due, and prayed for foreclosure. Judgment on trial before the court without a jury was for defendant in error. The Court of Civil Appeals affirmed the judgment. 74 S.W.(2d) 425, 426. The borrower, Robertson, made application through the Braniff Investment Company for a loan of $3,500 for ten years to be repaid in such manner as the lender might direct. No rate of interest is specified in the application. In due time the loan contract was consummated and the borrower received from the investment company the full amount of the loan applied for.

The borrower, instead of executing one note evidencing the amount of the loan and stipulating the rate of interest to be paid, executed two installment notes; one a first lien note for the full amount of the loan, and the other a second lien note covering a part of the interest to be paid over the period of the loan. Neither note specified the rate at which it was to bear interest prior to the maturities of the respective installments of each.

In the first lien note the promise to pay and the manner of payment are: "To pay * * * principal sum of $3500.00, the same being money actually loaned together with interest thereon, and to pay in installments payable on the 15th day of the next ensuing and each and every successive month until 120 successive monthly installments have fallen due, and each installment to be in the sum of $43.75. The payment of all said installments by the payment of each on its due date without default and without prepayment shall be payment in full of the principal and interest evidenced thereby."

The provision of the $280 note relating to the same matters reads: "To be paid in one hundred twenty (120) equal installments of Two and 34/100 Dollars each, payable on the fifteenth day of the next ensuing and each and every successive month until the total number of said installments have fallen due."

The "after maturity" provision as to interest in the $3,500 note reads: "All installments shall bear interest at 10 per cent per annum from the date due." The provision relating to the same matter in the $280 note reads: "All installments shall bear interest from maturity at the rate of 10 per cent per annum."

The stipulations in the $3,500 note, relating to the option of the holder in the event of default, and his authority consequent upon the exercise thereof, reads: "If three installments herein provided to be paid shall become delinquent, or if the holder become entitled to foreclose the Deed of Trust securing this note for any reason, * * * the holder hereof shall have the option to * * * declare the entire debt evidenced by this note immediately due and payable without notice, and may proceed to immediately collect the same, and it is agreed that by reason of said default upon the exercise of said option the interest on said loan shall be ten per cent per annum, and the balance due of principal and interest shall be arrived at as follows: Each payment theretofore made shall be accredited as of the date it was received by the holder hereof on the sum of the then balance and accrued interest thereon." (Italics ours.)

The $280 note contains no stipulation relating to the holder's option upon default.

The $280 note stipulates also that it is "one of two notes of even date herewith * * * secured by a real estate deed of trust and the lien of this note is junior to the lien of the other of said two notes."

The only reference in the deed of trust to the option of the holder upon default is a parenthetical statement contained in the clause relating to the application of the proceeds upon a sale of the land under the powers of the trust instrument, which will be hereinafter set out.

The description of the two notes contained in the deed of trust is as follows:

"One promissory note of $3500, dated February 17, 1928, payable in 120 successive monthly installments of $43.75 each.

"One subordinated real estate note of $280.00, dated February 17, 1928, payable in 120 successive monthly installments of $2.34 each, with interest thereon according to the terms of the notes, payable as accrued." (Italics ours.)

The deed of trust provision relating to the manner of payment of interest on the notes reads: "With interest thereon according to the terms of the notes, said interest payable as it accrues." (Italics ours.) The deed of trust contains the further provision that "Any amount expended for taxes shall be treated as expenses and costs of executing this trust."

Preliminary to procuring the loan under consideration the borrower, Robertson, made written application through defendant in error to procure for him a loan. The application reads in part:

"Braniff Investment Company, Oklahoma City, Oklahoma: I hereby agree to make through you either in your name or that of anyone whom you may represent, a loan of Thirty Five Hundred Dollars, for a term of 10 years, principal payable monthly, to bear interest at the rate of____ per cent per annum, payable____ annually, * * * in such manner as the lender may direct."

The Court of Civil Appeals held the loan contract is usurious under the decisions cited, including Shropshire v. Commerce Farm Credit Co., 120 Tex. 400, 30 S.W.(2d) 282, 39 S.W.(2d) 11, 12, 84 A. L. R. 1269. A contrary view was taken by the Amarillo Court of Civil Appeals in Shive v. Braniff Investment Co., 68 S.W.(2d) 564, 566, and it was upon the conflict thus presented that the writ was granted.

The question here involved is whether the parties by the stipulations contained in the loan contract, fairly construed, intended thereby to provide a means of collection by the lender from the borrower of compensation for the use or detention of the money loaned, at a rate in excess of 10 per cent per annum.

It is necessary, therefore, to examine the loan contract in the light of the circumstances surrounding the parties and the considerations with which they were faced at the time they made the stipulations referred to. The contract consists of the two notes and deed of trust above described, and all are to be construed as if contained in a single instrument.

The form of the contract, embodying two notes instead of one, appears to be the chief occasion of the present controversy. No interest rate was named in either note other than the "after maturity" rate. It is apparent from the application, as set out in part above, that a specified rate was not of primary concern to the parties. One of the considerations of the borrower, as reflected in the application, was that the amount, $3,500, should be payable in monthly installments over a period of 10 years. The chief concern of a borrower about to obligate himself upon this type of contract is that the amount of the installment which he promises to pay monthy for 120 months shall be commensurate with his ability to pay. An important consideration of the lender appears to have been to take such evidences of the borrower's obligation under the loan contract as to enable him to allocate in a separate instrument a part of the interest to be earned. It appears from the application that the borrower was willing to agree to make repayment of the money in monthly installments in such manner as the lender might direct. At any rate, the evidences of the indebtednesses, as appears from the notes above described, are so framed as to disclose that the parties agreed upon the sum of $46.09 as the amount to be paid by the borrower monthly for 120 months, and further, as stipulated in the $3,500 note, that the payment of each installment thereof in the sum of $43.75 "on its due date without default and without repayment shall be payment in full of the principal and interest evidenced thereby."

Another consideration with which the parties were faced in making the contract was that it should be so conditioned as not to offend against the public policy of the state relating to interest contracts. Both borrower and lender were charged with knowledge of the constitutional and statutory declarations that the public policy of the state with respect to the maximum compensation that is allowed to be fixed by the parties to a written contract for the use or detention of money is 10 per cent. per annum; and that a rate fixed in excess thereof is usurious and void and of no effect for the amount and value of the interest. Tex. Const. art. 16, § 11; R. S. arts. 5069 and 5071.

The stipulations of the notes and deed of trust will next be examined in connection with a part of the undisputed evidence. The rate of interest per annum at which the amount of the loan, as evidenced by the $3,500 note, draws interest so as to "be payment in full of the principal and interest" by the borrower's meeting each installment "on its due date without default and without prepayment," is .09912 per cent. In other words, that is the rate per annum at which the loan bears interest when payment of the 120 installments is spread over the entire 10-year period of the loan.

The problem of ascertaining what rate per annum is necessary to so pay off the loan is one purely of mathematics. Mr. Tribbey, a...