Braugh v. Corpus Christi Bank and Trust, 1500

• Decision Date: 29 August 1980
• Docket Number: No. 1500,1500
• Parties: Roger S. BRAUGH et ux. Appellants, v. CORPUS CHRISTI BANK AND TRUST, Appellee.
• Court: Texas Court of Appeals

Page 691

605 S.W.2d 691

Roger S. BRAUGH et ux. Appellants, v. CORPUS CHRISTI BANK AND TRUST, Appellee.

No. 1500.

Court of Civil Appeals of Texas, Corpus Christi.

Aug. 29, 1980.

Rehearing Denied Sept. 25, 1980.

Paul S. Francis, Ben H. Schleider, Jr., Schleider, Ewing & Francis, Houston, for appellants.

M. W. Meredith, Jr., William A. Abernethy, Meredith, Donnell & Edmonds, Corpus Christi, for appellee.

OPINION

BISSETT, Justice.

In this appeal, the primary issue is whether the Texas usury law was preempted by federal legislation. Corpus Christi Bank & Trust (Bank) sued Roger S. Braugh and his wife, Kathleen M. Braugh (the Braughs), to recover the past-due principal sums remaining unpaid on several promissory notes covered by two loan agreements, accrued interest on the notes, attorney's fees; and to foreclose liens on various collateral mortgaged by the Braughs pursuant to the terms of the instruments evidencing the loan transactions. The Braughs, in addition to a general answer, filed a cross-action wherein, among other claims, they asserted that the Bank had charged usurious interest rates. The cause was tried before a jury which answered special issues in favor of the Bank. The trial court, ruling that the Bank had not charged usurious interest, rendered a judgment which awarded the Bank the total sum of $861,984.35, and which granted judicial foreclosure of the liens. The Braughs have appealed. We affirm.

The Braughs resided on a ranch west of Rivera, Texas, where they conducted farming and ranching operations. On January 29, 1974, the Bank and the Braughs executed a loan agreement for the specified purposes of: 1) "consolidating existing indebtedness of (the Braughs)" and 2) "providing working capital for the farming and ranching operation." Contemporaneously, with the execution of the loan agreement, the Braughs executed a "consolidation note" in the principal sum of $986,000.00, payable to the Bank in five equal annual principal installments of $197,200.00 each, commencing December 1, 1974, with interest thereon until maturity at an annual rate of 10%, payable to the Bank in quarterly interest installments, which were due March 1, June 1, September 1, and December 1, of each year during the term of the note. This note consolidated the balances then due other lenders under preexisting notes.

In addition to the "consolidation note," the Braughs, in 1974, executed four "working capital notes" representing indebtedness for certain sums of money the Bank advanced to the Braughs in 1974. Under the terms of each of the said four notes, the respective principal sums were due on or before December 1, 1974, with interest accruing thereon at the rate of 10% per annum, payable at maturity.

During 1974, the Braughs paid the March, June, and September quarterly interest payments due on the "consolidation note." Because of "poor economic conditions," the Braughs were unable to pay the principal and interest due on December 1, 1974, on the "working capital notes" and the last quarterly interest installment and annual principal payment due on the "consolidation note." The loan officer of the Bank in charge of the Braugh loan, discussed the situation with the Braughs and, on behalf of the Bank, agreed to "renew and extend" the amounts due on the notes until March 3, 1975, provided that, on or before December 31, 1974, the Braughs paid the past-due interest on each note for the period ending December 1, 1974. Thereafter, on December 31, 1974, the Braughs paid a total of $76,233.03, representing interest payments due on the notes for the period ending December 1, 1974. The "renewal and extension" agreements were then accomplished by stamping on the back of each note a printed legend containing blanks for the appropriate extension time and interest rate which were completed to show that the maturity date for each past due principal payment had been extended to March 3, 1975, at an interest rate of 12.5% per annum during the 90-day extension period (December 2, 1974 to March 3, 1975) instead of 10% per annum as provided in the original notes. The "renewal and extension" forms were signed by the Braughs and initialed by a Bank official.

After the Braughs were unable to pay the quarterly interest installment on the "consolidation note" due on March 1, 1975, and the principal payments on the "consolidated note" and the "working capital" notes due March 3, 1975, pursuant to the "extensions and renewals" of such notes, the Bank made a final advance to the Braughs under the first loan agreement. This advance was evidenced by a promissory note executed by the Braughs on March 4, 1975, in the principal amount of $88,812.68, payable to the Bank "on demand" with interest thereon at a rate of 10% per annum. A portion of this advance was used to pay the interest due on each note during the 90-day extension period ending March 3, 1975.

On April 9, 1975, the Braughs paid to the Bank a sum of $501,635.00, representing proceeds they received from a cattle sale. From this payment, the Bank credited the sum of $197,200.00 to the principal payment due (March 3, 1975) on the "consolidation note," and the sum of $17,471.76 to interest due on the "consolidation note," the four "working capital" notes, and the March 4, 1975 note. The Bank used the remainder of the payment to cover overdrafts in the Braughs' checking account and to pay insurance premiums due on certain policies maintained by the Braughs to insure the collateral securing remaining total indebtedness. At this time, the four "working capital" notes and the March 4, 1975, note were "renewed and extended" in the same manner until October 8, 1975. The notes, as renewed and extended, bore interest at the rate of 10% per annum.

The Braughs failed to timely pay the quarterly interest payment which was due on June 1, 1975, pursuant to the terms of the "consolidation note." Subsequently, various meetings were held and numerous letters were written by the Bank to the Braughs concerning their loan account. Following certain negotiations, a second loan agreement was executed on January 8, 1976, whereby the Braughs agreed to consolidate their outstanding indebtedness on the prior notes by executing a single note in the principal sum of $1,612,612.68, (the second "consolidation note"), payable on or before August 15, 1976, with interest thereon at the rate of 10% per annum. The Bank agreed to accept such note "in renewal and extension of the principal balance owing ' The agreement waived all prior defaults. In addition, it contained the following provision concerning the outstanding past-due interest:

"The payment of the accrued interest owing on the indebtedness as of the date hereof shall be deferred until the proceeds from the sales described in (the following specified paragraph) are delivered to Bank or if Bank determines there are insufficient net proceeds from such sales to pay said interest in full, until February 15, 1976. The amount of said interest as of date hereof is $136,078.00."

The unpaid interest ($136,078.00) on such indebtedness was handwritten into a blank space left in the agreement for that purpose. Thereafter, on January 26, 1976, the Braughs executed two separate notes representing additional advances made by the Bank to the Braughs on that date, one for the principal sum of $60,815.67, and the other, for the principal sum of $11,000.00 Each of these notes was payable to the Bank on or before August 15, 1976, with interest on the balance at the rate of 10% per annum until maturity. All of the hereinbefore described notes bore interest on all past-due principal and interest at the rate of 10% per annum.

After a sequence of events, the Bank, by a letter dated February 20, 1976, sent notice of acceleration of all notes to the Braughs. On March 17, 1976, the Bank filed its original petition seeking the appointment of a receiver. Thereafter, the Bank received other payments which were credited to the outstanding principal balance due on the "consolidation note." The Bank, in its amended trial petition, which was filed on June 30, 1978, alleged that, after allowing all offsets and credits, the Braughs owed the principal amount of $566,954.12 pursuant to the terms of all prior notes covered by the second "consolidation note" and the entire principal amount of $60,815.67 and $11,000.00 on the notes dated January 26, 1976, plus accrued interest and reasonable attorney's fees according to the terms of each of the notes.

In summary, the Braughs' primary counterclaim was predicated, in part, upon the contention that, by charging them interest at the rate of 12.5% per annum during the period from December 2, 1974, to March 3, 1975, the Bank had violated the Texas usury laws because it charged and collected interest which exceeded the permissible rate in Texas of 10% per annum. They also alleged that the interest charge of $136,078.00 as past-due interest for the period ending January 8, 1976, contained in the second loan agreement, was usurious because it exceeded the lawful rate of interest of 10% per annum on the unpaid principal balance for the period ending January 8, 1976. They asked that all interest payments should be credited to the outstanding unpaid principal sums, and prayed for the recovery of statutory penalties equal to twice the amount of interest charged, plus attorney's fees. In their counterclaims, they also alleged wrongful and fraudulent conduct by the Bank, breaches of the second loan agreement, and wrongful acceleration of the outstanding indebtedness, for which a recovery in money damages was sought.

The Bank, in defense of the claims asserted by the Braughs, alleged, in substance, that Public Law 93-501, as enacted by Congress on October 24, 1974, preempted state usury laws and authorized the Bank to charge the Braughs interest accruing at the rate of 12.5% per annum on the notes for the ninety-day extension period from December 2, 1974, to ...