Commerce Sav. Ass'n of Brazoria Cty. v. Gge Management Co., 16536

• Decision Date: 13 May 1976
• Docket Number: No. 16536,16536
• Citation: 539 S.W.2d 71
• Parties: COMMERCE SAVINGS ASSOCIATION OF BRAZORIA COUNTY, Appellant, v. GGE MANAGEMENT CO. et al., Appellees. (1st Dist.)
• Court: Texas Court of Appeals

Page 71

539 S.W.2d 71

COMMERCE SAVINGS ASSOCIATION OF BRAZORIA COUNTY, Appellant, v. GGE MANAGEMENT CO. et al., Appellees.

No. 16536.

Court of Civil Appeals of Texas Houston (1st Dist.).

May 13, 1976.

Rehearing Denied July 1, 1976.

Don Stocking, Kronzer, Abraham & Watkins, W. James Kronzer, Houston, M. K. Woodward, Austin, for appellant.

J. Eugene Clements, Walter T. Weather, Jr., Houston, for appellees Gilbert Gertner and GGE Management Co.; Sewell, Junell & Riggs, Houston, of counsel.

Emory T. Carl, Howard C. Lee, Jr., Houston, for appellee Richard B. Merrill, Jr.; Carl, Lee & Fisher, Houston, of counsel.

Conway F. Jordan, Jr., Gary L. Leech, Houston, Strasburger, Price, Kelton, Martin & Unis, Royal H. Brin, Jr., Dallas, for appellee J. B. Westmoreland.

ON THIRD MOTIONS FOR REHEARING

EVANS, Justice.

A usury case.

After consideration of all parties' motions for rehearing, we withdraw our earlier opinions and substitute this opinion in lieu thereof.

Gilbert Gertner, individually and as president of GGE Management Company, executed a promissory note to Angleton Savings Association dated April 17, 1970, in the principal amount of $600,000.00. This note provided for interest at the rate of 12% Per annum over a 10 years period and recited that the principal amount of the note represented (i) the purchase price of certain real property conveyed by the payee to GGE Management Company, and (ii) funds to be advanced by the payee to the makers from time to time for construction of certain improvements.

The underlying purpose of this loan was to provide financing for certain improved property known as Riverside Terrace Apartments in Houston, Texas, owned by appellee, Richard B. Merrill, Jr. In an effort to resolve financial problems concerning this property, appellee, J. B. Westmoreland, a business associate of Merrill, approached Gertner with a plan to refinance the property and place it in a joint enterprise or partnership composed of Gertner, Westmoreland and Merrill. Angleton Savings Association was contacted on behalf of Westmoreland to work out the terms of the financing arrangement. As the transaction was finally structured Merrill conveyed the property to Angleton Savings Association for the sum of $349,000.00 and Angleton Savings Association in turn conveyed to GGE Management Company for a purchase price of $400,000.00. This resulted in an immediate front-end profit to Angleton Savings Association of $51,000.00. Contemporaneously with these conveyances Gertner and GGE Management Company executed the $600,000.00 promissory note and deed of trust and security agreement covering the property, the personalty thereon and assigning rents accruing from the apartment project.

Also contemporaneously with the execution of the note, Gertner and Angleton Savings Association executed a letter agreement restricting Gertner's personal liability 'in case of default or foreclosure' to such loss as might be realized by Angleton Savings Association with respect to stated percentages of the unpaid principal balance at time of foreclosure. Merrill and Westmoreland also executed contemporaneous agreements guaranteeing payment of the corporate debtor's obligation to the association 'to the extent of Six Hundred Thousand and No/100 ($600,000.00) Dollars or the remaining balance' due under the note.

On August 25, 1972, Gertner individually and as president of GGE Management Company and Angleton Savings Association executed an instrument entitled 'Modification and Extension Agreement' which provided that the principal amount of the $600,000.00 note was reduced from $600,000.00 to $539,226.28, that the interest rate was reduced from 12% To 8.5%, that the final maturity date was extended from August 17, 1980 to September 17, 1996, and that the monthly installments were reduced from $6,607.00 to $4,475.78.

In December 1973 the name of Angleton Savings Association was changed to Commerce Savings Association of Brazoria County and the association will be hereinafter referred to as 'Commerce'. On February 22, 1974, Commerce brought this suit on the $600,000.00 note as modified by the August 25, 1972 agreement, seeking recovery against Gertner, GGE Management Company, Westmoreland and Merrill, jointly and severally, for the sum of $528,878.98 with interest thereon from November 17, 1973, and for foreclosure of the liens and security interest. Gertner, GGE Management Company and Westmoreland filed verified answers asserting that the loan transaction was usurious. Merrill's answer asserted that he had been released from liability by reason of Gertner's limitation of liability letter and because the modification and extension agreement had been made without his knowledge or consent. By cross-action Merrill asserted a right of indemnification against Westmoreland.

On August 21, 1974, Gertner and GGE Management Company filed a counterclaim against Commerce Savings Association asserting that the note was usurious on its face because it required Gertner, an individual, to pay interest at the rate of 12% Per annum; that the loan transaction was a device or scheme to avoid the effect of the usury law and the $51,000.00 profit realized by Commerce was actually interest; that in further violation of the usury laws, Gertner and GGE Management Company had been compelled to pay a fee of $21,000.00 for brokered certificates of deposit so that they could meet the requirements of Commerce that they place a $600,000.00 compensating balance to its account, and that such fee also constituted interest; that similarly Gertner and GGE Management Company had been compelled to pay a fee of $5,912.50 for brokered certificates of deposit in the amount of $200,000.00 which had been required by Commerce to be placed on deposit at Angleton Bank of Commerce to benefit certain officers and shareholders of Commerce in their efforts to acquire control of Angleton Savings Association. In this pleading Gertner and GGE Management Company sought to recover penalty interest in the total amount of $292,242.06 together with attorney's fees and exemplary damages. In a subsequent counter-claim the penalty interest sought to be recovered was substantially increased and other items of recovery asserted.

The jury found: (1) that the unpaid principal balance of the note was $528,878.98; (2) that Commerce had required a real estate profit to itself of $51,000.00 as a condition to making the loan; (3) that such profit was interest, and (4) that the conveyancing transaction upon which such profit was based was a disguise to evade the usury statute. The jury further found: (5) that Commerce had required the borrowers to place a $600,000.00 compensating balance in its accounts as a condition to making the loan; (6) that such deposit was a benefit to Commerce; and (7) that it was the common expectation of the parties that the borrowers would fulfill the requirement of depositing such compensating balance by purchase of brokered certificates of deposit; and (8) that the borrowers paid the sum of $21,000.00 in order to place the $600,000.00 compensating balance in Commerce's account. The jury found (9) that said sum of $21,000.00 was interest, but (10) failed to find that the requirement of placing the $600,000.00 in compensating balance was a disguise to evade the usury statute. The jury also found (11) that Commerce had directed the borrowers to place a $200,000.00 compensating balance in accounts at the Angleton Bank of Commerce; (12) that such requirement was a condition to the making of the loan; (13) that said $200,000.00 compensating balance was deposited by the borrowers and (14) that it was the common expectation of the parties that such deposit would be fulfilled by the purchase of brokered certificates of deposit. The jury further found; (15) that the borrowers paid the sum of $5,912.50 to place said $200,000.00 compensating balance; (16) that such sum constituted interest and (17) that the requirement of placing the $200,000.00 compensating balance was a disguise to evade the usury statute and (18) benefited Commerce. The jury further found that Commerce had wilfully converted the cost of placing the $200,000.00 compensating balance in Angleton Bank of Commerce, which cost it ascertained to have a fair market value of $5,912.50, and that Commerce had falsely represented to the borrowers that the requirement of such deposit was 'proper and lawful.' Based upon the issues of conversion the jury also awarded Gertner and GGE Management Company the sum of $277,713.65 as exemplary damages.

In a subsequent set of issues the jury failed to find that it was the intention of Gertner and GGE Management Company to compromise and release their claims for usury by signing the modification and extension agreement dated August 25, 1972. The jury also found that such agreement was executed without the knowledge and consent of Merrill.

The trial court's judgment denied Commerce Savings Association judicial foreclosure under the deed of trust and security agreements and decreed that Commerce take nothing as to any of the defendants. The trial court found as an affirmative fact and as a matter of law that the contracts sued upon were usurious and that Gertner was a guarantor and not a co-maker of the note. It awarded Gertner and GGE Management Company penalty interest in the amount of $569,010.26; declared GGE Management Company to be the legal owner of the Riverside Terrace Apartments property and cancelled the deed of trust; awarded GGE Management Company the sum of $71,121.02, being the aggregate amount of the principal payments made on the note in the sum of $71,121.02, and also the sum of $48,238.60, representing the amount on deposit in its savings account at Commerce. It further awarded GGE Management Company the sum of $5,912.50, as actual damages for conversion of the cost of the $200,000.00 certificates of deposit placed with Angleton Bank of Commerce, but refused to...