Commerce Trust Co. v. Ramp, 2297-7459.

• Decision Date: 03 April 1940
• Docket Number: No. 2297-7459.,2297-7459.
• Citation: 138 S.W.2d 531
• Parties: COMMERCE TRUST CO. et al. v. RAMP et al.
• Court: Texas Supreme Court

138 S.W.2d 531

COMMERCE TRUST CO. et al. v. RAMP et al.

No. 2297-7459.

Commission of Appeals of Texas, Section A.

April 3, 1940.

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

Suit by H. M. Ramp and others against the General American Life Insurance Company, the Commerce Trust Company, and the Commerce Farm Credit Company for cancellation of allegedly usurious notes and for cancellation of a judgment, wherein W. H. Potts, the Commerce Trust Company and H. M. Ramp filed cross-actions. From a judgment in favor of the plaintiff, the defendants appealed to the Court of Civil Appeals. To review a judgment of the Court of Civil Appeals, Commerce Farm Credit Co. v. Ramp, 116 S.W.2d 1144, affirming the judgment in part and reversing and rendering it in part, the defendants bring error.

Judgment of the Court of Civil Appeals affirmed.

Hoover, Hoover & Cussen, of Canadian, and A. V. Knight, of San Antonio, for Commerce Trust Co.

Terrell, Davis, Hall & Clemens, of San Antonio, for General American Life Ins. Co.

Sanders & Scott and Howard F. Saunders, Jr., all of Amarillo, for Ramp.

E. L. Klett, of Lubbock, for Cattle Loan Co.

GERMAN, Commissioner.

This case has three separate features. The first is a controversy between General American Life Insurance Company on one side, and H. M. Ramp et al. on the other. We shall refer to this as the First Part. The second is a controversy between Commerce Trust Company et al. on the one side, and H. M. Ramp et al. on the other, and it will be referred to as the Second Part. The third is a suit between H. M. Ramp et al. v. Commerce Trust Company et al., and it will be referred to as the Third Part.

First Part.

This is a usury suit. It was instituted in the district court by H. M. Ramp and others against Commerce Farm Credit Company, JoZach Miller, George Gerlach, Walter Jones, the First National Bank of Canadian, Missouri State Life Insurance Company, General American Life Insurance Company and Commerce Trust Company. The General American Life Insurance Company is the main party here, and is plaintiff in error. For purposes of this decision it is sufficient to say that the loan forming the basis of the suit was dated January 29, 1921. On that date H. M. Ramp, individually and as community survivor of the estate of himself and his wife, Anna Ramp, then deceased, procured from the Commerce Farm Credit Company a loan in the sum of $50,000, evidenced by one principal note or bond, payable on the 1st of February, 1931, at the office of Commerce Trust Company in Kansas City, bearing interest from date until maturity at the rate of 6½ per cent. per annum, evidenced by ten interest coupons in the sum of $3,250 each thereto attached, and after maturity at the rate of 10 per cent. per annum. To secure this indebtedness, a first deed of trust lien was executed to JoZach Miller, III, as trustee.

On the same day, Ramp, individually and as community survivor, executed a second deed of trust to JoZach Miller, III, as trustee, to secure the payment of four promissory notes in the sum of $3,125 each, of even date with the deed of trust, and due February 1st of each successive year, beginning with February 1, 1922, which represented 2½ per cent. additional interest on the loan for the entire period of ten years.

On March 7, 1921, the Commerce Farm Credit Company sold and assigned the principal note or bond of this loan in the sum of $50,000 to appellant Missouri State Life Insurance Company, who, on the 8th of September, 1933, after this suit was filed, assigned the same to appellant General American Life Insurance Company.

The additional interest notes were assigned to, and remained throughout the property of, Commerce Trust Company.

The Court of Civil Appeals held that this loan was usurious. 116 S.W.2d 1144. This holding was based on the ground that the additional 2½ per cent. interest on the principal of the loan was "squeezed" into four annual payments of $3,125 each, instead of being spread over the ten-year period of the loan, and this resulted in making the rate for the first four years in excess of 10 per cent. per annum. This holding of the Court of Civil Appeals is so obviously correct that it becomes unnecessary to discuss the question. In fact, as we construe the various assignments in application for writ of error, plaintiff in error does not seriously attack this holding. At least, no argument is made and no authorities cited which tend to raise a doubt as to the correctness of the holding of the Court of Civil Appeals in this respect.

The one dominant question presented here on behalf of plaintiff in error is this: Even if the loan of January 29, 1921, were usurious, nevertheless the same was purged of usury by a new contract between the parties of February 1, 1925. Just what really took place on that date is reflected by a statement in the record about which there is no dispute at all. It is as follows:

"The loan of $50,000 was drawn at a coupon rate of 6 1/2% per annum. The difference to make the rate 9% (or 2 1/2% per annum) for ten years, total $12,500.00, was represented by four second lien notes of $3,125.00 each payable:

                     "$3,125.00   February 1, 1922
                     " 3,125.00   February 1, 1923
                     " 3,125.00   February 1, 1924
                     " 3,125.00   February 1, 1925
                

"During the years 1922 to 1925 the interest at 6 1/2% on the first mortgage was paid us on the following dates:

                "$3,250.00 due February 1, 1922, paid December
                           13, 1922
                " 3,250.00 due February 1, 1923, paid April
                           11, 1923.
                " 3,250.00 due February 1, 1924, paid
                           March 21, 1924.
                " 3,250.00 due February 1, 1925, paid February
                           5, 1925.
                

"No part of said four commission notes having been paid.

"Early in 1925, these commission notes with past-due interest thereon, figured at a 6% rate, totaling $13,250.00 were redrawn under a compromise arrangement with Mr. Ramp to be payable, as follows:

                "$5,750.00 due February 1, 1926, with interest
                           at 6% from date.
                " 1,250.00 due February 1, 1926, without
                           interest.
                " 1,250.00 due February 1, 1927, without
                           interest.
                " 1,250.00 due February 1, 1928, without
                           interest.
                " 1,250.00 due February 1, 1929, without
                           interest.
                " 1,250.00 due February 1, 1930, without
                           interest.
                " 1,250.00 due February 1, 1931, without
                           interest.
                

"These notes bore interest after maturity at 10%."

The instrument evidencing this new arrangement is designated as "second deed of trust." After formal parts, it recites the conveyance to the trustee of certain lands in Hemphill County which are described. It is recited that the conveyance is in trust to secure the Commerce Farm Credit Company in payment of seven notes described exactly as in the statement above quoted. The instrument then contains the following recital: "Said notes are given as a part of the agreed interest on the principal debt secured by the first deed of trust above mentioned, and the beneficiary herein is entitled to all the rights of subrogation agreed and provided for in said first deed of trust."

The concluding portion of the instrument is as follows: "This deed of trust is executed to secure my indebtedness to the Commerce Farm Credit Co., in the amount shown herein, which is admitted to be due to said Commerce Farm Credit Company, as a result of a complete settlement and adjustment of all matters between us in connection with the loan previously made me and secured by liens on the property above described. All claim which I might have had against said company by reason of asserted and denied usurious charges has been settled and is hereby released fully. The lien hereby granted is to take up and carry forward the lien of a previous deed of trust, dated January 29th, 1921, and recorded in Volume 11, page 618 of the deed of trust records of Hemphill County, Texas, and I admit the lien of that deed of trust to be valid: the purpose of this deed of trust and the notes hereby secured being to extend the time for payment of the unpaid indebtedness as described in that deed of trust and carry forward the lien. The lien of the first deed of trust hereinabove mentioned is recognized as valid and subsisting and the debt thereby secured is recognized as valid and unpaid (except as to such principal or interest payments as may have been made) and the priority of the lien securing that debt over the lien of this deed of trust is admitted."

It is not even pretended that there was any "complete settlement and adjustment of all matters between us (the parties) in connection with the loan previously made" other than what was accomplished by this second deed of trust itself.

Before discussing the effect of this agreement, it becomes appropriate to make a few general remarks concerning the matter of purging a contract of usury. Without an intention of adopting a rule applicable in all cases and under all circumstances, we think we may adopt, as applicable to this discussion, the rule announced in 66 Corpus Juris, section 219, pages 256 and 257, and supported in principle by our own decisions, as well as the decisions of nearly all jurisdictions. It is as follows: "The general principle determining when an indebtedness infected with usury is to be deemed disinfected may be stated as follows: If the tainted obligation is with the full knowledge and consent of the borrower, finally canceled or abandoned, and a new obligation, containing no part of the usury, is executed in legal form, and supported solely by the moral obligation resting upon the borrower to pay the money actually received with legal interest thereon, such new obligation is valid and enforceable. But so long as the original usurious obligation continues to exist, based upon a consideration in which usury inheres, the taint of usury persists, whatever be the form which the subsequent dealings of the parties may cause it to assume, and...