Dixon v. Brooks

• Decision Date: 09 July 1980
• Docket Number: No. A2344,A2344
• Citation: 604 S.W.2d 330
• Parties: J. C. DIXON et al., Appellants, v. G. K. BROOKS, a/k/a Mrs. J. B. Brooks, Appellee. (14th Dist.)
• Court: Texas Court of Appeals

Page 330

604 S.W.2d 330

J. C. DIXON et al., Appellants, v. G. K. BROOKS, a/k/a Mrs. J. B. Brooks, Appellee.

No. A2344.

Court of Civil Appeals of Texas, Houston (14th Dist.).

July 9, 1980.

Rehearing Denied July 30, 1980.

Monroe Northrop, Austin & Arnett, Houston, for appellants.

Thomas Lee Bartlett, Leonard Z. Finger, Finger, Burg, Smith & Cohen, Houston, for appellee.

Before BROWN, C. J., and MILLER and PAUL PRESSLER, JJ.

J. CURTISS BROWN, Chief Justice.

J. C. Dixon and his wife (appellants) sued G. K. Brooks (appellee) to recover damages and penalties in connection with the purchase of a house from appellee. Appellants made claims under the usury statutes, the Deceptive Trade Practices and Consumer Protection Act, the Debt Collection Act and for harassment. Brooks denied the allegations and counterclaimed for damages consisting of the arrears in payment under the contract for deed and for a declaratory judgment declaring the rights of the parties under the contract. After a trial to the Court, judgment was entered that appellants take nothing; that appellee recover $7,088.97, the amount of the delinquent payments under the contract; and that the contract was valid and had not been terminated at the time of trial. The trial court also ruled that if appellants did not correct the delinquency within a certain time, they would forfeit all right, title and interest in the property. Appellants have perfected this appeal.

On July 1, 1974, appellants and appellee entered into a contract for deed and a promissory note whereby appellants agreed to buy a house from appellee. At the time of the sale, the property was subject to a lien indebtedness, represented by two notes held by Lomas and Nettleton. The promissory note signed by appellants was payable to Mrs. Brooks in the amount of her equity in the house at 9 1/2% per annum. Under the contract for deed, appellants would pay on the balance that Brooks still owed Lomas and Nettleton at the rate of 7 1/2% per annum. The contract incorporated the requirement in the note that appellants make payments to be applied to appellee's equity. The trial court found that the terms of the contract prevailed over the terms of the note, which the court found to be surplusage. Appellants were also required to pay the taxes and insurance in the form of escrow payments included within the payments allocated to appellee's existing mortgage.

The contract for deed and the note in this transaction are inconsistent in several respects. The contract declared that in the event of default the interest of the purchaser in the property would be forfeited as liquidated damages. The note, on the other hand, authorizes the promisee, Brooks, to declare the entire amount due upon the failure of the promisor to make the installments, and to institute foreclosure proceedings. The note also provided that past due principal and interest shall bear interest at 10% per annum in addition to a late charge of 10% of the payment due. However, no one claims that the basic inconsistency between the contract and the note constitutes a failure of the meeting of the minds of the parties on a material matter so as to vitiate any contract. Therefore, it is not necessary to consider such a point.

We must next look at the operative provisions of the contract for deed. The contract states in part:

Purchaser agrees to send to seller on the 20th of each month $285.00 to apply on mortgage held by Lomas and Nettleton. This mortgage as of June 20, 1974, has a remaining balance of $25,991.75. The check will be made payable to Lomas and Nettleton and the first check will be due before July 1, 1974, and on the 20th of each month thereafter.

Also, purchaser will send a check with each of above mentioned checks made payable to Geneva Kirk Brooks, in the amount of $203.62 beginning October 1, 1974, and payable on the 20th of each month thereafter until the total equity of $19,508.25 has been paid at the rate of 9 1/2% per annum. Purchaser may pay on or before 15 years without penalty.

Any checks received by Geneva Kirk Brooks after the first day of the month will carry a late charge of 10%.

On several occasions appellants were more than ten days late in making their payments. Appellee demanded payment of these late charges and, in several instances, received such payments totaling $260.00 in all at the time of trial. Appellee also sent to appellants notices and letters threatening termination of the contract if the payments were not received, although she never carried through with these threats.

Appellants claim that the 10% late charge is usurious as a matter of law and under the facts of this case. They claim that the late charges were actually interest and were usurious as to the past due escrow payments and matured interest payments on the purchase money debt of their home.

The question before us is whether the late charge is interest and, if so, if such interest exceeds the 10% per annum allowed by law. Tex.Rev.Civ.Stat.Ann. arts. 5069-1.02, 5069-1.04 (Vernon 1971).

Article 5069-1.01, Tex.Rev.Civ.Stat.Ann. (Vernon 1971), defines interest as "the compensation allowed by law for the use or forbearance or detention of money . . .." The supreme court has held that "(t)he detention of money arises in a case when a debt has become due, and the debtor withholds its payment, without a new contract giving him a right to do so." Parks v. Lubbock, 51 S.W. 322, 92 Tex. 635 (1899). Furthermore, when interest upon principal falls due, it is a new and separate debt, completely apart from the principal debt and for which interest may be charged at the maximum legal rate. Wichita Falls Bldg. & Loan Ass'n v. Moss, 82 S.W.2d 171 (Tex.Civ.App.-Fort Worth 1935, writ dism'd). Thus, the 10% late charge was the compensation for the detention of money, the matured interest, owed by appellants and as such, is interest. Moreover, "delinquency charges" on past due balances on a "running account" have been held to be interest within the meaning of the usury statutes. Watson v. Cargill, Inc., Nutrena Division, 573 S.W.2d 35 (Tex.Civ.App.-Waco 1978, writ ref'd n. r. e.).

Appellee claims that such late charges are not interest in that they were in the nature of a service charge intended to reimburse appellee for the time, expense and inconvenience incident to any delinquency, and not for compensation for the detention of money. This might be true were it not for the fact that the Legislature has excluded from the definition of interest such late charges in reference to various entities. Savings and Loan Associations are allowed to charge penalties for late...