Dugan v. Lewis

• Decision Date: 13 January 1891
• Court: Texas Supreme Court
• Parties: DUGAN <I>et al.</I> v. LEWIS <I>et al.</I>

14 S.W. 1024

DUGAN et al. v. LEWIS et al.

Supreme Court of Texas.

January 13, 1891.

Appeal from district court, Grayson county.

Brown & Bliss and E. C. McLean, for appellant the City Bank. J. W. Finley, for appellant G. H. Dugan. Brown & Hall and A. T. Watts, for appellees.

HENRY, J.

G. H. Dugan, who at the time was a resident citizen of the state of Texas, acting through an agent in the state of New York, borrowed from the American Freehold Land & Mortgage Company, of London, Eng., the sum of $5,000. Dugan executed his note in favor of the mortgage company for said sum, payable at the office of the Corbin Banking Company in New York city five years after date, with interest from date at the rate of 8 per cent. per annum, for which five coupon notes were attached to said note. The note contained a stipulation for the payment of 10 per cent. attorney's fees if it should be collected by suit, and another making the principal of the note become due, at the option of the holder thereof, upon the failure to pay any installment within 30 days after it should become due. Dugan, to secure said note, executed a deed of trust upon land in Texas, in which one Sherwood, the agent in New York of the lender, was made trustee. The agreement to lend the money was made in the state of New York, and the deed of trust and the note were delivered to the lender in that state. The $5,000 was paid to Dugan's agent in the state of New York. The note and coupons and the deed of trust were dated and signed by Dugan in the state of Texas. The deed of trust contained the following clauses: "Upon the failure of the borrower to pay said note, or either of said coupons, or failure to comply with any of the stipulations contained in the said deed of trust, the whole sum of money secured thereby may without notice to the borrower, at the option of the lender or his assigns, and at his option only, be declared due and payable at once." "The contracts embodied in this conveyance, and the notes secured hereby, shall in all other respects be construed according to the laws of the state of Texas, where the same is made." At the date of these transactions the rate of interest in the state of New York was 6 per cent., and the reservation of a greater rate rendered the contract void. Dugan made default in the payment of interest, and the whole amount was declared due. Out of the $5,000 the sum of $2,135.66 was used, without its reaching Dugan's hands, to pay off a prior mortgage upon the land. For the purpose of paying the Corbin Banking Company for its services in procuring the loan, Dugan executed two other notes, and secured them by a second deed of trust upon the same land, — one for $300, and the other for $450; both bearing 10 per cent. interest from date. They were both executed and delivered in Texas. They were made payable to C. W. Lewis, who resided in Texas, at the office of the Corbin Banking Company in the state of New York. Lewis had no pecuniary interest in these notes, and he transferred them to the Corbin Banking Company. This suit was brought by appellants to restrain the enforcement of the deed of trust on the ground that the contracts are governed by the laws of the state of New York, and are therefore usurious and void. The cause was tried without a jury; and the court, upon a finding of facts from which we have taken the foregoing statement, rendered judgment in favor of the defendants.

The subject of the conflict of laws of interest and usury as affecting the enforcement of contracts has been much discussed, and opinions have conflicted, sometimes as to the law, and at others as to the effect of different conditions of fact. In the case of Connor v. Donnell, 55 Tex. 174, this court said: "If the note sued on be made in New York, and be also expressly made payable at a point in that state, then the question of usury will be controlled by the law of New York. It is believed that no authority can be adduced to the contrary." We find a very great number of authorities announcing the same doctrine upon a like state of facts. This case contains also the following language: "Although a note be actually made and indorsed by citizens of Texas in New York, and be there discounted by a citizen of New York at a rate lawful in Texas, but usurious in New York, if by the date and tenor of the note it appears that the parties intended to make it payable in Texas, and contracted with reference to the laws of Texas, the courts of this state follow the authorities which hold such a note valid;" citing Bullard v. Thompson, 35 Tex. 319; Depau v. Humphreys, 8 Mart. (N. S.) 1; and Chapman v. Robertson, 6 Paige, 627. The two cases last named have been much discussed and doubted and opposed by courts whose decisions would hold the contract now under consideration obnoxious to the charge of usury. Both cases are criticised, and their correctness questioned, by Story in his work on the Conflict of Laws. The Louisiana case is stated by him as follows: "The note was given in New Orleans, payable in New York, for a large sum of money, bearing an interest of ten per cent., being the legal interest of Louisiana; the New York legal interest being seven per cent. only. The question was whether the note was tainted with usury, and therefore void, as it would be if made in New York. The supreme court of Louisiana decided that it was not usurious; and that, although the note was made payable at New York, yet the interest might be stipulated for, either according to the law of Louisiana, or according to that of New York." Page 407. The supreme court of the United States have approved this doctrine in the case of Miller v. Tiffany, 1 Wall. 298, and Cromwell v. County of Sac, 96 U. S. 62. In the case last mentioned the opinion contains the following expression: "When the rate of interest at the place of contract differs from the rate at the place of payment, the parties may contract for either rate, and the contract will govern;" citing the above-named cases, and also Peck v. Mayo, 14 Vt. 33, and Butters v. Olds, 11 Iowa, 1. In the case of Bullard v. Thompson, 35 Tex. 319, it was said by this court: "They [the notes] were dated at Matagorda, Tex., and, whether they were actually executed in New York or in Texas, it is evident that the parties intended them to be paid in accordance with the laws of Texas; otherwise, it would seem that they had voluntarily entered into a contract within the state of New York to be executed in accordance with its laws, when the contract was within itself repugnant thereto." The case of Chapman v. Robertson, as stated by Story, was as follows: "A citizen of New York applied in England to a...