Hatridge v. Home Life & Acc. Ins. Co.

• Decision Date: 21 December 1951
• Docket Number: No. 14419,14419
• Citation: 246 S.W.2d 666
• Parties: HATRIDGE v. HOME LIFE & ACCIDENT INS. CO. et al.
• Court: Texas Court of Appeals

Page 666

246 S.W.2d 666

HATRIDGE v. HOME LIFE & ACCIDENT INS. CO. et al.

No. 14419.

Court of Civil Appeals of Texas, Dallas.

Dec. 21, 1951.

Rehearing Denied Feb. 29, 1952.

David C. McCord, Jr., of Dallas, for appellant.

Irion, Cain, Bergman & Hickerson, of Dallas, for appellees.

Junior Bar Ass'n of Dallas, acting through Walter M. Spradley, its President, and H. B. Houston, all of Dallas, amici curiae.

YOUNG, Justice.

The suit in sum is an attack on Art. 4764c, V.A.C.S., ¹ as unconstitutional.

In July 1950, Hatridge consummated a loan of $200 with lender Ware, receiving that amount in cash; the transaction being evidenced by note for $246.12 payable in twelve equal installments of $20.51. The total amount due included (along with prepayment of interest) the premium charge on a credit life, health and accident policy of insurance, also a 'hospitalization and surgical expense policy.' Some two months thereafter and before making any payments, Hatridge concluded that the transaction was illegal, in that the requirement of insurance and cost of premiums constituted additional compensation for use of money, i. e., interest; rendering the contract usurious within meaning of our State Constitution and Laws; petitioner seeking cancellation of aforesaid note upon tender of the $200 received. Defendant's insurance company and V. L. Ware filed general denial, the latter pleading a cross action on the note. The court upon hearing rendered judgment against plaintiff for full amount of note less unearned interest, holding Art. 4764c in all respects constitutional, with result of this appeal.

Above terms of the note (dated July 27, 1950) were made part of an agreed statement of facts. These stipulations in effect were that, as a condition of loan, plaintiff was to purchase a policy of credit life, health and accident insurance, making V. L. Ware 'first beneficiary,' as further security in event of contingencies covered by said policy; plaintiff being advised, however, that he was free to purchase the insurance from any reputable company so long as Ware was made beneficiary; that defendant Ware charged plaintiff the sum of $17.10 as premium on the credit life, health and accident insurance; plaintiff also requesting but defendant not requiring the issuance of a hospitalization policy, premium $18.25, which was furnished, and these sums plus $10.77 interest in advance were added to face of the note,-a total of $246.12; that said Ware, lender, and agent for Home Life & Accident Insurance Company, received the commission (amount not stated) from the insurance company on all of said policies; that plaintiff made no payments on the note, failing and refusing to do so, and has tendered into court the sum of $200, claiming same to be in full of his obligation under Art. 16, sec. 11, State Constitution, Vernon's Ann.St., and Art. 5071, V.A.C.S.

Art. 4764c, V.A.C.S., is a codification of an Act of the 51st Legislature, p. 132, Ch. 81, regulative of credit life, and credit health and accident insurance, defining same as personal insurance in which the insured is a borrower of a sum of money not exceeding $1,000 from a lender, who retains an interest in the insurance as security to such loan, and any other personal insurance written in connection with or as a part of such loan transaction. The Act provides in detail for the supervision of such companies by the State Board of Insurance Examiners; relating, for instance, to maximum rates and commissions to be charged and received by lenders as agents of insurers or by other agents for the writing of credit insurance; the following sections being especially under attack on this appeal: 'Sec. 4. No lender or lender agent shall hereafter require as a condition for the making of a loan that the borrower purchase either credit life or credit health and accident insurance from such lender, lender agent or any insurer represented by them. It shall be permissible for such lender or lender agent to require of a borrower such credit life or credit health and accident insurance or both as a condition for making the loan, if, and only if, the borrower is given the option to purchase such insurance from any insurer or insurance agent of his own choice. It is the intent of this section to prohibit coercion of insurance and to preserve to each citizen the right to choose his own insurer and insurance agent.

'Sec. 5. No insurer, insurance agent, lender or lender agent shall knowingly solicit, issue or deliver or knowingly permit to remain in effect or force, more than one policy of credit life insurance or more than one policy of credit health and accident insurance, either or both in connection with any loan, irrespective of the number of persons obligated on the loan.

'Sec. 6. Commissions received by lenders, lender agents and insurance agents from insurers for the writing of credit insurance complying with the terms of this Act, the maximum rates promulgated by the Board, and rules and regulations of the Board of Insurance Commissioners, shall be considered for all purposes as compensation for services rendered to such insurer and shall not be taken to be an interest charge on the money borrowed; provided, however, should such commissions be in excess of any maximum fixed hereunder, then such commissions shall be deemed to be an interest charge on the money borrowed. No agreements by insurers with any of its agents shall permit contingent commissions based on loss experience.'

The Constitution of Texas, Art. 16, sec. 11, provides: 'All contracts for a greater rate of interest than ten per centum per annum, shall be deemed usurious, and the first Legislature after this amendment is adopted, shall provide appropriate pains and penalties to prevent the same; * * *.' And Art. 5071, V.A.C.S., recites in part: '* * * all written contracts whatsoever, which may in any way, directly or indirectly, provide for a greater rate of interest (than ten per cent) shall be void and of no effect for the amount or value of the interest only; but the principal sum of money or value of the contract may be received and recovered.' It is appellant's contention that in view of the constitutional prohibition just quoted, the payment to defendant Ware of commissions incident to issuance of this credit insurance constituted usury, i. e., additional compensation to the lender for the loan of money; and that sec. 6, Art. 4764c, reciting that such payment of commission 'shall not be taken to be an interest charge on the money borrowed', is in conflict with said Constitutional proviso and void. Our question narrows to a determination of whether the 1949 Act, Art. 4764c, is a valid exercise of legislative power. In this connection the following general discussion is pertinent.

First, 'Whereas the Congress of the United States has only such powers as are granted by the Federal Constitution, the state legislature is conceded to be at liberty to pass any act which is not in violation of some provision of the state or federal constitution.' 9 Tex.Jur., p. 444. 'All power which is not limited by the Constitution inheres in the people, and an act of a state legislature is legal when the Constitution contains no prohibition against it.' 11 Am.Jur., p. 619. Watts v. Mann, Tex.Civ.App., 187 S.W.2d 917, writ ref. Second, aforesaid constitutional provision is self-executing only to the extent of rendering illegal all usurious contracts. 9 Tex.Jur., p. 423; Carder v. Knippa Mercantile Co Tex.Civ.App., 1 S.W.2d 462; Watts v. Mann, supra; as illustrated by Watson v. Aiken, 55 Tex. 536, and Hemphill v. Watson, 60 Tex. 679, where the contract itself disclosed a prohibited rate of interest. Nor does the Constitution define 'interest,' Art. 16, sec. 11, not being worded so as to create actionable rights and enforceable remedies in all cases without the aid of legislation. Following the 1891 amendment, sec. 11, Art. 16, the Legislature proceeded to define interest as 'compensation allowed by law or fixed by the parties to a contract for the use or forbearance or detention of money', with conventional interest at not exceeding 10%, Art. 5069, and legal interest at 6%, Art. 5070; usury being defined as 'interest in excess of the amount allowed by law;' with Art. 5071, already quoted in part, supplying other deficiencies.

Third, 'Admittedly, a lender may, without violating the usury law, make an extra charge for any distinctly separate and additional consideration other than the simple lending of the money (42 Tex.Jur. 932; Nevels v. Harris, 129 Tex. 190, 102 S.W.2d 1046, 109 A.L.R. 1464); * * *.' Greever v. Persky, 140 Tex. 64, 165 S.W.2d 709, 712. 'A collateral transaction between the borrower and lender, whereby the lender may take profit, will not render the loan usurious when such transaction was entered into in good faith and without usurious intent.' C. C. Slaughter Co. v. Eller, Tex.Civ.App., 196 S.W. 704, syl. 14. And Fourth, power of the Legislature to broaden the common law definition of 'interest' was recognized by the Supreme Court in Parks v. Lubbock, 92 Tex. 635, 51 S.W. 322; and recent Legislatures have given further sanction to the rule stated in Greever v. Persky, supra, by declaring that certain things, including insurance premiums, shall not be regarded as interest. See Art. 342-508, V.A.S., Texas Banking Code; Art. 4646b, V.A.S., the latter statute having been held constitutional: Watts v. Mann, supra; Wooldridge v. State, Tex.Civ.App., 183 S.W.2d 746; Wilkenfeld v. State, Tex.Civ.App., 189 S.W.2d 80.

Turning to the Act in question, it will be noted that Art. 4764c is a legislative attempt at comprehensive...