Houston Furniture Distributors, Inc. v. Bank of Woodlake, N. A., 17018

• Decision Date: 02 February 1978
• Docket Number: No. 17018,17018
• Citation: 562 S.W.2d 880
• Parties: HOUSTON FURNITURE DISTRIBUTORS, INC., et al., Appellants, v. BANK OF WOODLAKE, N. A., Appellee. (1st Dist.)
• Court: Texas Court of Appeals

Page 880

562 S.W.2d 880

HOUSTON FURNITURE DISTRIBUTORS, INC., et al., Appellants, v. BANK OF WOODLAKE, N. A., Appellee.

No. 17018.

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

Feb. 2, 1978.

Gerald A. Linder, Houston, for appellants.

Fulbright & Jaworski, Joe W. Redden, Jr., Houston, for appellee.

EVANS, Justice.

This is an appeal from a summary judgment entered in favor of the plaintiff, Bank of Woodlake, N.A., against the defendant, Houston Furniture Distributors, Inc., the maker of a promissory note dated February 19, 1976, in the principal amount of $46,221.74, and against defendants, Edward A. Gibbons and William A. Jakle, who were guarantors of the indebtedness under a pre- existing guaranty agreement dated March 8, 1974. The trial court entered a summary judgment in favor of the plaintiff against all three defendants for the unpaid principal amount of the note, interest and attorney's fees. The defendants, Houston Furniture Distributors, Inc., and Edward A. Gibbons have perfected this appeal.

The defendants' first point of error is that the plaintiff failed to show that it was entitled to judgment as a matter of law. Under this point, the defendants do not argue that the plaintiff's evidence was insufficient to support the summary judgment, but rather that the defendants met their burden of pleading and offering summary judgment proof in support of their affirmative defenses. This point will be considered with the second and third points of error wherein defendants contend that genuine issues of material fact were raised with respect to their affirmative defenses of usury and estoppel.

It is conceded by the defendants that the rate of interest charged was not illegal for a corporate borrower, and defendant Gibbons recognizes that the defense of usury is not available to the guarantor of a corporate debt. Universal Metals and Machinery, Inc., v. Bohart, 539 S.W.2d 874, 879 (Tex.1976); Loomis Land and Cattle Co. v. Diversified Mortgage Investors, 533 S.W.2d 420 (Tex.Civ.App. Tyler 1976, writ ref'd n. r. e.). However, Gibbons contends that he was the "true" borrower of the funds and therefore should be allowed to assert the defense of usury. He argues that the use of the corporate form was merely a subterfuge to evade the usury statute, a scheme whereby the plaintiff could loan funds to him in his individual capacity at a higher rate of interest than the law permits. Relying upon the rationale of Micrea, Inc. v. Eureka Life Ins. Co. of America, 534 S.W.2d 348 (Tex.Civ.App. Fort Worth 1976, writ ref'd n. r. e.), Gibbons argues that the loan transaction was usurious because both parties understood that the use of a corporate borrower was merely a fiction and that the loan was, in fact, being made for the benefit of the individual.

In his affidavit filed in response to the plaintiff's motion for summary judgment, Gibbons states that on September 12, 1973, some seven months prior to the date of the loan transaction, the plaintiff, acting through its president, Charles J. Brosko, issued a $50,000.00 revolving line of credit to Houston Furniture Distributors, Inc., with the provision that the rate of interest on unpaid principal would be 2% Above the bank's prime rate. Gibbons states that after the issuance of this line of credit he was invited, as an individual, to invest in a partnership venture and that he was given a confidential memorandum listing Brosko and a realtor named Jim Phillips as business references. It appears that Jim Phillips was the brother of Michael B. Phillips, a vice president and loan officer of the plaintiff. On March 8, 1974, the date of the loan in question, Gibbons and Jakle went to see Michael B. Phillips to discuss the proposition of their making individual investments in the partnership venture. Michael B. Phillips acknowledged that he was the brother of Jim Phillips and he recommended the general partners. According to Gibbons, Phillips stated that he was familiar with the property owned by the partnership, that the land would sell quickly, and that the limited partnership would make a nice profit. Gibbons states that he advised Phillips that he could not repay the amount of the loan until the partnership sold the land and the funds were dispersed, and that Phillips assured him that the bank would carry the loan until the partnership land was sold. Phillips then suggested "a subterfuge" whereby the bank would loan Gibbons and Jakle the sum of $13,300.00, that the loan would be made to Houston Furniture Distributors, Inc., using its revolving line of credit, and that Jakle and Gibbons could then withdraw the needed amount from the corporate bank account to make their individual investments in the partnership venture. Gibbons states that he was again assured by Phillips that there would be no need to repay the principal amount of the loan until the partnership sold its land and that the principal could be repaid from the sale's proceeds. Gibbons' affidavit indicates that the loan for the stated amount was made to the corporation and on the day the loan proceeds were deposited in the corporation's bank account, two checks, each in the amount of $6,650.00, were drawn on the corporation's bank account and made payable, respectively, to Gibbons and Jakle. The proceeds of these checks were then invested in the partnership venture. The $13,300.00 note was thereafter renewed from time to time and the note in suit represents the sum of the unpaid balance of the original debt and other sums of money subsequently borrowed by Houston Furniture Distributors, Inc., from the plaintiff.

Gibbons' affidavit shows that he was fully aware of and assented to the plaintiff's loan condition that the note be executed by the corporate borrower, Houston Furniture Distributors, Inc., and the evidence is undisputed that the corporation had been created prior to the loan transaction in question and was not organized for the sole purpose of making the loan. The rationale of Gibbons' argument is that the allegations of his affidavit demonstrate that the corporate entity was used as a "cloak or cover" to hide the fact that Gibbons, individually, was to receive the benefits of the loan transaction.

It has been held that a lender may lawfully require, as a condition to making a loan, that the loan be made to a corporation rather than to an individual borrower, and such a condition does not, in itself, make the transaction usurious, even though the purpose of the requirement is to permit the lender to charge a higher rate of interest. American Century Mortgage Investors v. Regional Center, Ltd., 529 S.W.2d 578, 582 (...