Jim Walter Homes, Inc. v. Schuenemann

• Decision Date: 21 March 1984
• Docket Number: No. C-2236,C-2236
• Citation: 668 S.W.2d 324
• Parties: JIM WALTER HOMES, INC., et al., Petitioners, v. Curtis L. SCHUENEMANN et ux., Respondents.
• Court: Texas Supreme Court

Page 324

668 S.W.2d 324

JIM WALTER HOMES, INC., et al., Petitioners, v. Curtis L. SCHUENEMANN et ux., Respondents.

No. C-2236.

Supreme Court of Texas.

March 21, 1984.

Atlas & Hall, Charles Murray and Lisa Powell, McAllen, for petitioners.

Wood & Burney, Bruce D. Viles, Corpus Christi, for respondents.

RAY, Justice.

Curtis and Phyllis Schuenemann brought this suit against Jim Walter Homes, Inc., and its assignee, Mid-State Homes, Inc., alleging that the contract in which Jim Walter Homes agreed to construct a house for the Schuenemanns violated the Texas Deceptive Trade Practices-Consumer Protection Act, TEX.BUS. & COM.CODE ANN. § 17.41 et seq. (DTPA) and Chapter 6 of the Texas Consumer Credit Code, TEX.REV.CIV.STAT.ANN. art. 5069-2.01 et seq. (Credit Code). The DTPA claim was settled. The issue presented for decision is whether the acceleration of maturity clauses in the contract call for the collection of unearned time price differential from the Schuenemanns, with the result that Jim Walter Homes contracted for the right to receive a time price differential more than twice that allowed by Chapter 6 of the Credit Code and is thus subject to the penalties set forth in section 8.02 ¹ of the Code. The trial court answered this question affirmatively and granted the Schuenemanns' motion for summary judgment. Pursuant to sections 8.01 and 8.02 of the Credit Code, the trial court ordered that the Schuenemanns recover from Jim Walter Homes a penalty totalling $64,385.29, as well as attorney's fees of $32,192.64. The court of appeals affirmed. 655 S.W.2d 264. We affirm the judgments of the courts below.

Whether the inclusion of an acceleration clause, and the attendant contingency that excess unearned interest may be collected or retained, makes a contract usurious is a question of construction. Smart v. Tower Land and Investment Company, 597 S.W.2d 333 (Tex.1980). In construing the contract, we initially follow the well established principle that, in order to ascertain the entire agreement between contracting parties, separate documents executed at the same time, for the same purpose, and in the course of the same transaction are to be construed together. Jones v. Kelley, 614 S.W.2d 95 (Tex.1981); Nevels v. Harris, 129 Tex. 190, 102 S.W.2d 1046 (1937). Three documents, all executed on February 9, 1976, comprised the contract in issue here: a "Building Contract," an "Installment Mechanic's Note" and a "Mechanic's Lien Contract With Power of Sale."

The building contract shows that the Schuenemanns had the option to purchase their house for a "cash price" of $17,735 or a "time price" of $37,008. It indicates that the Schuenemanns elected to purchase on a time price basis. The $19,273 time price differential ² is denoted a "finance charge" in the building contract. The total of $37,008 is payable in one hundred eighty monthly installments of $205.60 each. The annual percentage rate is stated as 11.4 percent. The building contract contains the following provision:

The total of payments of $37,008.00 shall be evidenced by a promissory note payable in the time and manner aforesaid, which said promissory note shall be secured by a first (MORTGAGE), (DEED TO SECURE DEBT), (DEED OF TRUST), encumbrancing the above described property. The promissory note and (MORTGAGE), (DEED TO SECURE DEBT), (DEED OF TRUST), shall have customary covenants and conditions included therein and shall bear interest from maturity at the rate of 6% per annum until paid and shall provide that in event of default in payment of any installment provided for hereunder for a period of thirty (30) days, the holder thereof may at its option declare all of the remainder of said debt immediately due and collectible and any failure to exercise said option shall not constitute a waiver of the right to exercise the same at any other time (emphasis supplied).

The "Installment Mechanic's Note" (installment note) bears a face amount of $37,008, payable in one hundred eighty monthly installments of $205.60 each. Only by referring to the building contract do we know that $19,273 of the face amount of the installment note is a finance charge. The following provision is found in the installment note:

It is understood and agreed that in the event of default in payment of any installment for a period of thirty days, the holder of this note may, at its option, declare all the remainder of said installments due and said note will mature and it shall at once become due and payable and the Mechanic's Lien or the Deed of Trust Lien herein mentioned, either or both, shall become subject to foreclosure proceedings, as the holder may elect (emphasis supplied).

The "Mechanic's Lien Contract with Power of Sale" (lien contract) secures payment of the installment note by granting to a trustee and his successors the house and the property on which it is built. It includes the following provision:

Should owners make default in the punctual payment of said note, or any part thereof, as the same becomes due and payable ... the holder of said note may, at his option, declare the entire remaining unpaid balance of said note immediately due, and, if not immediately paid then in that event the Trustee or his successor is hereby authorized and empowered to sell said property ... (emphasis supplied).

It is undisputed that Jim Walter Homes has made no attempt to accelerate the Schuenemanns' obligation. The Schuenemanns seek to recover the penalties provided for in section 8.02 of the Code on the ground that, by virtue of the acceleration provisions quoted above, Jim Walter Homes "contracted for" the collection of time price differential in excess of double the amount allowed by section 6.02(9)(a) of the Credit Code. The simple act of contracting for usurious time price differential is in violation of the Credit Code and sufficient to trigger the penalties therein. See Tanner Development Co. v. Ferguson, 561 S.W.2d 777, 778 (Tex.1977) (on motion for rehearing). There need not be intent to actually charge time price differential which violates the Credit Code, but merely the "intent to make the bargain made." See Cochran v. American Savings & Loan Ass'n of Houston, 586 S.W.2d 849, 850 (Tex.1979).

Setting aside the building contract for the moment, we first determine whether the above-quoted acceleration provisions in the installment note and lien contract call for the collection of unearned time price differential. We are guided in our interpretation by the many pre-Credit Code cases which addressed the issue of whether particular acceleration of maturity provisions called for the collection of unearned interest. These cases establish that the terminology employed in acceleration provisions is of utmost importance. One such case crucial to our decision here is Clements v. Williams, 136 Tex. 97, 147 S.W.2d 769 (1941). That case involved an allegedly usurious note secured by a vendor's lien on real property. The note was payable in monthly installments which included both principal and interest, just as the installment note in the instant case is payable in monthly installments which include both principal and time price differential. In Clements, the note provided that upon default in payment, the holder at his election might "mature said note, and it shall at once become due and payable ...." In a per curiam opinion, the court stated:

Such default maturity clause permitted the holder of this note to mature all installments as written in it, including unearned interest.... Such an instrument is usurious in its inception [citation omitted]. If the default maturity clause had merely provided for the maturity of the debt, the note would not be usurious because unearned interest could not be collected [citation omitted].

Id. at 769. The Clements case thus points out an important distinction between acceleration clauses which provide for the maturity of a "debt" and acceleration clauses which provide for the maturity of a "note." A provision which states that a "debt" may be matured does not call for the collection of unearned interest, because interest does not become part of the "debt" until it is earned. See Walker v. Temple Trust Co., 124 Tex. 575, 80 S.W.2d 935, 937 (1935). However, as Clements indicates, when it is provided that a "note" may be matured, the obvious intent of the contracting parties is that the entire face amount of the note, including unearned interest, is to be collected upon acceleration. See also, Commerce Trust Co. v. Best, 124 Tex. 583, 80 S.W.2d 942 (1935); Manning v. Christian, 124 Tex. 517, 81 S.W.2d 54 (1935); Shropshire v. Commerce Farm Credit Co., 120 Tex. 400, 30 S.W.2d 282, on rehearing 120 Tex. 400, 39 S.W.2d 11, cert. denied, 284 U.S. 675, 52 S.Ct. 130, 76 L.Ed. 571 (1931); Deming Inv. Co. v. Giddens, 120 Tex. 9, 30 S.W.2d 287 (1930).

In the instant case, the installment note provides that upon acceleration, the holder may declare "all of the remainder of said installments due and said note will mature and it shall at once become due and payable," and the lien contract states that upon acceleration the holder may "declare the entire unpaid balance of said note immediately due." We view the language in these two instruments as similar enough to the default maturity clause in Clements v. Williams, 136 Tex. 97, 147 S.W.2d 769, to make that case controlling. We therefore hold that the default maturity clauses in the installment note and lien contract unambiguously call for the collection of unearned time price differential. ³ It follows that Jim Walter Homes contracted to charge time price differential in excess of double the amount allowed by section 6.02(9)(a) of the Credit Code and is subject to the penalties imposed by both sections 8.01 and 8.02 of that Code.

We find unpersuasive the authorities relied upon by Jim Walter Homes for the proposition that the acceleration provisions of the installment note and lien contract do not call for the...