Securities Inv. Co. of St. Louis v. Finance Acceptance Corp.

Decision Date28 October 1971
Docket NumberNo. 15801,15801
Citation474 S.W.2d 261
CourtTexas Court of Appeals

Irion, Cain, Magee & Davis, Don W. Davis, Dallas, John Culpepper, Jr., College Station, for appellant.

Ross, Griggs & Harrison, James E. Ross, Houston, for appellee.

COLEMAN, Justice.

This suit was filed by appellee, a licensee under the Texas Consumer Credit Code, against appellant, a company engaged in the business of loaning money to such consumer finance companies, to recover double the amount of alleged usurious interest paid by appellee to appellant. Appellant answered and filed a cross-action for the debt due to it by appellee and for foreclosure of its lien against appellee's notes receivable. Appellee then amended its petition and, in addition to the cause of action based on usury, sought actual and exemplary damages by reason of the action of appellant in taking possession of certain business records of appellee and in attempting to collect from the makers notes representing loans made by appellee and assigned to appellant as security.

The trial court entered a judgment for appellee, based on a jury verdict, awarding both actual and exemplary damages, as well as recovery for usurious interest paid. After allowing an offset in the amount of the debt due to appellant from appellee, the court awarded appellee a judgment in the sum of $72,104.23.

The questions presented require a construction of the contract forming the basis of the transactions between the parties. The first contract was executed in December, 1965. In May, 1966, a new contract was signed, the terms of which were the same as the original contract with the exception of the provisions concerning the interest to be paid by appellee.

The contracts defined Receivables as meaning promissory notes, conditional sales contracts, lease agreements, chattel mortgages, contracts, acceptances, accounts receivable, choses in action and other forms of obligations. In then provides:

'1. The Lender will from time to time, at its discretion, lend to the Borrower a sum not in excess of Seventy-five per cent (75%) of the unmatured and unpaid balance of each Receivable acceptable to the Lender, which is assigned, transferred and delivered to the Lender as hereinafter provided. The Lender will, from time to time at its discretion advance to the Borrower such additional sum as will increase its total loans to the Borrower then outstanding to an amount not in excess of Seventy-five per cent (75%) of the total unmatured and unpaid balances of the Receivables currently assigned and currently acceptable to the Lender, provided, however, that (i) Borrower shall have promptly and fully discharged its obligation to the Lender as hereinafter set forth, and (ii) Borrower shall not be in default in any of its other undertakings or obligations to the Lender, including but not limited to the payment of interest as set forth in paragraph 2 below, and (iii) the Lender shall be satisfied that there has been no adverse change in the financial condition of the Borrower. It is understood proceeds of any loan made hereunder shall be for the conduct and operation of the undersigned's loan and finance business and for no other purpose.

'3. . . . Receivables shall be assigned and delivered to the Lender at its office in St. Louis, Missouri, by means of instruments called 'Schedules' in form and manner satisfactory to Lender, executed by the Borrower and containing certain covenants, warranties, representations and undertakings by the Borrower relative to each such Receivable. . . .

'4. The Lender shall have the right at all times to collect any and all sums due under said Receivables by having such sums paid directly to the Lender or the Lender's nominee, such collection to be made either in the Lender's name or in the name of the Borrower, and in this connection, the Lender may give such notice and take such action, legal or otherwise as may be necessary to effectively exercise this right. . . . However, until the Lender shall have exercised the right of directly collecting such Receivables or of having payments on such Receivables sent directly to Lender, as above provided, the Borrower will, at its own expense, promptly collect each installment of each of said Receivables when and as each respectively matures and use the proceeds of such collections in the conduct of its loan and finance business and for no other purpose.

'7. In case any Receivable which has been assigned to the Lender and treated as acceptable collateral by it should at any time, and for any reason become or be deemed unacceptable to the Lender as collateral security, then the Borrower will, within five (5) days after written notice thereof pay to the Lender a sum equal to the unpaid (whether or not matured) amount of such unacceptable Receivable, or the Lender at its sole option may accept in lieu of such payment the assignment of other Receivables in equal amounts acceptable to it.

'8. In the event that the aggregate amount of Borrower's indebtedness to the Lender exceeds Seventy-five per cent (75%) of the total unpaid and unmatured balances of the Receivables currently assigned and currently acceptable to the Lender, the Borrower shall forthwith, whether or not any notice or demand is made by the Lender therefor pay to the Lender a sum which will so reduce the aggregate indebtedness of the Borrower as to bring the percentage of Receivables within the amount specified above herein, or the Lender at its sole option may accept in lieu of such payment the assignment of other acceptable Receivables in an amount sufficient so that aggregate indebtedness will not exceed Seventy-five per cent (75%) of the unpaid and unmatured balances of acceptable collateral assigned to Lender.

'9. In making loans to the Borrower, from time to time, it is expressly understood that the Lender is relying upon written representations of the Borrower as to the Borrower's financial responsibility. The Borrower will furnish to the Lender monthly and yearly financial statements and such other reports and data so as to reflect the current status of the Borrower's business as well as the Receivables assigned to the Lender. The Borrower hereby authorizes the Lender or its agent, at all reasonable times to have access to the books, accounts, records, memoranda, correspondence and documentary evidence of the Borrower in any way relating to the Receivables assigned to the Lender so the Lender may inspect, examine, audit and verify the same and make any extracts therefrom.

'10. It is understood that if this proposal by the Borrower is accepted by the Lender, the collateral loan agreement resulting therefrom shall continue in effect from the date of such acceptance by the Lender until terminated by either the Borrower or the Lender giving to the other sixty (60) days written notice of such termination. Such termination shall not, however, modify or change any of the Borrower's obligations or undertakings as to loans already made to the Borrower and as to any Receivables already assigned to the Lender. In the event of such termination the Borrower shall pay all indebtedness due to Lender by Borrower on the date such termination is effective, including interest to the date of payment. Until this agreement is terminated, the Borrower agrees, that without the Lender's written consent, no Receivables shall be sold or hypothecated as collateral security except to the Lender. Further, until this Agreement is terminated, Borrower agrees it will not, without the prior written consent of Lender, incur any indebtedness for money borrowed unless such indebtedness is specifically junior and subordinate in right of payment and in all other respect to the indebtedness due from Borrower to Lender. Borrower further agrees so long as any indebtedness is due Lender hereunder, it will not, without the prior written consent of Lender sell, transfer, convey, pledge, or otherwise encumber the capital stock of any of its subsidiary companies. After the collateral loan Agreement has been terminated and after all of the Borrower's indebtedness to the Lender of whatsoever kind and nature has been fully paid and discharged, then any Receivables remaining in the hands of the Lender shall be reassigned and delivered to the Borrower.

'11. It is intended the Lender shall receive the re-payment of all principal sums loaned with interest thereon as provided herein free from any expense, except normal operating expense, . . .

'12. In the event (i) any amount due to be paid to the Lender hereunder shall not be paid as and when due, or (ii) should the Borrower fail to assign additional security as herein required or . . . (vii) the Borrower shall breach any provision contained herein (or in any Schedule covering any Receivable assigned to the Lender), then upon the happening of any one or more of such events all indebtedness of the Borrower to the Lender as herein provided shall immediately become due and payable and shall be forthwith paid and discharged by Borrower, anything to the contrary herein notwithstanding. In the event the Borrower thereupon fails to promptly pay in full the aggregate of all such sums the Lender may proceed to protect and enforce the Lender's rights . . ., the Lender shall have (a) the right (which Lender has at all times whether or not a default shall have occurred under this paragraph 12) to collect all or any part of the sums due under the Receivables assigned hereunder and pursue all rights and remedies of the Borrower against any of the persons obligated thereon either in the name of the Borrower or of the Lender, . . ..'

In the original contract the Borrower agreed to pay to the Lender monthly on the 10th day of the month interest on the average daily balance of all indebtedness during the preceding...

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