Seiter v. Veytia

• Citation: 756 S.W.2d 303
• Decision Date: 13 July 1988
• Docket Number: No. C-7128,C-7128
• Parties: Charles SEITER, Jr., et al., Petitioners, v. Joe VEYTIA et ux., Respondents.
• Court: Supreme Court of Texas

Page 303

756 S.W.2d 303

Charles SEITER, Jr., et al., Petitioners, v. Joe VEYTIA et ux., Respondents.

No. C-7128.

Supreme Court of Texas.

July 13, 1988.

Rehearing Denied Oct. 5, 1988.

Sabrina C. Arellano, Akin, Gump, Strauss, Hauer & Feld, San Antonio, for petitioners.

Luther H. Soules, III and Robert E. Etlinger, Soules, Reed & Butts, San Antonio, for respondents.

OPINION

RAY, Justice.

The issue presented by this usury case is whether federal law, which eliminates interest rate limitations on loans secured by first liens on residential real property, preempts state-imposed interest rate ceilings. The trial court granted summary judgment on the ground that Tex.Rev.Civ.Stat.Ann. art. 5069-1.06 (Vernon 1987), is preempted by 12 U.S.C. 1735f-7 (1980). The court of appeals declined to reach the question of whether federal law preempts. Instead it reversed and remanded by holding that the federal statute was not intended to include late charges, which are the subject of this suit. 740 S.W.2d 64. We granted writ of error to address the preemption question, and now affirm the judgment of the court of appeals.

On July 20, 1981, the Veytias purchased a home from the Seiters. In connection with the sale, the Veytias executed two promissory notes and two deeds of trust which are the subject of this suit. The notes were made payable to the Seiters, and the deeds of trust secured payment of the notes. The Veytias defaulted on the notes, but the parties were able to reach an agreement which modified the original obligations. The agreement was incorporated into a document entitled "Modification and Extension of Real Estate Notes and Liens," and was executed on July 25, 1984. The modification agreement included among its provisions a paragraph providing for late charges of $20.00 each day that any installment was overdue.

By September of 1985, the Veytias were again in default, and the trustee sent the Veytias a notice of trustee's sale. Joe Veytia then filed suit against the Seiters and the trustee to enjoin the trustee's sale. The suit also asked for damages for usurious interest charged by the Seiters. Specifically, the Veytias alleged that the $20.00 per day late charge contracted for in the modification agreement was usurious. The Veytias asked for forfeiture of principal, attorneys' fees, and other penalties under Tex.Rev.Civ.Stat.Ann. 5069-1.06(1) and (2) (Vernon 1987).

The Seiters successfully moved for summary judgment, based on the theory that Tex.Rev.Civ.Stat.Ann. art. 5069-1.06 (Vernon 1987) is preempted by 12 U.S.C. § 1735f-7 (1980). The court of appeals held that summary judgment was improper because 12 U.S.C. § 1735f-7 (1980) does not preempt usurious late charges. The court of appeals then proceeded to examine whether summary judgment could be upheld on another basis, finding that a fact issue was raised as to whether the Seiters demanded or charged usurious interest in the form of late charges in violation of Tex.Rev.Civ.Stat.Ann. art. 5069-1.06. The court of appeals reversed the summary judgment and remanded the cause for trial.

In order to encourage mortgage credit lending, Congress passed the Depository Institutions Deregulation and Monetary Control Act of 1980, (DIDMCA), Pub.L. No. 96-221, 94 Stat. 132 (1980), as amended by the Housing and Community Development Act of 1980, Pub.L. No. 96-399, 94 Stat. 1614 (1980). This legislation preempts certain areas of state law by eliminating state usury restrictions which establish mortgage usury ceilings. See St. Claire & Hogan, The Revised Texas Usury Ceilings--A New Alice in Wonderland, 14 St. Mary's L.J. 187, 233-34, (1983).

Congress provided a mechanism in DIDMCA whereby a state's own usury laws could apply, and a state could avoid preemption. DIDMCA was effective April 1, 1980, and preempted state law unless a state opted out prior to April 1, 1983. In order to opt out, a state had to adopt a law which explicitly stated that the state did not want the DIDMCA to apply. Section 501(a)(2)(B), Pub.L. No. 96-221, Title V, 94 Stat. 161, codified at 12 U.S.C. § 1735f-7 (1980).

Since DIDMCA came into effect, the Texas Legislature amended and supplemented Texas usury law by its Texas Omnibus Usury Bill, H.B. 1228, which became effective May 8, 1981. 1981 Tex.Gen.Laws, ch. 111 at 271 (H.B. No. 1228) (amending Tex.Rev.Civ.Stat.Ann. arts. 1302-1.01 to -7.05 (Vernon 1980 & Supp. 1982-1983); arts. 2461-4.01, -7.01 (Vernon Supp.1982-1983); arts 5069-1.01 to -51.19 (Vernon 1971 & Supp.1982-1983); Tex.Ins.Code Ann. art. 24.20 (Vernon 1981)). H.B. 1228 did not explicitly state that Texas did not want the DIDMCA to apply, as required by Section 501(a)(2)(B), and gave no other indication of any kind that Texas opted out of federal preemption in the area of residential real property. Moreover, in the meeting of the Committee on Financial Institutions, the author of H.B. 1228, Representative Bill Messer, specifically stated to the committee:

This bill does not override the federal preemption of state usury laws in the federal House Bill 4986. That's the preemption of mortgages. It doesn't affect those. Those are...