Shropshire v. Commerce Farm Credit Co.

• Citation: 266 S.W. 612
• Decision Date: 22 October 1924
• Docket Number: (No. 2369.)<SMALL><SUP>*</SUP></SMALL&gt
• Parties: SHROPSHIRE et ux. v. COMMERCE FARM CREDIT CO. et al.
• Court: Texas Court of Appeals

266 S.W. 612

SHROPSHIRE et ux. v. COMMERCE FARM CREDIT CO. et al.

(No. 2369.)^*

Court of Civil Appeals of Texas. Amarillo.

October 22, 1924.

Rehearing Denied November 19, 1924.

Appeal from District Court, Hale County; R. C. Joiner, Judge.

Suit by J. E. Shropshire and wife against the Commerce Farm Credit Company and others. Judgment for defendants, and plaintiffs appeal. Affirmed.

Oxford & Oxford and M. J. Baird, all of Plainview, and Oxford & Johnson, of Stephenville, for appellants.

Terrell, Davis, Huff & McMillan, of San Antonio, and Williams & Martin, of Plainview, for appellees.

BOYCE, J.

The appellants brought this suit to cancel a certain contract evidencing a loan of money on allegation that it was usurious, and also to recover double the amount of money paid as interest on the loan. A trial without a jury resulted in judgment for the defendants.

The facts pleaded and proven are substantially as follows: The plaintiffs borrowed the sum of $4,200 from one of the defendants, the Commerce Farm Credit Company, and executed their note to the said company for the sum of $4,200, payable 10 years after date. It had been agreed that the loan should bear interest at the rate of 9 per cent. per annum. As evidence of the interest the plaintiffs executed 10 interest coupons, each for the sum of $252, payable annually, which, it will be seen, represented interest on the loan at 6 per cent.; the additional interest "was squeezed into five equal annual payments," and evidenced by 5 separate notes, each for $252 payable one each year during the first 5 years of the loan period. The principal note and the 6 per cent. interest coupons were secured by a first lien deed of trust on land in Hale county. These instruments provide for maturity of the principal indebtedness, at the option of the holder, in case of default in the payment of the taxes assessed against said property during the existence of the loan or default in the payment of any installment of interest, or in case of the breach of other covenants contained in the deed of trust. The other 5 interest notes were secured by a second lien deed of trust on the same property; this deed of trust provides that in case of default in the payment of any of said notes, or "in case of the breach of any of the covenants, terms, or agreements in said first deed of trust, the whole of said notes hereby secured shall become due at the election of the holder, etc. The plaintiffs paid the interest notes becoming due for 2 years, a total of $1,008.

The propositions relied on by appellants for reversal fall under two general contentions: First, that, since the borrowers were required by the contract, during the first 5 years of the loan, to pay annually 12 per cent. of the principal of the loan as interest, the contract is, under our law, usurious; second, that the loan contract is usurious, because, under it, the period of the loan might be shortened by the lender under the acceleration clause, and result in the collection of usury, there being no provision in the contract for rebatement of interest already collected in case of such contingency. We will discuss these propositions in the order stated.

1. We have no law in this state which makes it unlawful to collect interest in advance; even where the highest allowable rate of interest is collected in advance on short-time loans, and a year has been suggested as the limit under this rule, the transaction is generally held not to be usurious. Webb v. Pahde (Tex. Civ. App.) 43 S W. 19; Geisberg v. Mutual Building & Loan Association (Tex. Civ. App.) 60 S. W 478, 482; 27 R. C. L. pp. 225, 226. Obviously the retention or payment of interest in advance decreases the amount of money of which the borrower has the use during the loan period, and, logically, when the highest rate of interest allowable under the law is taken in advance, the interest really exceeds the rate allowed by law. We need not here go into the reasons why such advance collection as applied to short-term paper is held to be legal. But, when interest nominally within the legal rate is collected in advance on a long-time loan, the transaction may be usurious. See authorities above cited. But it is not the mere collection of interest in advance or the fact that in any one year of a larger loan period there is paid more interest than the interest for that year would amount to at the highest legal rate that makes the contract illegal; whether the contract is usurious is determined by ascertaining whether the interest collectible for the entire loan period exceeds the amount of interest that could be legally collected on the amount of the principal (making proper deductions therefrom for interest paid in advance) of which the borrower had the use during the period. See authorities above cited, and in addition thereto the following: Garland v. Union Trust Co., 63 Okl. 243, 165 P. 197; Clement Mortgage Co. v. Johnston, 83 Okl. 153, 201 P. 247; Green v. Conservative Loan Co., 153 Ark. 219, 240 S. W. 13; American Investment Co. v. Lyons (N. M.) 218 P. 183; American Investment Co. v. Roberts (N. M.) 218 P. 1037. These cases are directly in point. We do not wish to be understood as necessarily approving the conclusion reached on the facts in the New Mexico cases cited; for, where interest is paid in advance for more than 1 year, whether at the inception of the loan or during the time of its running, it might well be held that such advance payments should be deducted for the purpose of determining the amount of principal money of which the borrower actually had the use during the term of the loan, and on which interest is to be computed, for the purpose of determining the question of usury. We can see no reason in principle for making a distinction between advance payments made at the inception of the loan or at any time during the period. This suggestion is, however, immaterial here; it being conceded that, if the whole period of this loan is to be taken into consideration, there would be no usury, even if the advance payments are deducted from the principal on which interest computation is to be made as suggested. The contention of the appellants is that, if during any year of the loan more interest is collectible than 10 per cent of the principal, the transaction is, under our law, usurious. In this connection appellants argue that our law is different in terms from that of the states in which the decisions cited were rendered. Our Constitution and statutes provide that contracts for a "greater rate of interest than 10 per cent. per annum shall be deemed usurious." Constitution, art. 16, § 11; R. S. art. 4979, 4980. This language merely provides a standard; the word "rate" means "proportional estimation according to some standard." Century Dictionary. See, also, Chase v. New York Railway Co., 26 N. Y. 523, 526; Notes, 10 A. L. R. 1002. To apply this standard there must be taken into consideration the amount of money loaned, the period of the loan, and the interest charged. In this respect we find no material difference in our law and the laws of other states in which the decisions referred to were rendered. Our own Supreme Court, in the case of Mills v. Johnston, 23 Tex. 309-330, where it was considering a question of usury on a loan that ran for more than 1 year as affected by the retention of commissions paid in advance, which it was claimed should be regarded as interest, said:

"The law, in deciding whether a settlement involves usury or not, will look at the whole amount of interest reserved * * * and to the whole period of forbearance extended; and if the charges, properly imputable to interest, do not exceed the highest interest allowed by law, for the whole period of forbearance, then the settlement cannot be held to be usurious."

Practically the same test was stated by the Supreme Court in G. & H. Inv. Co. v. Grymes, 94 Tex. 609, 63 S. W. 860, 64 S. W. 778. In the case of Seymour Opera House Co. v. Thurston, 18 Tex. Civ. App. 417, 45 S. W. 815, the Seymour Opera House Company, on August 18, 1891, executed a note for $4,000, payable to the Panhandle Loan & Trust Company on July 1, 1896, executing interest coupons payable semiannually for interest at the rate of 8 per cent. per annum. As further interest on the loan the Opera House Company gave its note for $400, payable in semiannual installments of $100 each during the first period of the loan. The instruments provided for acceleration of maturity in case of default in payment of the interest coupons, and the principal note was declared to be due under such clause before the contract date of maturity. The defendant pleaded usury. It will be seen that during the first period of the loan, when the $100 semiannual payments were being made, the debtor was paying as interest more than 12 per cent. of the principal (the legal rate at that time). The court held the contract was not usurious, saying:

"In cases like this, where the right to declare the debt due, in case of default on the part of the maker of the note, is contained in the contract, the time of maturity should not be reckoned only to the day on which the maturity was afterwards declared, as contended for by appellants, but to the day fixed in the written contract in good faith for the maturity, with grace added, unless it is waived."

The Supreme Court denied writ of error in this case. The case is directly in point here.

The appellants rely on Mathews v Interstate Loan Association (Tex. Civ. App.) 50 S. W. 604; Cain v. Bonner (Tex. Civ App.) 149 S. W. 704; and Shear v Hall (Tex. Com. App.) 235 S. W. 195, to sustain them in the proposition now under discussion. In the two cases first cited the court did consider the interest as of different periods during the loan. An examination of the facts in those cases will disclose that the contracts were usurious, whether the interest contracted for is computed over the entire period, or only with...