Tony's Tortilla Factory, Inc. v. First Bank

• Decision Date: 25 March 1993
• Docket Number: No. 01-91-00226-CV,01-91-00226-CV
• Citation: Tony's Tortilla Factory, Inc. v. First Bank, 857 S.W.2d 580 (Tex. App. 1993)
• Parties: TONY'S TORTILLA FACTORY, INC., Ray Villasana, Betty Villasana, Emma Romero Villasana, Gudelia Villasana Villegas, and Henry Villasana, Appellants, and Mary Esther Villasana Wigley, Aurora Villasana Stanley, and Linda Villasana Zepeda, Appellants/Intervenors, v. FIRST BANK and Sam J. Brown, Trustee, Appellees. (1st Dist.)
• Court: Texas Court of Appeals

Page 580

857 S.W.2d 580

TONY'S TORTILLA FACTORY, INC., Ray Villasana, Betty Villasana, Emma Romero Villasana, Gudelia Villasana Villegas, and Henry Villasana Appellants and Mary Esther Villasana Wigley, Aurora Villasana Stanley, and Linda Villasana Zepeda, Appellants/Intervenors, v. FIRST BANK and Sam J. Brown, Trustee, Appellees.

No. 01-91-00226-CV.

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

March 25, 1993.

Rehearing Denied July 8, 1993.

Lynn E. Saarinen, Greg Laswell, Houston, Jimmie Phillips, Jr., Angelton, for appellants.

Linda J. Cole, Alvin Laser, Gregg C. Laswell, Houston, for appellees.

Before SAM BASS, MIRABAL and O'CONNOR, JJ.

OPINION

O'CONNOR, Justice.

Can a bank's service charge for an overdraft constitute a usurious rate of interest? We hold that the issue should have been submitted to the jury. We reverse and remand the appellants' usury cause of action against the appellee, First Bank, for trial.

Was it error for the trial court to strike the plea in intervention? We hold that it was, and reverse and remand for trial all the intervenors' causes of action against the appellees, First Bank and Sam Brown.

This is an appeal from a final judgment that granted (1) a directed verdict at the conclusion of the plaintiffs' case to the defendant and appellee, First Bank, on the claims of wrongful foreclosure and usury, and to the defendant and appellee, Sam Brown, on the claims of wrongful foreclosure, deceptive trade practices act ¹ violations, negligence, and gross negligence; (2) a take-nothing judgment, based on a jury verdict, to the plaintiffs on their remaining causes of action against First Bank and Brown; and (3) $60,600 in damages, plus postjudgment interest and court costs, based on a jury verdict, to First Bank under the promissory note.

The appellants, plaintiffs below, Tony's Tortilla Factory, Inc. and Emma, Ray, Betty Gudelia, and Henry Villasana (the plaintiffs) attack the directed verdict on their usury cause of action against First Bank and the trial court's failure to grant a new trial based on jury misconduct. The other appellants, the intervenors, Mary Esther Villasana Wigley, Aurora Villasana Stanley, and Linda Villasana Zepeda (the intervenors), appeal from the trial court order that struck their plea in intervention.

Tony Villasana started Tony's Tortilla Factory, Inc. (the Factory) as a sole proprietorship in 1935. His wife, Emma, and children, Ray, Betty, Gudelia, Henry, Mary Esther, Aurora, and Linda at various times worked in the factory, which produced tortillas and other Mexican foods. Tony died in 1974; sometime later, the family formed a corporation. Emma owned 51 percent of the corporation; it is not clear from the record how the remaining percentage was distributed. By 1985, Emma and each of the children drew a salary from the Factory.

The Villasana family also owned a 24-acre tract of undeveloped land on Congress Avenue in Austin, Texas, near the University of Texas (the Villasana property). In 1986, Emma owned 51 percent of the land and each of the children, Ray, Betty, Mary Esther, Gudelia, Henry, Aurora, and Linda, owned seven percent.

In August 1983, the Factory secured a $380,000 loan for a five-year term from First Bank. The loan had monthly interest payments and it ballooned at the end of five years. In December 1984, this first note was renewed into another loan for $500,000, which had a floating interest rate of prime plus two. This second loan included a payoff of the first note of approximately $308,000. The second loan was due in June 1985. In August 1983, the Factory established a $60,000 revolving line of credit at First Bank. The maturity date was in August 1984, and the rate of interest on sums drawn floated at prime plus one percent. By April 1984, the entire $60,000 was drawn. The line of credit was converted to a commercial loan in August 1984. This loan was rolled into the second loan in December 1984. The combined loan was secured by deeds of trust on the Villasana property, the Factory itself, and other land in Houston. Brown was the trustee.

The Factory had two checking accounts with First Bank, an operating account and a payroll account. Beginning in April 1984 and at the time of the second loan in December 1984, these accounts were overdrawn in significant amounts: the operating account by $72,000 and the payroll account by $16,000. These amounts included some service charges. First Bank charged the Factory a $20 service charge for each insufficient funds check. First Bank waived some of these service charges, but even so, the Factory was charged over $47,000 in insufficient check charges for the period April to December 1984. The two accounts were brought to a positive balance by the December 1984 loan. From the December 1984 loan, approximately $108,000 went into the accounts of the Factory.

In June 1985, the Factory was unable to pay off the $500,000 loan, and First Bank gave it a three-month extension. The Factory was not able to pay off the loan in September 1985, but it continued to make monthly payments until January 1986. In January 1986, the bank asked the Factory to leave First Bank. Later, during negotiations from December 1987 to June 1988, the Factory made some interest payments.

In January 1986, First Bank instructed Brown to post the Villasana property for foreclosure because the December 1984 loan was in default. In April 1986, First Bank offered to lend the Factory $650,000, which the Factory refused. After several more postings, First Bank foreclosed on the Villasana property on May 21, 1987. The Factory and Emma Villasana filed bankruptcy petitions in June 1987, and the business closed in June 1989.

On February 3, 1986, the plaintiffs filed suit against First Bank and Brown. Their fourth amended petition complained that the $47,106 in service charges for checks on overdrawn accounts constituted a rate of interest for use of money in excess of the amount allowed by law and was usurious. The petition also asserted against First Bank causes of action based on undue influence, negligence, gross negligence, and conversion, and against both First Bank and Brown causes of action based on wrongful foreclosure, violations of the DTPA, and civil conspiracy, and sought damages and injunctive and declaratory relief declaring a promissory note void and enjoining foreclosure of the Villasana property and enforcement of any of the personal guarantees. The plaintiffs attack the judgment on usury, but not on the other causes of action.

1. The instructed verdict

In plaintiffs' point of error one, they contend the trial court erred in granting an instructed verdict and in refusing to submit the usury cause of action to the jury.

At the close of the plaintiffs' case, First Bank moved for a directed verdict on the usury claim, asserting that there was no evidence First Bank charged interest not within legally acceptable parameters, and that as a matter of law, NSF (not sufficient funds), insufficient fund, or service charges cannot be the basis of recovery for usury. The plaintiffs responded that it was a question of fact for the jury whether the service charges were usurious. The trial court granted First Bank's motion.

In reviewing the granting of an instructed verdict by the trial court, the reviewing court will determine if there is any evidence of probative force to raise fact issues on the material questions presented. Collora v. Navarro, 574 S.W.2d 65, 68 (Tex.1978). The court considers all of the evidence in a light most favorable to the party against whom the verdict was instructed, and disregards all contrary evidence and inferences, and gives the losing party the benefit of all reasonable inferences arising therefrom. Id. Every reasonable meaning deducible from the evidence is to be indulged in the nonmovant's favor. See Trenholm v. Ratcliff, 646 S.W.2d 927, 931 (Tex.1983) (judgment notwithstanding the verdict). If there is any conflicting evidence of probative value on any theory of recovery, an instructed verdict is improper, and the issue must go to the jury. White v. Southwestern Bell Tel. Co., 651 S.W.2d 260, 262 (Tex.1983); Jones v. Tarrant Util. Co., 638 S.W.2d 862, 865 (Tex.1982); see also TEX.R.CIV.P. 268.

In order for the usury laws to apply, there must be an overcharge by a lender for the use, forbearance, or detention of the lender's money. Stedman v. Georgetown Sav. & Loan Ass'n, 595 S.W.2d 486, 489 (Tex.1979). The essential elements of usury are: (1) a loan of money; (2) an absolute obligation that the principal be repaid; and (3) the exaction of a greater compensation than allowed by law for the use of the money by the borrower. Holley v. Watts, 629 S.W.2d 694, 696 (Tex.1982); Bray v. McNeely, 682 S.W.2d 615, 617 (Tex.App.--Houston [1st Dist.] 1984, no writ). Thus we have three questions: (1) Were First Bank's payments of the overdrafts loans of money? (2) Did the plaintiffs incur an absolute obligation to repay the principal? and (3) Was the compensation exacted greater than allowed by law?

Overdrafts as loans

According to the Uniform Commercial Code (UCC), a bank may charge an otherwise properly payable item against a customer's account even though that charge creates an overdraft. TEX.BUS. & COM.CODE ANN. § 4.401 (Tex.UCC) (Vernon 1968). The Texas Supreme Court has stated that when a bank voluntarily pays a check as an overdraft, it makes a loan to its customer. Bryan v. Citizens Nat'l Bank, 628 S.W.2d 761, 763 n. 2 (Tex.1982); see also Williams v. Cullen Center Bank & Trust, 685 S.W.2d 311, 312 (Tex.1985) (section 4.401 entitles bank to treat overdraft as loan).

Other jurisdictions have similarly interpreted section 4.401 of the UCC. ² See United States v. Christo, 614 F.2d 486, 493 (5th Cir.1980) (bank may enforce overdraft in the same manner as any loan); Sayan v. Riggs Nat'l Bank, 544 A.2d 267, 269 (D.C.App.1988) (overdraft carries agreement to repay the loan); C & H Farm...