Vela v. Shacklett

• Decision Date: 23 January 1929
• Docket Number: (No. 955-5075.)
• Citation: 12 S.W.2d 1007
• Parties: VELA et al. v. SHACKLETT et al.
• Court: Texas Supreme Court

12 S.W.2d 1007

VELA et al. v. SHACKLETT et al.

(No. 955-5075.)

Commission of Appeals of Texas. Section "B."

January 23, 1929.

Error to Court of Civil Appeals of Fourth Supreme Judicial District.

Action by McClellan Shacklett and another against Silveria Chapa de Vela and others. Judgment for plaintiffs was affirmed by the Court of Civil Appeals, 1 S.W.(2d) 672, and plaintiffs bring error. Judgment of Court of Civil Appeals affirmed.

Graham & Graham, of Brownsville, for plaintiffs in error.

Joseph Ryan, of San Antonio, for defendants in error.

LEDDY, J.

The note sued on by defendants in error was payable five years after date, with interest thereon at the rate of 10 per cent. per annum, interest payable semiannually. It contained a stipulation giving the maker the privilege of paying same at the end of three years upon payment of a sum equal to three months' advance interest on the principal thereof.

Defendants in error admitted the execution and delivery of the note and deed of trust, presenting the sole defense of usury. It is contended that, because the Constitution of this state (article 16, § 11) provides, "contracts for a greater rate of interest than 10 per centum per annum shall be deemed usurious," the contract to pay 10 per cent. per annum with interest payable semiannually constitutes usury.

There is no merit in this contention. It has been uniformly held since an early date that a provision in the Constitution or statute limiting the rate of interest "per annum" does not refer to the time of payment, but only to the rate. In Meyer v. Muscatine, 1 Wall. 384, 17 L. Ed. 564, the Supreme Court of the United States denied a similar contention, stating: "This objection has no foundation. When a statute fixes a rate of interest per annum, it has always been held that parties may lawfully contract for the payment of that rate, before the principal debt becomes due, at periods shorter than a year. Mowry v. Bishop, 5 Paige [N. Y.] 98."

The principle announced in the above case has been repeatedly approved by numerous courts, including those of our own state. Martin v. Land Mortgage Bank, 5 Tex. Civ. App. 167, 23 S. W. 1032; Harrop v. National Loan Investment Co. (Tex. Civ. App.) 204 S. W. 878; Geisberg v. Mutual Building & Loan Ass'n (Tex. Civ. App.) 60 S. W. 478; 39 Cyc. p. 951, and authorities there cited; Goodrich v. Reynolds, 31 Ill. 490, 83 Am. Dec. 240; Brown v. Vandyke, 8 N. J. Eq. 795, 55 Am. Dec. 250; Goodale v. Wallace, 19 S. D. 405, 103 N. W. 651, 117 Am. St. Rep. 962, 9 Ann. Cas. 545; Cook v. Courtright, 40 Ohio St. 248, 48 Am. Rep. 681; Brown v. Johnson, 43 Utah, 1, 134 P. 590, 46 L. R. A. (N. S.) 1157, Ann. Cas. 1916C, 321; R. C. L. vol. 27, p. 230, § 30; note 46 Am. St. Rep. 189.

Neither the constitutional provision nor the statute defining usury (Vernon's Ann. Civ. St. 1925, art. 5069), contains any requirement that the maximum interest rate should be payable annually. Even in those jurisdictions where the requirement is made for the payment of a given rate of interest payable annually, it is held that a provision in a note for the payment of semiannual interest at the maximum rate does not render the contract usurious. Cook v. Courtright, 40 Ohio St. 248, 48 Am. Rep. 681; Hawley v. Howell, 60 Iowa, 79, 14 N. W. 199; Borner v. Prescott, 150 Wis. 197, 136 N. W. 552; Cutler v. Madison County, 56 Miss. 115.

The further contention, that the stipulation in the note giving the maker the privilege of paying the principal thereof before maturity upon the payment of three months' advance interest renders the contract usurious, is equally without merit.

In order to constitute such a contract usurious, the lender must be entitled to demand prepayment of the money loaned. 39 Am. & Eng. Enc. of Law (2d Ed.) § 465; Smithwick v. Whitley, 152 N. C. 366, 67 S. E. 914, 28 L. R. A. (N. S.) 113, and authorities collated in note, 20 Ann. Cas. 348; Kilpatrick v. Germania Life Ins. Co., 95 App. Div. 287, 88 N. Y. S. 628. The provision in the contract for the prepayment privilege is not a contract for the forbearance of an existing indebtedness or a loan of money. Struthers v. Drexel, 122 U. S. 487, 7 S. Ct. 1293, 30 L. Ed. 1216; Tyler, Usury, 92.

The lender in this case had no right to require the payment of three months' advance interest. This was purely optional with...