Galveston & Houston Investment Co. v. Grymes , 94 Tex. 609 ( 1901 )

From the opinion of the Court of Civil Appeals in this case (50 Southwestern Reporter, 467) we copy the following conclusions of fact:

"Appellant entered into a written contract with the appellee on the 5th day of May, 1898, by which it agreed to sell to him a lot in Houston for $2160, and to erect on it a residence, as per plans and specifications presented by appellee through his architect, the contract for such building to be let to a contractor who should be required to enter into bond for its erection. It was further stipulated that when the bid of such contractor should be accepted, and the cost of the building thereby ascertained, appellant would sell and convey to appellee the lot, with the house thereon, for a sum equal to the price of the lot and the contract price of the house, including architects' fees, and that thereupon the appellee should pay 10 per cent of such sum, and that a sum equal to 30 per cent of the balance should be added thereto and appellee should give to appellant seventy-two notes for equal parts of the sum thus ascertained, each note being a monthly installment, or that 55 per cent of the sum unpaid should be added thereto and 120 notes of equal monthly installments thereof should be executed, the notes in either case to bear 10 per cent interest after maturity. The contract also stated: ``The said thirty or fifty-five per cent so added into the notes represents the interest on said deferred payments and all costs, trouble, and expense incurred by the company in the erection of said house and the risk during the same. And the said party of the second part (appellee) shall insure said house from the date of its completion in the interest of the party of the first part, as their interest may appear, during the time that the deferred payments are unpaid. Failure to do this, as well as failure * * * to pay any two notes, shall entitle the first party to declare said contract forfeited, and said notes mature, and entitle the said first party to sell said property under the provisions of this instrument.' The contract also made provisions for sale of property in case of default in payment, and gave the appellant the option to exact from appellee a deed of trust with power of sale when the conveyance should be executed. The house was built and delivered to Grymes, the cost of the house and price of the lot aggregating $4215.45, to which was added 55 per cent thereof, and for the sum of the two, 120 notes were executed by appellee, the first for $55.49 and the others for $55.44, payable monthly in succession, the first payable in one month and the last in 120 months or ten years from date, and bearing 10 per cent interest after maturity. Appellee paid the nineteen notes first falling due as they matured and sold the property to P.C. Byrne, who assumed those remaining unpaid, and thereafter paid nineteen of them; the total payments amounting to $2124.31. Default having been made in payment of others, appellant caused the property to be sold by trustee and bought it in for $1600, crediting the notes with that sum, and then brought this suit against appellee and Byrne to recover the balance of the notes unpaid, alleged to amount, with some expenses, to $2344.06. Byrne pleaded general denial and Grymes set up the defense of usury. The court instructed the jury that the contract was usurious and directed a verdict for plaintiff against Grymes for $640.14, which was returned, and plaintiff appeals."

The provisions of the Revised Statutes which relate to interest and usury are embodied in the following articles:

"Art. 3097. ``Interest' is the compensation allowed by law or fixed by the parties to a contract for the use or forbearance or detention of money."

"Art. 3103. The parties to any written contract may agree to and stipulate for any rate of interest not exceeding ten per cent per annum on the amount of the contract.

"Art. 3104. All written contracts whatsoever which may in any way, directly or indirectly, violate the preceding article by stipulating for a greater rate of interest than ten per cent per annum shall be void and of no effect for the amount or value of the interest only; but the principal sum of money or value of the contract may be received and recovered."

To determine the question of usury in a contract, it must be tried by the statutory limitation of 10 per cent per annum for the use, forbearance or detention of the money for one year; if the interest contracted for exceeds that rate, it constitutes usury, no matter in what form the contract may be expressed. The court must give to the terms of the contract, if fairly susceptible of it, a construction that will make it legal, but has no right to depart from the terms in which it is expressed to make legal what the parties have made unlawful. Webb on Usury, p. 482; Archibald v. Thomas, 3 Cow., 284.

The question presented is, did the parties embrace in the 120 notes, for the use of the principal debt, a sum greater than the original debt would produce at 10 per cent per annum for the time the payer of the note had the use of the money? The original debt was $4215.45, to which $2318.45, interest, was added, aggregating the sum of $6533.39, which being divided into 120 equal parts, each note represented the principal and interest in the ratio that the principal and interest each bore to the whole amount; that is, each note represented 1/120th part of the principal, $35.12, and 1/120th part of the interest, $19.32. The payer of the notes agreed to pay $35.12 of the principal each month. By this method of payment, the sum of money for which the interest was allowed was gradually reduced, and to ascertain what amount of interest would be earned by the notes, we must calculate interest upon each note from its date to maturity, and all of the interest added will give the legitimate earnings of the sum loaned; or the average of time the different notes run will give five years and fifteen days, the time that the entire sum would be used. It is a simple calculation to ascertain the interest on each note at 10 per cent for the number of months that it is made to run, thus ascertaining the interest upon 120 notes, which, added, would give the total interest; or to calculate interest on $4215.45 for five years and fifteen days at 10 per cent per annum; the result in either case would be the sum of $2125.38, which is $193.17 less than the sum reserved for interest by the parties. This shows the transaction to be usurious.

Counsel for plaintiff in error have not suggested any method by which the interest can be calculated under the terms expressed by the 120 notes which would sustain them as lawful, but they have suggested several forms in which the parties could have made a legal contract embracing the same debt, of which the following two are the most plausible: (1) Consider the debt of $4215.45 as existing as a whole and treat each note as a partial payment upon the debt to be credited at maturity of the note, calculating the interest with a rest at each payment; (2) it is contended that the parties might have agreed — and that the contract should be so construed — that each note should represent the interest upon the whole sum up to the time that the note was payable, — that is, the parties, after adding the principal and interest together and dividing the sum into 120 parts, might have agreed that the sum of each note should contain what would be the interest upon the whole sum for one month, the remainder to be credited upon the principal. These methods produce the same result. To test the two plans suggested, the interest must be calculated upon $4215.45 for each month, added to the principal, and the note maturing at the time be deducted, the balance constituting a new principal, until the $120 notes shall be thus applied as credits. The result would be a larger sum as interest than the amount reserved in this transaction, but after exhausting the notes as credits, there would remain unsatisfied about $250 of the original principal.

If the transaction was such as to render the intention of the parties doubtful, the court would adopt that construction which would attribute to them a legal intention, but we can not adopt any method for the solution of this question by which we must arrive at a different result from that shown by the contract, because it is impossible to conceive of the parties having an intention to use certain forms of contract that would produce a result different from that which they embodied in the contract actually made.

If, however, the court had the authority — in the absence of evidence — by construction to reform the contract of the parties, such construction is excluded in this case by the evidence offered on behalf of the plaintiff in error, that the parties arrived at the amount of interest which is embraced in the notes by considering the principal debt, $4215.45, payable in ten equal annual installments with 10 per cent interest from date, calculating the interest at 10 per cent per annum with rests at each annual payment; or to reach the same result, take the average of time that the payer would use the money, being five years and six months, and calculate the interest at 10 per cent upon the whole amount for that time. Either of the methods suggested would produce the amount of interest contracted for in this case, and, if the contract had been consummated upon that basis, it would not have been illegal, but when the parties came to express it in writing, the payments were so changed as to be monthly instead of annual, whereby the time that the money would be used by the defendant in error was reduced five months and a half; that is, the average of time upon the notes is five years and fifteen days. By this change in the time of payment, the basis of calculation was abandoned so that the contract itself as it was finally made is usurious.

This case differs from Crider v. Building and Loan Association,89 Tex. 597, in this: In that case, the interest was not calculated and added into the notes, but the principal was divided into 72 parts and a note taken for each part, payable, the first in one month, and one at the end of the succeeding month for seventy-two months. The first note embraced 1/72 part of the principal and the interest upon the whole debt for one month, the second note embraced a like part of the principal and the interest for one month upon the balance of the debt, after deducting the first payment, and so on, reducing the principal upon which interest was calculated by each monthly payment. In this way, the interest was paid monthly upon the amount of money that the maker of the notes had used during that month and for no more. This produced 10 per cent per annum, the same as if it had been calculated by the year. This court held that the contract was not void because the parties might contract to pay the interest by the month; but, to restate the difference between the two cases, in the one now before the court, the manner of payment imposes upon the payer a charge for more time than he had the money; by the contract in the other case, he paid only for the time it was used.

The judgments of the District Court and of the Court of Civil Appeals are affirmed.

Affirmed.

DISSENTING OPINION. Opinion Delivered June 28, 1901.