Abbott v. International Building & Loan Ass'n ( 1894 )

About January, 1884, Thomas H. Abbott subscribed for seven shares of the first series of stock in the International Building and Loan Association, and in 1886 he subscribed for six shares of the fifth series of the stock in said association, the shares being, 100 each.

On the 16th day of April, 1886, Abbott borrowed from the association $1440, for which he gave the following note, joined by his wife:

"$2600. SAN ANTONIO, TEXAS, April 12, 1886.

"On or before the maturity of the first and fifth series of stock of the International Building and Loan Association, we promise to pay to the order of the International Building and Loan Association, at its principal office in San Antonio, Texas, the sum of $2600, with interest at the rate of 6 per cent per annum from the date hereof until paid; also the further sum of $26 per month from this date until maturity of the aforesaid stock, as provided for in the by-laws of said association, which by-laws are made and taken to be a part hereof."

To secure the payment of the above note, Abbott and wife executed and delivered to William Holland a deed of trust, conveying to him the property described in the petition, which deed contained the usual provisions for sale in case of failure to pay principal, interest, or monthly payments on stock. The interest was to be paid monthly, and $1 on each share of stock to be paid each month.

Abbott paid the monthly installments on his shares of stock up to and including November, 1890, and paid the interest on the note for the same time, amounting to the sum of $715, when he refused to pay any more. In June, 1891, Holland advertised the property for sale, and Abbott sued out an injunction to restrain the sale.

Defendants answered, setting up the note and deed of trust, and alleging the failure and refusal of Abbott to pay the interest and monthly installments on the note, praying that the deed of trust be foreclosed and the property sold to pay the debt. Defendant also alleged that the sum of $26 to be paid each month was inserted in the note by mutual mistake, and should have been $13. The court found this to have been a mistake. The District Court gave judgment for the International Building and Loan Association against Thomas H. Abbott for $743.85, foreclosing the deed of trust, and ordering the land to be sold. The shares of stock pledged were by the court cancelled. This judgment was affirmed by the Court of Civil Appeals.

Plaintiff in error complains of the ruling of the court in holding that the mistake committed by inserting $26 for $13 in the note could be corrected, because it was not shown to be a mutual mistake. The note expressly made the by-laws a part of it. These by-laws prescribed that a shareholder should pay $1 per month on each share of stock, and there being thirteen shares would make $13 per month to be paid. This showed of itself that there was a mistake in inserting more than the by-laws allowed, and was properly corrected. The contract furnished within itself the evidence of the mistake.

Abbott claims that the note is usurious, and that he is entitled under the law to have all money paid as interest credited on the principal, and the balance of the principal settled out of the value of his matured stock. He also prays for a recovery of his six shares of stock in the possession of the defendant.

The by-laws of the defendant association required that each stockholder should for each month pay $1 upon each share of stock owned by him until each share should be of the value of $200, when the stock should be matured and surrendered to the association, the stockholder receiving the sum of $200 for each share, less any amount in which he might be indebted to the association. If a shareholder borrowed money from the association, he was required to transfer and deliver his shares of stock to it, to be held until they matured under the by-laws, when the debt would become due, the stock cancelled, and the sum due to the shareholder upon the shares applied to the payment of the debt.

If a shareholder who borrowed desired to pay off the debt and redeem his stock before the time that it matured, he could do so by paying the debt, and in addition to the interest already paid, pay the one-eighth part of the premium for each year that he had the use of the money.

The premium bid for the privilege of borrowing was a disguise for unlawful interest, and in fact was a sum to be paid for the use of money in addition to the specified rate of interest; and if the rate charged as interest and the premium amounted to more than 12 per cent per annum, the contract is usurious. Cassidy v. Jackson, 68 Tex. 287; El Paso Building and Loan Assn. v. Lane, 81 Tex. 369; Bexar Buildino, and Loan Assn. v. Robinson, 78 Tex. 163.

The note was to fall due at the maturity of the stock. If there was no profit on the shares, the payment of $1 per month for two hundred months would make each share worth $200, which would mature the stock, and the note become payable at that time. The by-laws secure to each shareholder the right to withdraw at any time as much as he may have paid in on it; hence there could be no loss to the stockholder, and the time of maturity of stock and note could not be postponed beyond two hundred months.

Giving to the defendant the benefit of the longest time for the maturity of the note, it would fall due, as before stated, at two hundred months from date. The premium ($1160) would then be paid in addition to the annual interest which had been before paid for the use of the sum of $1440 for that time. The premium paid would be at the rate of $5.80 per month or $69.60 per annum, which added to the annual interest, $156, would make the sum of $225.60 paid per annum for the use of the sum borrowed; that is, at the rate of about 15 per cent, which being in excess of the lawful rate, would make the note void for the interest, and all payments made as interest should be credited upon the principal.

If Abbott had desired to pay off the note before maturity of the stock, he must, in addition to the annual interest, have paid one-eighth of the premium for each year that he had the use of the money. If, for instance, at the end of the first year he wished to pay the note, he must pay the principal, $1440, and for the use of it for that year also pay $145 in addition to $156 interest already paid, making the sum of $301 paid for using $1440 during one year — a fraction more than 20 per cent. Abbott could not discharge this note at any time without paying more than 12 per cent per annum for the use of the money; hence it was unquestionably usurious.

When this case was before this court at a former term, it was considered alone upon the last proposition. A mistake was made in the calculation, by which the annual interest was omitted from the estimate of the sum paid for the use of the money, and thus it appeared to be less than 12 per cent on the money borrowed. The court under this error held the contract not to be usurious, but the mistake is evident to any one reading the opinion.

The Court of Civil Appeals found that Abbott paid as interest on this note the sum of $715, and that in June, 1891, the defendant association declared his seven shares of stock matured, and fixed a value on the same at $133.50 per share, which was paid to other stockholders of the same series; at this price the seven shares would amount to $934.50. The note being usurious, Abbott was entitled under the law to have the money paid as interest applied to the payment of the principal, and that the balance of the note be satisfied out of the sum due him on the stock. Adding to the $715 paid as interest the sum of $934.50 due for stock, would make the sum of $1649.50, from which deduct $1440, the principal of the note, and we have the sum of $209.50 balance due to Abbott in June, 1891. This sum he had a right to receive, together with his six shares of stock of the fifth series, and he will be entitled to recover interest from the 1st day of July, 1891, on the balance due him, that date being the most definite time we can arrive at from the facts.

For the error committed in holding the note to be free from usury, the judgments of the District Court and the Court of Civil Appeals are reversed, and judgment is here rendered for the plaintiffs in error, Thomas H. Abbott and Johanna Abbott, that the injunction heretofore granted in this cause be perpetuated, and the defendants, William Holland and the International Building and Loan Association, be forever enjoined from enforcing in any manner the deed of trust executed by the plaintiffs in error and described in the petition. It is further ordered, that Thomas H. Abbott recover of the defendant the six shares of stock in said association held by it as security for the note mentioned and described herein, subject to all proper charges against it, if any; and also, that said Thomas H. Abbott have and recover of the said International Building and Loan Association the sum of $209.50, with interest at the rate of 8 per cent per annum from the 1st day of July, 1891, with all costs of this suit; and that this judgment be certified to the District Court for observance.

Reversed and rendered.

Delivered March 8, 1894.