Tygrett v. University Gardens Homeowners' Ass'n , 1985 Tex. App. LEXIS 6339 ( 1985 )

SPARLING, Justice.

Appellee, University Gardens Homeowners’ Association, sued H.V. Tygrett, appellant, to collect a late payment penalty charge resulting from overdue assessments on Tygrett’s condominium. Tygrett counterclaimed for statutory penalties under TEX.REV.CIV.STAT. art. 5069-1.06 (Vernon 1971 & Vernon Supp.1984), contending that the late charge amounted to usurious interest. The Association prevailed in a trial to the court on stipulated facts, and Tygrett’s counterclaim was denied. Ty-grett contends on appeal that the trial court erred in its conclusion of law that the late charge was not usurious interest. We disagree and affirm.

Tygrett owned a condominium unit in the University Gardens project. The Association was an unincorporated nonprofit entity comprised of all the owners of the individual units at University Gardens, including Tygrett. Pursuant to the by-laws of the Association and the Condominium Declaration, the Association administered the overall operation of the condominiums, which included assessing the individual owners their proportionate share of the various common expenses incurred in managing and maintaining the property.¹

Assessments to condominium owners were collected on a monthly basis. In accordance with the by-laws, a five-dollar late charge was added for each day that the monthly assessment was overdue. Ty-grett, whose monthly assessment was $228.48, was delinquent in his payment a total of 79 days in three separate months. He did not dispute the amount of the assessments due, and eventually paid them. However, Tygrett refused to pay the resulting $395.00 late charge, asserting that it was usurious interest.

The trial court, in its findings of fact and conclusions of law, found in part that: (1) the Association entered into a written contract with Tygrett which provided for his payment of assessments “intended to provide funds from which to pay anticipated expenses common to the Association” and for late payment penalties; (2) the Association was entitled to demand a $395.00 late payment penalty from Tygrett for late assessment payments; (3) Tygrett refused to pay such penalty; (4) Tygrett was eighty-two years old and ill during this period, and did not fail to pay the penalties due to conscious indifference; (5) the Association was entitled to a judgment of $395.00 against Tygrett; and (6) the late payment penalty was not interest as that term is statutorily defined.²

Article 16, section 11 of the Texas Constitution authorizes the legislature to classify loans and lenders, regulate lenders, define interest, and fix maximum rates of interest. Pursuant to this authority, the legislature defined usury as “interest in excess of the amount allowed by law,” and interest as “the compensation allowed by law for the use or forbearance or detention of money.” TEX.REV.CIV.STAT.ANN. art. 5069-1.01(a), (d) (Vernon 1971). Thus, 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 Savings & Loan Association, 595 S.W.2d 486, 489 (Tex.1979). The question, then, is whether the late charge was for the “use or forbearance or detention” of the Association’s funds by Tygrett and therefore interest.

The “use” of money provision referred to in the statute is that which is contracted for when a loan is made. Parks v. Lubbock, 92 Tex. 635, 51 S.W. 322, 323 (1899). The late charge imposed was clearly not within this category because no funds of the Association were transferred or “loaned” to Tygrett.

“Forbearance” occurs when there is a debt due or to become due, and the parties agree to extend the time of its payment. Meyer v. Mack Sales, Inc., 645 S.W.2d 493, 495 (Tex.App.—Corpus Christi 1982, writ ref’d n.r.e.). It is undisputed that the assessments were due. However, there is no evidence that the Association agreed to extend the time of Tygrett’s payment, or to forego collection or demand for immediate payment, regardless of payment of the late charge. We thus conclude that there was no “forbearance” within the meaning of the usury statute.

Finally, the “detention” of money arises when a debt has become due and the debtor has withheld payment without a new contract giving him the right. Parks, 51 S.W. at 323. Because usury must be founded on an overcharge by a lender for the use, forbearance or detention of the lender’s money, the definition of “detention” necessarily requires a lending transaction between the parties themselves. See Stedman, 595 S.W.2d at 489 (emphasis added). See also Crow v. Home Savings Association of Dallas County, 522 S.W.2d 457, 459 (Tex.1975) — (a major emphasis delineating between a legal and a usurious transaction is whether the party charging for the use, forbearance or detention of money “himself lends to the borrower”). Thus, the Association can be held to have overcharged Tygrett for the detention of money only if Tygrett detained the Association’s money by agreeing that the Association pay his creditors and then later discharging his “debt” to the Association through payment of the assessments. In the present case, the evidence reflects that no such lending relationship between the Association and Tygrett existed. Rather, the following evidence indicates that the Association was merely a conduit or agent of the owners which maintained an account containing, among others, Tygrett’s money, through which Tygrett paid his own individual debts as a member of the Association.

The Association was empowered to annually prepare a budget for the condominiums to determine the amount payable by the owners to meet the common expenses. Accordingly, the assessments were fixed in an amount approximating the “projected operating expenses” of the Association, which were divided into three categories:

(a) Current expense, which shall include all funds and expenditures within the year for which the funds are budgeted, including a reasonable allowance for contingencies and working funds, except expenditures chargeable to reserves and to additional improvements.

(b) Reserve for deferred maintenance, which shall include funds for maintenance items which occur less frequently than annually.

(c) Reserve for replacement (sinking fund), which shall include funds for repair or replacement required because of damage, wear or obsolescence.

If the Association overestimated the expenses, the by-laws provided that it could decrease the assessments or return any excess at the end of the year. If the Association underestimated, it could increase the assessments or levy a special assessment. The Declaration required Ty-grett to pay, in advance, his portion of the “estimated or actual” expenses before the first of each month. The Declaration also provided that the common expenses assessed were the “personal and individual debt of the owner,” and unpaid assessments constituted a lien upon the owner’s condominium. Further evidence that the Association was merely a distributor for the owner’s money may be found in a letter to the condominium owners from the Association regarding delinquent assessments:

The Association is a non-profit organization and has no source of income except from your assessments. If you don’t pay, there is nothing with which to pay the costs of running the complex. If you don’t pay on time, we are forced to put off paying bills, risking loss of discounts and our credit rating.... I also urge you to make sure your assessments are paid on time simply to avoid the additional operating costs necessary to collect delinquent assessments. (Emphasis added).

We conclude that there is sufficient evidence from the aforementioned documents that there was no “debt” owed to the Association as a lending entity, and thus no “detention” of money within the meaning of the usury statute.³

Tygrett relies upon Dixon v. Brooks, 604 S.W.2d 330, 334 (Tex.Civ.App.—Houston [14th Dist.] 1980, writ ref’d n.r.e.), which stated that under Texas law “late charges are considered interest.” Dixon, however, concerned a late charge on a promissory note, in which a lending relationship was clearly established.⁴ Here, as previously discussed, there was no such lending relationship to which “interest” as defined by statute could attach. Further, Texas law has indeed recognized several types of transactions where there was no lending relationship and thus late charges did not constitute usurious interest, including: (1) rental or lease relationships [Schepps Grocery Co. v. Burroughs Corp., 635 S.W.2d 606, 610 (Tex.App.—Houston [14th Dist.] 1982, no writ); Apparel Manufacturing Co. v. Vantage Properties, 597 S.W.2d 447, 448-49 (Tex.Civ.App.—Dallas 1980, writ ref’d n.r.e.); Southwest Park Out-patient Surgery, Ltd. v. Chandler, 572 S.W.2d 53, 55 (Tex.Civ.App.—Houston [1st Dist.] 1978, no writ); Maloney v. Andrews, 483 S.W.2d 703, 704-05 (Tex.Civ.App.—Eastland 1972, writ ref’d n.r.e.)]; and (2) utility billings Rimco Enterprises, Inc. v. Texas Electric Service Co., 599 S.W.2d 362, 366 (Tex.Civ.App.—Fort Worth 1980, writ ref’d n.r.e.).

The usury statutes are penal in nature and are to be strictly construed. Texas Commerce Bank-Arlington v. Goldring, 665 S.W.2d 103, 104 (Tex.1984). Any doubt as to the intention of the legislature to punish the conduct of the party should be resolved in favor of the defendant. Hight v. Jim Bass Ford, Inc., 552 S.W.2d 490, 491 (Tex.Civ.App.—Austin 1977, writ ref’d n.r.e.). The question of usury must be determined by a construction of all the documents constituting the transaction, interpreted as a whole, and in light of the attending circumstances. Spanish Village, Ltd. v. American Mortgage Co., 586 S.W.2d 195, 199 (Tex.Civ.App.—Tyler 1979, writ ref'd n.r.e.). Moreover, there is a presumption that the parties intended a nonusurious contract; when the contract by its terms, construed as a whole, is doubtful, or even susceptible to more than one reasonable construction, the court will adopt the construction which comports with legality. Smart v. Tower Land & Investment Co., 597 S.W.2d 333, 340-41 (Tex.1980). Applying these rules of construction, we conclude that the late charge here does not fall within any of the statutory definitions of interest, and thus is not interest as a matter of law. Meyer, 645 S.W.2d at 495. There was no “lending relationship” as contemplated by the statute. Rather, the evidence reflects that the charge was a device to induce timely payment so as not to penalize the credit rating of the Association of which Tygrett was an integral part, and to require the delinquent payers to bear collection costs that resulted from delay in paying their collective bills.

Appellant’s points of error are overruled.

Affirmed.

1 . Common expenses included maintenance costs, utility charges, taxes, insurance, and administrative expenses.

2 . Interestingly, the dissent argues that a provision in the Condominium Declaration for interest at 10% somehow inalterably stamps this agreement as a loan and otherwise contaminates the legality of the penalty provision. This unique concept of this case was neither briefed nor argued by the parties and we can find no provision in the law to justify such a conclusion.

3 . The Keystone of the dissenting opinion is the statement: "It is inconceivable that when, for example, utility charges were payable that Ty-grett’s proportionate part went unpaid." This is sheer speculation. It is just as easy to speculate that none of the utilities were paid until all the assessments were collected. Indeed, the letter to Tygrett stated, "If you don't pay on time, we are forced to put off paying bills.” In either event, it is the nature of the relationship, not its mechanics, that is controlling.

4 . In Dixon v. Brooks, 678 S.W.2d 728 (Tex.App.—Houston [14th Dist.] 1984, no writ), a subsequent opinion after remand, the court held that the same late charges were not usurious.