Hance v. Stubbs

Associate Justice STOKES of this court has written an opinion in this case with which the Chief Justice and the writer of this opinion do not agree. The following opinion, therefore, becomes the majority opinion and controls the disposition of the cause in this court.

This is the second time this cause has been before this court. The opinion in the first appeal will be found in Temple Trust Co. v. Stubbs,94 S.W.2d 247. A writ of error was granted by the Supreme Court and the prior judgment of this court was affirmed by the Commission of Appeals in133 Tex. 58, 126 S.W.2d 645. We refer to these former opinions for a statement of such facts as we deem unnecessary to restate here.

It appears that on February 10, 1925 the Temple Trust Company made a loan to the appellee Roger Q. Stubbs, purporting to be in the sum of $2,200. As evidence of such indebtedness the appellee, joined by his wife, executed eight notes aggregating the sum of $2,200 in favor of the Temple Trust Company, and, in order to secure the payment of such notes, also executed a deed of trust upon 3.41 acres of land in Lubbock County, Texas. Four of the notes were for $150 each and three for $200 each, due respectively March 1, 1926 to March 1, 1932. There was also one note in the sum of $1,000 due March 1, 1935. All of the notes provided for interest at the rate of 7% per annum from date, payable semiannually. The record is conclusive that the appellees actually received only $1,980 in the transaction, which was $220 less than the aggregate sum indicated in the eight notes. For want of a better name, for the purpose of this opinion, we shall designate this $220 as "bonus", as have the parties to this appeal. The loan transaction was in the former appeal declared usurious and no contention to the contrary is made in the present appeal.

The $150 notes and the $200 notes were sold by the Temple Trust Company to parties not interested in this suit, and such notes were paid to such owners in full, both principal and interest as provided therein. The $1,000 note was sold to the appellant, Cora L. Hance, February 20, 1925. The appellant thereafter collected from the appellees the sum of $527.92 as interest on such note.

Some time prior to 1936 (the record not disclosing the date of the filing of the original petition) appellee Roger Q. Stubbs, joined by his wife, filed this suit against the Temple Trust Company and Cora L. Hance, alleging that the loan transaction was usurious and asking to recover and have credited upon the note held by Cora L. Hance all interest which had been paid upon the entire series of notes. Upon the former trial the trial court rendered judgment crediting the note held by Mrs. Hance with all of the interest paid by the appellee on the entire series of notes thereby extinguishing the appellant's note. The case was appealed to this court where it was held the action of the court below in crediting Mrs. Hance's note with the amount of interest paid to the holders of other notes was error. The holding was affirmed by the Commission of Appeals as above indicated.

Upon a retrial of the case before the court without a jury judgment was rendered December 21, 1939 in favor of Mrs. Hance and against the appellees, Roger Q. Stubbs and wife, for the sum of $357.67 with foreclosure of the deed of trust upon the 3.41 acres of land in Lubbock County, Texas. In arriving at the sum due, the trial court deducted from the $1,000 note the $220 bonus retained by the Temple Trust Company when the original loan was made and also the $527.92 interest paid by the appellees to the appellant, which left a balance of $252.08, to which latter amount was added legal interest and 10% attorneys' fees, making the total of $357.67.

The principal contention of the appellant in this court is that the trial court erred in deducting from her note the full amount of the bonus in the sum of $220, or any part thereof, which amount was retained by the Temple Trust Company when the loan was made. The action of the court in allowing a credit upon the appellant's note for the $527.92 interest which she had collected is not seriously contested by the appellant, and, indeed, could not be. It is the well-established law in this State that the owner of the principal note in a usurious loan transaction is properly chargeable with collecting usurious interest when the same is paid to him upon the principal note while in his hands. Hamilton et al. v. Bill et al., Tex. Civ. App. 90 S.W.2d 929, writ of error refused.

The minority opinion of this court, with which we cannot agree, is to the effect that all of the $220 bonus in the original transaction should be charged against the $1,000 note held by the appellant. In such opinion Justice Stokes relies chiefly upon the case of Temple Trust Company v. Stobaugh, Tex. Civ. App. 59 S.W.2d 916, which was a suit for penalties under article 5073, R.C.S. of 1925, wherein the original lender was at all times the owner of all of the notes in the transaction and had collected all the principal and interest paid thereon. The defense of limitations was urged against the recovery of double the amount of the bonus upon the theory that such bonus was paid at the time the loan was made in 1924 by deducting the same from the amount of the money advanced to the borrower. The Court of Civil Appeals for the Third District overruled this contention, holding that the bonus being interest and not principal, was carried over into the last note unpaid and that limitation could not begin to run against it until the payment of such note. It should be noted in that case the court was not dealing with a situation like that of the instant case where various holders of the notes in the series have collected the principal and interest of their respective notes.

In the instant case the sum of $1,980, the amount of money actually advanced to the borrower, is but 90% of the $2,200 aggregate sum of the eight original notes. In the absence of any note designated as bonus or any express agreement as to its payment, we think under the circumstances of this case it follows that the original parties impliedly agreed that each of the eight notes should bear its respective portion of the bonus. The face value of each of the notes therefore represented only 90% principal and the balance was, in effect, interest, which under the provisions of article 5071, R.C.S. of 1925, was a void obligation. Palmetto Lumber Co. et al. v. Gibbs et al., 124 Tex. 615, 80 S.W.2d 742,82 S.W.2d 376, 102 A.L.R. 474. If each of the respective notes should bear its proportionate share of the bonus each of the $150 notes represented only $135 principal, each of the $200 notes only $180 principal and the $1,000 note only $900 principal. If each of the notes is so charged with its share of the bonus the respective holders of the first seven notes collected their proportionate share of the bonus as such notes were paid. In other words, when one of the $150 notes was paid its owner received $15 of the bonus and when one of the $200 notes was paid its owner received $20 of the bonus. Likewise, under this theory, the appellant would receive $100 of the bonus if and when her note was paid according to its tenor.

We have no quarrel with the theory advanced in the Stobaugh case that such bonus is not fully paid to the holder of the whole series until all of the principal of the notes is paid to him. Such theory is apparently based upon the doctrine that the borrower is entitled to have the bonus payments applied to the principal of the obligation and so long as the opportunity is open to have it so applied the law will appropriate it to that purpose. However, the theory that the law automatically makes such appropriation is criticized by Judge Smedley of the Commission of Appeals in Adleson et ux. v. B. F. Dittmar Co., 124 Tex. 564, 80 S.W.2d 939, as therein indicated. But, be that as it may, it is our opinion where several holders of portions of the indebtedness have collected the same, including their proportionate share of the bonus as in the instant case, neither the law nor the borrower may arbitrarily charge that portion of the bonus theretofore received by others to the holder of the last unpaid note. Such a rule has never been announced in this State nor do we think it should be. The holders of the respective portions of the indebtedness represented by the first seven notes of the series were charged with constructive knowledge that the whole transaction was usurious ab initio. Although their knowledge may have been only constructive they are particeps criminis in the collection and retention of usurious interest. But under this record such holders are not the only ones possessed of such knowledge, constructive or otherwise. The borrower knew the Temple Trust Company had advanced to him only 90% of the aggregate face amount of the notes he executed. This was not constructive but actual knowledge of a fact which would certainly charge him with constructive knowledge that the loan was usurious. Possessed with such actual and constructive knowledge he paid the holders of the notes other than the appellant their portion of the bonus and now desires to charge the appellant with the portions they received under his own application of such payments. Such a procedure, in our opinion, would be very inequitable and unjust under the circumstances of this case. To adopt such a rule would not only be inequitable and unjust but we think would be in violation of the strict mandate of the Supreme Court of this State. In the former appeal the Commission of Appeals held that the interest paid on the first seven notes of the series was not deductible from the principal of the appellant's note, and such decision is now stare decisis. Since the bonus included in the face amount of the notes was in reality only interest, the amount so paid to the holders of the first seven notes could not, in our opinion, be charged against the appellant except in strict violation of the judgment of the Supreme Court in the former appeal and of the established law of this State. Temple Trust Co. et al. v. Murfee et ux.,133 Tex. 53, 126 S.W.2d 643, and authorities therein cited.

As we construe the Murfee case, supra, it supports in principle our holding in this cause. In that case the loan contract was identical, in effect, with that of the instant case. In the Murfee case $4,950 was advanced to the borrower upon ten notes aggregating $5,500. Thus the money advanced was but 90% of the aggregate face value of the ten notes. The Farmers State Bank of Temple became the owner of the tenth note of the series in the sum of $1,700. The nine prior notes totaling $3,800 were held by other parties who received in full the principal and interest payments thereon as they became due. The borrower, J. E. Murfee, sought to charge the bank with payments of interest received by the owners of the first nine notes. Upon a certified question from this court, as indicated in the opinion of the Commission of Appeals, it was held that the usurious interest received by the transferees of the first nine notes should not be applied to the principal of the tenth note purchased by the bank, which bank had received none of such payments. If our theory in the instant case is correct, the holders of the first nine notes in the Murfee case received $380 of the $550 bonus or excess interest paid upon their notes. Although such fact was not in so many words recited by this court in its certificate in such cause a careful analysis of the opinion of the Commission of Appeals will reveal that such fact actually existed. Therefore, the issue as to the receipt of the $380 fictitious principal by the holders of the first nine notes was at least inferentially before the Supreme Court in that decision. With such fact evident in such cause our court of last resort made no distinction between the money received as interest as such on the first nine notes and that received as inflated principal which, in effect, amounted only to interest. If such a distinction exists, as urged by our associate, the Commission of Appeals might well have so announced in the Murfee case and thus charged the bank's note with the $380 received by the holders of the other notes in the series. Its failure to do so under the circumstances of that case, we think, affords authority for our holding in the instant case.

Under the record here presented we think that $60 of the so-called aggregate principal in the first four $150 notes, together with $60 of the so-called aggregate principal of the three $200 notes, constituted the proportionate share of such notes in the bonus originally deducted by the lender, which bonus or interest has heretofore been received by parties other than the appellant. We are further of the opinion that the remaining unpaid portion of the bonus in the sum of $100 constitutes a void obligation and may be justly deducted from the claim of the appellant.

The judgment of the trial court is reformed so as to deduct from the appellant's note only $100 of the $220 bonus and the further sum of $527.92 representing interest paid to the appellant, which leaves a balance due appellant on March 1, 1935 in the sum of $372.08; that to the latter sum shall be added interest thereon at 6% per annum from March 1, 1935 until December 21, 1939, the date of the trial court's judgment, making a total of $479.34; that to such latter amount shall be added $47.93 as attorneys' fees, making a total due on December 21, 1939 in the sum of $527.27; that the latter amount shall bear interest at 6% per annum from December 21, 1939 until paid; and that as so reformed the judgment of the trial court is affirmed.

Reformed and affirmed.

JACKSON, C. J., concurring.