Hance v. Stubbs (146 S.W.2d 492, 1940)

FOLLEY, Justice.

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 in 133 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 de as if the contract were a written promise to pay only the $1,205.35 actually borrowed, and all other sums provided for therein are to be considered as interest. Appellee was entitled to a credit for, or recovery of, only the usurious interest actually paid by him, and where the penalty is not invoked within two years after payment, the law applies such payments on the principal. In the instant case appellee contracted in said notes to pay $100 each year for five years, and $250 the sixth year on the principal. Consequently, there was not included in these items the excess $144.-65 which he agreed to pay. Meantime appellant was collecting 7 per cent, interest on that item up until his last payment, and limitation cannot we think begin to run against that item, which must be construed as usurious interest, until it was actually paid by appellee in his discharge of the $600 note. The rule as stated in 27 R.C. L. 279, is: ‘Since the inclusion of usurious interest as principal in notes does not constitute a payment of the interest, it does not start the running of the statute against a right of action to recover twice the amount of interest paid; but the usurious transaction from the date of which the statute begins to run is the time when the usurious interest is actually paid.’ And the excess, or bonus, was we think clearly carried over in this case into the last note, and was so treated by appellant itself in charging interest on it up to the maturity of that note.”

The question again came before the same court in the case of Temple Trust Co. v. Haney, 103 S.W.2d 1035, and-the same conclusions were expressed.

The principle that the bonus is carried over to the last portion of the indebtedness has its foundation in. the doctrine of locus penitentiae expressed by the learned Justice Stayton in delivering the opinion for the Supreme Court in Stout et al. v. Ennis Nat. Bank, 69 Tex. 384, 8 S.W. 808, 810. It is that, the contract not being rendered void by the statute, the lender may repent and relinquish the interest, including the bonus, and recover the balance of the debt. In the cited case, the Supreme Court said,; “ ‘And, in the absence of proof as to any appropriation of a partial payment, the law will apply a payment to a valid demand, rather than to the illegal one; and the balance which remains unpaid, if it exceed the usury agreed to be paid, includes the usury;. so that, on the ‘ one side, the debtor shall not recover back any part of that which he honestly owed, by the allegations on his part that the payment made by him was the payment of the usury; nor, on the other hand, will the law permit the creditor to secure to himself the benefit of his illegal contract, when he sues for the balance due on the contract, to aver that the usurious interest was contained in the previous payment, and that the residue is justly due.’ When, however, the parties, as they did in this case, appropriate, and intend to appropriate, the payment to usurious interest, the locus penitentise can no longer exist; for the offense has been consummated, ‘the greater rate of interest has been paid,’ and the right to the penalty is fixed.”

See also Stevens v. Lincoln, 7 Metc., Mass., 525, 528; Citizens’ Nat’l. Bank v. Froman’s Assignee, 111 Ky. 206, 63 S.W. 454, 757, 56 L.R.A. 673, and the many cases there cited.

Thus it will be seen that our Supreme Court has held that where money is paid on usurious contracts containing amounts retained as bonus without an appropriation by the parties of the payment to the usurious interest or bonus, the law will appropriate the payment to that part of the demand which is legal; for neither the party n making nor receiving the payment would be presumed to have intended that it should be appropriated to the payment of usurious interest. There is nothing in the record in the instant case to indicate that an appropriation was made by either appellant or appellee or any other party to the transaction of any payment made by appellee to the bonus or any part thereof. All payments made on the note in suit were for the seven per cent interest specifically provided as such in the note and all other payments made were of the principal and seven per cent interest specifically provided in the other notes of the series. While it is true that the transaction consisted of eight separate notes, and they were assigned to different parties and the former notes paid to those who held them by assignment from the Temple Trust Company, yet I can discern no difference in so far as the rule of law is concerned from what the effect would have been if the entire transaction had been included in one note and remained in the hands of the original payee until an amount had been paid thereon equal to that which has been paid on the series of notes by appellee in this case. Although the notes were assigned to separate parties, the entire series 'and the deed of trust executed to secure them constituted but a single transaction and appellant cannot assume the role of an innocent purchaser. Her position in the transaction is not different in any respect from that of the Temple Trust Company. She stands in its shoes and her rights and liabilities are governed by the same rules of law as its rights and liabilities would have been if it had remained the owner of the entire indebtedness. Gilder v. Hearne, 79 Tex. 120, 14 S.W. 1031; Van Meter v. American Central Life Ins. Co., Tex.Civ.App., 78 S.W.2d 251; Temple Trust Co. v. Stobaugh, Tex.Civ.App., 59 S.W.2d 916; Dallas Trust & Savings Bank v. Brashear, Tex.Com.App., 65 S.W.2d 288.

The parties to the loan transaction specified in the contract that .$150 should be paid on the principal each year during the first four years. The effect of the holding of the majority is to change that portion of the contract and appropriate only $135 of these payments to the principal. This results in an arbitrary appropriation of a portion paid upon the legitimate principal of the loan to the usurious interest or bonus which constitutes the illegal and void portion. This is exactly what the Supreme Court said in the Stout case, supra, the law will not do.

In consonance with what I deem to be sound principles of law and, in keeping with my interpretation of the holdings of our own courts, as well as eminent tribunals of other jurisdictions, I cannot but adhere to the conclusions here expressed and respectfully enter my dissent to the disposition made of the appeal, and the conclusions of law upon the issues presented in the briefs, as expressed in the opinion handed down by the majority in this case.