Case Name: The International Building and Loan Association v. Charles Biering
Court: Supreme Court of Texas
Jurisdiction: Texas
Decision Date: 1894-04-09
Citations: 86 Tex. 476
Docket Number: No. 102
Parties: The International Building and Loan Association v. Charles Biering.
Judges: 
Reporter: Texas Reports
Volume: 86
Pages: 476–485

Head Matter:
The International Building and Loan Association v. Charles Biering.
No. 102.
1. Building and Loan Associations—Usury—Premium. The building association having money to loan, exacted a premium from the borrower. The premium and the interest stipulated exceeded 12 per cent per annum on the money loaned. Held, that the premium was , a device to conceal usury; it was so much money to be paid in addition to the specified rate, for the use of the money borrowed......... 480
2. Usury—Payment of Interest on Usurious Contract. The law is, that each payment made upon a contract affected with usury , is a payment upon the principal, applied by the law, notwithstanding 1 it was received and paid as interest................................. 480
ON MOTION FOR REHEARING.
3. Pleading—Items of Defense. An answer setting up items in offset of the plaintiff’s claim is only a basis of defense as to the items so pleaded........................... 48$
4. Premium—Privilege of Borrowing. ! The privilege of borrowing is nothing more or less than the right to use the money. It can not cover usury in the amount paid for the loan .. 484
Eeeoe to Court of Civil Appeals for Fourth District, in an appeal from Bexar County.
The by-laws of the building and loan association, so far as involved in this case, are given in the case of Abbott v. Building and Loan Association, supra. Other facts are given in the opinion.
B. L. Aycook, for plaintiff in error.—
1. The court erred in his conclusion that the contract exacted a greater rate of interest than allowed by law. Rev. Stats., arts. 2972, 2974, 2978; Tyler on Usury, 98; Reese v. Building Assn., 19 S. W. Rep., 918, and authorities; Building Assn. v. Abbott, 85 Texas, 220.
2. There was no usury in the first contract; and if there was, it was purged by the second contract. Building Assn. v. Abbott, 85 Texas, 220; Hensel v. Building Assn., 85 Texas, 215; Building Assn. v. Lane, 81 Texas, 369.
Upson & Bergstrom, for defendant in error.
1. All sums of money paid or agreed to be paid to the lender for the'use of money loaned, whether denominated interest, premium, or otherwise, when amounting to more than 12 per cent per annum on the sum of money actually loaned, is usurious, and the lender under such contract forfeits all right to demand or collect any interest on such contract; and so long as any portion of the original principal remains unpaid, and the lender attempts to collect the same, the premiums paid on account of the usurious interest on such loan should be credited on the principal. Cassidy v. Jackson, 68 Texas, 287; Building Assn. v. Lane, 81 Texas, 369; Building Assn, v. Robinson, 78 Texas, 163; Building Assn. v. Abbott, 85 Texas, 220.
2. All contracts made as a supplement to or arising out of a prior usurious contract are tainted with usury, unless all usurious interest has been deducted and allowed in the settlement thereof.

Opinion:
BROWN, Associate Justice.
—In September, 1884, Charles Biering became the owner of seven shares, third series, of the stock of the defendant, International Building and Loan Association, and on March 1,1885, he borrowed from the association the sum of $700, for which he executed the following note:
" $1400. San Antonio, Texas, March 1, 1885.
" On or before the maturity of the third series of the stock of the International Building and Loan Association, I promise to pay to the order of the International Building and Loan Association, at its principal office in San Antonio, Texas, the sum of $1400, with interest at the rate of 6 per cent per annum from the date hereof until paid; also, the further sum of $14 per month from this date until maturity of the aforesaid series of stock, as provided for in the by-laws of said association, which by-laws are made and to be taken as a part hereof."
Biering paid the interest on the note until May 1, 1886, amounting to the sum of $189, and paid the monthly installments on the stock to said date.
On the 26th day of May, 1886, the parties entered into a new arrangement, and Biering executed and delivered the following instrument:
"State of Texas, County of Bexar.—Whereas, heretofore I borrowed from the International Building and Loan Association a sum of money and executed an instrument in writing therefor, giving a lien on real property to secure the payment of said money, all of which will more fully appear by reference to said instrument, which is of record in said Bexar County, and the obligations therein appearing to be burdensome to me, and I having applied to the directory of said association for relief, and the same being granted, this instrument witnesseth, that in consideration of the said association cancelling and forgiving a portion of said debt and lowering the interest and premium that I then agreed to pay and have heretofore paid, and the said association granting to me a less rate of dues and interest to be by me heretofore paid monthly; this is therefore a reaffirmance of said recorded instrument, and of the debt therein cited, together with all the stipulations in it contained, except as to the amount of said debt, which is hereafter to be $1250 instead of the amount in said instrument mentioned, and that monthly payments for dues and interest are to be reduced and are hereafter to be $12.75 per month. And I hereby relinquish to said association one-half shares of stock by me owned, and the same are by my authority cancelled and made void. And this is to be a complete accord and satisfaction between myself and said association of any and all claims whatsoever not herein before specially provided for.
"In witness whereof, I hereto sign my name, on this 26th day of May, 1886.
"Witness: " Charles W. Biering-.
" William Schultz,
"M. Linder."
Under this supplemental contract Biering paid the interest and the installments on stock as therein specified until about July, 1892, when he refused to pay further, and tendered to the association the sum of $204.75 as balance on the note for $700, which is the exact difference between the principal of the note and the whole amount of interest paid thereon, he claiming that the contract was for usurious interest and void as to all interest.
Under the by-laws of the association any stockholder had the right to withdraw the amount of money paid in by him, with such interest and profits as the directors might allow. Biering gave the notice required bylaw, and on the 11th day of July, 1892, demanded the surrender value of liis stock, which according to the by-laws he was entitled to receive in thirty days from that date. The court found the value of the stock to be $646.75.
The trustee, William Holland, advertised the land embraced in the deed of trust for sale, and Biering applied for and was granted a writ of injunction to restrain the sale. Defendant association answered, setting-up the making of the two contracts and the execution of the deed of trust by Biering, and prayed for a foreclosure upon the property, and that the same be sold under order of the court.
Upon trial the court gave judgment in favor of Biering against both defendants, perpetuating the injunction, and against the defendant International Building and Loan Association for the sum of $448.75; from which judgment appeal was-taken by the association, and the judgment was reversed by the Court of Civil Appeals and rendered in favor of defendant association against Biering for $218, foreclosing lien upon the lot, perpetuating injunction as to any indebtedness of appellee to the association other than that adjudged, and cancelling the stock of Biering.
The by-laws of the association provided that each stockholder should pay monthly $1 on each share of stock until it should be of the value of $200 per share, when the stock must be surrendered and cancelled, at which time the association would pay to such stockholder $200 for each share so maturing.
When a stockholder borrowed money he was required to deliver his stock as security, and to pay on the stock regularly until it matured, at which time the debt became due and the stock was cancelled and the debt paid.
When the association had money to lend it was put up at the highest bidder; that is, bids were made of a premium to be paid for the privilege of borroioing the money, which premium in this case was $74)0, and was added into the note, making the sum to be paid $1400.
This case is very similar to Abbott v. International Building and Loan Association, decided by this court at the present term [ante, page 467], but not so identical as to be disposed of by one opinion.
Counsel for defendant in error do not deny that the contract as originally made was usurious, but assert that the supplemental contract cured this vice in the original note. Was the note, after the supplemental contract, usurious, is the question for our determination.
The note was to mature with the stock, and would therefore be due whenever the stock should be of the value of $2.00 per share. There could under the by-laws be no loss on this stock, so far as it affected the stockholder, because the association was bound to pay to him upon demand a sum equal to the amount he had paid in on the stock. If no profits ac crued, the payment of $1 per month for 200 months would make the stock worth $200 per share, and it follows that the note must fall due at a date not later than 200 months from the 1st of October, 1884, the time when the shares were issued. When the supplemental contract was made twenty-six months and twenty-five days of the time had elapsed, and there remained 174 months and five days to the time when the original note would mature. I
The premium was a device to conceal usury. It was so much money to be paid, in addition to the specified rate of interest, for the use of the money borrowed. If the premium added to the interest amounted to more than 12 per cent per annum, the contract was usurious. Cassidy v. Jackson, 68 Texas, 287; Building Assn. v. Lane, 81 Texas, 369. The premium to be paid at the end of 200 months was $550. This was at the rate of $2.75 per month or $33 per annum, which, added to the interest to be paid at $6.25 per month, $75 per annum, would amount to the sum of $108 for the use of $700 for one year—a rate of more than 15 per cent per annum.
It is not necessary for' us to decide what effect inserting the sum of $14, payable monthly, contrary to the by-laws and unexplained, wouljd have upon the question of usury, as we hold the transaction to be usurious independent of that stipulation.
If the stockholder who borrowed money from the association should, desire to pay the debt and redeem the stock, he could do so by payinjg one-eighth of the premium for each year that he had the use of the money. If we consider the supplemental contract under this provision, it is unquestionably usurious. To illustrate: Suppose the borrower at the end of five years concluded to pay off the debt and redeem the stock; he must pay the debt ($700), on which he would have paid $375 interest, and in addition he must pay one-eighth of the premium for the whole five years, that is $343.75, aggregating the sum of $718.75 paid for the use ojf the money. The rate per annum would be a fraction over 20 per cent.
The Court of Civil Appeals held, that as Biering had not actually paid interest at a rate greater than 12 per cent, he could not receive credit for the sum paid as interest upon the usurious contract. The law is, thajt each payment made upon a contract affected with usury is a payment upon the principal, applied by the law, notwithstanding it was paid and received as payment of interest. This is not a question of recovering back usurious interest paid, but it is the application of the payment o!f such interest to the principal of the debt. The contract being usurious, the $189 paid as interest before the making of the supplemental contract was in law a payment upon the principal of the debt, and the supplemental contract not having purged the original note of usury, the release of that credit was of no avail to the association; there was no valid consideration to support it. Building Assn. v. Lane, 81 Texas, 369.
The District Court gave credit upon the principal of the note for all money paid as interest, and settled the remainder of the note by applying so much of the sum due from the association to Biering for the stock, the value of which he was entitled to withdraw, and giving judgment for plaintiff for the remainder.
The judgment of the Court of Civil Appeals is reversed and the judgment of the District Court is affirmed.
Judgment of District Court affirmed..
Delivered March 12, 1894.