Opinion ID: 1799833
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Text: In 1967, the legislature provided Texas with its corporate exception here in question: Notwithstanding any other provision of law, corporations, domestic or foreign, may agree to and stipulate for any rate of interest as such corporation may determine, not to exceed one and one-half percent (1½%) per month, on any bond, note, debt, contract or other obligation of such corporation under which the original principal amount is Five Thousand Dollars ($5,000) or more, or on any series of advances of money pursuant thereto if the aggregate of sums advanced or originally proposed to be advanced shall exceed Five Thousand Dollars ($5,000), or on any extension or renewal thereof, and in such instances, the claim or defense of usury by such corporation, its successors, guarantors, assigns or anyone on its behalf is prohibited; ... Tex.Rev.Civ.Stat.Ann. art. 1302-2.09 (Vernon 1980). The legislative intent in this corporate exception statute was found in section 4 which was not codified. That section indicated an urgent need to establish the authority of certain corporations to borrow money. Id. § 4. Since the time the corporate exception statute was passed, Texas cases have held that an individual guarantor may not bring a claim of usury when he guarantees a corporate note. Universal Metals and Machinery, Inc. v. Bohart, 539 S.W.2d 874 (Tex.1976); Lawler v. Lomas & Nettleton Financial Corp., 583 S.W.2d 810 (Tex.Civ. App.Dallas 1979, no writ); V.I.P. Commercial Contractors v. Alkas, 553 S.W.2d 656 (Tex.Civ.App.San Antonio 1977, no writ). Additionally, Texas cases hold that a lender's requirement that the individual incorporate is not a violation of the usury laws but an intention to comply with them and that the corporate entity will only be disregarded when there is fraud or illegality. Skeen v. Glen Justice Mortgage Co., 526 S.W.2d 252 (Tex.Civ.App.Dallas 1975, no writ). Accord Bradley v. Houston State Bank, 588 S.W.2d 618 (Tex.Civ.App.Houston [14th Dist.] 1979, writ ref'd n.r.e.); Dicker v. Lomas & Nettleton Financial Corp., 576 S.W.2d 672 (Tex.Civ.App.Texarkana 1979, writ ref'd n.r.e.); Houston Furniture Distributors, Inc. v. Bank of Woodlake, 562 S.W.2d 880 (Tex.Civ.App. Houston [1st Dist.] 1978, no writ); Micrea, Inc. v. Eureka Life Insurance Co. of America, 534 S.W.2d 348 (Tex.Civ.App.Fort Worth 1976, writ ref'd n.r.e.), and American Century Mortgage Investors v. Regional Center, 529 S.W.2d 578 (Tex.Civ.App.Dallas 1975, writ ref'd n.r.e.). See also First National Bank v. Gamble, 134 Tex. 112, 132 S.W.2d 100 (1939). It is our view that use of the corporate form is not the sort of fraud or illegality to which the Skeen court was referring. Our survey of Texas cases indicates a definite trend in harmony with the majority of states and the New York rule, which in summary is: If the loan was made to a corporation, the corporation, by statute, is prohibited from asserting the defense of usury [cites omitted]. Likewise, an individual guarantor of a corporate obligation is also precluded from asserting such a defense [cites omitted]. But where the loan was in fact, although not in form, made to an individual guarantor to discharge his personal obligation, and not in furtherance of a corporate or personal enterprise, the individual guarantor may interpose the defense of usury [cites omitted]. On the other hand, where an individual borrows money through a shell corporation to further his own business or commercial enterprise, the defense of usury is not available.       It should be stated, however, that there is no difficulty in sanctioning the use of a shell corporation to avoid the usury laws provided that the true borrower has a business purpose and the corporation itself is a financing device in furtherance of the profit-oriented enterprise. Schneider v. Phelps, 41 N.Y.2d 238, 391 N.Y.S.2d 568, 359 N.E.2d 1361, 1364-65 (1977) (emphasis added). See also Benfield, Money, Mortgages, and MigraineThe Usury Headache, 19 Case W.Res. 819, 851 (1968). In the case now before us, the loan to Shook was in furtherance of his personal business enterprise. These decisions comply with the stated purposes of the usury laws and the corporate exceptionto provide relief to lenders. See Perich, Fields and Hunt, A Topic of Interest: An Analysis of the Status of the Usury Law in Texas, 19 S.Tex.L.J. 525, 532 (1978); Comment, Usury Laws and the Corporate Exception, supra at 59; Comment, Using a Dummy Corporate Borrower Creates Usury and Tax Difficulties, 28 Sw.L.J. 437, 449 (1974); Shanks, Practical Problems in the Application of Archaic Usury Statutes, 53 Va.L.Rev. 327, 349-50 (1967); Comment, Incorporation to Avoid the Usury Laws, 68 Colum.L.Rev. 1390, 1391 (1968). A 1981 amendment to section 1.04 of the Texas Credit Code requires a determination by the lender of the purposes of a loan. Tex.Rev.Civ.Stat.Ann. art. 5069-1.04 (Vernon Supp.1981). [1] That new section requires the lender to distinguish between business, commercial, investment, or other similar purpose, and personal, family, household, or agricultural use. Id. § (b)(2). See also, Farabee and Dodds, Recent State and Federal Developments In Interest Rate Regulation, 44 Tex.B.J. 879, 882 (1981). Shook complains that this case should be distinguished from other cases because the corporation loan was not a new loan. He argues that the corporate loan was a mere renewal of a personal loan. The Bank strenuously maintained during oral arguments that this was in fact a new loan commitment. The parties had dealt previously concerning loan money for the Financial Services stock, but since the Bank had the option of calling the loan, the further extension of credit was a new loan. To hold that a loan to an individual could not be renewed at corporate rates after the formation of a corporation, would cause unjust results. To lock-in a personal loan and not allow the corporate exception to apply to a subsequently formed corporation would, as here, prevent the borrower sufficient leeway to protect himself especially when a renewal might result in a successful pay back plus profitsa result more beneficial to all concerned than foreclosure. The formation of a corporation at least gives the borrower a choice, whereas without the corporate exception alternative, the only decision to be made is entirely with the lender renew or foreclose. Obtaining money at a higher interest rate does not necessarily preclude profits for both lenders and borrowers and it is often preferable over the alternative of not having access to the money at all. We hold that the loan involved in this case was not usurious.