Opinion ID: 2462454
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Heading Rank: 1

Heading: Applicable Statutes and Cases

Text: Article 16, Section 11 of the Texas Constitution, as Amended November 8, 1960, authorized the Legislature to define interest and fix maximum rates of interest. Pursuant thereto, the Legislature defined interest as the compensation allowed by law for the use or forbearance or detention of money ..., [4] and enacted the following relevant statutes, effective on October 1, 1967: Article 5069-1.04. Limit on rate The parties to any written contract may agree to and stipulate for any rate of interest not exceeding ten percent per annum on the amount of the contract; and all other written contracts whatsoever, except those otherwise authorized by law, which may in any way, directly or indirectly, provide for a greater rate of interest shall be subject to the appropriate penalties prescribed in this Subtitle. Article 5069-1.06 provides in pertinent part: (1) Any person who contracts for, charges or receives interest which is greater than the amount authorized by this Subtitle, shall forfeit to the obligor twice the amount of interest contracted for, charged or received, and reasonable attorney fees fixed by the court provided that there shall be no penalty for a violation which results from an accidental and bona fide error. The bank argues that the total interest provided for by the note ($21,000) should be spread over the entire three-year term under the rule of Nevels v. Harris, 129 Tex. 190, 102 S.W.2d 1046 (1937), as recently applied by this Court in Tanner Development Company v. Ferguson, 561 S.W.2d 777 (Tex.1977). [5] We agree that the Nevels rule of spreading is applicable to this three-year note. If the true principal sum of the loan had been $70,000, the $21,000 interest charge would not have been usurious. However, there is another equally well established rule in Nevels that requires the test for usury to be applied to the net amount of money of which the borrower had use, detention or forbearance. In Nevels, the stated amount of the note was $6,400 payable in five years, but the lender withheld from the cash proceeds of the loan $320 as a fee for making the loan. This Court treated the actual principal of the loan as $6,080 in determining whether the interest charged was a sum greater than such principal debt would produce at 10% per annum during the time for which the borrower had use of the money. As to this rule we wrote on motion for rehearing in Tanner, supra : ... in cash loan transactions from which the lender deducts interest, fees, commissions or other front-end charges, the amount of dollars actually received or retained by the borrower is held to be the `true' principal. In such cases the amount of the stated principal is reduced accordingly in testing for usury.... Since the Millers had use of only $56,000 of the stated loan, that amount should be considered as the true principal. The maximum lawful yield on that amount at 10% per annum for three years would be $16,800. This is $4,200 less than the $21,000 contracted for and charged. Thus, the interest was usurious, and the Court of Civil Appeals properly held that Mrs. Miller was entitled to recover penalties in the sum of $42,000.