Court Opinion

ID: 4140936
Source: CourtListenerOpinion
Date Created: 2017-02-18 03:04:56.807567+00
Date Added: 2024-06-11T14:21:51.943111
License: Public Domain

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                            ORNEY          GENERAL
                           OFTEXAS

Honorable Jno. Q. M&Adams
Commissioner, Department of Banking
Austin, Texas

Dear NC. MC&darns:                    Opinion No. O-5384
                                      Re: Construction of Article 8, Ch.
                                      V, of the State Banking Code, 48th
                                      Legislature.

           This will acknowledge receipt of your letter requesting our opinion
upon questions involved in the above subject matter. Article 8, Chapter V, of
the Texas Banking Code of 1943, (not yet effective) is as follows:

"No bank shall charge or oolleot any loan fee or any other charge, by whatever
name called, for the granting of a lean. Provided, however, a bank may require
an applicant for a loan or discount to pay the cost of any abstract, attorney's
opinion or title insurance policy, or other form of insurance, and filing or
recording or appraisal fees. Expenses necessary or proper for the protection
of the lander, and actually inourred in connection with the making of the loan
may be charged, and further provided that a bank may charge any borrower the
reasonable value of servioes rendered in conneotion tith the making of any
loan, including the drawing of notes, the taking of acknowledgplentsand affi-
davits, the preparation of financial statements, and the investigation or
analysis of the financial responsibility of the borrower or any endorser,
surety, or oo-si@er, in an amount agreed upon, but not to exceed One Dollar
($1) for each Fifty Dollars ($50) or fractional nart thereof loaned3 but
the charges for such services shall not be deemed a loan fee or interest
or compensation for thd use of the money loaned; and the last charge next
above shall not be collected unless the loan is actually made."

           Literally, your inquiry calls for an interpretation only of this
Artiole, and ordinarily it is the policy of this department toconfine our
opini,~nsto the specific questions propounded, but where such specific
,:uestionsby neaessary 'implication involve the constitutionality of a
:;tatute,this polioy should not apply. To construe this Article, as you
request, and to advise that the charges thoroin named and involved in your
questions could be made and collected, would be to advise that they were
not in violation of the Constitution. We have thnr fore considered the
zc~::titutionalvalidity of this Article.

           Section 11 of Article XVI of the Constitution declares:

"All contra&s for a greater rate of interest than ten per centws per an-
   ) shall be deemed usurious, and the first Legislature after this amend-
illm
wnt is adopted, shall provide appropriate pains and penalties to prevent
the same3 but when no rate of interest is agreed upon, the rata shall not
Hon. Jno. Q. &Adams,   Page 2(0-5354)

exceed six per centum per annun."

               Bo statute which authorizes the charging and collecting of inter-
est in excess of ten par cant can in any event be valid. Rhat is thus mandatori-
ly forbidden by law can never be lawful. These indisputable principles require
that we consider the statute to determine whether or not, and to PS1atextent if
*w, it violates the Constitution.

                 Interest is compensation for money retained. The Constitution
means today   exactly what it meant when it MS adopted, The word 'interest", as
used in the   Constitution, means today what it meant when the Constitution was
adopted and   during all the years intervening. Our consideration of the statute
is directed   to that portion of Article 8 reading as follows:

"Provided that a bank may charge any borrower the reasonable value of sel-rrioe
rendered in connection n th the making of any loan, including drawinrows,
taking of actiowledeJnentsandaffidavits, the preparation of financial state-
ments, and the investigation or analysis of the financial responsibility of the
borrower or any endorser, surety or co-signer in an amount agreed upon, , . .a
(Bnphasis ours).

               The question for determination is whether or not such service
charges constitute interest within the meaning of the Constitution. This sub-
ject has been repeatedly before the courts, and numerous decisions have been
rendered. We cite several, though by no means all of them. In inverse ohron-
ological order they are as follows:
 " . . . It is held by the courts of this State and practically all other states
 of the Union, that as a general rule, when an agent of the lender charges and
 is paid by the debtor a commission or bonus in oonnection with a contract for
 a loan fras his principal to a borrower andhis action in doing so is ratified
 by the lender, the transaction is usurious if the amount so paid, plus the
 amount charged and designated as interest, exceeds the amount allowed by law
 to be charged for the use or detention of the money."--Great Southern Life
 Ins. Co. v. ~lliams, 135 S.W. (2) 241.
 11. . . ??hhen
              it (the lander) disbursed the prooeeds of this loan, it retained
 in its own hands $600 thereof. According to the statement which it furnished
 the borrower at the time of such disbursement, this $600 was retained as a
 ~ccmmission~ for making the loan. . . . If it was retained by the lender as
 cxwission for lending its ownmoney, it wuld constitute interest as a matter
 of  1 2w.      l If it was applied to the.overhead cost of the lender's business,
 it ?iouldillo be interest." --Eastern MortgaSe & Securities Co. v. Collins,
 115 s.n. (2) 479.

 "T$ ,:sclear that the expanses forming the consideration of note 2 were charg-
 aabla absolutely against the proceeds of that note or in other vords were ab-
 solutely payable by appellees. (Sanders and wife). . . . The entire payments
 for the first year of the loan ware therefore a credit against this expense
 debit; and not returnable in any way to appellees. . . . Considering the ex-
 :>ensesas an improper charge and therefore as interest, the transaction was
Hon. John Q. MaAdams, page 3 (O-5384)

manifestly usurious in the light of the construction of the application most
favorable to appellants." -- Baltimore Trust Co. v. Sanders et ux, 105 S.W. (2)
710. Followed in Eastern Mortgage E Securities Corporation et al v. Sanders
et ux, 106 S.W.(Z) 1118.

"1. . . If there be an intention to charge usury, no matter how the transaation
may be veiled or disguised, the courts will look through the form to the sub-
stanoe of the transaction and condemn the contract as usurious. . . . The
courts of Texas have exercised jealous vigilance in discovering and rebuking
usury whenever and in whatever disguise it may have been shown to exist."
Quoting 42 Tex. Jur. p. 885. -- Glover v. Buchanan, 104 S.W. (2d) 66.

"In subsitting the above+nentioned issues to the jury, the trial court, in its
charge, gsve the following definiticm of interest: '"Interest? as used harein
means the oonpensation fixed by the parties to a contract for the use or forbear-
anos or detention of money irrespective of the tern or name applied to it by
the parties.'
II
 . . . In this connection, had the definition of interest as presoribsd by
article 5069 alone been given, the jury might not have understood that interest
indirectly charged or interest concealed was still interest at law. We espeoial-
ly call attention to the fact that the contract of June 11, 1926, simply says
that this $12,000 is pid 'for handling the loan.1 It does not oall it interest."
n . . . When we come to considea-what constitutes the contract in this case we
are compelled to the conclusion that all of the inatrumen s we have mentioned
above, the contract of June 11, 1926, the bonds, the deed of trust, and the
contract with referenoe to the $12,000, constitute the contract just as oomplete-
ly and just as effeot