Court Opinion

ID: 9669043
Source: CourtListenerOpinion
Date Created: 2023-08-24 02:38:11.811919+00
Date Added: 2024-06-11T18:15:51.826558
License: Public Domain

On Motion for Rehearing.
Article 5071, V.A.C.S., declares in part that written contracts providing for usurious interest “shall be void and of no effect for the amount or value of the interest only; but the principal sum of money or value of the contract may be received and recovered.” The meaning and effect of this proviso of the statute is stated in 42 Tex.Jur., Usury, sec. 45, p. 939: “In other words, in respect of written contracts there is now a forfeiture of both the legal and illegal interest. The contract is thus left as though it did not provide for interest, but it is not vitiated beyond that. Recovery of the principal sum of money or the value of the contract is expressly authorized * * Annotations to Article 5071, Vol. 15, Vernon’s Civil Statutes, carry numerous holdings to like effect: That (1) charging of usurious interest does not render unenforceable the agreement to pay the principal. Clayton v. Ingram, Tex.Civ.App., 107 S.W. 880, 881; Watson v. Evans, Tex.Civ.App., 195 S.W. 1170. (2) The right to demand interest on the balance due on the principal is denied by statute because of usury and the creditor’s claim is limited to collection only of such principal. Dallas Trust & Savings Bank v. Brashear, Tex.Com.App., 65 S.W.2d 288. (3) Deduction of interest in advance from face of note, even though consisting of contract for usurious interest, does not alter obligation for money actually loaned or paid on note, and all signers are bound by terms of note except as to usurious interest contracted for, which may be deducted from principal as represented by face of note. Schmidt v. Citizens Industrial Bank of Austin, Tex.Civ.App., 89 S.W.2d 847. (4) And if usurious interest be merely contracted for, only that amount may be deducted from the principal debt. Yonack v. Emery, Tex.Com.App., 13 S.W.2d 667, 70 A.L.R. 684. (5) It is settled law in this State that a sale of land by a trustee under deed of trust for the payment of a debt, of which part is void and part valid, is not a nullity. Hemphill v. Watson, 60 Tex. 679; State Mortgage Corp. v. Ludwig, 121 Tex. 268, 48 S.W.2d 950.
Under the foregoing construction of art. 5071, cross-appellees contend that, even assuming usury in the original $3,000 note as negotiated to Nelms, still the foreclosure sale was validly held. They say that where a contract is partially usurious and partially valid, the usurious part is void, but such valid part of the contract is enforceable according to its terms; that the $500 bonus, so-called, having never been actually paid by the borrower, appellants'are without authority to credit such excess amount to the installments first maturing. In other words, that at most the written contract should be treated as one for $2,500 payable in eleven monthly installments of $75 each beginning August 1, 1952, balance due at twelve months; and that at time of foreclosure the Madisons were delinquent in payment of at least three monthly installments on the valid debt; the trustee being well within his rights in foreclosing the deed of trust lien as he did. Consistent with above cited cases we must sustain points 10 and 11 of cross-appellees; having mistakenly held in original opinion, (1) that the $500 discount in question should 'have been credited on the note installments first maturing, as such amount was never paid by cross-appellants; and (2) that the foreclosure in question was premature and void. For manifestly after application of all installment payments by the Madisons *246to reduction of the valid principal ($2,500), the same remained delinquent at inception of foreclosure proceeding's; rendering applicable the settled principal, first announced in Hemphill v. Watson, 60 Tex. 679; and followed in Texas Co. v. Tucker, Tex.Civ.App., 129 S.W.2d 762 (Writ ref.) “that after a sale pf real estate has been made, under the terms of a deed of trust, and the debt is thereby paid, it is too late to thereafter attempt to' set the sale aside for vice or frailties in the obligation for which the security was given, and the sale made to satisfy. This is especially true where, as in this case, a part of the debt for which the security was given was unquestionably valid, even if another portion consisted of void usurious interest. A sale under the provisions of a deed of trust, under such conditions, is not void.” See also Volunteer State Life Ins. Co. v. Sumner, Tex.Civ.App., 74 S.W.2d 319.
Above conclusions would render unnecessary any discussion of points 1 to 9 as presented by cross-appellees; but relative thereto the following may be stated briefly: (1) It is still our view that Nelms was chargeable with notice of the Title Company transactions concerning manner in which his check for $2,500 was disbursed. According to Mr. Layton, on its books the entire deal was “charged to T. B. Madison” with disbursements by checks as follows: Mortgage policy premium $42; $5 escrow fee; County Clerk $3.25 recording and transfer fee; attorney’s fee $5; to Collector of Internal Revenue $500; Merchants State Bank $531.33; J. O. Talley $200; City Tax Collector $225.76; Thos. B. Madison, three items totaling $987.66. A trial court finding that Nelms was not the lender, but a purchaser of the original note in good faith, would be to "ignore the realities”; as was observed in Elliott v. Schlein, D.C.Mun.App., 104 A.2d 418, 420, under almost identical facts. So, also, in Schanz v. Sotscheck, 86 Misc. 121, 149 N.Y.S. 145, Id., 167 App.Div. 202, 152 N.Y.S. 851. (2) In point 9 cross-appellees assert that the Madisons, not coming into court with clean hands, are in no position-to ask relief from the courts. A defense of equitable estoppel is thus raised, not affirmatively pled. Rule 94, T.R.C.P.
However, on grounds first above assigned, cross-appellees’ motion for rehearing must be sustained, our order of affirmance set aside, and instead, that judgment of the trial court be here reversed and rendered for original appellants; except that the Madisons are entitled to withdrawal of their court deposit (actually $6,792.16),, which the District Clerk is ordered to return to them, taking due receipt therefor..
Reversed and rendered.