Court Opinion

ID: 5076842
Source: CourtListenerOpinion
Date Created: 2021-10-01 11:30:04.894016+00
Date Added: 2024-06-11T08:20:03.027708
License: Public Domain

ON MOTION FOR REHEARING
On motion for rehearing appellant reurg-es his contention that a commitment fee he was charged for the option to renew a loan was interest. He contends absent the advance of “new monies” the option to renew is no more than an extension of the loan.
We first note that commitment fees are not by operation of law front-end interest. Gonzales County Savings and Loan Assn. v. Freeman, 534 S.W.2d 903 (Tex.1976). As pointed out in Gonzales at page 906, a true commitment fee purchases an option which permits the borrower to enter into a loan in the future, which is a distinctly separate consideration and additional consideration from the loaning of money. The loan and the obligation to pay the fee must arise before the parties enter into the loan agreement. Although the Gonzales case involved an original loan as opposed to the making of a subsequent loan, in looking to Gonzales for guidance we find the operative words to be “enter into a loan in the future”, “distinctly separate consideration”, and the fee is to be paid before the loan is made. We see no requirement that in order for the fee to be a bona fide commitment fee, new money must be loaned. Nor do we read Gonzales to require the future loan to be an original loan as opposed to a refinancing of an existing loan.
For authority in his motion for rehearing, appellant additionally cites Laid Rite Inc. v. Texas Industries, Inc., 512 S.W.2d 384 (Tex.Civ.App.—Fort Worth 1974, no writ) and Skeen v. Slavik, 555 S.W.2d 516 (Tex.Civ.App.— Dallas 1977, writ ref’d n.r.e.). Both Laid Rite and Skeen held a commitment fee for extending existing indebtedness to be interest. As we noted in our original opinion we agree that if the fee is paid merely for an extension of the debt the fee is not a bona fide commitment fee.
In Laid Rite the borrower, Russell, renewed certain notes of his own and other parties. The court noted that, “the record is undisputed ... that as additional charge for the use of the money involved in those *379two loans, Russell would pay S.F.C. as a commitment fee, $175.00 per lot.” The debtors S.F.C. and T.X.E. admitted in their briefs that this commitment fee was interest. The fee was paid contemporaneously with the extension and execution of the loans and no option was given in the case. Appellant cites the Gonzales court’s comment that the fee involved in Laid Rite was not a true commitment fee for it was not given in return for an option to enter into a loan in the future. Under the facts of Laid Rite we saw no need to cite the case in our original opinion, since in Laid Rite no option was given and the parties admitted the commitment fee was really interest. The holding of Laid Rite as noted in Gonzales is not applicable to a case involving an option to secure a future loan. When an option is given to make a loan, the test as to whether the fee charged is in fact a bona fide commitment fee rather than interest is what rights and obligations are created as a result of the purchase of the option, not whether a new loan is made or “new money” advanced.
Appellant cites Skeen for his premise that additional money must change hands for the fee not to be classified as interest. The Skeen court did note that twice upon renewal of the notes the holder of the notes added a renewal fee without any additional money changing hands. In Skeen, however, there was never an option given before the notes were renewed and the renewal charges were made contemporaneously with the renewal. Also in Skeen the renewal charges were admitted by the lender to be consideration for extending the loans. In this instance, the facts before us distinguish this case from Skeen and we see no conflict between our decision and the Skeen decision.
Appellant also argues that the bank’s declination to proceed with foreclosure was the real consideration for the commitment fee. Therefore appellant contends the letter of commitment acted only as an extension of the loan. We find nothing in the commitment letter which obligated the bank to forego foreclosure during the time period covered by the option, nor is there any language specifically extending the note. We disagree with appellant that the bank’s expressly preserving in the commitment letter its right to collect the 18% interest on the past due note made the commitment letter an extension by implication. The appellant was obligated under the terms of the note to pay the 18% interest whether the note was foreclosed or a new loan was made. Neither party’s rights were affected by this language in the commitment letter.
We find no authority for appellant’s contention that an option given to renew a note in default is in fact an extension of the note. Consequently, under these facts we conclude that the fee paid for the option to make another note was in fact a bona fide commitment fee and not interest. We further conclude that the trial court correctly denied appellant’s usury claim. The motion for rehearing is overruled.