Court Opinion

ID: 9827493
Source: CourtListenerOpinion
Date Created: 2023-09-01 17:36:07.528729+00
Date Added: 2024-06-11T07:42:32.281325
License: Public Domain

On Rehearing.
The appellants’ motion for rehearing presents again the points considered and overruled in our original opinion, but emphasizes the assignment that the trial court and this court erred in refusing to make application of all payments of usurious interest (on the principal note, in suit) to the payment and liquidation thereof irrespective of whether the usurious interest was paid to the plaintiff, Mrs. Bills, or not. The contention seems to be grounded upon the proposition that when the borrower or maker of the usurious note pays usurious interest thereon, the law then and there applies the same to the principal note, regardless of who owns and collects the separate interest notes. The proposition is predicated on the facts as presented at length in our original opinion. To summarize, they are, in substance, (1) that the Deming Investment Company (defendant) payee in the principal note of $5,000, for a consideration,, assigned the same to Mrs. Bill and retained the ten $100 additional interest notes, collecting seven of them ($700) and tendering the three unpaid notes for cancellation, etc. (2) That the entire usurious interest collected by her on coupons attached to principal note, amounting to $2,100, was applied to the principal note, but the $700 collected by the investment company was not applied to her principal indebtedness. Hence, the assignment under consideration.
Article 5071, Vernon’s Ann.Civ.St., enacted in 1892, provides in part that a contract providing for a greater rate of interest than 10 per cent, per annum “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.” (Italics ours.) At the same time a penalty statute was enacted in substantial respects the same as that now in force (article 5073, Vernon’s Ann.Civ.St. amended in 1907). The part of article 5073, supra, pertinent here, reads: “Within two' years after the time that a greater rate of interest than ten per cent shall have been received or collected upon any contract, the person paying the same or his legal representative may by an action of debt recover double the amount of such interest from the person, firm or corporation receiving the same.”
We do not understand that there has ever obtained in this state any rule of law or statute forfeiting any part of the principal of the usurious loaná, and since the enactment of the above statutes there is certainly no. ground for such a contention. The proposition that the law immediately applies to the principal any payment of usurious interest under the contract is not sound. Considering the same or substantially the same proposition our Supreme Court in Adleson v. B. F. Dittmar Co., 124 Tex. 564, 80 S.W.(2d) 939, 941, said: “In the first place, it is not entirely accurate to say, since the enactment of the penalty statute in 1892, that payments of interest on a contract affected with usury are by law applied to the principal. The borrower is entitled to have them so applied if he desires it, but he may prefer to sue for penalties under article 5073 on account of such payments.' He may within two years from the time the payments *935were made assert the right to such penalties, even though the principal or a part of it is unpaid, and may offset the penalties against the principal. Rosetti v. Lozano, 96 Tex. 57, 70 S.W. 204; Yonack v. Emery (Tex.Com.App.) 13 S.W.(2d) 667, 70 A.L.R. 684. Of course he is not entitled to resort to both remedies, that is, the application to the principal and the collection of penalties, on account of the same payments- of interest.”
It is further held in that opinion that “Plaintiffs in error’s contention is faulty in its assumption that payments of interest become payments of principal because they may be applied to the principal. They are still payments of interest, which may or may not be applied to the principal. They are payments of interest which, if they are applied to the principal, will serve to discharge it in whole or in part. If they were not payments of interest after they were made, then they could not serve as the basis for the recovery of penalties under article 5073.”
It is clear that the borrower may elect to have the interest payments applied on the principal or “he may prefer to sue for the penalties.” The significance of this proposition as applied to the instant case lies in the fact that if a borrower voluntarily becomes a party to a usurious contract, or a contract void as to the usurious interest, he need not pay such usurious interest to the person owning such usurious interest note, 'the same being void by statute. He may repudiate it and tender the amount of such usurious interest to the owner of the principal note as a legitimate payment, in part, at least, of that obligation. Manifestly, it would be* unfair to permit the borrower to make such voluntary payment of usurious interest and thus honor the void contract in the hands of its owner, the Deming Investment Company in the instant case, and then proceed to have the amount thus paid applied to the valid principal owned by another and different person, in this case the plaintiff, Mrs. Ruth S. Bill, who had never owned the usurious interest notes paid to the investment company, or'in any way benefited from their payment in the sum of $700.
If in such a situation the borrower desires to apply his money payments on the principal in the hands of the very person who owns it, the statute, by declaring such contract void as to usury, clearly marks the way and removes all obstacles to his doing so. On the other hand, If he elects to pay the usurious interest note to the one who owns it, but does not own the principal note, then he may recover /the penalty from him to whom he paid it, but he cannot offset the amount of the usurious interest so paid against the amount of the valid debt in the hands of a different owner.
Further, the penalty statute gives a right of action to one who pays usurious interest to recover the penalty. This very right is inconsistent with the proposition that the law itself will apply all payments of usurious interest to the principal. If that were true, there could be no cause of action for a penalty until all the principal of the debt had been paid, and not even then unless and until in addition thereto some amount as interest was paid. Such is not the law, for it is too elementary to require citation of authorities that the penalty may be recovered as such after the payment of usurious interest, and that without regard as to whether or not the principal has been paid.
On the whole, we conclude that the right to pay usurious interest and to recover the statutory penalty therefor, by a cross-action in the suit upon the principal and to have same offset against the recovery on the- principal does not apply or obtain in this state except when the usurious interest is paid to the owner of the principal debt.
These conclusions are sound, we think, when tested by fundamental principles. The appellant concedes that Ward v. Pace (Tex.Civ.App.) 73 S.W.(2d) 959, in which a writ of error was refused, is directly in point. The appellant suggests, however, that the rule thus approved anjl applied in the Ward Case is not authoritative, since the proposition or record presented to the Supreme Court did not warrant the announcement and application of the rule. Be that as it may, the point was so clear and of such a controlling nature in the Ward Case that we cannot bring ourselves to the conclusion that the Supreme Court did not fully and advisedly consider it when it refused the writ of error.
In addition to the authorities originally relied upon, the very clear opinion of the Supreme Court by Judge Smedley in Adle-son v. B. F. Dittmar Co., supra, is, we think,- sufficient authority for our holding on this point.
We have carefully considered the points presented in the motion for rehearing. *936Finding no reason for changing the views expressed in our original opinion, the motion is overruled.