Joseph B. DANZIGER Et Ux., Petitioners, v. SAN JACINTO SAVINGS ASSOCIATION, Respondent.
No. C-5308.
Supreme Court of Texas.
May 27, 1987.
Rehearing Denied July 15, 1987.
Concurring Opinion April 8, 1987.
The court of appeals in the present case attempts to apply Constance, holding that the following language constitutes an express award of the military retirement benefits: “All relief requested in this case and not expressly granted herein be and is hereby denied.” To construe this language, the court of appeals looked behind the judgment to the pleadings of the former wife which purportedly sought part of the military retirement benefits. The court of appeals then deduced that the failure to award the former wife a share of the military retirement benefits must have been an award of such benefits to the former serviceman/husband because a judgment which incorporates the above language “expressly disposes of all parties and issues in the case,” citing Schlipf v. Exxon Corporation, 644 S.W.2d 453 (Tex.1982) and Northeast I.S.D. v. Aldridge, 400 S.W.2d 893 (Tex.1966).
The rule from these cases has no application here. The purpose for the language recommended in Aldridge and incorporated in the parties’ divorce decree is to aid the determination of whether a pаrticular judgment is final or interlocutory. A final judgment is one that disposes of all parties and issues in the case and the recommended language certainly serves to resolve all issues. There is, however, no dispute but that the divorce decree which preceded the present partition suit was a final judgment. Omission of certain community property from a divorce decree does not affect its finality. If it did, we would have no need for the rule that community property which is not divided on divorce is held by the former spouses as tenants in common. Busby v. Busby, 457 S.W.2d 551, 554 (Tex.1970).
The divorce decree does not expressly award the military retirement benefits to the former serviceman/husband. The court of appeals’ application of the doctrine of res judicata to bar this partition suit is erroneous and in conflict with our prior decision in Harrell v. Harrell, 692 S.W.2d 876 (Tex.1985). Pursuant to Tex.R.App.P. 133(b), a majority of this court grants the application for writ of error and, without hearing oral argument, reverses the judgment of the court of appeals and renders judgment affirming that of the trial court.
Gregory Neill Jones, Hill, Parker, Franklin, Cardwell & Jones, Houston, for respondent.
MAUZY, Justice.
The opinion and judgment of April 8, 1987 is withdrawn and the following is substituted therefor.
This is a usury suit. Joseph and Judith Danziger brought an action against their lender, San Jacinto Savings Association, claiming various actions by San Jacinto constituted usury and, further, that San Jacinto had violated the Federal Truth-In-Lending Act and Regulation Z. In a bench trial, the court held that San Jacinto had not contracted for, charged, or received usurious interest nor had it violated the Federal Truth-In-Lending Act or Regulation Z, and rendered judgment that the Danzigers take nothing. The court of appeals affirmed. 708 S.W.2d 1. We reverse and render in part and remand in part.
The Danzigers entered into a contract with San Jacinto for a home improvement loan in the principal amount of $39,350.00 and an 8% аdd-on interest which computed to 12.34% annual interest for a total interest charge of $47,217.40 as permitted by
The Danzigers assert the court of appeals erred in holding that San Jacinto‘s procedures for advancing loan proceeds in installments and crediting back excess interest does not violate the usury statutes. Interest was chаrged on the entire amount of the cash advance. At the end of the disbursements, when San Jacinto could calculate how much money had been retained in the escrow account during each payment period, San Jacinto provided a “manual” (handwritten) credit to the account to return interest charged on the money priоr to its being disbursed. Chapter 5 of the Texas Consumer Credit Code, art. 5069, provides that the interest “shall be computed on the cash advance at the time the loan is made.”
We hold it is unlawful for a lending institution to charge interest from the date of the note on the entire principal amount and then credit back the overcharge when the principal amount is disbursed in portions from time to time. Once usurious interest has been charged, the lender cannot purge its action by a subsequent credit. See Southwestern Investment Company v. Hockley County Seed and Delinting, Inc., 516 S.W.2d 136 (Tex.1974). See also Nationwide Financial Corp. v. English, 604 S.W.2d 458 (Tex.Civ.App.--Tyler 1980, writ dism‘d as moot).
San Jacinto‘s practice of crediting back overpaid interest is insufficient to overcome the violation of the statutes arising from the initial charge of interest on money still held by the lender in an escrow account prior to disbursement. The Legislature has provided for a credit of interest to avoid usurious charges only in the instance of pre-payment by the borrower.
The Danzigers assert that if this court finds usury, it must necessarily also find double usury, thus invoking the additional penalties of article 5069-8.02 which provides for a return of all principal and interest, paid and unpaid. They insist that since San Jacinto did not disburse any of the loan principal until some time after the date of the loan, and yet contracted for and charged interest commencing on the loan date, that San Jacinto has contracted for and charged in excess of double the amount of legal interest as a matter of law. They reach this conclusion on the premisе that the legal interest prior to disbursement would be zero, citing the court to Houston Sash & Door Company, Inc. v. Heaner, 577 S.W.2d 217, 221 (Tex.1979).
Houston Sash has no bearing on the instant case. The interest ceilings, calculations and rules for determination of whether usury has occurred vary, depending on the character of the transaction. Houston Sash involves interest on an open account governed by chapter seven of the Credit Code. That chapter clearly provides that no interest may be charged in the first year of the account. Accordingly, the legal interest on such an account in the first year is zero. As 12 percent was charged, the court found the interest charged was in excess of double the amount allowed, (i.e., in excess of twice zero), as a matter of law.
There is no such interest-free period provided by chapter five on which the Danzigers can support a claim of double usury as a matter of law. Instead, for a chapter five transaction, a court must look to the full term of the note and spread the interest over the term of the contract to determine if usury has occurred and the extent of the overcharge. Tanner Development Company v. Ferguson, 561 S.W.2d 777 (Tex.1977). The double usury penalties of article 5069-8.02 are levied if simple arithmetic indicates the rate charged is in excess of double the legal rate. Tri-County Farmer‘s Co-op v. Bendele, 641 S.W.2d 208 (Tex.1982). The Danzigers have made no such showing.
Using the Danzigers own calculations, the legal interest formula under chapter five is: principal times 8 percent times term of loan. Application of the relevant figures to this formula clearly indicates the Danzigers’ claim of double usury is without merit. If the full amount of principal had been disbursed on the loan date, the legal interest formula would be $39,350 times 8 percent × 15 years, yielding a maximum interest allowable of $47,220. Double usury, interest in excess of double the amount of legal interеst, would entail an interest charge exceeding twice this amount, or, $94,440. While an overcharge of $1,117.62 in interest, due to staggered disbursements, was proved and constitutes usury, it falls far short of an overcharge that would exceed twice the legal rate of interest. The Danzigers are not entitled to recover the penalties provided by articlе 5069-8.02.
The Danzigers next urge that the excessive pay-off quote constitutes “charging” of usurious interest. The Danzigers requested and received a pay-off quote from San Jacinto on May 18, 1982. The evidence is undisputed that this quote reflected an amount due in excess of the amount allowed under the law on the projected payoff date. San Jacinto claims that a mere pay-off quote does not constitute a “charge” and that a lending institution cannot be said to have “charged” interest in excess of the maximum rate until after the loan is paid off and all accounting has been completed to determine the final charge for interest. San Jacinto argues that since the Danzigers have not paid or attempted to pay off their loan obligation, the Danzigers cannot logically argue that they have been charged excessive interest.
The court of appeals accepted San Jacinto‘s argument and held “although the appellee sent a letter to the appellants that stated an incorrect amount still owing on the note, we find this immaterial because the appellant Joseph B. Danziger testified that the note was still in effect, that he did
Article 5069, sec. 8.01, Texas Consumer Credit Code, is the penаlty provision specifically applicable to lenders. It provides: “(a) Any person who violates this Subtitle by contracting for, charging or receiving interest, time-price differential or other charges which are greater than the amount authorized by this Subtitle, shall forfeit to the obligor twice the amount of interest or time-price differential in dеfault and deferment charges contracted for, charged or received, and reasonable attorneys’ fees fixed by the court” (emphasis added). The general penalty provision, section 1.06 of article 5069, Texas Consumer Credit Code, has in pertinent part, identical wording. In a review of that provision, this court held: “By describing the conditions precedent to recovery of penalties in the disjunctive, the Legislature made it clear that only one such condition need to occur to trigger penalties; either a contract for, a charge of or a receipt of usurious interest.” Windhorst v. Adcock Pipe & Supply, 547 S.W.2d 260, 261 (Tex.1977). When a usury claim is based upon the creditor‘s charge of usurious interest, the actiоnable conduct is that of the creditor acting unilaterally and independently. Id.
A unilateral act of charging occurs if the creditor enters a usurious amount of interest on a statement of account, Windhorst, 547 S.W.2d 260; affidavits and pleadings, Moore v. Sabine National Bank of Port Arthur, 527 S.W.2d 209 (Tex.Civ.App.-Austin 1975, writ ref‘d n.r.e.); demand letters, Dryden v. City National Bank of Laredo, 666 S.W.2d 213 (Tex.App. -San Antonio 1984, writ ref‘d n.r.e.); or monthly statements, Wright Way Spraying Service v. Butler, 690 S.W.2d 897 (Tex.1985).
A usurious charge may be contained in an invoice, a letter, a ledger sheet or other book or document. The basis of the action is a claim or demand for usury made by the creditor and the vehicle for the claim or demand is immaterial except as an evidentiary fact. A pay-off quote which reflects a charge of interest in excess of that allowed by law constitutes “charging” of usurious interest.
Whether the debtor aсtually pays off the loan is immaterial. Payment of the loan is not necessary to an action based upon charging usurious interest. Windhorst, 547 S.W.2d 260; Missouri-Kan.-Tex. R.R. Co. v. Fiberglass Insulators, 707 S.W.2d 943 (Tex.App. - Houston [1st Dist.] 1986, writ ref‘d n.r.e.). The mere charging of excessive interest constitutes usury. Because of our disposition of these claims, it is unnecessary to address the issues presented which question the propriety of a lender accruing interest on lender-held escrow accounts in the context of usury. We reserve this issue.
In addition to the previous statutory causes of action, and the penalties available thereunder, the Danzigers assert a common law claim for return of all interest paid and cancellation of interest not yet paid. Thе Danzigers properly pleaded their common law claim and preserved it on appeal; therefore, they are entitled to recover all interest paid. First State Bank of Bedford v. Miller, 563 S.W.2d 572 (Tex.1978); Commercial Credit Equipment Corp. v. West, 677 S.W.2d 669 (Tex.App.-Amarillo 1984, writ ref‘d n.r.e.). The Danzigers are also entitled to cancellation of all interest not yet paid because “... as to interest a usurious contract is unеnforceable.” Wall v. East Texas Teachers’ Credit Union, 533 S.W.2d 918, 921 (Tex.1976).
The Danzigers further complain that the court of appeals erred in holding that an oral disclosure of information required under the Federal Truth-In-Lending Act and Regulation Z constitutes substantial compliance and thus is not a violation of the law. San Jacinto disclosed in writing a projected finance charge, total of рayments, number of payments and the amount of the final installments and then orally informed the Danzigers of a crediting procedure that would reduce these figures.
The disclosures on the face of the note are wrong because they do not include the effect of credits which San Jacinto
The court of appeals erred in holding that the oral disclosure substantially complied with the requirements and precluded a violаtion. “[O]nce the court finds a violation, no matter how technical, it has no discretion with respect to the imposition of liability.” Grant v. Imperial Motors, 539 F.2d 506, 510 (5th Cir.1976). Oral disclosure is ineffective. Strict compliance is the applicable standard. Smith v. Chapman, 614 F.2d 968, 971 (5th Cir.1980). See also Shroder v. Suburban Coastal Corp., 729 F.2d 1371, 1380 (11th Cir.1984). San Jacinto violated the Truth-In-Lending Act and Regulation Z by failing to make all of the required disclosures in writing.
The judgments of the trial court and сourt of appeals are reversed. We render judgment that the Danzigers recover $94,434.80 from San Jacinto on their usury claim as penalty under
Finally, the Danzigers prayed for reasonable attorneys’ fees under
HILL, C.J., not sitting.
GONZALEZ, J., filed a concurring opinion.
GONZALEZ, Justice, concurring.
I concur in the judgment of the court. However, I disagree with the dicta that pleadings alone can constitute the charging of usurious interest. I consider the issue an open question.
This court has not directly faced this issue. In Tyra v. Bob Carroll Constr. Co., 639 S.W.2d 690 (Tex.1982), the court upheld a bona fide error defense, “assuming that there was a ‘charge’ of interest” in a pleading without reaching the issue. Id. at 691. Likewise, in Petroscience Corp. v. Diamond Geophysical, Inc., 684 S.W.2d 668 (Tex.1984), the court rejected the court of appeals reasoning on this issue and instead focused on the issue of implied post-maturity interest. Furthermore, in Jim Walter Homes, Inc., v. Schuenemann, 668 S.W.2d 324 (Tex.1984) we stated that when a party “contracted to charge time price differential in excess of double the amount allowed by” the Consumer Credit Code, the party is subject to penalties under the code. Id. at 329. The legislature “intended to penalize a creditor who included such provisions in a retail installment contract....” Id. at 333. This is a far cry from penalizing a creditor for an inadvеrtent pleading error.
The better rule is that the filing of a petition may constitute the charging of usurious interest only when the underlying agreement sought to be enforced is usurious, see e.g., Fifth Nat‘l Bank of Grand Rapids v. Pierce, 117 Mich. 376, 75 N.W. 1058, 1061 (1898) (error creating a claim for usurious interest does not render a lawful
As Judge Higginbotham stated in Fibergrate Corp. v. Research-Cottrell, Inc., 481 F.Supp. 570, 572 (N.D.Tex.1979): “construing a claim asserted only in a pleading filed in a law suit as an interest charge triggering the draconian penalties of usury would do little to serve any reasonable purpose of the statute.” Such a policy “would exalt form over substance” and run contrary to the well established practice that pleading amendments ought to be freely allowed to avoid injustice. Id. at 572. See Tex.R. Civ.P. 63; Fenwal, Inc. v. Mencio Sec., Inc., 686 S.W.2d 660 (Tex.App.-San Antonio 1985, writ ref‘d n.r.e.); Rogers v. Gonzales, 654 S.W.2d 509 (Tex.App.-Corpus Christi 1983, writ ref‘d n.r.e.).