Stedman v. Georgetown Savings & Loan Ass'n

BARROW, Justice. This suit was brought by petitioner to recover penalties because usurious interest was allegedly charged him by respondent. The determinative question on appeal is whether an accruing charge of 10 percent per annum on the principal amount of a loan commitment which was exacted during the 8 month existence of the commitment was a bona fide commitment fee or a cloak to conceal usurious interest on the permanent loan. The trial court, after a non-jury trial, found that the charge was a bona fide commitment fee and entered a take-nothing judgment on petitioner’s claim for usurious interest charged on the permanent loan subsequently made to him by respondent. The court of civil appeals affirmed. 575 S.W.2d 415. We hold that there is evidence to support the findings of the trial court that money paid by petitioner prior to execution of the permanent loan was a bona fide commitment fee and accordingly affirm the judgments of the lower courts. C. T. Stedman sought a permanent loan commitment from Georgetown Savings and Loan in order to finance the construction of a Dairy Queen in Georgetown, Texas. The commitment was necessary so that he could obtain interim construction funds for the project. After an initial rejection because of the nature of the proposed constructions, Stedman’s application for a permanent loan was approved and the association issued its commitment letter on June 13, 1975, by which it offered to lend $60,000 for a period of fifteen years at 10 percent interest. The commitment was to expire in 8 months unless extended by mutual agreement, and it included the following provisions: “1) A —0—% loan fee shall be payable in advance. . “8) Upon acceptance hereof the Association will set aside and escrow the funds for the project and interest shall begin to accrue from that date.” Mr. Stedman accepted the commitment offer on June 30, and on February 2, 1976 exercised his option under the commitment for a permanent loan. The loan was made by the association on February 20, 1976. During the period prior to Stedman’s exercise of his option, he was billed monthly by the association and paid the total sum of $3,383.31 for “interest due” under the commitment agreement. His permanent loan provides for interest at 10 percent per an-num on the $60,000 which was advanced to him on February 20, 1976. On October 22, 1976 Stedman filed this suit alleging that by charging 10 percent interest before any funds were advanced and by continuing to charge 10 percent after advancing the funds, the association had contracted for, charged or received interest in an amount greater than 10 percent. He sought statutory penalties in the amount of $118,517.04, being twice the amount of interest for which he contracted, together with recovery of all interest paid and attorney’s fees. See Art. 5069-1.06.1 The trial court made extensive findings of fact and conclusions of law. It found in part that: (1) in the June 13,1975 letter the association offered a commitment to make a $60,000 loan to Stedman and that this commitment was accepted by him on June 30,1975; (2) this commitment entitled Sted-man, at his sole option, to obtain the loan described therein within the eight month period; (3) the commitment did not bind Stedman to borrow the money from the association and he was free to try to arrange permanent financing on more favorable terms if he chose to do so; (4) in return for this commitment and pursuant thereto, Stedman paid a fee at the rate of 10 percent per annum; (5) this fee obligated the association to make the loan if requested; and (6) the 10 percent per annum fee charged for the commitment was a yardstick used to express the changing price at which the option could be exercised. The court concluded, in sum, that this was a bona fide commitment fee and not interest as defined in Art. 5069-1.01(a). [488] Article 16, section 11 of the Texas Constitution authorizes the legislature to define “interest” and fix maximum rates of interest. Pursuant to this authority, the legislature has defined interest as “the compensation allowed by law for the use or forbearance or detention of money.” Art. 5069-1.-01. In Crow v. Home Savings Association of Dallas County, 522 S.W.2d 457 (Tex.1975), we said: “[F]or the usury laws to apply, there must be an overcharge by a lender for the use and detention of the lender’s money. The judicial inquiry is whether or not this has occurred. Questions of subterfuge or, as also phrased, of a cloak to avoid the usury law, are in point to the determination of this ultimate issue.” A bona fide commitment fee is not interest within the contemplation of this statute. It has a different nature and purpose which this Court recently described in Gonzales County Sav. & Loan Assoc. v. Freeman, 534 S.W.2d 903 (Tex.1976). We held: “[A] fee which commits the lender to make a loan at some future date does not fall within this definition [of interest]. Instead, such a fee merely purchases an option which permits the borrower to enter into the loan in the future. See, e. g., Financial Federal Savings & Loan Association v. Burleigh House, Inc., 305 So.2d 59 (Fla.Dist.Ct.App.1974); D & M Development Co. v. Sherwood & Roberts, Inc., 93 Idaho 200, 457 P.2d 439 (1969); Prather, Mortgage Loans and the Usury Laws, 16 Bus.Law 181, 188 (1960). It entitles the borrower to a distinctly separate a,nd additional consideration apart from the lending of money. Therefore, the lender may charge extra for this consideration without violating the usury laws. Greever v. Persky, 140 Tex. 64, 165 S.W.2d 709 (1942).” The first question we are confronted with is whether there is evidence to support the findings of the lower courts that the pre-disbursement loan charges were “bona fide commitment fees” rather than “interest” as urged by Stedman. Where there is a dispute in the evidence as to whether the charge is a bona fide commitment fee or merely a device to conceal usury, a question of fact is raised. Gonzales County Sav. & Loan Assoc. v. Freeman, supra; Greever v. Persky, 140 Tex. 64, 165 S.W.2d 709 (1942). It is fundamental that these fact findings must be upheld by us if there is more than a scintilla of evidence in support thereof. Moreover, in testing these findings, we must review the evidence in its most favorable light, considering only the evidence and inferences which support the findings, and rejecting the evidence and inferences contrary to the findings. Stodghill v. Texas Emp. Ins. Ass’n, 582 S.W.2d 102 (Tex.1979); Martinez v. Delta Brands, Inc., 515 S.W.2d 263 (Tex.1974). There is no dispute in the evidence that the association’s letter of June 13, 1975 was an offer by the association to make a permanent loan. When accepted by Stedman, it became a commitment to do so in accord with the terms thereof. Stedman admitted that such a commitment was necessary to enable him to secure interim financing for the construction. The commitment did not obligate Stedman to close the loan or even to borrow the funds from the association; rather, he could accept or reject the loan at any time within the 8 month period granted by the commitment contract. Thus the contract was in the nature of an option to borrow money in the future. It is conceded by Stedman that any consideration paid for this option would not have been interest within the statutory definition if the permanent loan had not been made. It is urged that a different construction of the commitment contract is compelled by the repeated characterization by the association of the consideration paid by Stedman for this commitment as “interest.” The commitment offer itself refers to this consideration as “interest”; the executive officer of the association denominated it as “interest"; and Stedman was billed monthly for “interest” owed under the commitment contract. A similar contention was rejected by this Court in Gonzales County [489] Sav. & Loan Assoc. v. Freeman, supra, at 906. In doing so we said: “The court of civil appeals has improperly stressed the labels placed upon the charges by the savings and loan association as being controlling of their real nature. It has often been said that courts will look beyond the form of the transaction to its substance in determining the existence or nonexistence of usury. See, Schmid v. City Nat. Bank of Wichita Falls, 132 Tex. 115, 114 S.W.2d 854 (1938). Such a rule is to be fairly applied to both borrowers and lenders alike. Labels put on particular charges are not controlling.” A very similar question was presented in Delta Enterprises v. Gage, 555 S.W.2d 555 (Tex.Civ.App.—Fort Worth 1977, writ ref’d n. r. e.). This was a suit by Delta Enterprises for usurious interest allegedly paid Gage under the terms of two written contracts. Although the contracts labeled the required payments as “interest,” the jury found that such payments in fact were not interest. The court of civil appeals rejected Gage’s argument that the disputed sums constituted interest as a matter of law merely because they were labeled as such in the two contracts. In doing so the court relied upon the rule laid down in Gonzales County Sav. & Loan Assoc. v. Freeman, supra. The court in Delta Enterprises concluded that the disputed payments actually constituted a part of the purchase price for the properties. It said: “It is the exercisable price of the option that caused the dispute; i. e., upon exercise of the option, the purchase price was to vary, depending upon when the option was exercised. The holder of the option had the absolute right for three years to purchase the property; however, the longer the holder of the option waited before exercising the option, the higher the exercisable price it would have to pay.” We conclude that the trial court did not err in looking behind the label placed upon the consideration paid by Stedman for the option granted to him under the commitment letter of June 13, 1975 and in holding that this was a bona fide commitment fee paid for the privilege of later executing a loan agreement. Stedman urges that in any event, the 10 percent per annum consideration which he agreed to pay during the time of the option was so unreasonable that it should be held as a matter of law to be a cloak to conceal usury. This contention ignores the fact that it was within Stedman’s sole option as to whether or not he desired to secure the permanent loan from the association. If he chose not to do so, he concedes the amounts paid by him during the time of his option would not be usurious interest. The association’s president testified that the usual commitment fee was 1 or 2 percent of the loan option where a one-time charge was made; whereas, the accruing charge in question amounted to 5.6 percent by the time the option was exercised. It is seen, however, that this percentage increased in proportion to the time of the option. If Stedman had accepted or rejected the option sooner, the charge would have been less. In the meantime, he was free to shop for a better permanent loan and, being armed with this commitment, was in a stronger position to do so. In any event the reasonableness of the amount charged would not constitute usurious interest since it was consideration for a bona fide commitment fee. For usury to apply there must be an overcharge by a lender for the use, forbearance or detention of the lender’s money. Where the evidence establishes that the charge was made for the commitment option, it would not be for the use, forbearance or detention of the lender’s money so as to constitute interest. Rather, the borrower has bought the right to secure a loan if he later decides he wants it. As long as the charge is made for a bona fide commitment fee, it cannot form the basis of a usury penalty against the lender. Crow v. Home Savings Association of Dallas County, 522 S.W.2d 457 (Tex.1975). In the aforementioned case, Crow brought suit against Home Savings seeking usury penalties based on a fee paid Home in [490] connection with a loan Crow secured from the First National Bank in Dallas. We concluded that under the evidence the transaction in question was a bona fide loan by the bank, the repayment of which was guaranteed by Home and hence, not subject to the penalties of usury. We said: “In the undisputed situation here the loan transaction was with the Bank and the Bank charged and received legal interest. The charge made by Home was for services rendered in connection with the loan. The charge thus made and paid to Home by Crow, regardless of its reasonableness or not, cannot form the basis for a usury penalty against Home.” We conclude that there is evidence to support the trial court’s findings of fact that the sums paid the association by Sted-man prior to the exercise of his option for a permanent loan constituted a bona fide commitment fee. We therefore affirm the judgments of the courts below. POPE and SPEARS, JJ., dissent with separate opinions. GARWOOD, J., not sitting. Footnotes [1] All statutory references are to Texas Revised Civil Statutes Annotated.