As revealed by the opinion in this case, handed down today by the majority of the court, I am not in accord with the disposition of the appeal which they make nor with the conclusions reached and expressed by them concerning the law which I deem applicable to the issues presented by the briefs. It is my opinion that the judgment of the trial court was correct and should be affirmed. The principles of law which, in my judgment, control the issues involved, in my opinion, are wholly at variance with the conclusions reached by the majority and I shall, as briefly as possible, express my views concerning those which I deem most pertinent.
It seems that the contentions made by the parties in this appeal were not involved in the former appeal. The opinions of this court and the Supreme Court on the former appeal seem to deal only with the interest that was paid as such by the appellees, that is, the seven per cent. provided in the notes as interest, and not with the $220 that was retained by the Temple Trust Company as a bonus when the loan was made. The record now before us contains only the amended pleadings upon which the case was last tried. It is likely, therefore, that the present issue concerning the so-called bonus was first injected into the case upon the last trial.
Upon the question of whether or not the trial court erred in crediting upon the $1,000 note held by appellant the entire $220 retained by Temple Trust Company as a bonus, it may be observed that in testing the contract for usury, the real principal of the loan is not necessarily the amount specified in the face of the notes, but the amount actually received by the borrower from the lender. Adleson v. Dittmar Co., 124 Tex. 564,80 S.W.2d 939. In this case the principal of the loan was $1,980. If the entire transaction had consisted of only one note in the sum of $2,200, there would be little difficulty in ascertaining the position in the indebtedness that is occupied by the portion constituting the bonus. The bonus cannot be considered as interest paid because when stripped of its formalities, the note for $2,200 was given for a loan of but $1,980. Adleson v. Dittmar Co., supra. Usury can be recovered or deducted from the real principal of the note only in the event interest has been paid by the borrower. Art. 5073, R.C.S. 1925. The $220 retained as a bonus was not paid by the borrower nor was any portion of it ever paid to any of the holders of the series of notes. If the entire transaction had been included in one note and appellee had paid the seven per cent interest thereon as provided in the note, it could not be said that he had paid any portion of the bonus until some amount in addition to the actual principal of $1,980 had been paid. Federal Mortgage Co. v. State Nat'l. Bank, Tex. Civ. App. 254 S.W. 1002. I can conceive of no reason why this feature of the transaction *Page 497 would be changed by dividing the loan into a series of notes. It is well settled in this State that, in order to have credited upon the principal, usurious interest paid or to recover double the amount thereof where a suit is filed therefor within the limitation period, the plaintiff must allege and prove that he paid the interest constituting the usury. If appellee had, at any time during the pendency of the loan, brought suit against the holders of the notes for double the amount of interest paid by him during the two years preceding the filing of a suit therefor under Art. 5073, he would not have been entitled to recover any portion of the bonus of $220. He had never received it from the Temple Trust Company nor had he paid any portion of it to any one. A portion of the loan, or money, actually advanced to him would still be unpaid, and unless he should be able to allege and prove that he had paid more than the $1,980, it would have been impossible for him to show that he had paid any portion of the bonus. At the very threshold of his case he would have been met by his own contract in which he appropriated the payments made by him to certain portions of the principal and the seven per cent. provided therein as the current interest. He would not, therefore, have been entitled to recover any portion of the bonus. It seems to me, therefore, that it must follow that no portion of the bonus was included in any of the series of notes except the last one which was for considerably more than the amount of the bonus.
In considering a similar question the Supreme Court of California in Haines v. Commercial Mortgage Co., 200 Cal. 609, 254 P. 956, 255 P. 805, 53 A.L.R. 725, held that the bonus was not actually paid and was, therefore, not a proper item of a judgment trebling the amount thereof. It held, furthermore, that the item of $1,020 which was retained by the lender in that case as a bonus, simply became surplusage and not only could not be collected by the lender but it could not be the basis of apportionment for either principle or interest; and that the payments on account of principal would serve to reduce the net principal and not be construed as a payment of the bonus either in whole or in part.
Sec. 5198 of the Revised Statutes of the United States, 12 U.S.C.A. §§ 86, 94, is very similar to our usury statute, Art. 5073, and in Gunter v. Merchant, 213 S.W. 604, 607, Judge Sadler, speaking for Section B of the Commission of Appeals, said: "Under this statute the Supreme Court of the United States has uniformly held, and our Supreme Court has followed it, that the reservation by a banking corporation of the interest at the time of making a loan is not such a payment as will sustain a suit to recover the penalty, unless the note given has been paid. In determining the question of limitation as applying to recovery for penalty, the Supreme Court of the United States, and of our state, held that where usurious interest has been held out in the original transaction, and is incorporated into the note, the period of limitation for the recovery of the penalty does not begin to run until the actual payment of the note."
It is obvious that this holding could not have been made except upon the theory that the usurious interest held out in the original transaction was relegated to the last portion of the indebtedness. These authorities clearly locate the bonus in such a transaction as merely an addition to the real principal of the indebtedness which cannot be collected if resisted by the payor, but which, other than tainting the transaction with usury, gives the payor no right of recovery of the bonus until the actual or real principal and that portion of the note represented by the bonus or a portion of it have been paid.
In the case of Temple Trust Co. v. Stobaugh, Tex. Civ. App.59 S.W.2d 916, 919, a question arose which was very similar to the one involved here. In that case the Temple Trust Company made a loan to Stobaugh in the actual sum of $1,205.35 and as evidence of the indebtedness Stobaugh executed to the lender five notes of $100 each and one for $250, maturing September 1, 1925 to 1930, respectively, and one in the sum of $600, maturing September 1, 1934, all bearing interest at the rate of seven per cent per annum, payable semi-annually. These notes aggregated $1,350, which included a bonus of $144.65. The appellant in that case contended that, even if the $144.65 bonus be treated as interest paid, it should be considered as having been paid at the time the loan was made; credited on the principal at that time, and not as paid in March, 1932, when the last note of the series was discharged. In delivering the opinion of the Court of Civil Appeals of the Third District, Justice Baugh said: "We do not sustain this contention. The transaction must be construed as if the contract were a written *Page 498 promise to pay only the $1,205.35 actually borrowed, and all other sums provided for therein are to be considered as interest. Appellee was entitled to a credit for, or recovery of, only the usurious interest actually paid by him, and where the penalty is not invoked within two years after payment, the law applies such payments on the principal. In the instant case appellee contracted in said notes to pay $100 each year for five years, and $250 the sixth year on the principal. Consequently, there was not included in these items the excess $144.65 which he agreed to pay. Meantime appellant was collecting 7 per cent. interest on that item up until his last payment, and limitation cannot we think begin to run against that item, which must be construed as usurious interest, until it was actually paid by appellee in his discharge of the $600 note. The rule as stated in 27 R.C. L. 279, is: `Since the inclusion of usurious interest as principal in notes does not constitute a payment of the interest, it does not start the running of the statute against a right of action to recover twice the amount of interest paid; but the usurious transaction from the date of which the statute begins to run is the time when the usurious interest is actually paid.' And the excess, or bonus, was we think clearly carried over in this case into the last note, and was so treated by appellant itself in charging interest on it up to the maturity of that note."
The question again came before the same court in the case of Temple Trust Co. v. Haney, 103 S.W.2d 1035, and the same conclusions were expressed.
The principle that the bonus is carried over to the last portion of the indebtedness has its foundation in the doctrine of locus penitentiae expressed by the learned Justice Stayton in delivering the opinion for the Supreme Court in Stout et al. v. Ennis Nat. Bank, 69 Tex. 384,8 S.W. 808, 810. It is that, the contract not being rendered void by the statute, the lender may repent and relinquish the interest, including the bonus, and recover the balance of the debt. In the cited case, the Supreme Court said: "`And, in the absence of proof as to any appropriation of a partial payment, the law will apply a payment to a valid demand, rather than to the illegal one; and the balance which remains unpaid, if it exceed the usury agreed to be paid, includes the usury; so that, on the one side, the debtor shall not recover back any part of that which he honestly owed, by the allegations on his part that the payment made by him was the payment of the usury; nor, on the other hand, will the law permit the creditor to secure to himself the benefit of his illegal contract, when he sues for the balance due on the contract, to aver that the usurious interest was contained in the previous payment, and that the residue is justly due.' When, however, the parties, as they did in this case, appropriate, and intend to appropriate, the payment to usurious interest, the locus penitentiæ can no longer exist; for the offense has been consummated, `the greater rate of interest has been paid,' and the right to the penalty is fixed."
See also Stevens v. Lincoln, 7 Metc., Mass., 525, 528; Citizens' Nat'l. Bank v. Froman's Assignee, 111 Ky. 206, 63 S.W. 454, 757, 56 L.R.A. 673, and the many cases there cited.
Thus it will be seen that our Supreme Court has held that where money is paid on usurious contracts containing amounts retained as bonus without an appropriation by the parties of the payment to the usurious interest or bonus, the law will appropriate the payment to that part of the demand which is legal; for neither the party making nor receiving the payment would be presumed to have intended that it should be appropriated to the payment of usurious interest. There is nothing in the record in the instant case to indicate that an appropriation was made by either appellant or appellee or any other party to the transaction of any payment made by appellee to the bonus or any part thereof. All payments made on the note in suit were for the seven per cent interest specifically provided as such in the note and all other payments made were of the principal and seven per cent interest specifically provided in the other notes of the series. While it is true that the transaction consisted of eight separate notes, and they were assigned to different parties and the former notes paid to those who held them by assignment from the Temple Trust Company, yet I can discern no difference in so far as the rule of law is concerned from what the effect would have been if the entire transaction had been included in one note and remained in the hands of the original payee until an amount had been paid thereon equal to that which has been paid on the series of notes by appellee in this case. Although the notes were assigned to separate parties, the entire series and the deed of trust executed to secure *Page 499 them constituted but a single transaction and appellant cannot assume the role of an innocent purchaser. Her position in the transaction is not different in any respect from that of the Temple Trust Company. She stands in its shoes and her rights and liabilities are governed by the same rules of law as its rights and liabilities would have been if it had remained the owner of the entire indebtedness. Gilder v. Hearne,79 Tex. 120, 14 S.W. 1031; Van Meter v. American Central Life Ins. Co., Tex. Civ. App. 78 S.W.2d 251; Temple Trust Co. v. Stobaugh, Tex. Civ. App. 59 S.W.2d 916; Dallas Trust Savings Bank v. Brashear, Tex.Com.App., 65 S.W.2d 288.
The parties to the loan transaction specified in the contract that $150 should be paid on the principal each year during the first four years. The effect of the holding of the majority is to change that portion of the contract and appropriate only $135 of these payments to the principal. This results in an arbitrary appropriation of a portion paid upon the legitimate principal of the loan to the usurious interest or bonus which constitutes the illegal and void portion. This is exactly what the Supreme Court said in the Stout case, supra, the law will not do.
In consonance with what I deem to be sound principles of law and, in keeping with my interpretation of the holdings of our own courts, as well as eminent tribunals of other jurisdictions, I cannot but adhere to the conclusions here expressed and respectfully enter my dissent to the disposition made of the appeal, and the conclusions of law upon the issues presented in the briefs, as expressed in the opinion handed down by the majority in this case.