
    BOTHWELL v. FARMERS & MERCHANTS STATE BANK & TRUST CO. OF RUSK. 
    
    No. 1537 — 6317.
    Commission of Appeals of Texas, Section B.
    May 29, 1935.
    Guinn & Guinn, of Rusk, for plaintiff in error.
    Norman & Norman, of Rusk, and Smithdeal, Shook, Spence & Bowyer,' of Dallas, for defendant in error.
    
      
       Judgment set aside on rehearing 84 S.W.(2d) 229.
    
   TAYLOR, Commissioner.

This suit, when filed, involved matters not now necessary to state. Full recitals of those matters will be found in the three opinions heretofore written in the case, (Tex. Civ. App.) 19 S.W. (2d) 923; 120 Tex. 1, 30 S.W. (2d) 289, 76 A. L. R. 1480; (Tex. Civ. App.) 50 S.W.(2d) 846. The case involved from the first, however, a series of four vendor’s lien notes given by J. W. Bothwell, plaintiff in error, to the First National Bank of Rusk. The notes were given as part of the consideration paid and to be paid for a 10.1-acre tract purchased -by Bothwell from J. P. Sears and wife October 22, 1914. By agreement of the parties, the notes were made payable to the said First National Bank of Rusk. They were subsequently acquired by the Farmers & Merchants State Bank & Trust Company of Rusk, defendant in error, through a merger with the payee bank about. April, 1920. The notes were originally made due and payable 1915, 1916, 1917, and 1918, respectively. Note No. 1 for $240 was paid before suit was filed. Payment of notes Nos. 2, 3, and 4 for $250 each was duly extended to October 22, 1924. Within four years from the extended maturity, the first suit was filed. In this suit foreclosure of the vendor’s lien on the .10.1-acre tract was sought; also foreclosure of a mortgage lien on other tracts securing payment o'f other indebtedness not necessary to discuss. Bothwell, in 1928, while suit filed by the bank to correct the judgment entered against him in the first suit was pending, filed a petition in bankruptcy, and was in that year duly declared a bankrupt. The bankruptcy court set apart to him the 10.1-acre tract as his homestead. Bothwell defended on the ground of payment, alleging that a part of the payment was made by reason of his having paid usurious interest on the notes over a period of years, that payments of interest made and credited upon the notes should have been applied as payments of principal instead, and that, when so applied, together with a payment made at a later date, satisfied notes 2, 3, and 4 in full. At that time Shropshire v. Commerce Farm Credit Co., 120 Tex. 400, 30 S.W. (2d) 282, 39 S.W.(2d) 11, 84 A. L. R. 1269, holding the notes there in question usurious, had not been finally decided, and the Court of Civil Appeals, following the decision to the contrary theretofore made, held the contract was not usurious. The trial court had also so held. On appeal the Supreme Court, following its holding in the Shropshire Case, reversed and remanded this case on the ground that the notes here in question are usurious. 120 Tex. 1, 30 S.W. (2d) 289, 76 A. L. R. 1480.. No question was'decided by the Supreme Court on the appeal except the usury question, and the entire judgment including foreclosure of the mortgage lien on the other tracts, was remanded. Following the remand of the case, Bothwell interposed, among other defenses, the four and ten year statutes of limitation (Rev. St. 1925, arts. 5520, 5510) and his discharge in bankruptcy. The discharge was urged as a ground of defense against foreclosure of the lien on the homestead tract, as well as against personal liability.

The bank thereafter, on August'6, 1931, procured from J. P. Sears and wife a deed to the homestead tract, and on August 24, 1931, filed its first amended original petition. In the amendment two independent counts were pleaded with reference to the three vendor’s lien notes.

The allegations in one of the counts were made the basis for a foreclosure of the lien, and in the other the basis of a recovery of the land as holder of the superior title. The trial court instructed the jury to return a verdict for the bank. The judgment as entered established the balance due and unpaid on the mortgage, and foreclosed the mortgage lien with order of sale of the lands other- than the-homestead tract, and vested title in the bank to that tract under its plea as to superior title. No personal judgment was entered against Bothwell on account of his discharge in bankruptcy, but writ of possession was awarded the bank to the homestead tract, (Tex. Civ. App.) 50 S. W. (2d) 846.

The three notes here involved were held by the Supreme Court to be usurious, each on its face. Judge Greenwood, speaking for the Supreme Court in so holding, says: “However, the court is unable to agree with the conclusion of the district court and of the Court of Civil Appeals that notes are free from usury which expressly provide for the payment of interest annually at the rate of 10 per cent, per annum in advance, and further stipulate that, on failure to pay the interest in advance, then interest shall be paid at 10 per cent, per annum, not only on the principal, but also on a year’s interest.” 120 Tex. 1, 30 S.W. (2d) 289, 290, 76 A. L. R. 1480.

Each of the notes bears indorsements which read:

“Interest paid to October 22,” 1916.
“Interest paid to Oct. 22,” 1917.
“Interest paid to Oct. 22,” 1918.
“Interest paid to Oct. 22,” 1919.
“Int. Paid to Oct. 22,” 1920.

The notes being usurious, each, by the application of the foregoing credits upon the principal, was reduced to $125, leaving a balance unpaid on the three notes aggregating $375. International B. & L. Ass’n v.. Biering, 86 Tex. 476, 25 S. W. 622, 26 S. W. 39; Cain v. Bonner, 108 Tex. 399, 194 S. W. 1098, 3 A. L. R. 874; Cotton v. Cooper (Tex. Com. App.) 209 S. W. 135; Yonack v. Emery, 13 S.W.(2d) 667, 70 A. L. R. 684.

It is urged by Bothwell that the balance due after applying the usurious in■terest credits toward the discharge of the principal was discharged by a $400 payment made on the notes on February 23, 1926. • The evidence shows conclusively that such payment was made and applied as a credit on the indebtedness represented by the renewal of these notes. The renewals and extensions were made after defendant in error bank acquired the notes, but each note revealed on its face the taint of usury, The status of the indebtedness following its respective renewals and extensions is clearly set out in the brief of the bank filed while the case was pending in the Court of Civil Appeals. The pertinent part touching this point reads:

“In so far as the First National Bank was concerned, it had Bothwell’s notes for the principal sum of $990.00. During the time that the First National Bank owned these notes Bothwell paid off the first of the notes and the interest thereon, leaving an unpaid principal of $750.00. Prior to April 20, 1920, Bothwell had paid the First National Bank interest on these three notes to October 22, 1920. In April, 1920, after this payment, the F. & M. State Bank & Trust Company acquired the notes from the First National Bank, paying therefor the face amount of $750.00. On January 19, 1921, a renewal agreement was entered into between F. & M. State Bank & Trust Company and Bothwell, in which it was recited that the three notes sued on herein were unpaid and that there was due thereon the principal sum of $750.00, and the time for payment was extended to October 22, 1921, 1922 and 1923, respectively, and it was provided that the principal sum of $750.00 should hear interest from the 22nd of October, 1920, at the rate of ten per cent, per annum. -While this agreement provided that the debt should hear interest from a time anterior to the date of renewal, in this renewal no interest on interest was charged by the F. & M. State Bank & Trust Company. * * * Thereafterwards, on the 16th of June, 1924, F. & M. State Bank & Trust Company renewed the indebtedness, to which renewal compound interest with annual rests, was calculated at the rate of ten per cent, per annum to the 22nd of October, 1924, and the whole amount of $1098.07, thus ascertained, was renewed to, and was made payable ons the 22nd of October, 1924, with interest thereon after maturity at' the rate of ten per cent, per annum. This was a lawful contract. Andrews v. Hoxie, 5 Tex. 171; Geisberg v. Loan Ass’n (Tex. Civ. App.) 60 S. W. 478; Crider v. Loan Ass’n, 89 Tex. 597, 65 S. W. 1047. A rest was not made on the 10th of June, 1924, and new principal arrived at, but the whole amount was-carried until the 22nd of October, 1924. This sum, therefore, was a valid debt not only for the principal amount of $750.00 but also for the interest exactly calculated on the sum at the rate of ten per cent, per annum, compounded annually- — -resulting in a new principal of' $1098.07. The only sum ever paid to the F. & M; State Bank & Trust Company was $400.00 on the 23rd of February, 1926. Interest on the $1098.07 had,been past due since the 22nd of October, 1923; notwithstanding which, only $109.80 was paid and received as interest, and $290.20 was paid and received as a payment on principal, and so credited.”

It appears from the foregoing statement, as well as otherwise from the record, that the amounts of the extensions respectively were made up of $750 as a balance due on the notes and the interest that had accrued thereon.

It .is true, as contended by the bank, that interest which has lawfully matured upon a debt may, together with the principal, thereafter bear interest at the highest rate, compounded. Judge Greenwood, speaking for the court, so held in this case, citing as authority Andrews v. Hoxie and Crider v. San' Antonio Loan Ass’n, supra, saying: “But the question which now confronts the court is whether a rule difficult to sustain in reason, save as a rule of property, which sanctions the advance deduction of interest at the highest conventional rate on short-term loans, and which sanctions the compounding of interest at the highest permissible rate after it has run and matured for part of the term of a loan, shall be extended to countenance the compounding of interest at the highest legal rate in advance of expiration of any part of the term for which the loan is made. Common sense counsels against extension of a rule not entirely defensible on principle. No less urgent is the protest of common sense against allowing a thing to be done indirectly which the law forbids being done directly.”

While it is claimed by the bank that the amount of interest actually charged and included in the renewal amounts was at the rate of only 10 per cent, compounded annually, nevertheless the interest stipulations in the notes remained the same; that is, “at the rate of 10 per cent, per an-num, the interest payable annually in advance as it accrues.” The notes carried also the usual accelerated maturity clause.

Deducting from the last renewal amount the five years’ usurious interest credited on the notes, and eliminating the interest thereafter accruing either upon the notes or extensions thereof, all of which was necessarily usurious, the balance remaining unpaid on February 23, 1926, was $375. The notes were therefore fully paid on that date when the $400 payment was made. The purchase-money indebtedness having thus been paid in full at that time, the deed procured by the bank from Sears and wife in August, 1931, conveying to it the 10.1-acre tract, was ineffective as a basis for recovery by it of the land.

It is unnecessary to pass upon the questions of limitation or those raised by the discharge in bankruptcy. The judgments of the trial court and Court of Civil Appeals are affirmed as to all matters except the vesting of title to the 10.1-acre tract in defendant in error bank and award-' ing writ of possession. That part of the judgment so vesting title and awarding the writ is reversed and remanded to the trial court, with instructions to render judgment denying defendant in error its relief sought either by way of foreclosure of lien on the three notes in question, or for recovery of the 10.1-acre tract of land.

Opinion adopted by the Supreme Court.  