Kucel v. Walter E. Heller & Co.

• Decision Date: 30 March 1987
• Docket Number: 85-2831,Nos. 85-2822,s. 85-2822
• Citation: 813 F.2d 67
• Parties: 3 UCC Rep.Serv.2d 1416 Richard KUCEL, Plaintiff-Appellee Cross-Appellant, v. WALTER E. HELLER & CO., Defendant-Appellant Cross-Appellee. Richard KUCEL, Plaintiff-Appellee, v. WALTER E. HELLER & CO., Defendant, Appeal of Wendell S. LOOMIS, Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 67

813 F.2d 67

3 UCC Rep.Serv.2d 1416

Richard KUCEL, Plaintiff-Appellee Cross-Appellant, v. WALTER E. HELLER & CO., Defendant-Appellant Cross-Appellee.

Richard KUCEL, Plaintiff-Appellee, v. WALTER E. HELLER & CO., Defendant, Appeal of Wendell S. LOOMIS, Appellant.

Nos. 85-2822, 85-2831.

United States Court of Appeals, Fifth Circuit.

March 30, 1987.

Michael M. Wilson, Wendall S. Loomis, Richard Frankel, Houston, Tex., for Walter E. Heller & Co.

Morton L. Susman, Robert D. Daniel, Houston, Tex., for Richard Kucel.

Wendall S. Loomis, Houston, Tex., pro se.

Appeals from the United States District Court for the Southern District of Texas.

Before VAN GRAAFEILAND ^*, HIGGINBOTHAM, and JONES, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Walter E. Heller & Co. appeals the district court's judgment awarding Richard J. Kucel $41,778.50 for Kucel's overpayment of a loan, and awarding interest and attorney's fees. Kucel cross-appeals the district court's failure to apply Uniform Commercial Code Sec. 3-118(d) to determine the interest rate of the promissory note and to award an additional $287,070.40 in overpaid interest. Wendell S. Loomis, Heller's attorney, appeals the district court's imposition of sanctions against Loomis for his motion to reconsider the award of attorney's fees. We affirm the district court's determination that Heller must return Kucel's overpayments and that U.C.C. Sec. 3-118(d) does not apply, but reverse on the actual amount of damages, award of attorney's fees, and the sanction.

I

A

Chandler Airlease Corporation sold a Lear jet to Lucey Products Company on February 28, 1978. Lucey executed a promissory note for $1,712,496.96, payable in 96 installments of $17,838.51 each. The note states that "interest, precomputed to the due dates, is included in the foregoing installments." The note does not state the principal amount borrowed, but the district court determined the principal to be $1,082,678.24 from documents executed with the promissory note. The note also does not state an annual percentage rate, but the rate is readily calculated to be 12.7198% based on the note's face value, principal, and payment period. The note was executed in Chicago, Illinois, and contains a provision designating the laws of the State of Illinois as the governing law. The first payment on the note was made at the time of execution.

Lucey sold the airplane to Richard J. Kucel, a Texas resident, who assumed the note. Later, Chandler was merged into Walter E. Heller & Co., a Delaware corporation with its principal place of business in Illinois. Thus Kucel and Heller stand in the same legal positions as the original borrower and lender, respectively.

After 62 payments were made on the note, Kucel encountered financial difficulties and ceased payments. Kucel found a purchaser for the airplane and asked Heller to release its lien on the airplane in exchange for prepayment of the note. Heller said that $615,717.12 was owing, an amount Kucel disputed. Determining that it had improperly included some taxes in the figure, Heller reduced the amount to $540,799.35. Kucel stated that he did not believe the revised figure was accurate and requested an accounting. Nevertheless, in order not to lose the purchaser, Kucel paid the amount in May 1983 before receiving the accounting. Heller released the lien, but did not release Kucel and Lucey from any obligation or liability occurring before the date of the release.

On May 18, 1983, two days after the sale, Kucel sent Heller a written demand for a loan payment history and calculation of the prepayment amount. On June 28, Kucel threatened suit, and on August 3, Kucel filed suit against Heller in federal district court, asserting diversity jurisdiction under 28 U.S.C. Sec. 1332.

B

Kucel sought damages on several theories: money had and received, duress, coercion, fraud, conversion, and violations of the Texas Deceptive Trade Practices Act, Tex.Bus. & Comm.Code Secs. 17.41-.63. Kucel also sought exemplary damages and attorney's fees. Heller denied Kucel's claims and argued that the prepayment constituted accord and satisfaction of all claims involving the note.

The district court, after a bench trial, awarded Kucel damages under his claim for money had and received, but denied Kucel's other claims. The court awarded $42,892.40 as the difference between what Kucel paid and what he owed, and reduced that award by $1,114.90 in late fees that Kucel owed Heller. The court also awarded prejudgment interest under Illinois law and postjudgment interest under federal law.

On January 15, 1985, about two weeks after trial, Kucel submitted an application for a hearing on and entry of award of attorney's fees under Tex.Rev.Civ.Stat. art. 2226 (current version at Tex.Civ.Prac. & Rem.Code Sec. 38.001(8)). The court awarded Kucel the fees under art. 2226 on April 23, 1985, and held a hearing on the amount of fees on August 29, 1985. Three days after the hearing, Heller filed a motion for reconsideration on the grounds that Illinois law applied and that Illinois law did not allow attorney's fees in actions for money had and received. The district court denied Heller's motion and imposed a $500 sanction on Wendell Loomis, Heller's attorney.

Heller appeals the failure of the district court to find accord and satisfaction. Kucel cross-appeals the failure of the district court to apply the Illinois judgment rate of interest to the note in order to award him another $287,070.40. Heller also appeals the amount of damages and award of attorney's fees. Loomis appeals the sanction. We treat the claims in that order.

II

Heller argues that Kucel's payment of $540,799.35 on May 16, 1983, constituted an accord and satisfaction of all claims and therefore prevents Kucel from recovering any overpayment.

An accord and satisfaction is "a contract under which an obligee promises to accept a stated performance in satisfaction of the obligor's existing duty." Restatement (Second) of Contracts Sec. 281 (1981). Because accord and satisfaction is a contract, it requires a meeting of the minds, or an agreement. See Flowers v. Diamond Shamrock Corp., 693 F.2d 1146, 1151-52 (5th Cir.1982) (applying Texas law); Sears, Sucsy & Co. v. Insurance Co., 392 F.Supp. 398, 404 (N.D.Ill.1974) (applying Illinois law). Even when agreement exists, the accord is not binding if a party enters it under fraud, compulsion or mistake of fact. See Groves v. Farmers State Bank, 368 Ill. 35, 12 N.E.2d 618 (1937); Spring Branch Bank v. Mengden, 628 S.W.2d 130, 134 (Tex.Civ.App.--Houston 1981, writ ref'd n.r.e.).

The district court held that Kucel and Heller never agreed, expressly or implicitly, that the payment constituted satisfaction of all claims. The evidence established that, although Heller released the lien on the airplane after Kucel paid the note, Heller specifically did not release Kucel or Lucey from any obligations or liabilities occurring before the release. Also, both Kucel and his attorney testified that they understood that a final accounting on the note and payment remained open when Heller released the lien. Their demand letter two days later confirms that belief. In light of this evidence, the district court did not clearly err in holding that the parties lacked the necessary accord to prevent this suit. ¹

III

Kucel argues on cross-appeal that the district court erred in failing to set the interest rate of the note at the 9% judgment rate in Illinois. Under Kucel's theory, the district court should have determined that the note did not provide for interest, applied the Illinois judgment rate of interest to a principal of $1,082,678.24 to create a new amortization schedule for the loan, then awarded Kucel $287,070.40 as the difference in what Kucel would have paid with interest at 9% and what he paid with interest at 12.71%.

The Uniform Commercial Code Sec. 3-118(d) provides:

Unless otherwise specified a provision for interest means interest at the judgment rate at the place of payment from the date of the instrument....

This provision is equally applicable in Texas, see Tex.Bus. & Comm.Code Sec. 3.118(4), and in Illinois, see Ill.Rev.Stat. ch. 26, Sec. 3-118. The purpose of U.C.C. Sec. 3-118(d) is to avoid parol evidence about the amount of interest the parties intended when the note does not specify. See U.C.C. Sec. 3-118 comment 1.

The promissory note states, "interest, precomputed to the due dates, is included in the foregoing installments." Although the note does not state on its face an annual percentage rate, the note clearly provides a fixed amount of interest. One need not look beyond the face of the note to ascertain the sum of principal and interest owing each month, or $17,838.51, and the total principal and interest to be paid, or $1,712,496.96. Although the "precomputed note" does not specify interest separately from principal, it nevertheless specifies interest, and U.C.C. Sec. 3-118(d) does not apply.

The district court also relied on U.C.C. Sec. 3-119(a), which provides:

As between the obligor and his immediate obligee or any transferee the terms of an instrument may be modified or affected by any other written agreement executed as a part of the same transaction....

This provision merely applies the "ordinary rule [of contracts] that writings executed as part of the same transaction are to be read together as a single agreement." U.C.C. Sec. 3-119 comment 3. The district court examined several documents that were executed with the note, including the chattel mortgage and security agreement, aircraft bill of sale, and statement of account, to determine that the principal amount of the loan was $1,082,678.24. From that figure and the information in the note, the annual interest rate was calculated to be 12.7198%. Although reference to these additional documents under U.C.C. Sec. 3-119(a) was not necessary to hold that the note specified interest, it was not improper. ² The...