George A. Fuller Co. of Texas, Inc. v. Carpet Services, Inc.

• Decision Date: 29 January 1992
• Docket Number: No. D-0791,D-0791
• Citation: 823 S.W.2d 603
• Parties: GEORGE A. FULLER COMPANY OF TEXAS, INC., Petitioner, v. CARPET SERVICES, INC., Respondent.
• Court: Texas Supreme Court

Page 603

823 S.W.2d 603

GEORGE A. FULLER COMPANY OF TEXAS, INC., Petitioner, v. CARPET SERVICES, INC., Respondent.

No. D-0791.

Supreme Court of Texas.

Jan. 29, 1992.

Luke Madole, Dallas, John C. Hayes, Jr., Washington, D.C., for petitioner.

Robert E. Hager, David M. Berman, Dallas, for respondent.

OPINION

COOK, Justice.

This case presents the question whether a pleading containing a claim for usurious interest is a document which may charge interest for purposes of imposing usury penalties. We hold that a pleading asserting a claim for prejudgment interest for a period when no interest is due does not constitute a "charge" of usurious interest for purposes of the Texas usury statute.

Carpet Services, Inc. was a sub-contractor of the George A. Fuller Company of Texas, Inc. on a commercial construction project. After Fuller refused to pay for work completed by Carpet Services, Carpet Services sued for breach of contract. In its original petition, Carpet Services pleaded for prejudgment interest on a portion of the contract debt for a period before the debt was due. The contract between Carpet Services and Fuller provided that payment by Fuller was conditioned on payment of Fuller by the owner. Under the contract between Carpet Services and Fuller, Carpet Services would not be entitled to payment or interest until after Fuller was paid by the owner. Carpet Services pleaded for prejudgment interest for a period commencing before the owner paid Fuller part of the contract debt.

The trial court found that Carpet Services' petition constituted a usurious charge of interest in excess of twice the legal rate since it demanded interest for a period before a portion of the amounts claimed became due and payable under the contract. Any interest charged in an interest-free period is in excess of twice the legal rate of zero. Carpet Services alleged a legal rate of interest under Texas usury laws. The interest was just claimed for an improper period. The trial court also determined that the charge was not the result of a bona fide error or accident. That court rendered judgment that Carpet Services forfeit all principal, interest, and other charges and imposed the statutory minimum penalty of $2,000.

The court of appeals reversed the judgment of the trial court and held that a demand for usurious interest in a pleading is not a usurious charge of interest. 802 S.W.2d 343. We affirm the judgment of the court of appeals.

Articles 5069-1.06(1), (2) of the Texas Civil Statutes provide penalties for "[a]ny person who contracts for, charges or receives interest which is" greater than a lawful amount. Tex.Rev.Civ.Stat.Ann. art. 5069-1.06(1), (2) (Vernon 1987). The key word for purposes of this case is "charge" since there was not an improper contract for interest nor was interest received.

When interpreting the meaning of 'charge' in article 5069-1.06, we look first to the language of the statute. Article 5069-1.06 does not state what constitutes a charge of interest. The application of article 5069-1.06 is clarified, however, by the declaration of legislative intent that accompanied the statute. The declaration of legislative intent provides that:

It is the intent of the Legislature in enacting this revision [of the statute on interest] to protect the citizens of Texas from abusive and deceptive practices now being perpetrated by unscrupulous operators, lenders and vendors in both cash and credit consumer transactions ... and thus serve the public interest of the people of this State.

Act of May 23, 1967, 60th Leg., R.S., ch. 24, § 1, 1967 Tex.Gen.Laws 609. There is no indication in the statement of legislative purpose that the legislature intended that the usury laws be applied to pleadings. Therefore, neither the statute nor the statement of legislative intent mandates a holding that pleadings can constitute a charge of interest.

This Court has never addressed the issue whether pleading usurious prejudgment interest can be a charge. ¹ See Danziger v. San Jacinto Sav. Ass'n, 732 S.W.2d 300, 305 (Tex.1987) (Gonzalez, J., concurring) (whether pleadings alone can constitute a charge of usurious interest is an open question); Petroscience Corp. v. Diamond Geophysical, Inc., 684 S.W.2d 668, 668 (Tex.1984) (left intact ruling of court of appeals that a pleading is not a charge of usurious interest and affirmed on other grounds); Tyra v. Bob Carroll Constr. Co., 639 S.W.2d 690, 691 (Tex.1982) (assumed that a pleading was a charge of interest and found that there was a bona fide error which prevented penalties for usury).

The question whether a pleading can charge interest was addressed in Moore v. Sabine National Bank, 527 S.W.2d 209 (Tex.Civ.App.--Austin 1975, writ ref'd n.r.e.). In that case, the court of appeals held that the statements contained in Sabine National Bank's notice of intention to repossess, its original petition, and its sequestration affidavit constituted a usurious charge within the meaning of articles 5069-8.01 and 5069-8.02. ² Id. at 211. Subsequent cases interpreting Sabine National Bank have held that merely filing a pleading asserting usurious interest constitutes a usurious charge. See, e.g., Butler v. Holt Machinery Co., 741 S.W.2d 169 (Tex.App.--San Antonio 1987, writ denied); Moore v. White Motor Credit Corp., 708 S.W.2d 465, 468 (Tex.App.--Dallas 1985 writ ref'd n.r.e.); Nationwide Finance Corp. v. English, 604 S.W.2d 458 (Tex.Civ.App.--Amarillo 1980, writ dism'd); General Motors Acceptance Corp. v. Uresti, 553 S.W.2d 660, 663 (Tex.Civ.App.--Tyler 1977, writ ref'd n.r.e.).

However, on the facts, Sabine National Bank is distinguishable from Fuller. Carpet Services only pleaded for usurious prejudgment interest. In contrast, Sabine National Bank sent the debtor a notice of intention to repossess in addition to the pleadings. The Sabine National Bank court was not faced with the question whether a demand for prejudgment interest in pleadings alone is sufficient to be a charge of interest. The courts of appeals that have cited Sabine National Bank for the proposition that a pleading is a charge of interest did not consider the fact that, in addition to the pleading, a notice of intention to repossess was sent to the debtor. Therefore, the court of appeals properly held that Sabine National Bank does not support the proposition that a pleading for usurious prejudgment interest, by itself, can constitute a charge of interest within the meaning of article 5069-1.06.

Fuller argues that a pleading must be included within the meaning of the term "charge" because it has a very broad meaning, as seen in Danziger and Hagar v. Williams, 593 S.W.2d 783 (Tex.Civ.App.--Amarillo 1979, no writ). We disagree with Fuller's broad interpretation of these cases. In Danziger, we noted that "[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." 732 S.W.2d at 304. However, we were not faced with and did not address whether pleadings could charge interest. Today, we address that question.

In Hagar, the Amarillo Court of Appeals held that the term 'charge' as used in the usury statute means "unilaterally placing on an account an amount as interest." 593 S.W.2d at 788. The Hagar court interpreted this to mean that usury penalties could be imposed even though the creditor gave no notice of the charge or demand for payment. Although a charge is unilateral, as opposed to by agreement, it still must be communicated outside the organization making the charge to be a charge within the meaning of article 5069-1.06. Therefore, we disapprove of Hagar to the extent that it holds that the term 'charge' includes unilaterally placing on an account an amount due as interest without any other action. A charge must be communicated to the debtor. The communication need not be direct, as long as the charge is ultimately demanded from the debtor.

Usury statutes are designed to correct abusive practices in consumer and commercial credit transactions, not to serve as a trap for the unwary pleader in a court proceeding. Pleadings serve to give a party notice of the issues at trial. Murray v. O & A Express, Inc., 630 S.W.2d 633 (Tex.1982). Pleadings are addressed to the court, and only demand that the court grant judgment. There is no demand on the opposing party. See Fibergrate Corp. v. Research-Cottrell, Inc., 481 F.Supp. 570, 572 (N.D.Tex.1979).

The unique nature of pleadings is particularly significant in this case since the interest claimed is prejudgment interest. A claim for prejudgment interest arises from the judicial process rather than directly from a commercial or consumer transaction. Prejudgment interest serves to compensate the plaintiff for the delay between the plaintiff's injury and payment for that injury. See Republic National Bank of Dallas v. Northwest National Bank of Fort Worth, 578 S.W.2d 109, 116 (Tex.1979). Prejudgment interest arises only in the context of court proceedings and can only be obtained by court order. Pleadings that allege prejudgment interest in excess of the lawful rate are best dealt with in the context of the judicial process that the pleadings are part of rather than through the Texas usury laws. See Gibralter Savings v. LDBrinkman Corp., 860 F.2d 1275, 1296 (5th Cir.1988), cert. denied, 490 U.S. 1091, 109 S.Ct. 2432, 104 L.Ed.2d 988 (1989); Fibergrate, 481 F.Supp. at 572. The judicial process provides an array of protections to a party to a suit that are not available in commercial or consumer credit transactions.

The wrongs that the legislature sought to correct by enacting article 5069-1.01 et seq. are not present when a party makes a demand for prejudgment interest in a pleading. Therefore, we hold that a demand for prejudgment interest contained in a pleading does not...