Houston Sash and Door Co., Inc. v. Heaner, B-7412

Citation577 S.W.2d 217
Decision Date31 January 1979
Docket NumberNo. B-7412,B-7412
PartiesHOUSTON SASH AND DOOR COMPANY, INC., Petitioner, v. Beatrice Elinor HEANER, Independent Executrix, et al., Respondents.
CourtSupreme Court of Texas

Travis G. Wilson, M. R. Carr, Houston, for petitioner.

Jefferson, Naness, Valdes & Mims, Carnegie H. Mims, Jr., Houston, for respondents.

JOHNSON, Justice.

This is a case which presents a question of first impression whether the charging of interest on an open account during the interest-free period specified in Article 5069-1.03 1 constitutes interest in excess of double that allowed by Article 5069-1.01, Et seq., thereby subjecting the creditor to loss of principal, twice the interest charged, all other charges, and debtor's reasonable attorneys' fees as provided by Article 5069-1.06(2). We hold that it does.

In this case the plaintiff creditor, Houston Sash and Door Company, sought recovery against a corporate debtor, Bedford Corporation, on its open account and against an officer of the corporation, John E. Heaner, who had guaranteed the corporation's debt by written agreement. The defendants answered that plaintiff had charged and contracted for a usurious rate of interest in excess of double that allowed by law. Trial was to the court which rendered judgment for the plaintiff. The court of civil appeals reversed and remanded, agreeing with defendants that the transaction was usurious. 560 S.W.2d 525. We disagree in several respects with the courts below.

On May 31, 1973 John E. Heaner, Chairman of the Board of Bedford Corporation, executed a letter agreement guaranteeing payment of all sums owed Houston Sash and Door Company by Bedford. Heaner also agreed to pay "interest from the due date of any (Bedford) account to the date of payment at the rate of 12% Per annum." Following the execution of this guaranty Bedford commenced purchasing building supplies and materials from Houston Sash on open account.

Between January 15, 1974 and March 28, 1974 Bedford established a debt in its account with Houston Sash in the amount of $13,575.73. When the account was not paid, Houston Sash filed suit in February 1975, naming Bedford and Heaner as defendants. Heaner died prior to trial and his estate was substituted as defendant.

At trial, the plaintiff called its credit manager who identified certain work orders, invoices, and statements of account pertaining to the supplies and materials sold Bedford on open account. Each invoice stated under "TERMS OF SALE" that interest at the rate of twelve percent per annum would be charged on all past-due accounts. The credit manager testified that accounts were past due after thirty days 2 and that plaintiff, by separate invoice, charged its customers interest at that twelve percent rate. Among the records produced and identified by plaintiff's credit manager were two interest invoices dated March 27, 1974 and April 26, 1974 reflecting and verifying that interest at the rate of twelve percent per annum had been charged on Bedford's account. The records identified also included the March and April statements of account which incorporated the interest invoices as a part of the current balance of Bedford's account.

In its second amended petition Houston Sash alleged that the debt amounted to $13,766.16. This amount, however, included not only the sums charged for goods sold to Bedford, but also the interest previously charged and recorded during the months of March and April 1974. Houston Sash additionally prayed for interest at six percent per annum, a rate referred to in the first part of Article 5069-1.03. 3 The defendants filed a sworn denial of the account, alleged that plaintiff had charged usurious interest, and prayed that plaintiff be penalized as provided in Article 5069-1.06. 4 The trial court, however, merely deducted from Bedford's account the amount charged on the two interest invoices and rendered judgment against Bedford and Heaner's estate, jointly and severally, in the amount of $13,575.73. The judgment further recited that Houston Sash recover from Bedford the additional sum of $3,699.43. 5

Defendants appealed, contending that the trial court had erred in rendering judgment on the debt because Houston Sash had charged interest in excess of double that allowed by law and was therefore required to forfeit the principal, twice the amount of interest charged, and reasonable attorneys' fees, all as provided by Article 5069-1.06(2). The court of civil appeals agreed, noting that Houston Sash had neither pleaded nor proved that Bedford had agreed to pay interest on its open account. 6 The court of civil appeals determined that, in the absence of an agreed rate of interest, Houston Sash had authority to charge only the rate of interest specified in Article 5069-1.03; that by virtue of the specific wording of that Article, Houston Sash was not authorized to accrue, charge, or collect any interest on the open account until January 1, 1975, and, after that date, was allowed a maximum rate of only six percent per annum. The court of civil appeals, therefore, reversed the judgment of the trial court and remanded the cause, directing the trial court to determine defendants' reasonable attorneys' fees and then to render judgment for defendants as provided by Article 5069-1.06.

In its first point of error Houston Sash complains that the court of civil appeals erred in holding that, in the absence of an agreement, a charge of interest on an open account during the calendar year in which the account is made constitutes the charging of interest in excess of double the amount allowed by law, subjecting the creditor to the penalties provided by Article 5069-1.06(2).

Houston Sash concedes that it charged interest on Bedford's account at a time when it was not authorized to charge any interest. Houston Sash argues, however, that the charging of such interest falls within the scope of Article 5069-1.06(1) and not the more severe provisions of Article 5069-1.06(2). The more severe penalty specifies punishment for anyone who ". . . contracts for, charges or receives interest . . . in excess of double the amount of interest allowed by this Subtitle." Houston Sash contends that the "amount of interest allowed by this Subtitle" refers to the maximum rate of interest specified in the subtitle; I. e., the ten percent per annum allowed by Article 5069-1.02, 7 and not the lesser rate of six percent per annum specified by Article 5069-1.03. Since a rate of interest greater than ten percent per annum is deemed usurious under Article 5069-1.02, Houston Sash maintains that a rate of interest below ten percent is not usury, but simply uncollectible. Houston Sash argues then that a creditor must charge interest in excess of ten percent before the penalty forfeiture prescribed by Article 5069-1.06(1) applies and must charge interest in excess of twenty percent before the penalty forfeiture prescribed by Article 5069-1.06(2) applies.

In support of its interpretation of Article 5069-1.06, Houston Sash offers Bruner v. Republic Supply Company, 416 F.2d 763 (5th Cir. 1969), and Carder v. Knippa Mercantile Co., 1 S.W.2d 462 (Tex.Civ.App. San Antonio 1927, writ dism'd). Bruner and Carder, however, interpret former statutes replaced by the present subtitle and are of little value. While the former statutes are similar to the present subtitle in some respects, a comparison reveals that the Legislature substantially modified the penalties applied to usurious transactions. 8 The predecessor to Article 5069 includes no provision comparable to Article 5069-1.06.

Bedford, on the other hand, argues that the interest rate specified in Article 5069-1.03 clearly applies to its open account because Houston Sash neither pleaded nor proved an agreement regarding interest. Article 5069-1.03 allows a maximum rate of interest of six percent per annum. The Article, however, makes no provision for interest during the calendar year in which an open account is made. Since Houston Sash charged interest on Bedford's account during the interest-free period specified in Article 5069-1.03, Bedford argues that Houston Sash is subject to the penalty prescribed by Article 5069-1.06(2). Under Bedford's interpretation of the subtitle, Any rate of interest is in "excess of double the amount of interest allowed by this Subtitle" if charged at a time when no interest whatever is allowed.

A resolution of this first point requires a consideration of the basic usury laws of this state. Article 16, Section 11, of the Texas Constitution, as amended November 8, 1960, authorizes the Legislature to "define interest and fix maximum rates of interest." The Texas Constitution makes no attempt to define "usury," but merely states that in the absence of legislation, "all contracts for a greater rate of interest than ten per centum (10%) per annum shall be deemed usurious."

Pursuant to the Constitution, the Legislature enacted Article 5069-1.01, Et seq., effective October 1, 1967, in which it defines "interest" and "usury," fixes various maximum rates of interest, and prescribes penalties for those engaging in "usurious" transactions. Although the subtitle defines "usury," the term is not found in the penalty provisions and appears in only one other Article in the subtitle. 9 Instead, the penalty forfeitures are conditioned upon contracting for, charging, or receiving interest "which is greater than the amount Authorized " by the subtitle or "which is in excess of double the amount of interest Allowed " by the subtitle. (Emphasis added.) Our immediate concern then is not a determination of the amount of interest constituting "usury" or "double usury," but rather the amount of interest the subtitle authorizes or allows.

An examination of the subtitle reveals that the amount of interest "allowed" or "authorized" depends upon the facts and circumstances attending the credit transaction. Article 5069-1.02...

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