Missouri-Kansas-Texas R. Co. v. Fiberglass Insulators, MISSOURI-KANSAS-TEXAS

• Decision Date: 20 March 1986
• Docket Number: No. 01-85-0545-CV,MISSOURI-KANSAS-TEXAS,01-85-0545-CV
• Citation: 707 S.W.2d 943
• Parties: RAILROAD COMPANY, Appellant, v. FIBERGLASS INSULATORS, Appellee. (1st Dist.)
• Court: Texas Court of Appeals

Page 943

707 S.W.2d 943

MISSOURI-KANSAS-TEXAS RAILROAD COMPANY, Appellant, v. FIBERGLASS INSULATORS, Appellee.

No. 01-85-0545-CV.

Court of Appeals of Texas Houston (1st Dist.).

March 20, 1986.

Rehearing Denied April 10, 1986.

Brock C. Akers, Vinson & Elkins, Houston, for appellant.

Ronald G. Wiesenthal, Williamson, Gardner, Hall & Wiesenthal, Houston, for appellee.

Before SAM BASS, COHEN and HOYT, JJ.

OPINION

COHEN, Justice.

Neither a borrower, nor a lender be;

For loan oft loses both itself and friend,...

Shakespeare, Hamlet, I, iii, 75.

Missouri-Kansas-Texas Railroad Company (MKT) sued Fiberglass for $9,290.00 and "interest" for failure to pay demurrage due pursuant to a written contract. The jury found for MKT on all issues, but the court granted Fiberglass a judgment notwithstanding the verdict for damages of $11,469.00, based on usury. The trial judge ruled that, during the trial, MKT had committed usury when Frank Listvan, MKT's accounts manager, requested an award of 10 percent prejudgment interest on the debt, compounded annually, from January 1, 1979. Once Listvan testified, on cross-examination, that he was "charging" prejudgment interest in this fashion, the trial court allowed Fiberglass to file a supplemental answer asserting usury, and thereafter denied MKT's requested trial amendment asserting bona fide error and special issues regarding bona fide error and intent to charge usurious interest.

Based solely on Listvan's testimony, the court found MKT guilty of charging interest at more than twice the legal prejudgment rate, and consequently, it forfeited all principal and interest due to MKT and awarded Fiberglass three times the amount of usurious interest charged, plus attorney's fees. This occurred even though no contract, written or oral demand, business record, or other document ever mentioned interest, and MKT's petition made only a one-word reference to "interest."

To summarize, MKT, which the jury found was owed $15,140.00 by Fiberglass for debt and attorney's fees, left the trial court owing $15,969.00 in damages and attorney's fees to Fiberglass, its debtor when the trial began.

MKT contends that it cannot be guilty of usury because 10 percent is a legal rate of prejudgment interest under Tex.Rev.Civ.Stat.Ann. art. 5069-1.05 (Vernon Supp.1986). MKT specifically relies on sec. 2 of art. 5069-1.05, which provides that the interest rate on "all judgments of the courts of this state" shall vary from 10 to 20 percent, as determined by the consumer credit commissioner.

We reject MKT's argument. Article 5069-1.05 is captioned "Rate of judgments." The rates it establishes begin to run "on the day the judgment is rendered" and end "on the day the judgment is satisfied." Article 5069-1.05 applies only to judgments.

The contract herein did not mention interest. The statute governing the rate of prejudgment interest in such a case is art. 5069-1.03 (Vernon Supp.1986), which provides:

When no specified rate of interest is agreed upon by the parties, interest at the rate of six percent per annum shall be allowed on all accounts and contracts ascertaining the sum payable, commencing on the thirtieth (30th) day from and after the time when the sum is due and payable.

Articles 5069-1.03 and 5069-1.05 are not ambiguous and do not overlap. Article 5069-1.03 refers only to interest commencing on the thirtieth day after the debt is due, which could only be prejudgment interest, and art. 5069-1.05 refers only to interest on judgments. This was the express holding of the Texas Supreme Court in Miner-Dederick Construction Corp. v. Mid-County Rental Service, Inc., 603 S.W.2d 193, 200 (Tex.1980). Miner-Dederick was an appeal from a judgment for damages in contract. Mid-County requested prejudgment interest "at the rate of 9 percent per annum, or alternatively 6 percent, on the awards in its favor." Id. The court rejected the claim for nine percent interest and held that "the proper rate of prejudgment interest is 6 percent per annum." Id. The holding on prejudgment interest was unanimous, although four justices dissented on other grounds. The court quoted with approval from Pecos County State Bank v. El Paso Livestock Auction Co., 586 S.W.2d 183, 187 (Tex.Civ.App.--El Paso 1979, writ ref'd n.r.e.), where the award of nine percent prejudgment interest was reduced to six percent:

The court of civil appeals correctly stated that the proper rate of prejudgment interest is 6 percent per annum. In Pecos County State Bank v. El Paso Livestock Auction Co., 586 S.W.2d 183 (Tex.Civ.App.--El Paso 1979, writ ref'd n.r.e.), the court stated:

"[I]n 1975 the Legislature amended Article 5069-1.05, Tex.Rev.Civ.Stat.Ann., and fixed the usual rate of interest on judgments in this State at the rate of 9% per annum while leaving Article 5069-1.03 unamended at 6%.... As we understand it, the recovery of prejudgment interest where sought at common law as an element of damages was fixed at 6% because the courts by analogy adopted the legal rate of interest fixed by the statute as the standard by which to be governed in assessing those damages for the detention of money. Watkins v. Junker, 90 Tex. 584, 40 S.W. 11 (1897). That was the statutory predecessor to Article 5069-1.03 which is still at 6%. By Article 5069-1.01(b) '[l]egal interest' is still defined as that interest which is allowed by law when the parties to a contract have not agreed on any particular rate, and that is still the 6% as determined by Article 5069-1.03."

603 S.W.2d at 200.

MKT's claim that art. 5069-1.05 allows it to charge prejudgment interest of 10 percent cannot be sustained in light of two clear statutes and the holding in Miner-Dederick v. Mid-County Rental. See also Howze v. Surety Corp. of America, 584 S.W.2d 263, 268 (Tex.1979) (op. on reh'g).

Despite these authorities, we are bound to confront a sizeable group of judicial decisions from Texas and federal courts that hold exactly as MKT urges. These cases hold that prejudgment interest can be recovered on equitable grounds, in addition to the statutory grounds in art. 5069-1.03, and that when equitable pre judgment interest is allowed, it may be recovered at rates higher than the six percent limit in art. 5069-1.03 and possibly as high as 20 percent, based on our post judgment interest statute, art. 5069-1.05. We respectfully decline to follow these cases because, in our opinion, they incorrectly ignore art. 5069-1.03.

In Earl Hayes Rents Cars & Trucks v. City of Houston, 557 S.W.2d 316, 322 (Tex.Civ.App.--Houston [1st Dist.] 1977, writ ref'd n.r.e.), the court reduced from nine percent to six percent the rate of prejudgment interest for the period before September 1, 1975, but left standing the trial court's award of pre judgment interest at nine percent for the period after September 1, 1975 (the date art. 5069-1.05 took effect and raised the post judgment rate to nine percent). We do not view this as an authoritative "holding," however, because the City did not attack the award of nine percent prejudgment interest for the period after September 1, 1975. The City only asked for a reduction in prejudgment interest for the period before September 1. No point of error was presented or decided concerning whether the post judgment interest statute, art. 5069-1.05, could authorize an award of pre judgment interest at nine percent. The court simply decided the issue before it--and no other.

In Haag v. Pugh, 545 S.W.2d 22 (Tex.Civ.App.--Eastland 1976, no writ), the court increased the prejudgment interest rate from six percent to nine percent, apparently on the authority of art. 5069-1.05, as amended effective September 1, 1975. The amendment, however, had nothing to do with prejudgment interest. See Ch. 288, sec. 1, 1975 Tex.Gen.Laws 730. The court did not explain how nine percent prejudgment interest could be awarded under art. 5069-1.05, a statute applying solely to interest on judgments.

In Allstate Insurance Co. v. Chance, 590 S.W.2d 703 (Tex.1979), the Texas Supreme Court, in an unsigned, per curiam opinion, upheld an award of nine percent prejudgment interest in a suit on a fire insurance policy. Once again, the issue of the proper rate of prejudgment interest in a contract case was not raised in a point of error, was not discussed, and apparently was not recognized in an opinion summarily reversing the intermediate court on wholly unrelated evidentiary questions. No mention of nine percent prejudgment interest was made in the lower court's opinion. Allstate Insurance Co. v. Chance, 582 S.W.2d 530 (Tex.Civ.App.--Beaumont 1979). The Supreme Court opinion in Allstate does not constitute a holding on this subject because no issue was presented by the parties or confronted by the court. See also Maxey v. Texas Commerce Bank, 580 S.W.2d 340 (Tex.1979) (an unsigned, per curiam opinion refusing a writ of error, n.r.e., and expressing "no opinion" regarding the lower court holding limiting prejudgment interest to 6% per annum in a contract case. This, of course, is not a holding.).

Two courts of appeals have held and explained how prejudgment interest can be recovered under art. 5069-1.05, purportedly based on Texas Supreme Court authority. In Behring International, Inc. v. Greater Houston Bank, 662 S.W.2d 642, 652 (Tex.App.--Houston [1st Dist.] 1983, no writ), a contract case, the court remanded the cause to the trial court to "determine an appropriate rate of prejudgment interest." Id. (emphasis supplied). The court wrote:

The facts are such that the trial court may elect to fix the prejudgment interest rate by using the equitable principles enunciated in Phillips Petroleum Co. v. Adams, 513 F.2d 355 (5th Cir.1975), and Phillips Petroleum Co. v. Stahl, 569 S.W.2d 480 (Tex.1978) or by using the statutory method as provided in Tex.Rev.Civ.Stat.Ann. art. 5069-1 [sic] (Vernon 1981).

The Behring case thus squarely holds that when prejudgment interest is awarded on equitable grounds, it...