Phillips Petroleum Co. v. Stahl Petroleum Co.

Decision Date21 June 1978
Docket NumberNo. B-6813,B-6813
Citation569 S.W.2d 480
CourtTexas Supreme Court

McGinnis, Lochridge & Kilgore, Lloyd Lochridge, Austin, Kenneth Heady and C. J. Roberts, Bartlesville, Okl., Jack Ritchie, T. L. Cubbage, II, and David B. McCall, Amarillo, for petitioner.

Stone, Stone & Chambers, John C. Chambers, Amarillo, for respondent.

DANIEL, Justice.

The question on this appeal is whether Phillips Petroleum Company, a purchaser of casinghead gas from Stahl Petroleum Company, owed interest on Stahl's portion of the increased prices which Phillips had collected from its interstate purchasers pending final approval of its rate increases by the Federal Power Commission. The trial court, without aid of a jury, rendered judgment that Phillips owed no interest on the delayed payments. The Court of Civil Appeals reversed and rendered judgment for Stahl for $14,094.12 interest on the delayed payments as of December 7, 1972, and for interest on that sum from December 7, 1972 to the date of judgment. Tex.Civ.App., 550 S.W.2d 360. We affirm the judgment of the Court of Civil Appeals.

Stahl is a leasehold owner and producer of natural and casinghead gas in the Panhandle Field of Texas. Phillips is engaged in the production, purchase, transportation and sale of gas in both intrastate and interstate commerce. Under the terms of Stahl's contract with Phillips 1 dated December 5, 1957, it was agreed that Phillips would purchase casinghead gas owned or purchased by Stahl from certain wells located in Gray County. The purchase price to be paid by Phillips for the gas delivered to it by Stahl was based on a percentage of the "weighted average price received" by Phillips from sales of gas from the Panhandle Field to third parties. Exact terms of the relevant portions of the contract and details concerning the proceedings below are set forth in the opinion of the Court of Civil Appeals. We shall repeat only so much thereof as is necessary for determination of this appeal.

The payment provision of the contract required that payment for all gas delivered each month be made not later than the last day of the succeeding month. There was no provision for Phillips to withhold any portion of the monthly payments attributable to Phillips' receipts from price increases which had not been approved by the Federal Power Commission (FPC); nor was there any provision that such receipts should be excluded from the "weighted average price received" by Phillips pending FPC approval. Neither was there any provision for payment of interest on delayed payments.

The contract was made subject to all valid statutes and rules and regulations of any duly constituted federal or state regulatory body having jurisdiction. However, Phillips concedes that there was no statute or rule preventing it from making payments to its royalty owners and suppliers based upon the increased prices received by Phillips pending FPC approval or disapproval. Such payments would, of course, be subject to proportionate reimbursement on any refunds which Phillips was obligated to make in case of subsequent FPC disapproval. The parties further agree that the terms of the contract relating to price and payment are not ambiguous, and that the question before us should be decided as a matter of law. Myers v. Gulf Coast Minerals Management Corporation, 361 S.W.2d 193 (Tex.1962); Tower Contracting Company v. Flores, 157 Tex. 297, 302 S.W.2d 396 (1957).

Prior to the execution of the Stahl contract, the Supreme Court of the United States had held in Phillips Petroleum Company v. Wisconsin, 347 U.S. 672, 74 S.Ct 794, 98 L.Ed. 1035 (1954), that the Federal Power Commission has jurisdiction under the Natural Gas Act, 15 U.S.C. § 717 et seq., to regulate well-head prices of natural gas sold in interstate commerce, and that Phillips' gas sales in interstate commerce were subject to such jurisdiction and regulation. Also, prior to the Stahl contract, Phillips had filed numerous applications with the FPC for blanket price increases on interstate sales of gas transported to its customers from the Panhandle Field. Rather than waiting for approval by the FPC of proposed price increases, the Natural Gas Act allows a pipeline company to begin collecting from its purchasers the proposed increased prices after thirty days' notice, 15 U.S.C. § 717c(d), unless the FPC suspends the operation for not longer than five months. 15 U.S.C. § 717c(e); 18 C.F.R. § 154.102. The FPC suspended a total of thirty-one proposed price increases relating to Phillips' interstate gas sales from the Panhandle Field. Thereafter, Phillips was permitted to sell such gas at its filed rate increases upon posting a corporate obligation guaranteeing to refund with interest all or any part of such increases ultimately disapproved by the FPC as being unfair and unreasonable.

Over 18 years expired before the FPC approved in part and disapproved in part the price increases in FPC Opinion 586, which became final on October 30, 1972. During that time Phillips had over 900 lease and purchase contracts in which the monthly price agreed to be paid to its royalty owners and suppliers was based in part on a percentage of the prices received from its interstate sales. In some instances Phillips included these increased price receipts in calculating and making payments under similar contracts. 2 However, as to Stahl and many other suppliers, according to the numerous reported cases, Phillips remitted only on the basis of prices previously approved by the FPC. These were referred to as "firm" prices. They represented no portion of the increased prices which Phillips had been receiving from its interstate sales. The so-called "suspense funds" withheld by the company were placed in the general funds of the company and used during the 18-year period for general corporate purposes.

When the rate order became final on October 30, 1972, Phillips returned to its customers the disapproved ("refundable") portion of its receipts from the price increases. It then recalculated the payments due Stahl by including the approved ("sustainable") portion of such increased price receipts in its weighted average of all receipts. The difference between the amount already paid and the amount due upon this recalculation was $24,258.81. This sum was paid by Phillips to Stahl on December 7, 1972.

Almost three years thereafter, on September 11, 1975, Phillips filed this declaratory judgment action against Stahl. It sought a declaration that it was not liable for the sum paid to Stahl on December 7, 1972, and in the alternative that it was not liable for interest thereon, and, in no event, for interest prior to October 30, 1972, the date when approval of the sustainable portion of the price increases became final. The record does not show that Stahl had asserted any claim to interest prior to the time Phillips filed this suit. 3 However Stahl promptly joined issue with a counterclaim against Phillips for interest on the sum paid from the respective dates on which Phillips received the funds.

The trial court held that Phillips was obligated to pay Stahl the $24,258.81 as the principal sum due under the contract, but it held that Phillips was not liable for any payment of interest thereon. Only Stahl appealed, arguing that it was entitled to $14,084.12 interest, figured at six percent per annum on the sum of $24,258.81 to December 7, 1972. Stahl also sought prejudgment interest on the $14,084.12 from December 7, 1972, to the date of the judgment.

Interest Under the Contractual Obligation

The general rule in Texas, originating in the common law, has long been stated that prejudgment interest cannot be allowed Eo nominee (under that name) unless provided for by contract or statute. Watkins v. Junker, 90 Tex. 584, 40 S.W. 11 (1897); Heidenheimer v. Ellis, 67 Tex. 426, 3 S.W. 666 (1887). As shall be demonstrated later, in neither of these cases, nor in numerous other Texas cases, have the courts been consistent or rigid in applying the rule in a manner that would deny a party legal compensation for the use or detention of his money. See Phillips Petroleum Company v. Adams, 513 F.2d 355 (5th Cir. 1975), and Texas cases therein and hereinafter cited. Phillips attacked the Circuit Court's opinion as being contrary to Texas law, contending that absent a specific contractual or statutory provision, no interest was due. The Court of Civil Appeals agreed that Stahl's right to interest depended upon the authority of an enabling Texas statute, and it proceeded to render an interest judgment for Stahl based upon the following statutes:

"Article 5069-1.01. Definitions

"(a) 'Interest' is the compensation allowed by law for the use or forbearance or detention of money; . . .." 4

"Art. 5069-1.03. Legal rate applicable

"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 written contracts ascertaining the sum payable, from and after the time when the sum is due and payable; and on all open accounts, from the first day of January after the same are made." (Effective Oct. 1, 1967, but identical with its predecessor, Article 5070.)

Phillips contends that the statute does not apply because the sum payable under its contract was neither ascertainable nor due and payable until the finality of the FPC's order on October 30, 1972. We disagree. The unambiguous terms of its contract provided the means for ascertaining the sums due and payable to Stahl each month. These payments for gas delivered by Stahl each month (to be made not later than the last day of the succeeding month) were to be based in part on "the weighted average price received" by Phillips from all of its sales of Panhandle Field gas to third parties during the preceding month. This weighted average price received by...

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