Preston Farm & Ranch Supply, Inc. v. Bio-Zyme Enterprises

• Decision Date: 25 November 1981
• Docket Number: No. C-379,BIO-ZYME,C-379
• Citation: 625 S.W.2d 295
• Parties: 32 UCC Rep.Serv. 712 PRESTON FARM & RANCH SUPPLY, INC., et al., Petitioners, v.ENTERPRISES, Respondents.
• Court: Texas Supreme Court

Page 295

625 S.W.2d 295

32 UCC Rep.Serv. 712

PRESTON FARM & RANCH SUPPLY, INC., et al., Petitioners, v. BIO-ZYME ENTERPRISES, Respondents.

No. C-379.

Supreme Court of Texas.

Nov. 25, 1981.

Rehearing Denied Jan. 6, 1982.

Nance, Caston & Nall, David Stagner, Denison, for petitioners.

The Fiedler Firm, Donald A. Muncy, Richardson, The Carlton Firm, Ron V. Berkowitz, Dallas, for respondents.

SPEARS, Justice.

This is a suit initiated by Bio-Zyme Enterprises against Ken Vanderhoof and Preston Farm & Ranch Supply, Inc. on a sworn account to collect a debt. The defendants counterclaimed, alleging usury. The primary issue before the court is whether the evidence supported a finding that Preston Farm and its owner, Ken Vanderhoof, agreed to pay interest on the account. The trial court found that such an agreement existed, rendered judgment for the plaintiff Bio-Zyme on the debt, but deducted from its judgment against Vanderhoof an amount equal to twice the interest charged as a penalty for usury. The court of civil appeals affirmed. 615 S.W.2d 258. We affirm the judgment of the court of civil appeals.

Bio-Zyme is a manufacturer of livestock feeds. Ken Vanderhoof was a retailer of feeds and other merchandise. In April of 1975, Bio-Zyme began selling stock feed to Vanderhoof on open account. The invoices sent along with the shipments stated the terms only as "Chg." Bio-Zyme would then send to Vanderhoof a monthly statement showing the invoice numbers of the items purchased, the charges, the credits to Vanderhoof's account, and his balance. At the bottom of each statement, these printed sentences appeared:

No finance or carrying charge is made on accounts paid within thirty days of purchase. Accounts not paid within 30 days will on our billing date (the 26th day of each month) be charged 1% each month which is 12% annual rate.

Sales to Vanderhoof individually continued until October of 1975 when he informed Bio-Zyme of his incorporation as Preston Farm & Ranch Supply Co. By this time, eight sales from Bio-Zyme to Vanderhoof had been made and seven monthly statements had been sent, showing that service charges were imposed four times. On each monthly statement in which a service charge was imposed, the words "SERVICE CHARGE" were conspicuously stamped in the column where an invoice number would normally appear, and the amount of the service charge appeared in the charge column.

After Vanderhoof informed Bio-Zyme of his incorporation, the sales continued, except that the billing was then made to Preston Farm & Ranch Supply Co. as requested by Vanderhoof. Business relations continued between the parties through April of 1976. A total of fourteen invoices, nine service charges and numerous payments and credits are reflected in the monthly statements sent to the corporation. By April 1976, the statements showed an unpaid balance of $31,321.56 owed to Bio-Zyme including $14,910.16 incurred by Vanderhoof prior to incorporation. This latter debt had been posted to the Preston Farm monthly statements.

Bio-Zyme brought suit to recover on the unpaid invoices. Vanderhoof and Preston Farm counterclaimed for usury and prayed for recovery of twice the amount of the service charges, attorney's fees, and for forfeiture of the original debt. The counterclaim invoked the provisions of art. 5069-1.06 Tex.Rev.Civ.Stat.Ann. ¹ On February 4, 1980, after a non-jury trial, judgment was rendered (1) that Bio-Zyme recover from Vanderhoof on the unpaid invoices incurred by him individually less double the service charges imposed, and (2) that Bio-Zyme recover from Preston Farm the amount of the unpaid invoices plus service charges since the charges did not exceed the 18% allowed to be charged to corporations under art. 1302-2.09. The trial court found that Vanderhoof and Preston Farm had agreed to pay a 1% per month service charge, and that the agreed charge, amounting to 12% per annum, was two percent higher than the maximum rate (10%) allowed by article 5069-1.02 to be charged individuals. Thus, as to Vanderhoof, the court awarded usury penalties amounting to twice the interest charged under § 1.06(1), but did not impose the statutory forfeiture of principal penalties sought for double usury under § 1.06(2).

The court of civil appeals affirmed, holding that Vanderhoof and Preston Farm contracted to pay interest at the rate of 12% per annum by virtue of § 2.207 Tex.Bus.Comm.Code. ²

Article 5069-1.02 as it applied at the times pertinent to this case set the maximum rate of interest which a creditor may charge on a non-written contract at 10% per annum. ³ Where the parties do not agree upon an interest charge on an open account, an obligation to pay interest at the rate of 6% per annum arises by implication of law. Art. 5069-1.03. ⁴ This six percent charge is the maximum rate allowed by law on an open account where the parties do not agree to another amount. Houston Sash & Door v. Heaner, 577 S.W.2d 217 (Tex.1979).

Any person charging more than the maximum legal rate allowed by art. 5069-1.02 incurs the penalties imposed by art. 5069-1.06. The statute provides for different penalties for charging twice the legal rate than those imposed for charging interest which exceeds the legal rate but does not double it; therefore, a determination of what rate of interest if any was agreed upon by the parties is necessary to ascertain which penalties Vanderhoof was entitled to receive.

The question of whether an agreement was reached by the parties is generally a question of fact where the existence of the agreement is disputed. Haws & Garrett General Contractors, Inc. v. Gorbett Bros. Welding Co., 480 S.W.2d 607 (Tex.1972); Keesey v. Old, 82 Tex. 22, 17 S.W. 928 (1891). In the present case, the trial judge found as a fact that Vanderhoof and Preston Farm both agreed to pay interest on the account with Bio-Zyme at the rate of one percent per month. Thus, the question before this court on appeal is whether there is any evidence that supports that finding. Stodghill v. Tex. Employers' Ins. Ass'n, 582 S.W.2d 102 (Tex.1979); In re King's Estate, 150 Tex. 662, 244 S.W.2d 660 (1951). We conclude there is evidence to support a finding of an agreement to pay interest.

The transaction involved here was a sale of goods. Thus, the sales provisions of article 2 of the Texas Business and Commerce Code apply. Section 2.204 of the code provides: "(a) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." Even prior to the enactment of the Code it was recognized in Texas that a contract could be formed by conduct. Such a contract is one implied in fact.

A contract implied in fact is one in which, under the circumstances, the acts of the parties are such as to indicate according to the ordinary course of dealing and the common understanding of men a mutual intention to contract, as where one accepts the tendered service of another under circumstances justifying the inference that such other expected to be paid for such services.... A contract implied from the facts and circumstances in evidence is as binding as would be an expressed one.

Marr-Piper Co. v. Bullis, 1 S.W.2d 572, 575 (Tex.Comm.App.1928, judgment adopted); see also Haws & Garrett General Contractors, Inc. v. Gorbett Bros. Welding Co., supra. The classic example of an implied contract from course of dealing under the Uniform Commercial Code occurs where a buyer accepts delivery of goods with knowledge that the goods were offered at a certain price; in accepting the goods the buyer impliedly agrees to pay the specified price. See Williston on Sales § 7-2 p. 199 (4th ed. 1973).

In the present case, there is evidence of a course of conduct which gave rise to an agreement to pay interest. The record reflects that the parties had extensive dealings with one another. Altogether twenty separate sales were made from Bio-Zyme to Vanderhoof either individually or as Preston Farm. The sales continued for over a year, and Vanderhoof received a statement each month containing the service charge provision. Many of the statements plainly and conspicuously stated that service charges had been imposed. Vanderhoof continued his credit purchases and he continued to accept the goods that Bio-Zyme shipped. No objections to the service charges in question were ever made. To the contrary, Preston Farm paid service charges on Vanderhoof's debt. Moreover, at trial, Vanderhoof admitted that he agreed with the charges to his account until "very, very, recently" when he found out too much interest was being charged. We liken the present transaction to that of goods accepted with knowledge that they were offered at a certain price. From this course of conduct, the court could conclude that Vanderhoof knew or should have known that the service charge was being imposed. By his continued purchases and payments he at least impliedly agreed to pay the specified interest.

The parties involved here were both merchants as that term is defined by the Code. ⁵ The Code assumes that transactions between professionals in a given field require special and clear rules which may not apply to a casual or inexperienced seller or buyer. Code § 2.104 comment 1. Because of the reasonable expectation of business knowledge, the duty owed by the merchant is higher than that of the nonmerchant. Williston, supra at 281. Thus, the same course of conduct which might establish a contract between merchants might be insufficient to evidence a consumer contract.

The court of civil appeals based its conclusion that an agreement to pay interest was established upon section 2.207 of the Texas Business and Commerce Code. We disagree with that rationale. That section provides as follows:

§ 2.207. Additional Terms in Acceptance or Confirmation

(a) A definite and seasonable expression of acceptance or a written confirmation which is sent...