Steves Sash & Door Co., Inc. v. Ceco Corp.
| Decision Date | 27 January 1988 |
| Docket Number | No. C-5706,C-5706 |
| Citation | 751 S.W.2d 473 |
| Parties | STEVES SASH & DOOR COMPANY, INC., Petitioner, v. The CECO CORPORATION, Respondent. |
| Court | Texas Supreme Court |
This case involves usurious interest charged for failure to pay part of a sworn account. The trial court rendered judgment for the seller, Steves Sash and Door Company, Inc., and a take-nothing judgment on buyer's counterclaim of usury. The court of appeals reversed and rendered judgment for the buyer, Ceco Corporation, on its usury counterclaim. The court of appeals accordingly applied the statutory penalty for usury, Tex.Rev.Civ.Stat. art. 5069-1.06, and ordered that the seller forfeit $55,251.50 "principal," cancellation of the outstanding balance of $16,451.45, a $2,000.00 penalty, pre-judgment and postjudgment interest, and attorneys' fees. 714 S.W.2d 322.
The primary points of usury law presented by this appeal are the definition of "principal" under art. 5069-1.06(2), and whether pre-judgment interest is recoverable in a usury case. We hold that in the limited context of forfeiting principal as a statutory penalty for usury, "principal" means that amount upon which interest is charged or earned. We, therefore, modify the judgment of the court of appeals and render judgment that the seller forfeit as principal $13,454.70, that amount upon which the usurious interest was charged. We further hold that pre-judgment interest is not recoverable on penalty damages for usury. Accordingly, that portion of the court of appeals' judgment which awarded pre-judgment interest is reversed.
In this case, Ceco Corporation purchased doors from Steves Sash & Door Company, Inc. for installation in the new San Antonio Hyatt Regency Hotel which was then under construction. As the doors were manufactured, they were delivered to Ceco, and an invoice would issue for each shipment. The total purchase price for all the doors was $71,702.95. Invoices to Ceco indicated that amounts not paid within thirty days would be subject to service charges, computed beginning thirty days after the invoice date.
When Ceco failed to pay timely, Steves brought suit on the sworn account to recover the unpaid balance of $16,451.45. At the filing of the lawsuit, Ceco had already paid $55,251.50, $41,796.80 upon which no interest was charged, and $13,454.70 upon which $245.69 in interest was charged.
Ceco answered Steves' suit and brought a counterclaim. Among other allegations, which have no bearing on the points before us on appeal, Ceco alleged that Steves had engaged in usurious credit practices. Specifically, Ceco alleged that Steves' invoice number 731 charged $245.69 in interest on a principal of $13,454.70 for a period when no interest was due. According to the terms of the invoice, no interest was supposed to be charged for the first thirty days after that invoice. Interest was to begin to accrue at the expiration of the grace period on the balance. However, the $245.69 interest charged by invoice 731 was for interest on the thirty-day grace period. Ceco thus reasoned that Steves had engaged in usurious credit practices and asked for the statutory remedy, that Steves forfeit its principal. 1
The case was tried to a jury. The trial court rendered judgment for Steves on the sworn account, for attorneys' fees, post-judgment interest, and court costs based on the jury's verdict. The trial court rendered a take-nothing judgment on Ceco's counterclaims.
The court of appeals reversed and rendered judgment in favor of Ceco. It held that as a matter of law, a usurious charge appears on the face of the invoice documents. Therefore, the court of appeals reversed the trial court's take-nothing judgment on Ceco's counterclaim for usury, and rendered judgment for Ceco. The court further rendered judgment that Ceco recover pre-judgment interest on the usury claim. The court of appeals also reversed the trial court's judgment that Steves recover damages and attorneys' fees on the sworn account. Steves complains that the court of appeals erred in ordering Steves to forfeit more than the statutory penalty for usury. Art. 5069-1.06(2) provides that if more than double the allowed amount of interest is charged, all principal will be forfeited. Applying art. 5069-1.06(2), the court of appeals ordered Steves to forfeit the original balance of $41,796.80, which had already been paid by Ceco and upon which no interest was charged. The court of appeals further ordered Steves to forfeit the remaining unpaid balance of $16,451.45, also upon which no interest was charged.
Steves admits that the usurious charge was made in error, but says that it should not forfeit the entire amount of the purchase. Instead, it should forfeit as principal the sum of $13,454.70, the amount upon which the $245.69 in interest was charged. In essence, Steves says that "principal" under the usury statutes does not necessarily mean the original amount of the purchase. Steves contends that principal is that amount upon which the interest is charged or earned. 2
We agree. In arriving at this definition, we look to the definitions set out by the legislature in the usury statutes. Tex.Rev.Civ.Stat.Ann. art. 5069-1.01 (Vernon 1987). While a definition for "principal" is not set out, "interest" is defined. Since "principal" and "interest" are correlative terms, we can determine the definition of one by examining the other. See generally Commercial National Bank of Shreveport v. Parsons, 144 F.2d 231, 240 (5th Cir.1944); Christian v. Superior Court of San Diego County, 122 Cal. 117, 54 P. 518, 519 (1898). The statutes define "interest" as "the compensation allowed by law for the use or forbearance or detention of money...." Tex.Rev.Civ.Stat.Ann. 5069-1.01(a) (Vernon 1987). Interest and principal are synergistic words which imply one another, and by necessity, principal must be that amount which is used, forborne, or detained, and upon which the interest is charged. See also Black's Law Dictionary 1073 (5th ed. 1979). As applied to this case, Steves must forfeit that amount upon which excessive interest was charged, $13,454.70, and not the entire original balance. Usury, or "interest in excess of the amount allowed by law," art. 5069-1.01(d), was upon $13,454.70 and not the entire amount of the purchase.
Applying the penalty for usury under 5069-1.06(2), the court of appeals ordered Steves to forfeit as principal the sum of all purchases by Ceco from Steves. We do not believe that 5069-1.06(2) intends such an extreme result. We recognize that since the time of the Code of Hammurabi (around 1800 B.C.), legislatures have imposed exceedingly harsh penalties for usury. See generally Note, The Federal Monetary Control Act of 1980: A Step Toward Deregulation of State Usury Laws, 83 W.Va.L.Rev. 509, 510, (1981). The Bible suggests that the penalty for usury is exclusion from heaven or death. See Psalms 15:1-5; Ezekiel 18:13. However, the the Texas Legislature has been more forgiving in its penalties for usury. Under our statutes, while a party may be excluded from heaven for usury, we do not believe that the legislature intended that he forfeit as principal more than that amount upon which interest was charged. Accordingly, we hold that principal is that amount upon which interest is charged or earned, and render judgment that Steves forfeit as principal $13,454.70.
Steves further contends that it is entitled to a net recovery on the sworn account after an offset of the $15,454.70 penalty for usury: the $2,000.00 penalty under 5069-1.06(1) rendered by the court of appeals, and the $13,454.70 penalty of principal under 5069-1.06(2). We agree, and therefore reverse the judgment of the court of appeals to reinstate the jury verdict for Steves on the unpaid account. That jury verdict of $16,451.45 is offset by the sum of the penalties for usury, $15,454.70.
Steves argues that Ceco's pleadings did not provide fair notice of its claim for usury. Steves contends that it was not prepared to meet this particular usury claim. Had it known that Ceco's complaint was that interest was charged for an interest-free period, it would have raised the defense of bona fide error or mistake. On this point, we affirm the holding of the court of appeals that Steves received fair notice. Ceco's First Amended Original Counterclaim was...
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