Varel Mfg. Co. v. Acetylene Oxygen Co.

• Citation: 990 S.W.2d 486
• Decision Date: 15 April 1999
• Docket Number: No. 13-97-731-CV,13-97-731-CV
• Parties: VAREL MANUFACTURING COMPANY, Appellant, v. ACETYLENE OXYGEN COMPANY, Appellee.
• Court: Court of Appeals of Texas

Page 486

990 S.W.2d 486

VAREL MANUFACTURING COMPANY, Appellant, v. ACETYLENE OXYGEN COMPANY, Appellee.

No. 13-97-731-CV.

Court of Appeals of Texas,

Corpus Christi.

April 15, 1999.

Melissa A. Ostermann, Attorney at Law, Dallas, Stephen B. Schulte, Houston, for Appellant.

Daniel G. Gurwitz, Atlas & Hall, Attorneys at Law, Tina VanDalsem Snelling, Hirsch, Sheiness & Garcia, Houston, for Appellee.

Before Chief Justice SEERDEN and Justices DORSEY and CHAVEZ.

OPINION

Opinion by Justice DORSEY.

Varel Manufacturing Company appeals from a judgment rendered against it, and in favor of Acetylene Oxygen Company, for the conversion of gas cylinders and denying Varel's counterclaims. Varel raises eighteen points of error complaining that it was entitled to usury damages and that Acetylene should not have prevailed on its claim for conversion. Acetylene raises two cross-points complaining of a minor usury penalty actually awarded against it by the trial court. We reverse and remand.

Varel operates a manufacturing plant in Matamoros, Mexico. Varel purchased various industrial gases from Acetylene from the 1960's until 1992. These gases were contained in pressurized cylinders that were regularly delivered by Acetylene to Varel. When the full ones were delivered, the depleted cylinders would be picked up to be refilled. Acetylene charged daily rental on each cylinder used. When Varel stopped purchasing gas from Acetylene in 1992, Acetylene continued to charge rental on 115 cylinders that it claimed had not been returned. When Varel ceased making rental payments, Acetylene demanded the cylinders be returned. When they were not, Acetylene sued for past rental value and conversion of the cylinders. Varel denied retention of the cylinders and counterclaimed for overpayments and for usurious interest.

At trial, Bert Wolf, president of Acetylene, testified that Varel owed Acetylene $45,181.25 in unpaid rental for cylinders and for the market value of those cylinders, based on the invoices and monthly statements that Acetylene maintained showing that Varel had retained some 115 cylinders since it stopped purchasing gas from Acetylene in 1992. Varel admitted that, due to a mistake in its own accounting procedures, it had continued to pay for the 115 cylinders until October 1995, when it discovered that it no longer had those cylinders. Two of Varel's employees testified that they conducted inventories and determined that all of Acetylene's cylinders had been returned to it. Varel additionally sought to prove its counterclaim for usury by showing that the invoices and statements by Acetylene contained a provision for a service charge, in spite of the fact that they had agreed that no interest would be charged on the account.

The trial court rendered judgment against Varel for conversion of the cylinders in the amount of $28,096, for cylinder rent of $12,276.25, and for reasonable attorney's fees, but off-set the award by a $355.55 usury penalty against Acetylene for charging excessive interest on the amounts it billed to Varel.

USURY

By its first three points of error, Varel complains that the evidence conclusively established its claim that Acetylene charged usurious interest on Varel's account for the entire amount that Acetylene claimed for rental of the cylinders and that the trial court erred in awarding a lesser penalty only on the amount for which Varel was actually billed a service charge. Varel also complains by its fourth point of error that the trial court erred in failing to award its attorney's fees for prosecution of the usury claim.

Acetylene contends that its charges for the rental of cylinders are not subject to the usury statute, and that, even if subject, its notice of the service charge and pleadings for interest do not amount to charging interest under the statute. In addition, Acetylene complains by two cross-points that the trial court erred in assessing the penalty that it did for usurious interest and in denying Acetylene leave to file a trial amendment raising various affirmative defenses to Varel's claim for usury.

We conclude that the bulk of Varel's claims do not amount to a violation of the usury statute, and that the one instance which does amount to such a violation should have been denied as having been brought beyond the statute of limitations. Varel is thus not entitled to attorney's fees for the prosecution of its usury claims.

A person who contracts for, charges, or receives interest that is greater than the amount authorized by law is liable to the obligor for the penalties set forth in the usury statute. See TEX.REV.CIV. STAT. ANN. art. 5069-1.06 (Vernon 1987) (repealed). ¹ For purposes of the usury statute, "interest" is defined as "compensation allowed by law for the use or forbearance or detention of money." TEX.REV.CIV. STAT. ANN. art. 5069-1.01(a) (Vernon 1987) (repealed). ²

Accordingly, the essential elements of a usurious transaction are: (1) a loan of money, (2) an absolute obligation that the principal be repaid, and (3) the exaction of a greater compensation than allowed by law for the use of the money by the borrower. Holley v. Watts, 629 S.W.2d 694, 696 (Tex.1982); Pentico v. Mad-Wayler, Inc., 964 S.W.2d 708, 714 (Tex.App.--Corpus Christi 1998, pet. denied). Moreover, since usury statutes are penal in nature, they must be strictly construed. Steves Sash & Door Co., Inc. v. Ceco Corp., 751 S.W.2d 473, 476 (Tex.1988); Pentico, 964 S.W.2d at 714.

In the present case, Varel complains that Acetylene charged it usurious interest in spite of the fact that the parties had agreed that no interest would be charged on Varel's account. Specifically, Varel alleged that usurious interest was charged, first, by virtue of the terms printed on the invoices and statements, specifying that, "Your Finance Charge is computed by a single periodic rate of 1.50% per month, which is an annual percentage rate of 18% and will be added if not paid by the 20 th of the month." In all but one instance, however, no interest was ever added to the balance that Acetylene claimed due from Varel. Second, Varel alleged a usurious charging of interest by the allegations in Acetylene's original petition of an agreement to pay interest at 18% on the delinquent amounts and its prayer for a judgment against Varel for such interest.

Acetylene argues that its transactions with Varel amount to rentals rather than loan transactions, and thus are not subject to the usury statute.

Several courts of appeals have held that, because a rental or lease agreement is not a "lending transaction," the usury statute does not apply to late charges assessed on overdue rental payments. Potomac Leasing Co. v. Housing Authority of City of El Paso, 743 S.W.2d 712, 713 (Tex.App.--El Paso 1987, writ denied); Brokers Leasing Corp. v. Standard Pipeline Coating Co., 602 S.W.2d 278, 281 (Tex.Civ.App.--Dallas 1980, writ ref'd n.r.e); Apparel Mfg. Co., Inc. v. Vantage Properties, Inc., 597 S.W.2d 447, 448-49 (Tex.Civ.App.--Dallas 1980, writ ref'd n.r.e.); Southwest Park Outpatient Surgery, Ltd. v. Chandler Leasing Division, 572 S.W.2d 53, 55 (Tex.Civ.App.--Houston [1 st Dist.] 1978, no writ); Maloney v. Andrews, 483 S.W.2d 703 (Tex.Civ.App.--Eastland 1972, writ ref'd n.r.e.).

However, we need not determine whether these cases were correctly decided, since the invoices and statements in the present case charge Varel not only for rental of the cylinders but also for the gas products that Acetylene sold to Varel. At least to the extent the balances and service charges applied to sales of gas, they were not rental transactions and were subject to the usury statute.

A "service charge" or "finance charge" assessed on an open account is generally considered "interest" within the meaning of the usury statute. Windhorst v. Adcock Pipe and Supply, 547 S.W.2d 260, 260-61 (Tex.1977); Flato Elec. Supply Co. v. Grant, 620 S.W.2d 915, 917 (Tex.Civ.App.--Corpus Christi 1981, writ ref'd n.r.e.). The statute covers late charges of this nature because the definition of "interest" includes compensation for the obligor's detention of money past the date it is due and payable. Pentico, 964 S.W.2d at 715-16; Veytia v. Seiter, 740 S.W.2d 64, 65 (Tex.App.--San Antonio 1987), aff'd, 756 S.W.2d 303 (Tex.1988); Dixon v. Brooks, 604 S.W.2d 330 (Tex.Civ.App.--Houston [14th Dist.] 1980, writ ref'd n.r.e.). Under the open account transaction, credit is extended from the date of purchase to the date of payment, and thus becomes a debt or detention of money on which usurious interest may not be charged. See Potomac Leasing, 743 S.W.2d at 713.

Accordingly, the usury laws do apply to the present transactions and would prevent Acetylene from charging usurious interest to Varel on its past due accounts for the sale of gases on open account. Nevertheless, Acetylene further argues that, even if the usury statute applies generally to the present transactions, neither the invoices nor its pleadings amounted to a "charging" of interest in violation of that statute. We agree.

Under the usury statute, interest may be "charged" by any act of the lender constituting a demand for payment from the debtor. See Pentico, 964 S.W.2d at 715-16. Accordingly, a usurious charge may be contained in an invoice, a letter, a ledger sheet or other book or document, and the vehicle for the claim or demand is immaterial except as an evidentiary fact. Danziger v. San Jacinto Sav. Ass'n, 732 S.W.2d 300, 304 (Tex.1987) (pay-off quote reflecting a charge of usurious interest); Pentico, 964 S.W.2d at 715-16 (amortization schedule which accompanied demand letter constituted a "charge" of interest); Williams v. Back, 624 S.W.2d 272, 276-77 (Tex.App.--Austin 1981, no writ).

However, not every mention of interest or a service charge amounts to a charge or demand. When the creditor places terms on its invoice stating that a usurious interest charge will be added to any payments later than a certain...