Opinion ID: 2450786
Heading Depth: 1
Heading Rank: 1

Heading: Interest Under the Contractual Obligation

Text: 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 Phillips was based upon both intrastate and interstate sales, and there was no qualification or exception excluding any interstate price receipts which might be refundable if not approved by the FPC. It is not denied that these monthly sums were ascertainable on this basis and that they were actually ascertained and paid on such basis to other suppliers. See note 2, supra. The Court of Civil Appeals correctly concluded: At the time the contract was executed, Phillips, as permitted during the pendency of its applications for increases in the interstate commerce rates for its gas sales, was receiving from its purchasers and accepting as payment for its gas an amount of money in excess of the then established rates. Albeit the excess was subject to possible refund, none of the excess was contractually excluded from the `price received' by Phillips and on which payment to Stahl was contractually based. Phillips candidly concedes that neither statutory or decisional law nor the rules and regulations of the Federal Power Commission prohibit Phillips from including the excess in the amount on which calculation of payment to Stahl was made. It naturally follows that the portion of the prices exceeding the then approved interstate commerce rate received by Phillips from its gas sales in the Panhandle Field was, under the plain meaning of the language of the contract, a part of the `price received' on which the month-by-month payments to Stahl were to be based. Hence, within the meaning of the statute, the written contract is one ascertaining the sum payable, and interest is allowable on each unpaid sum which was due and payable monthly under the contract. And there is nothing in the contract to alter this legal consequence even though it later developed that Phillips was required to refund to its purchasers a portion of the purchase prices it has received. 550 S.W.2d at 366-67. Phillips contends that this holding is subject to an interpretation that Stahl was entitled to receive and retain monthly payments based in part on price increases which were subject to disapproval by the FPC, without any obligation to make a proportionate refund to Phillips. We do not so construe the opinion, and we disavow any such interpretation. On the contrary, the Court recognized that the contract was subject to valid federal laws and regulations. Since any portion of the increased prices received by Phillips was subject to refund, with interest, to its purchasers if finally disapproved by the FPC, it follows as a matter of law that any portion of the refundable money which had been paid to Stahl under its contract was likewise subject to reimbursement with interest to Phillips. Thus, if Phillips had made its monthly payments to Stahl based on its percentage of the weighted average price received by Phillips during all of the years pending FPC action, the only amount necessary to be ascertained as between Stahl and Phillips after the FPC opinion became final on October 30, 1972, would have been the portion of Stahl's payments which were refundable, with interest, to Phillips. Only the sustainable remainder would have been retainable by Stahl, and having been paid when due, there would have been no issue concerning interest. Phillips' concern over this literal interpretation of the unambiguous terms of the contract is understandable, but Phillips prepared the contract. It knew that its receipts from interstate sales were subject to regulation by the FPC. It would have been a simple matter for the contract to have provided that increased prices from interstate sales would not be figured in the weighted average price received until after approval by the FPC, if that had been the intention of the parties. Or, it could have been provided that the percentage of monthly payments based on unapproved interstate price increases would be withheld unless Stahl indemnified Phillips by a surety bond or other guarantee that Stahl would refund to Phillips, with interest, any portion of its payments attributable to price increases which were subsequently disapproved by a valid order of the FPC. See Fuller v. Phillips Petroleum Company, 408 F.Supp. 643 (N.D.Tex.1976), a case in which Phillips made full payments under such an indemnity agreement, with such payments being ascertained each month on precisely the same basis as contended for by Stahl under its contract. The Court of Civil Appeals correctly interpreted and applied the terms of the contract. It properly allowed interest on the delayed payments which Phillips had withheld until December 7, 1972.