Opinion ID: 2450786
Heading Depth: 1
Heading Rank: 2

Heading: Interest Under the Equitable Doctrine For Use or Detention of Money

Text: Although the Court of Civil Appeals reached a correct result, we do not agree with its holding that Stahl's only right to recover interest was dependent upon an enabling statute. As heretofore indicated in note 3, supra, the U.S. Court of Appeals, 5th Circuit, applying what it understood to be Texas law, held under similar facts that Phillips is liable for interest on the delayed payments on an elemental equitable principle that Phillips ought not to be able to use someone else's money as it pleases for ten years, thereby enjoying a very considerable benefit, and then pay nothing for the use of the money. Phillips Petroleum Company v. Adams, 513 F.2d at 368. [5] As to Texas Law, the Court said: A reading of all the relevant Texas cases convinces us that interest is awarded or refused in that jurisdiction only after a careful consideration of all the circumstances in the particular case, and that the Texas interest statute is sufficiently flexible to permit the courts to do equity.... Id. at 366. The Circuit Court concluded as follows: ... Texas courts do not insist on statutory rigidity in the allowance of interest, for they realize that the right to interest is a marketplace concept and that the use of money is a mercantile privilege which should not go uncompensated, absent countervailing considerations. To exonerate Phillips from its interest obligation here would be to give the pipeline company an extracontractual lagniappe, for it is incontrovertible that Phillips has derived a very considerable benefit from the unrestricted use of the Adams family's money. Phillips may say that its possession and utilization of funds to which it had no pretense of claim was reasonable, or even that its actions were necessary, but Phillips cannot be heard to say that it is fair and equitable that it should enjoy such a financial advantage for so long, and pay not a cent for it.  (Emphasis added.) Id. at 370. We agree, both as to Texas law and the equity of compensating Stahl for Phillips' use of money which it held and used. As to the funds attributable to payment for Stahl's gas, Phillips had no possible right or title. It was in the position of a stakeholder who used royalty monies which were held in suspense, Kishi v. Humble Oil and Refining Company, 10 F.2d 356 (5th Cir. 1925), without any permissive agreement such as was contained in Gulf Pipe Line Co. v. Nearen, 135 Tex. 50, 138 S.W.2d 1065 (1940). In Kishi, the court properly awarded interest on suspense funds, while in Nearen, an opposite result, based on provisions of the division order contract, was proper. In the present case Phillips knew that funds attributable to payment for Stahl's gas either would be paid to Stahl or refunded to its customers with interest. It made a conscious choice, without any permission or consent of Stahl, to comingle these so-called suspense funds with its general operating funds. Therefore, it should pay for the use of the sustainable portion of this money. It is possible that the Court of Civil Appeals would have mentioned this additional equitable grounds of recovery had it not believed that this was foreclosed by the common law rule stated in Watkins v. Junker, 90 Tex. 584, 40 S.W. 11 (1897), and Heidenheimer v. Ellis, 67 Tex. 426, 3 S.W. 666 (1887), that interest cannot be allowed under that name unless provided for by statute. That common law rule is slightly less ancient than its predecessor, which held that all interest was unlawful and uncollectable. [6] In 1545, the allowance of interest was first sanctioned by statute in England, but there were rigid limitations to the statutory exceptions for subsequent centuries. 47 C.J.S. Interest § 2, p. 12. The common law became effective by statute in the Republic of Texas on March 16, 1840, and on the same date a statute became effective providing for interest in a manner quite similar to Article 5069-1.03, supra. [7] Since then, as stated by the Circuit Court in Adams, supra, the Texas courts have not insisted on statutory rigidity in the allowance of interest when necessary to permit compensation for the use or detention of one's money. Nonstatutory interest has been allowed most often under the name of damages, measured by the legal rate of interest, while at other times it has been allowed in the name of interest itself. For instance, in 1855, the Court held in Close v. Fields, 13 Tex. 623, that a defendant collecting money as the agent of the plaintiff was liable in damages for its detention, and that the legal rate of interest is the safest criterion or standard of damages in such cases. The Court continued: The fact of the jury, in the verdict, calling it interest when it was damages, is no ground for reversal. To the same effect, see Anderson v. Duffield, 8 Tex. 237 (1852); Commercial and Agricultural Bank v. Jones, 18 Tex. 811 (1857); and Murchison v. Payne, 37 Tex. 305 (1872). As heretofore indicated, Watkins and Heidenheimer, the two leading cases of this Court cited for the rule that prejudgment interest cannot be allowed under that name unless provided for by contract or statute, merely acknowledged the rule as a preliminary to approval of exceptions based upon equitable principles. In Watkins, the Court said: It is objected in this case that interest is a creature of the statute, and cannot be allowed upon unliquidated damages. It is true that interest, strictly speaking, exists only by statutory law, but it is likewise true that courts have recognized the fact that compensation for detention of that which is due on account of injury inflicted is an element of damages necessary to the complete indemnity of the injured party; and the courts have, by analogy, adopted the legal rate of interest fixed by statute as the standard by which to be governed in assessing damages for the detention of money. ... (At page 11, emphasis supplied.) In Heidenheimer, the Court said, It is frequently said in the decisions of the courts that interest is a creation of the statute. In a certain sense this is true; but as applied to one class of cases, the phrase is misleading. The Court listed various instances of money used by the debtor or holder in which indemnification was justified, and the Court said: Now, let it be conceded that the claim sued upon in this case is not a `written contract ascertaining the sum payable,' provided for in article 2976 of the Revised Statutes, nor yet an open account, such as is mentioned in article 2977. It is a stated account to be paid in cash upon delivery of goods, the sale of which constituted its consideration, and which had been delivered when the accounting was had. Here is a manifest delinquency on part of the debtors, working a gross injustice to the creditors, and resulting in a wrong which cannot be compensated by any sum less than the principal and the interest on the debt from the time at which it ought to have been paid. ... (At page 667.) Our holding that Stahl is entitled to legal interest on that portion of his money which was held in suspense and used by Phillips is a mere extension of the equitable principles announced in Watkins and Heidenheimer. The only difference is that we treat interest for the use of money under these circumstances as an equitable exception to the interest eo nomine  rule. In such cases, it is permissible but no longer necessary to continue the round-about method of allowing indemnity under the name of damages measured by the legal rate of interest. Without being as explicit, more recent cases have charted the way with equitable exceptions of this nature. In Donaldson v. Meyer, 261 S.W. 369 (Tex.Comm'n App.1924, judgmt. adopted), the Court allowed recovery for the use of money without statutory authority and without a valid contract, saying: ... The right of Donaldson to recover the $3,000 used by Meyer and wife as necessaries is not based on the contract that Meyer entered into, it having been ascertained that he was incapable of entering into a binding contract, but the relief given Donaldson is on the equitable ground that he is entitled to recover the money he had paid to Meyer, and which had been used by Meyer and his wife for necessaries, and, the right to recover not being based upon any contract of Meyer, then Donaldson could not recover the rate of interest mentioned in the contract, but could recover only the legal rate of 6 per cent.  (At page 371, emphasis supplied.) In City of El Paso v. Nicholson, 361 S.W.2d 415 (Tex.Civ.App.1962, writ ref. n. r. e.), again without enabling statute or contract, it was held that Plaintiff was entitled to collect interest for the use of his money by the City. The Court said: Up until the money was taken from the police, it was a police action and it had not been determined in any way that the money had illegally been taken; but on January 16, the City of El Paso received this money and put it to use, apparently, as it was put into the General Fund. We think interest, therefore, is proper and allowable, not as a punitive measure, but merely because the City had the use of this sum of money by virtue of the action of the alderman .... (At page 418, emphasis supplied.) Stahl cites language in Cox v. Davison, 397 S.W.2d 200 (Tex.1965), as inferring that an equitable claim to interest may be proper under certain circumstances, although it was not allowed in that case. On the other hand, it has been suggested that Cox may preclude an award of interest in the instant case. The cases are distinguishable. In Cox, the contesting parties were cotenants in mineral producing properties. The nonconsenting cotenants, who refused to join in a drilling program, sued the producing cotenants for an accounting on their proportionate part of the production. The producing cotenants sought credit for six percent interest on the nonconsenters' proportionate share of the costs advanced for the drilling program. This Court held that no interest was due because of the peculiar legal relationship of the parties. Since the nonconsenting cotenants had not agreed to the expenditures, the Court held that no debt existed upon which the producing cotenants could recover a personal judgment for reimbursement; their reimbursement being limited to recoupment from the nonconsenters' share of the production. The Court said interest is an incident of debt and is not payable in the absence of an obligation binding one person to pay money to another.... The obligation may be expressly set forth in a contract or it may be implied by law. It held that neither circumstance existed in Cox v. Davison . In the instant case there is an obligation binding Phillips to pay money to Stahl for its gas; a debt upon which Stahl was entitled to a personal judgment. Therefore the conditions laid down in Cox v. Davison for the recovery of interest are present here. Our decision in this case applies only to facts under which the obligor was holding and using money of the obligee without its consent. As heretofore indicated, we agree that the Circuit Court correctly applied Texas law in the Adams case by awarding interest upon equitable grounds, thus preventing undue enrichment of Phillips because of its unauthorized use of an obligee's money while ostensibly holding it in suspense.