Opinion ID: 2450786
Heading Depth: 1
Heading Rank: 3

Heading: Interest Upon Interest

Text: The sum paid by Phillips to Stahl on December 7, 1972, was $24,258.81. It was conceded that interest at six percent per annum on such amount totaled $14,094.12 as of December 7, 1972. The Court of Civil Appeals allocated the $24,258.81 payment first to past due interest ($14,094.12), leaving $10,164.69 to apply on the principal debt. This allocation reduced the principal to $14,094.12, upon which the Court adjudged interest at the statutory rate of six percent per annum. Phillips complains of this allocation. In the absence of an agreement to the contrary, this type of allocation is usually proper. Community Savings and Loan Association v. Fisher, 409 S.W.2d 546, 550 (Tex.1966). In the present case, however, we agree with Phillips that the allocation was error. It was not in sought in Stahl's pleadings, and at trial both parties treated the $24,258.81 as payment of the principal sum of the delayed payments. It was upon roll-back audits of that sum that interest at six percent per annum was shown to total $14,094.12 as of December 7, 1972. This amount of interest, plus $2.3168 per day from December 7, 1972, to the date of judgment is what Stahl sought in the lower courts. [8] The error in allocation was harmless, because it did not change the amount of additional interest which Stahl was entitled to recover under its pleadings and proof. Whether the $14,094.12 was the remaining principal or the accrued interest due as of December 7, 1972, interest thereon at six percent per annum amounted to $3,011.84 on the date of judgment. That is the precise sum which the Court of Civil Appeals included in its total judgment of $17,105.96. Implicit in Phillips' point of error relating to allocation is the argument that Stahl is not entitled to prejudgment interest on the sum of interest which had accrued as of December 7, 1972. There is no clear consensus in the Texas cases which have considered this question. The conflict and the apparent majority view was fully discussed in a decision awarding interest on interest under the same circumstances in the case of Fuller v. Phillips Petroleum Company, 408 F.Supp. 643 (N.D.Tex.1976). Some of the confusion originated with the holding in McDaniel v. Miller, 317 S.W.2d 546, 549 (Tex.Civ.App.1958, no writ), that allowance of interest on interest was fundamental error. No authority was cited for the holding, but the case was cited and followed in at least two cases [9] before it was rejected in subsequent decisions. See Lanpar Co. v. Stanfield, 451 S.W.2d 254, 257 (Tex.Civ.App.1970, no writ), and Ligon v. E. F. Hutton & Co., 428 S.W.2d 434, 440 (Tex. Civ.App.1968, writ ref'd n. r. e.). We disapprove the above mentioned holding in McDaniel v. Miller, supra . When a definite sum of money is determined to have been due and payable at a date certain prior to judgment, the legal rate of interest has been allowed thereon from such date to the date of judgment. Davidson v. Clearman, 391 S.W.2d 48 (Tex.1965); Ft. Worth & D. C. Ry. Co. v. Greathouse, 82 Tex. 104, 17 S.W. 834 (1891); Heidenheimer v. Johnston, 76 Tex. 200, 13 S.W. 46 (1890); Houston & T. C. R'y Co. v. M. L. Jackson, 62 Tex. 209 (1884); New York Underwriters Insurance Company v. Coffman, 540 S.W.2d 445, 458 (Tex.Civ.App.1976, no writ); International & G. N. R. Co. v. Dimmitt County Pasture Co., 5 Tex.Civ.App. 186, 23 S.W. 754, 756 (1893, no writ). We believe this to be the more reasonable rule for fully compensating one whose money has been detained by another. There is no good reason for an exception if the payment is due for accrued interest rather than for principal or damages. Thus, we hold that prejudgment interest was properly allowed on the $14,094.12 sum due Stahl from its accrual date on December 7, 1972, to the date of judgment. No question has been raised about the Court having allowed postjudgment interest on the entire judgment in accordance with Article 5069-1.05. Accordingly, the judgment of the Court of Civil Appeals is affirmed. Concurring opinion by POPE, J., in which BARROW and CHADICK, JJ., join.