Terry Ray Construction, Inc. v. Cenco Corporation, D/B/A Central Plumbing & Electric Supply Co.

NUMBER 13-99-430-CV

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTI

____________________________________________________________________

TERRY RAY CONSTRUCTION, INC., Appellant,

v.

CENCO CORPORATION, D/B/A CENTRAL

PLUMBING & ELECTRIC SUPPLY CO., Appellee.

____________________________________________________________________

On appeal from the County Court at Law Number 1

of Hidalgo County, Texas.

____________________________________________________________________

O P I N I O N

Before Justices Hinojosa, Yañez, and Chavez⁽¹⁾

Opinion by Justice Hinojosa

Appellee, Cenco Corporation d/b/a Central Plumbing & Electric Supply Co., filed a sworn account suit against appellant, Terry Ray Construction, Inc. Appellant filed a counterclaim alleging that: (1) the parties had an agreement that Cenco would not charge more than $45,600 for plumbing supplies and (2) interest charged by Cenco was usurious. After a bench trial, the trial court denied appellant's counterclaim and granted a judgment in favor of appellee. By two issues, appellant contends the evidence is legally and factually insufficient to support the trial court's failure to find Cenco's interest charges usurious and failure to enforce the agreement between the parties.

A. Factual and Procedural History

The undisputed facts are that in 1995, appellant was awarded a contract for construction work at two schools in Brownsville. The project was referred to as the Stell and Faulk kitchen additions. Appellant subcontracted with RC Plumbing ("RC") to perform the plumbing work on the project. RC contracted with Cenco to supply all the plumbing fixtures necessary for the project. As work progressed, Cenco had problems getting RC to timely pay for the materials it supplied. In order to facilitate payments to Cenco, and to insure there would be no materialman's lien⁽²⁾ on the finished project, Terry Ray, appellant's president, drafted a joint check agreement. The agreement was between appellant, RC and Cenco, was printed on appellant's letterhead, and stated:

December 20, 1995

Supplier: Central Plumbing & Electric Supply Company

315 Southwest

Harlingen, TX 78550

Central Plumbing & Electric Supply Company is selling to R. C. Plumbing Company materials to be incorporated into the Stell and Faulk Kitchen Additions located in Brownsville, Texas.

The overall value of all materials and fixtures is $45,600 including materials previously incorporated and paid for with Checks #28540, 28230 & 28388 totaling $23,344.38.

R.C. Plumbing agrees that in consideration for Central Plumbing & Electric furnishing materials for the referenced project, checks to be issued under this contract will be paid jointly to R. C. Plumbing and Central Plumbing & Electric Supply Company.

In order to expedite payment, Terry Ray Construction, Inc. must receive, on or before the 25th day of each month, copies of invoices or statements showing the value of materials supplied by Central Plumbing & Electric, on the above referenced project.

Nothing in this agreement shall be construed to make Terry Ray Construction, Inc. a party to any contract, purchase order, or any other agreement between R.C. Plumbing and Central Plumbing & Electric Supply Company, nor to infer responsibility for the whole or partial performance thereof. By agreeing to this joint check agreement, Central Plumbing & Electric Supply Company agrees to provide all materials necessary for the above referenced project.

Accepted by: Subcontractor

[signed by Robert Camacho for R.C. Plumbing]

Accepted by: Supplier

[signed by Paul Pena for Cenco]

Accepted by: Terry Ray Construction, Inc.

[signed by Terry Ray, President]

In February, RC filed for bankruptcy and walked off the job. Wanting to complete the Stell and Faulk project on time, Ray contacted Cenco about supplying the remaining materials for the job. Cenco then delivered a large shipment of materials directly to appellant. On March 20, 1996, Terry Ray, on behalf of appellant, filled out a credit application and submitted it to Cenco. That same day, Cenco approved the application and granted appellant a credit line of $17,000. The following day, appellant issued a joint check in the amount of $5,071.41 to Cenco and RC for the balance RC owed Cenco. Cenco then supplied the materials that appellant needed to complete the project and charged them to appellant's account.

After Cenco delivered all the materials appellant needed, the balance on appellant's account was $15,342.54. Cenco demanded payment, but appellant refused to pay the entire amount. Appellant asserted Cenco was limited to the $45,600 amount set out in the joint check agreement. Appellant later offered a check made out jointly to Cenco and RC in the amount of $10,606.67 ($45,600 minus prior payments for materials), conditioned upon Cenco's release of all liens. Cenco refused the offer and filed suit against appellant.

Appellant then filed a counterclaim claiming that the joint check agreement constituted a binding contract between Cenco and appellant that Cenco would not charge more than $45,600 for the plumbing materials it had agreed to supply for the Stell and Faulk project. Appellant also claimed that the interest charged by Cenco was usurious.

After a bench trial, the court rendered judgment for Cenco in the amount of $15,342.54, pre-judgment interest at the rate of six percent per annum, attorney's fees, court costs and post-judgment interest. The court denied all relief requested by appellant in its counterclaim. Appellant then filed this appeal.

B. Findings of Fact and Conclusions of Law

The trial court made the following findings of fact:

(1) on December 20, 1995, appellant, RC and Cenco entered into a joint check agreement;

(2) on March 20, 1996, after RC stopped work on the project, appellant entered into an agreement with Cenco regarding the purchase of the remaining materials;

(3) on March 21, 1996, appellant paid $5,071.41 pursuant to the joint check agreement for materials previously delivered;

(4) appellant and Cenco agreed in writing that appellant would incur a finance charge at the rate of 1.5% per month on invoices unpaid after the 10th day of the month following the prior month's billing;

(5) Cenco delivered the remaining materials to appellant;

(6) the reasonable market value of those materials was $15,342.54;

(7) appellant's account became past due;

(8) Cenco made written demand for payment of the $15,342.54 thirty days before filing suit;

(9) appellant did not pay the demanded amount;

(10) appellant conditionally offered $10,606.07 to Cenco in settlement for Cenco's claim; and

(11) $32,000 is a reasonable attorney's fee.

The trial court made the following conclusions of law:

(1) appellant is indebted to Cenco in the sum of $15,342.54 for plumbing supplies;

(2) appellant is indebted to Cenco for the sum of $2,453.97 as pre-judgment interest in the indebtedness from June 25, 1996 to February 23, 1999 at the rate of six percent per annum;

(3) appellant's offer of $10,606.87 was not an unconditional tender;

(4) Cenco did not charge a usurious rate of interest on the past due account; and

(5) reasonable attorney's fees for legal services rendered are $32,000.

C. Standard of Review

Findings of fact in a case tried to the bench have the same force and dignity as a jury's verdict. Anderson v. City of Seven Points, 806 S.W.2d 791, 794 (Tex. 1991); Westech Eng'g, Inc. v. Clearwater Constructors, Inc., 835 S.W.2d 190, 195 (Tex. App.--Austin 1992, no writ). In a bench trial, the trial judge passes on the witnesses' credibility and the weight given their testimony, and can reject or accept any witness's testimony in whole or in part. Bocquet v. Herring, 972 S.W.2d 19, 22 (Tex. 1998); In re Cummings, 13 S.W.3d 472, 476 (Tex. App.--Corpus Christi 2000, no pet.). When confronted with conflicting testimony, we defer to the determination of the trial court, who is the sole judge of the credibility of the witnesses. Maeberry v. Gayle, 955 S.W.2d 875, 880 (Tex. App.--Corpus Christi 1997, no writ). While an appellate court may not have reached the same findings, it may not substitute its judgment for the trial court's judgment. Humphrey v. Camelot Retirement Community, 893 S.W.2d 55, 58 (Tex. App.--Corpus Christi 1994, no writ).

Findings of fact are reviewed for factual and legal sufficiency under the same standards applied in reviewing evidence supporting a jury's finding. Anderson, 806 S.W.2d at 794; Stable Energy, L.P. v. Newberry, 999 S.W.2d 538, 546 (Tex. App.--Austin 1999, pet. denied); Asai v. Vanco Insulation Abatement, Inc., 932 S.W.2d 118, 121 (Tex. App.--El Paso 1996, no writ). Conclusions of law are reviewed de novo as a question of law and will be upheld if the judgment can be sustained on any legal theory supported by the evidence. Circle C Child Dev. Ctr., Inc. v. Travis Cent. Appraisal Dist., 981 S.W.2d 483, 485 (Tex. App.--Austin 1998, no pet.); Asai, 932 S.W.2d at 121; Westech Eng'g, 835 S.W.2d at 196. A trial court's conclusions of law may not be challenged for factual sufficiency. Circle C, 981 S.W.2d at 485. Conclusions of law will not be reversed unless they are erroneous as a matter of law. Stable Energy, 999 S.W.2d at 547. Incorrect conclusions of law do not require reversal if the controlling findings of fact support a correct legal theory. Id.

When a party with the burden of proof complains on appeal from an adverse finding, the appropriate issues are "that the matter was established as a matter of law" or that the "finding was against the great weight and preponderance of the evidence." Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex. 1983). When we review a legal sufficiency or "that the matter was established as a matter of law" issue, we examine the record for evidence supporting the finding of fact and ignore all evidence to the contrary. Sterner v. Marathon, 767 S.W.2d 686, 690 (Tex. 1989); Hickey v. Couchman, 797 S.W.2d 103, 109 (Tex. App.--Corpus Christi 1990, writ denied). If we find that no evidence supports the finding, we must determine from the record whether the contrary proposition is established as a matter of law. Sterner, 767 S.W.2d at 690; Hickey, 797 S.W.2d at 109.

When we review a factual sufficiency or that the "finding was against the great weight and preponderance of the evidence" issue, we examine the entire record. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); Hickey, 797 S.W.2d at 110. We set aside the verdict only if it is so contrary to the overwhelming weight and preponderance of the evidence as to be clearly wrong and manifestly unjust. Cain, 709 S.W.2d at 176; Hickey, 797 S.W.2d at 110.

D. The Joint Check Agreement

In its second issue, appellant asserts the joint check agreement constituted a binding contract between Cenco and appellant that Cenco would not charge more than $45,600 for the plumbing materials it had agreed to supply for the Stell and Faulk project. Appellant contends the joint check agreement is enforceable as a matter of law, and that the evidence is legally and factually insufficient to support the trial court's decision not "to enforce the terms of the joint check agreement."

The joint check agreement provides that the "overall value of all materials and fixtures is $45,600" and that:

[Cenco] is selling to [RC] materials to be incorporated into the Stell and Faulk Kitchen Additions located in Brownsville, Texas.

* * * * *

Nothing in this agreement shall be construed to make [appellant] a party to any contract, purchase order, or any other agreement between [RC] and [Cenco], nor to infer responsibility for the whole or partial performance thereof. By agreeing to this joint check agreement, [Cenco] agrees to provide all materials necessary for the above referenced project.

The contract for sale of the materials for $45,600 is clearly intended to be binding on RC and Cenco. Ray, who drafted the document, explicitly disclaimed participation by appellant in any contract between RC and Cenco. A contract must be based on mutuality of obligation. Federal Sign v. Texas S. Univ., 951 S.W.2d 401, 408 (Tex. 1997); Texas Gas Util. Co. v. Barrett, 460 S.W.2d 409, 412 (Tex. 1970). Here, the agreement explicitly says it is for the sale of materials and that it is between RC and Cenco. It further expressly disclaims appellant's liability on the contract between RC and Cenco. No mutuality exists between appellant and Cenco as to the terms of the sale, and thus no contract exists between the two as to those terms. The only agreement between appellant and Cenco set forth in the joint check agreement is that Cenco would provide all materials, and appellant would include Cenco as a payee on the checks it issued to RC in payment for the materials.

Furthermore, Paul Pena, vice-president of Cenco, testified that after RC filed for bankruptcy and walked off the job, Ray called to assure him Cenco would be paid for materials already furnished, and to make sure Cenco would deliver the rest of the materials needed to complete the job. Pena told Ray he would need to complete a credit application. Cenco sent Ray the application, which provided for payment of 1.5 percent interest on past due balances. Appellant's account was approved with a credit line of $17,000.

Ray testified that Pena told him he needed to fill out the credit application. He did so, and even made some modifications to the language of the application. Another employee of appellant filled out a Texas Sales Tax Resale Certificate in appellant's name, which was provided to Cenco so that no sales tax would be charged on the materials. Ray testified, however, that despite the fact the credit application was filled out by him in appellant's name, and that he regularly filled out such applications in the course of his business, he did not know he was opening a Cenco credit account in appellant's name.

In a bench trial, the trial judge passes on the witnesses' credibility and the weight given their testimony, and can reject or accept any witness's testimony in whole or in part. Bocquet, 972 S.W.2d at 22 (Tex. 1998); In re Cummings, 13 S.W.3d at 476. When the record contains conflicting testimony, the appellate court must defer to the determination of the trial court, who is the sole judge of the credibility of the witnesses. Maeberry, 955 S.W.2d at 880.

Obviously, the trial judge chose to believe Pena's testimony that: (1) the parties entered into a new contract directly with Cenco for the purchase of the needed materials; (2) no price terms or limits were set; (3) appellant agreed to pay in accordance with the terms of the credit account application for the needed materials; and (4) Cenco agreed to supply those materials.

We hold the evidence is legally and factually sufficient to support the trial court's findings. We overrule appellant's second issue.

E. Interest Paid by Appellant

In its first issue, appellant complains the evidence is legally insufficient to support the trial court's conclusion of law that the interest charged by Cenco was not usurious.⁽³⁾ Appellant contends the charges by Cenco were usurious in two different respects.

1. Interest Charged by Cenco to the RC Plumbing Account

The record shows that from August 25, 1995 through February 25, 1996, Cenco charged finance charges in the amount of $328.28 to the RC account. Appellant contends these charges were usurious as to it because the joint check agreement specified no interest rate to be paid by appellant. Therefore, Cenco was limited by statute to a six percent per annum interest charge. See Act of May 24, 1979, 66th Leg., R.S., ch. 707, § 1 (amended 1997) (current version at Tex. Fin. Code Ann. § 302.002 (Vernon 1998) (allowing six percent per annum interest to be charged if no interest rate is specified)). In other words, appellant argues that it should not have had to pay any interest charges above six percent on the amounts it paid under the joint check agreement, and that any interest charge exceeding that rate was usurious.

The applicable usury statute provides that remedies available for usurious interest are available to the obligor. See Act of May 9, 1979, 66th Leg., R.S., ch. 281, §1 (amended 1997) (current version at Tex. Fin. Code Ann. § 305.001 (Vernon 1998)). Because this statute is penal in nature, it must be strictly construed; therefore, only the immediate parties to the transaction may assert usury claims. Houston Sash & Door Co., Inc. v. Heaner, 577 S.W.2d 217, 222 (Tex. 1979); Peoples State Bank of Clyde v. Andrews, 881 S.W.2d 520, 522 (Tex. App.--Eastland 1994, no pet.); Micrea, Inc. v. Eureka Life Ins. Co. of Am., 534 S.W.2d 348, 354 (Tex. Civ. App.--Fort Worth 1976, writ ref'd n.r.e.). The right of action to recover statutory penalties for usury is purely personal to the borrower. Patterson v. Neel, 610 S.W.2d 154, 156 (Tex. App.--Houston [1st Dist.] 1980, writ ref'd n.r.e.). This right is not assignable. Allee v. Benser, 779 S.W.2d 61, 62 (Tex. 1988); Smart v. Crawford Bldg. Material Co., 638 S.W.2d 228, 230 (Tex. App.--Tyler 1982, no writ).

We have already held that: (1) the contract for the sale of the materials set forth in the joint check agreement was between RC and Cenco and (2) appellant was expressly excluded from that contract and was in no way an obligor on RC's credit account with Cenco. Therefore, appellant is not entitled to raise any issues of usury with respect to finance charges on RC's account. Any dispute it had as to payment of unauthorized finance charges on the materials bill should have been raised with RC. We hold the evidence is legally sufficient to support the trial court's conclusion that these charges were not usurious.

2. Interest Charged by Cenco to Appellant's Account

Appellant further contends that the payment of $5,071.41 under the joint check agreement for pre-bankruptcy materials delivered to RC constitutes a usurious charge to appellant's account. It asserts that Cenco required the payment of the outstanding balance on RC's account as a condition for extending credit to appellant, and therefore the payment must be credited as interest. See Alamo Lumber Co. v. Gold, 661 S.W.2d 926, 928 (Tex. 1983) (a lender who requires as a condition to making a loan that a borrower pay another debt must include the amount of the other debt in the interest computation). It is undisputed that the interest charged by Cenco on appellant's account would be usurious if the $5,071.41 payment is counted as interest. Assuming, arguendo, that the reasoning of Alamo Lumber applies here,⁽⁴⁾ the crux of this argument is whether or not Cenco required appellant to pay the $5071.41 outstanding balance on RC's account as a condition for extending credit to appellant.

Pena testified that Ray called in February, 1996 to tell him of RC's bankruptcy. Ray told Pena "not to worry -- whatever materials that we had for that job would be paid for." Pena told Ray that he would have to speak to his father, Pablo Pena Sr., the president of Cenco, regarding how the remaining materials would be paid for. Pena, Sr., decided to require appellant to open up its own account for the credit purchase of the remaining materials. Pena told Ray, who "wasn't happy about" having to open an account for appellant. It was "understood" that appellant would pay for materials delivered prior to the bankruptcy, as it was required to do under the joint check agreement. After the bankruptcy, but before Ray completed the application for appellant's account and before appellant paid for the pre-bankruptcy materials, Cenco delivered some $10,000 worth of materials directly to appellant.

Ray testified, however, that after the bankruptcy, Cenco refused to deliver a large shipment of special-ordered material until the amount due for the pre-bankruptcy materials ($5,071.41) was paid. Ray testified that Pena never told him the joint checking agreement was no longer in force, or that he was going to open a separate account in appellant's name. He admitted that he completed and signed the Cenco credit application, but said he regularly filled out such applications in the course of his business.

Given Pena's and Ray's testimony, and the fact that some $10,000 worth of materials was delivered to appellant several weeks before appellant even applied for its own account, and before appellant paid the $5,071.41 due for the prebankruptcy materials, there is evidence in the record that Cenco did not require payment for those materials as a condition of extending credit to appellant.

We hold the evidence is legally sufficient to support the trial court's conclusion that Cenco's charges were not usurious. Appellant's first issue is overruled.

The judgment of the trial court is affirmed.

FEDERICO G. HINOJOSA

Justice

Do not publish. Tex. R. App. P. 47.3.

Opinion delivered and filed this

1st day of February, 2001.

1. Retired Justice Melchor Chavez, assigned to this Court by the Chief Justice of the Texas Supreme Court pursuant to Tex. Gov't Code Ann. § 74.003 (Vernon 1998).

2. See Tex. Prop. Code Ann. § 53.012 (Vernon Supp. 2001).

3. In this issue, appellant also asserts the evidence is factually insufficient. However, as we noted above, a trial court's conclusions of law may not be challenged for factual sufficiency, and will not be reversed unless they are erroneous as a matter of law. Circle C Child Dev. Ctr., Inc. v. Travis Cent. Appraisal Dist., 981 S.W.2d 483, 485 (Tex. App.--Austin 1998, no pet.); Stable Energy, L.P. v. Newberry, 999 S.W.2d 538, 547 (Tex. App.--Austin 1999, pet. denied).

4. In Alamo Lumber, a bank required a debtor to assume the debt of a third party who was a stranger to the transaction as a condition for extending credit to avoid foreclosure on the debtor's home. Alamo Lumber Co. v. Gold, 661 S.W.2d 926, 927 (Tex. 1983). In the instant case, the parties were both participants in and beneficiaries of the project out of which the prior debt arose.