It's not exactly Deuteronomy 23:19, but the Supreme Court of Texas has an opinion about interest. They don't like it if it's compounded. Samson Exploration LLC v. Bordages addressed interest to be charged on unpaid royalties under an oil and gas lease.
The takeaway
Compound interest is disfavored in Texas law. An agreement for interest on unpaid amounts is an agreement for simple interest absent an express clear and specific provision for compound interest.
The late-charge provision
The oil and gas lease provided that royalty payments are due on the first day of the calendar month following some 60 days after production. If not timely paid, a late charge is imposed the next day "based on the amount due" and "at the maximum rate allowed by law". That charge is payable on the last day of the month.
Royalty owner Bordages argued that when no payment is made by the specified date, another late charge calculation is triggered which includes not only past royalties as of the first day of the month but also accrued late charges as of the last day of the preceding month. Put differently: The provision imposes late charges on late charges, compounding them each month.
The Court concluded that the late-charge provision calls for simple interest because of the absence of clear language specifying compound interest.
The court declined to define the degree of clarity and specificity that would be required to expressly stipulate to a compound rate of interest. The Court did say that "due and payable on the last day of each month" does not suffice. Temporal references such as "per annum" or "annually" standing alone are insufficient to sustain the assessment of compound interest. Those terms specify the time for payment. A plain reading of the late-charge provision shows that it calls only for simple interest, providing for a late charge based on the amount of royalty due.
Collateral estoppel
Bordages argued that Samson had previously litigated the identical lease language with a different lessor and lost (to the tune of $13 million in late charges. No wonder; the interest rate on both leases is 18%). This prompted the Court to examine the concept of "non-mutual collateral estoppel", particularly regarding pure questions of law that have not been previously decided by the highest appellate court.
Texas courts disfavor applying collateral estoppel in the context of a pure question of law. After a lengthy discussion, the Court concluded that collateral estoppel did not apply. If you really want to know more, see pages 3 through 8 of the opinion.
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