Opinion ID: 769836
Heading Depth: 2
Heading Rank: 2

Heading: Merits of the Individual Cases

Text: 33 Cazenovia relies on the Reservation Agreement that Renshaw signed before enrollment as evidence of a loan. The Agreement lists fees and charges and recites that Cazenovia has a security interest in the diploma and transcript, but it does not state that the student is entitled to attend any classes or obtain any other services without paying the charges when they are due. Its apparent purpose is to notify the student of the college's fees and to obligate him to pay those fees even if he later stops attending classes. 34 The Agreement specifies penalties for failure to pay fees when due. Significantly, it does not obligate Cazenovia to permit a student with unpaid bills to attend classes or to obtain other services from the college. Even if allowing a student to attend classes without prior payment can be characterized as an extension of credit, Cazenovia never promised to extend such credit to Renshaw, and it certainly did not reach a prior or contemporaneous agreement with Renshaw on the amount of credit to be extended. 35 Cazenovia's practice in executing the Reservation Agreements further undercuts its position. It routinely executes identical Agreements with each of its incoming students, without making any inquiry into their financial needs, creditworthiness, or intent to pay the college's fees on time. In addition, after listing the fees for the academic year, the Agreement expressly states [t]he above does not reflect financial aid, if any. These circumstances indicate that the Agreement is not intended to create an educational loan. The bankruptcy appellate panel correctly characterized the Agreement as constituting Cazenovia's offer to sell the student goods and services at the specified prices rather than as an offer to make a loan. See In re Renshaw, 229 B.R. at 557. 36 The appellate panel also observed that were it to construe the transaction in Renshaw as a loan, the 19.2 percent annual interest rate specified in the Agreement (in the form of service charges) would violate state law that sets an upper limit for loans at 16 percent annual interest. See Renshaw, 229 B.R. at 557, citing N.Y. Gen. Oblig. Law § 5-501 (McKinney 1989); see also N.Y. Comp. Codes R. & Regs. tit. 3, § 4.1 (1999) (setting out maximum permissible interest rates under § 5-501). Not only is this argument forceful, but Cazenovia's response reinforces our decision. The college declares that the service charges are not usurious because New York's usury statutes do not apply to defaulted obligations. Because the service charge accrues from the due date of Cazenovia's bill to the student, this statement suggests that the obligation is in default as soon as the due date has passed. The student's obligation therefore is simply to pay tuition on the due date, not to repay a loan. Renshaw's default on his tuition obligation created a debt. However, this debt did not arise out of a contract whereby Cazenovia College transferred money, goods, or services to Renshaw in return for his agreement to pay for them at some later date. Rather, the debt arose out of Renshaw's failure to pay tuition on the due date, contrary to his agreement with Cazenovia College. Without an agreement by the lender to make a transfer in return for a future payment, we cannot find a loan. Renshaw's default may not be construed after the fact to find a loan.
37 St. Rose insists that it extended credit to Regner because Regner agreed, in response to the college's demands, that he owed it money. However, the parties did not agree, prior to or contemporaneous with Regner's college attendance that the college would provide him with educational services and that he would pay for these later. Instead, they only agreed after the fact that Regner owed tuition. St. Rose asserts that Regner owes tuition for the fall 1993 semester. Unfortunately for the college, it relies entirely on Regner's letter of September 28, 1994, acknowledging his past due account and promising to pay the college in installments, and his stipulation of September 17, 1997 to the bankruptcy court acknowledging that he had attended college without paying tuition. Both of these documents were executed well after the end of the fall 1993 semester, as was the November 10, 1994 stipulation Regner made in state court. 38 Thus, when Regner's tuition fell due and was not paid like Renshaw's, it simply became a past due account. It was not thereby transformed into a loan. The district court in Regner correctly concluded that the proof showed neither an exchange of funds nor an agreement between St. Rose and Regner for any extension of credit. The student did not execute a promissory note. The college simply acquiesced when Renshaw failed to prepay his tuition, deciding apparently on its own that Renshaw's tuition would be paid by financial aid or that the student would be responsible to pay himself. See Regner, 229 B.R. at 272; cf. In re Alibatya, 178 B.R. 335, 339 (Bankr. E.D.N.Y. 1995) (student who leased dormitory facilities from NYU under a housing license agreement without any contemplation, constructive or otherwise, to alter the lessor/lessee relationship should NYU choose not to terminate the license, did not transform the debt into a loan by defaulting on payment). We decline to adopt the reasoning of In re Stone, 180 B.R. 499 (Bankr. M.D. Tenn. 1995), which held that a promissory note signed after the student's withdrawal from the university created a loan. 39 As a consequence, because the exception to discharge of a debt in bankruptcy set out in § 523(a)(8) must be narrowly construed, with the burden of proof on the creditor colleges to prove the claims not dischargeable, we hold that the colleges in the two appeals before us failed to prove that the transactions between them and the debtors constituted educational loans excepted from discharge in bankruptcy.