Court Opinion

ID: 9910541
Source: CourtListenerOpinion
Date Created: 2023-12-15 20:02:33.615736+00
Date Added: 2024-06-11T12:53:09.681313
License: Public Domain

Filed 12/15/23 Sunstate Equipment Co. v. Eagle Environmental & Construction CA1/3

                  NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or
ordered published for purposes of rule 8.1115.

          IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                      FIRST APPELLATE DISTRICT

                                                DIVISION THREE

 SUNSTATE EQUIPMENT CO.,
 LLC,
           Plaintiff and Appellant,                                     A167708

 v.                                                                     (City & County of San Francisco
 EAGLE ENVIRONMENTAL &                                                  Super. Ct. No. CGC-22-598228)
 CONSTRUCTION,
           Defendant and Respondent.

         Plaintiff Sunstate Equipment Co., LLC (Sunstate) obtained a default
judgment against defendant Eagle Environmental & Construction, a
corporation, dba Eagle Environmental Construction (Eagle) after Eagle did
not make timely payments for construction equipment it had rented from
Sunstate. The parties had agreed to a contractual interest rate of 1.5 percent
a month if payments were late. Concluding this rate was excessive and
subject to the law against usury, the trial court instead awarded interest of
7 percent per year. We agree with Sunstate that this ruling was error, and
we accordingly reverse.1

         1 Eagle has not filed a respondent’s brief.

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            FACTUAL AND PROCEDURAL BACKGROUND
      It appears that Sunstate is in the business of renting construction
equipment. A written account agreement between Sunstate and Eagle
provided that Eagle would make payments within 30 days of issuance of an
invoice for purchase or rental of equipment, and that payments not made
within that period would be assessed a service charge at a rate of 1.5 percent
per month, or 18 percent a year. Over the course of two months in 2020,
Eagle incurred charges of $106,944.99 for equipment rental, but it did not
make the required payments.
      Sunstate brought this action in February 2022 alleging four causes of
action based on Eagle’s alleged failure to pay for the equipment rental. It
requested interest at the contractual rate of 18 percent a year. Eagle did not
answer the complaint, and Sunstate requested entry of default.
      A default prove-up hearing took place on March 1, 2023. Eagle did not
appear at the hearing. The trial court found defendant had failed to make
payments of $106,944.99. However, it concluded the contractual interest rate
was excessive and unconscionable and declined to award it. Instead, it
awarded interest at a rate of 7 percent a year “based on the California
Constitution usury rules,” for total interest of $21,412.44. Sunstate appealed
the resulting judgment.
                                  DISCUSSION
      Sunstate contends the trial court erred in concluding the interest rate
specified in the contract was subject to the usury laws and that it was
excessive and unconscionable. The facts before us are undisputed, and we
review these contentions independently. (Ghirardo v. Antonioli (1994)
8 Cal.4th 791, 799 (Ghirardo).)

                                       2
      Under Civil Code section 3287,2 a trial court must award prejudgment
interest from the time there exists both a breach of contract and a liquidated
claim. (Watson Bowman Acme Corp. v. RGW Construction, Inc. (2016)
2 Cal.App.5th 279, 293.) The default rate of interest is 10 percent per year,
but the parties may agree to another legal rate. (§ 3289.)
      Rather than awarding interest at either 10 percent or at the agreed-
upon rate of 18 percent a year, the trial court applied the rate specified in the
section of the California Constitution governing usury. Under the California
Constitution, as a general matter the interest rate “upon the loan or
forbearance of any money, goods, or things in action . . . shall be 7 percent per
annum.” (Cal. Const., art. XV, § 1, italics added.) Usury is “ ‘ “the exacting,
taking or receiving of a greater rate than is allowed by law, for the use or
loan of money.” ’ ” (Hardwick v. Wilcox (2017) 11 Cal.App.5th 975, 978
(Hardwick).)3
      Sunstate contends the usury law is inapplicable. Sunstate is correct.
Our high court has held that “interest payments on overdue commercial
accounts are not subject to the usury law.” (Southwest Concrete Products v.
Gosh Construction Corp. (1990) 51 Cal.3d 701, 704 (Southwest Concrete).)
The contract at issue in Southwest Concrete called for interest of 18 percent
per year on late payments. (Ibid.) The court explained that the usury law
limits the interest payable “ ‘[f]or any loan or forbearance of any money,’ ”

      2 All statutory references are to the Civil Code.

      3 When a loan is usurious, the creditor is entitled to repayment of the

principle sum only, forfeiting its entitlement to any interest. (Hardwick,
supra, 11 Cal.App.5th at p. 979.) In light of our conclusion that the usury
law does not apply to the case before us, we need not consider whether it was
proper for the trial court to award interest at 7 percent if it concluded the
contractual rate was usurious.

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and that, to determine whether a transaction is a loan or forbearance, “we
look to the substance rather than the form of the transaction. ‘In all such
cases the issue is whether or not the bargain of the parties . . . has as its true
object the hire of money at an excessive rate of interest.’ ” (Southwest
Concrete, at p. 705; see Ghirardo, supra, 8 Cal.4th at pp. 801–802 [“Without a
loan or forbearance, usury cannot exist”].)
      Furthermore, as the court in Southwest Concrete explained, the usury
law has many exceptions, one of them applicable where excessive interest is
caused by a contingency under a debtor’s control, such as failure to make
payment in a timely manner. (Southwest Concrete, supra, 51 Cal.3d at
pp. 705–708; accord, O’Connor v. Televideo System, Inc. (1990) 218
Cal.App.3d 709, 716–717 (O’Connor); Fox v. Federated Department Stores,
Inc. (1979) 94 Cal.App.3d 867, 884 (Fox).) In Southwest, the late charge for
overdue payments was not subject to the usury law because it “d[id] not
constitute payment for the ‘loan or forbearance of any money,’ ” and it was
additionally exempt under the principle that “a debtor by voluntary act
cannot render an otherwise valid contract usurious.” (Southwest Concrete, at
p. 709.)
      The same is true here. Eagle’s obligation to pay interest at 1.5 percent
a month was not based on a “loan or forbearance of any money” (Cal. Const.,
art. XV, § 1), and it arose only if Eagle did not pay Sunstate’s invoices when
due, a matter within its control. The trial court erred in concluding the
contractual interest rate was usurious.
      That does not end our inquiry, however. Even if an interest charge is
not usurious, it may still be an invalid liquidated damages provision or
penalty under section 1671, which provides in pertinent part that “a
provision in a contract liquidating the damages for the breach of the contract

                                        4
is valid unless the party seeking to invalidate the provision establishes that
the provision was unreasonable under the circumstances existing at the time
the contract was made.” (§ 1671, subd. (b); O’Connor, supra, 218 Cal.App.3d
at p. 718.) This statute imposes on the party seeking to avoid the damage
provision the burden to prove it was unreasonable under the circumstances.
(Krechuniak v. Noorzoy (2017) 11 Cal.App.5th 713, 726.) Here, there is no
evidence at all that the circumstances at the time of the agreement were such
that the contractual interest rate of 1.5 percent a month was unreasonable or
unrelated to the cost of collecting overdue payments. (Cf. Fox, supra, 94
Cal.App.3d at p. 885 [1.5 percent late charge did not fully cover substantial
costs of processing delinquent accounts].)
      The trial court’s decision could thus be upheld only under the view that
an annual interest rate of 1.5 percent a month is excessive as a matter of law
under any circumstances. But appellate courts have more than once upheld
precisely that rate of interest for late payments or unpaid account balances.
(See, e.g., O’Connor, supra, 218 Cal.App.3d at pp. 718–719; Fox, supra, 94
Cal.App.3d at p. 885; see also Southwest Concrete, supra, 51 Cal.3d at p. 709
[limiting discussion to usury and not considering whether interest was
liquidated damage provision].) In the absence of evidence that the interest
rate was unreasonable when the parties entered into the agreement, the trial
court erred in finding it excessive. Sunstate is entitled to the contractual
interest rate of 1.5 percent a month.
                                DISPOSITION
      The judgment is reversed. On remand, the trial court is directed to
recalculate and award interest at the contractual rate and enter a new
judgment accordingly. Sunstate shall recover its costs on appeal.

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                                                               TUCHER, P.J.

WE CONCUR:

PETROU, J.
RODRÍGUEZ, J.

Sunstate Equipment Co., LLC v. Eagle Environmental & Construction (A167708)

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