Court Opinion

ID: 9765577
Source: CourtListenerOpinion
Date Created: 2023-08-29 04:08:02.772574+00
Date Added: 2024-06-11T07:30:11.784622
License: Public Domain

CHASANOW, Judge,
dissenting:
The majority opinion may be a good example of why appellate courts should not decide cases on issues neither briefed nor argued by parties. The Court decides that, absent express statutory authority, any contractual late fee for failure to make a timely payment of money is limited to the 6 % per annum rate of interest provided for in the Maryland Constitution, Article III, § 57. The majority fails to recognize that there may be good reasons why the able counsel representing the class action plaintiffs and the amici curiae never made the contention that the late fees were limited to permissible interest on the unpaid amounts.
The majority seems to base its holding on common law rules, but in doing so it may be mixing up and misapplying several of them. Our starting point must be the mutual contractual promises made between United and the class action plaintiffs. The contracts at issue require United to provide the class action plaintiffs with cable services by wiring the customers’ homes, loaning the customers cable equipment, and sending out the video transmissions over the cables. The contracts also require the class action plaintiffs to pay for the services in advance, and if they fail to do so the customers agree to pay a $5.00 late fee. The contracts further provide that the class action plaintiffs will return the cable equipment to United if the contract is terminated. It is indisputable that the contracts require pre-payment for cable service and use of *690cable equipment and are not in any way loans of money to the customers by United.
Article III, § 57, as well as most of the cases and authorities cited by the majority, are inapplicable because they are limitations on usury. The majority does not seem to recognize that prohibitions against usury are applicable to loans, forbearance, and equivalent transactions but are not applicable to all promises to pay money. Relevant to the resolution of the instant case is the general rule that usury laws are not applicable to sales not involving the loan of money. “Since the number one element of usury is that there must be a loan or forbearance of money,. it is clear that a sale of property cannot be usurious.” 14 Williston on Contracts § 1688A, at 737 (3d ed.1972)(footnote omitted); Rothman v. Silver, 245 Md. 292, 299, 226 A.2d 308, 312 (1967). What we have in the instant case is one monthly price if the customer pays in advance, and if this is not done, then there is an additional $5 charge for extending credit when the customer has used the service before paying.
A sale of goods on credit at a price that is greater than the cash price by an amount in excess of the legal rate of interest on the cash price is not subject to usury laws as it is a sale and not a loan of money. Falcone v. Palmer Ford, 242 Md. 487, 219 A.2d 808 (1966). In Falcone, this Court discussed the history of the rule that usury limitations do not apply to sales. We stated:
“In Beete v. Bidgood, 7 B. & C. 453, 108 Eng. Rep. 792, where an estate, the cash value of which was sixteen thousand pounds, was sold for twenty thousand eight hundred pounds payable in stated installments (thé added four thousand eight hundred pounds would have made the transaction usurious if it had been a loan of money), it was held in 1827 that the case arose ‘out of a contract for the sale of an estate, and not for the loan of money. * * * (And) in that there was no illegality.’
The Supreme Court adopted the same view in 1861 in Hogg v. Ruffner, 66 U.S. (1 Black) 115, 17 L.Ed. 38, noting
*691that to constitute usury there must either be a loan and the taking of usurious interest or the taking of more than legal interest for the forbearance of a debt or sum of money due, and holding:
‘But it is manifest that if A propose to sell to B a tract of land for $10,000 in cash, or for $20,000 payable in ten annual instalments, and if B prefers to pay the larger sum to gain time, the contract cannot be called usurious. A vendor may prefer $100 in hand to double the sum in expectancy, and a purchaser may prefer the greater price with the longer credit; and one who will not distinguish between things that differ, may say, with apparent truth, that B pays a hundred per cent, for forbearance, and may assert that such a contract is usurious; but whatever truth there may be in the premises, the conclusion is manifestly erroneous. Such a contract has none of the characteristics of usury; it is not for the loan of money, or forbearance of a debt.’
Our predecessors took the same view. Williams v. Reynolds, 10 Md. 57, held that for there to be usury there must be a loan of money and that the sale of a valid promissory note at a discount was not usurious because there was an actual sale and not a loan. Bailey v. Poe, 142 Md. 57, 120 A. 242, took the same view.
Almost all states recognize and apply this rule. See the discussion in Judicial and Legislative Treatment of ‘Usurious’ Credit Sales, 71 Harv.L.Rev. 1143 (1958), and Usury-Applicability of State Usury Laws to Installment Sales, 62 Mich. L.Rev. 1268 (1964); and see 6A Corbin, Contracts § 1500. Some typical relatively recent cases which are illustrative are: Lincoln Loan Service, Inc. v. Motor Credit Co., Inc. (Mun.Ct.App.D.C.), 83 A.2d 230; Luchesi v. Capitol Loan & Finance Co. (R.I.), [83 R.I. 151,] 113 A.2d 725; Steffenauer v. Mytelka & Rose, Inc. (N.J.Super.), [87 N.J.Super. 506,] 210 A.2d 88; Carolina Industrial Bank v. Merrimon (N.C.), [260 N.C. 335,] 132 S.E.2d 692; Uni-Serv Corp. of Mass. v. Commissioner of Banks (Mass.), [349 Mass. 283,] 207 N.E.2d 906.”
*692Falcone, 242 Md. at 496-97, 219 A.2d at 812. See also Stewart v. Building Association, 106 Md. 675, 682, 68 A. 887, 890 (1907)(there is nothing usurious or oppressive in a contract with a building and loan association requiring a member to pay fines for neglect to pay dues and interest).
As mentioned, the contract in the instant case is a contract for the sale of services and use of equipment—it is not a loan. The buyer agrees to pay “in advance” a cash price of $X for the services, but if the advance payment is not made and credit (in the form of advance services) is extended, the customer pays $X + $5 for the services. In other words, the monthly charge is $20 if paid in advance, but if services for the month began and there is no payment by the due date, the charge for that month is $25. The contracts at issue here are not loans of money regulated by the usury laws. The 6% limitation of Article III, § 57, is simply not relevant to these contracts. The only limitation on a liquidated damage late charge is that it must not be a penalty; therefore, the 6% interest cap on usury rates should not be applied to a limitation on late charges that may be assessed on a valid contract that is not a loan but, instead, is a sale of goods and services.
Alternatively, the majority seems to hold that the $5 late fee is not a valid liquidated damage provision but is a penalty because United suffered no damages except the temporary loss of the money and 6% interest is all that was lost. This appellate fact finding is not only contrary to the findings of the trial judge, but is clearly erroneous. The customer is required to pay in advance before using United’s equipment to receive United’s transmissions. At the time the late fee is assessed, the customer is retaining United’s equipment and receiving the cable transmissions without having paid for the service. This leads to two permissible elements of United’s damages beyond the mere loss of the monthly payment.
First, the usury laws generally do not preclude contractual promises to pay reasonable costs of collection in additional to interest for overdue payments. United had ample evidence supporting its need for an in-house collection system for *693delinquent customers. Even when the contracts are loans regulated by the usury laws, this Court has never before held that a promise to pay reasonable costs of collection is void or limited to the amount of permissible interest on the payment. Contractual attorney’s fees and court costs are forms of permissible collection costs and have not been limited by the amount of permissible interest, even with loan transactions regulated by the usury laws. In the instant case, United presented an abundance of evidence, not refuted or rejected by the majority, that its collection costs were reasonable and necessary because of the nature of its business. United’s Customer Agreement states:
“If you do not pay your bill by the due date, you agree to pay us an administrative fee for late payment. The administrative fee is intended to be a reasonable advance estimate of our costs that result from customers’ late payments.
We do not anticipate that you will pay your bill late and the administrative fee is set in advance because it would be difficult to determine the costs associated with any one particular late payment. We do not extend credit to our customers and the administrative fee is not interest, a credit service charge or a finance charge.”
Contractually agreed to costs of collection should not make a loan usurious as long as the contractual costs are necessary and reasonable. The majority fails to tell us why the contractual agreement to pay costs of collection is impermissible.
Second, even if this contract could be construed as a loan of money and thus regulated by the usury provisions, since United proved a customer’s failure to pay in advance as per the contract caused it injury beyond just the loss of the monthly payment, United should not be limited to 6% interest. The section of 5 A.L. Corbin, Corbin on Contracts § 1065, at 373-74 (1964), cited by the majority makes it clear that, if the promisee has some special injury beyond just non-receipt of the money, liquidated damages are not limited to the interest value of the money, and it is only “[i]n the absence of a showing that such special injury exists, [that] advance agreements are held to be unenforceable if the sum exceeds the *694interest value.” Corbin on Contracts § 1065, at 374-75. Had the customers subject to the late fees not possessed United’s cable boxes and other equipment or returned the equipment as soon as they defaulted, United’s damages arguably could be limited to the interest on the money, but the evidence showed otherwise.
By the time the late fees were assessed, the customers were using the plaintiffs equipment to receive the cable services for which they had not paid. The plaintiff class of defaulting customers seeking return of the $5 late fee included not only those who used cable services and equipment in violation of their agreements to pay in advance but also those whose failure to pay on time required United to undergo the additional expenses of cutting off the service and attempting to retrieve the equipment. These additional damages, incapable of precise proof, caused by the late paying class action plaintiffs, are the raison d’etre for the $5 liquidated damage provision.
The majority opinion may have significant implications. If, as the majority holds, all late fees contained in all contracts to pay money constitute interest, then the maximum late fees are 6% per year unless the legislature expressly provides otherwise. Statutes merely mentioning late fees would not seem to be legislative authorization for unlimited interest beyond 6%, so what the majority styles “Class IV statutes” would not seem to permit interest charges over 6% per year or .5% per month. I suspect there are great numbers of contracts that may be rendered usurious by the majority opinion, and class action lawyers will have vast new vistas to explore. In addition, how late fees of .5% per month will be continuously computed should present a challenge. Finally, I question how the majority can raise the issue of usury sua sponte, hold that all late fees over 6% per annum are usurious, but still permit United to retain a usurious late fee of $.50 per month. The majority should undertake to review the trial court’s determination based on the arguments of the parties, and determine whether the $5 late fee is a valid liquidated damage provision or an impermissible penalty. I respectfully dissent.