Court Opinion

ID: 9538472
Source: CourtListenerOpinion
Date Created: 2023-08-07 07:36:53.424024+00
Date Added: 2024-06-11T14:57:54.536881
License: Public Domain

MANUEL, J.
I dissent.
In my view the opinion of the majority has misconceived the character of the contractual provision here in question and, in so doing, arrives by *270means of disraptive legal reasoning at an incorrect result. I would affirm the judgment of the trial court.
The agreement here in question provided in pertinent part as follows: “In consideration of the services to be rendered to the patient, he will be individually obligated himself and the patient (if he is acting as an agent of the patient) to pay the account of the patient in accordance with the current rates of the hospital. The account will be due and payable in full on the date on which the patient is discharged from the hospital, and time is of the essence with respect to such due date. Should the account be referred to a collection agency or an attorney for collection, the undersigned shall pay reasonable attorney’s fees and collection expense. ” (Italics added.)
The majority, looking beyond the clear terms of this language to “the manner in which defendants enforced that promise” (ante, p. 266), purport to find therein the germ of an unenforceable liquidated damages provision. This, in my view does nothing less than turn the contractual language on its head. A liquidated damage provision, whether of the enforceable or the unenforceable variety, is one in which the parties agree to a specific amount or formula for making certain the amount of damages to be deemed sustained as a result of any future breach. (See Garrett v. Coast & Southern Fed. Sav. & Loan Assn. (1973) 9 Cal.3d 731, 738-739 [108 Cal.Rptr. 845, 511 P.2d 1197, 63 A.L.R.3d 39] and cases there cited; see generally Sweet, Liquidated Damages in California (1972) 60 Cal.L.Rev. 84, fn. 2; 38 Ops.Cal.Atty.Gen. 195, 197 (1961).) Here no such agreement has occurred, for as the majority opinion itself points out, “there was no agreement between plaintiffs and the hospital as to the amount of collection costs to be paid in the event of default and no effort made between them to estimate a fair compensation for the breach.” (Ante, p. 266.) In view of this I am at a loss to understand how the majority can conclude that we here deal with a liquidated damages provision and proceed to assess its validity as such.1
*271The parties’ agreement was in fact a very simple and common one, providing for the recoveiy by the hospital of “reasonable attorney’s fees and collection expense” in the event the account was referred to a collection agency or an attorney for collection. The basic issue before us is equally simple: Were the fees and expenses here assessed reasonable in light of all of the circumstances?
Although the limited record on which this matter was presented to us2 does not directly reflect the trial court’s view in this respect, it would appear from its order and judgment—which essentially refused to enjoin continued use of the practice in question but enjoined its application to plaintiffs—that the court came forth with two answers, one relating to the inherent character of the fee arrangement and the other relating to the application of that arrangement in light of the particular facts before the court. Thus it apparently concluded (1) that the arrangement had not been shown to be inherently unreasonable or unfair and therefore could not be enjoined as an unfair business practice under the former provisions of section 3369 of the Civil Code, but (2) that the assessment of the fees and expenses in issue in the instant case was unreasonable in light of the fact that plaintiffs had received no notice of the amount of the contingent charges3 and were not recalcitrant in failing to make payment. I agree—and presumably the majority of the court would agree4—with the second of these determinations. I also agree with the first; however, the majority, as I understand it, do not.
In my view there is nothing inherently unreasonable in an arrangement whereby a hospital, after absorbing collection costs up to a certain point *272in the collection process,5 contracts with a collection agency (which; unlike the hospital, is after all in the business of collecting delinquent accounts) to collect an account which remains unpaid. Nor is it inherently unreasonable for the hospital, as a part of its contractual arrangements with the collection agency, to seek indemnity for the fee to be charged it by the agency by authorizing the latter to demand its fee from the debtor. It is only when (1) the account is referred to the agency for collection at a point which, in all of the circumstances, must be deemed premature (such as in the instant case, in the apparent view of the trial court) or (2) when the fee charged by the agency and passed on to the debtor is unreasonably high, that the fee may be said to be “unreasonable” within the meaning of the contract between the hospital and the debtor.
Here, as I have pointed out, the trial court apparently determined that, in light of all of the circumstances applicable to plaintiffs, premature referral to the collection agency occurred. There was no evidence in the record that this was a customary practice, however, and no basis for the broader injunction sought by plaintiffs is here provided. Furthermore, the record contains no allegations or statements supporting any conclusion that the percentage charged by the collection agency was unreasonably high or incommensurate with the competitive fee charged by such agencies in the community. (See 38 Ops.Cal.Atty.Gen. 195, 198, supra; cf. 57 Ops.Cal.Atty.Gen. 293, 294 (1974).)
*273As the Court of Appeal pointed out in its carefully considered opinion in this matter: “It must be assumed that the charges of the collection agency can be no lower than what is necessary to keep it in business. On the high side, insofar as it charges more than the traffic should bear, it leaves itself open to the threat of competition and regulation. From its nature the collection agency cannot apportion its charges to the actual expense of each individual collection. It must apportion all of its expenses, incurred in successfully or unsuccessfully attempting to collect delinquent accounts, for all of the creditors it serves, over those accounts which it actually collects. If it only charged the latter the actual costs of the individual collection, it would soon be out of business, as conversely would be the insurance company which returned all the premiums to those insureds who suffered no loss. We cannot say as a matter of law that the percentage fee is an unreasonable way for the collection agency to run its business.-If reform is needed it should be through existing regulation,[6] not by an attempt through the courts to examine the expenses incurred on behalf of the multitude of customers, which the form letters in this case indicates the collection agency serves, and the paying habits of those from whom it attempts, successfully or unsuccessfully to collect.”
I would affirm the judgment.
Clark, J., and Richardson, J., concurred.

Quite a different situation would be presented if we were here concerned with the hospital’s admission agreement as it was amended following the trial proceedings herein. Apparently at the suggestion of the trial court, the hospital in September 1975 revised its financial agreement to provide: “It is agreed that in consideration of the services to patient, the patient (and agent if signed by name) is obligated to pay the account due to hospital in accordance with its regular rates and terms, which shall be DUE IN FULL ON DATE OF DISCHARGE (time is of the essence). If unpaid on the due date, such account shall be subject to a DELINQUENCY CHARGE equal to 114% per month thereafter. Further, if unpaid within 30 days after written notice, hospital may refer said account to a collection agency or an attorney for collection, and in that event the amount due MAY BE INCREASED by an amount equal to the collection charge payable to such agency (35% of *271the balance due) or by reasonable attorney’s fees (as set by any Court), which the undersigned agrees to pay.” This may indeed be a liquidated damages provision, for the parties thereto agree to the use of certain numerical factors for the determination of damages presumed to flow from breach. The question of its validity under the provisions of section 1671 of the Civil Code, in the words of a well-reasoned Attorney General’s opinion, “would, in each instance, be a question of fact dependent upon the particular contractual arrangement.” (38 Ops.Cal.Atty.Gen. 195, 196, supra.)

The matter was presented on appeal by means of a settled statement. (Cal. Rules of Court, rule 7(b).)

See footnote 1, ante.

The dispositive order at the conclusion of the majority opinion, which reverses the entire judgment “with directions to grant injunctive relief consistent with the views expressed herein” (ante, p. 269), appears to contemplate an injunction which would permit the entry of a future judgment against plaintiffs for “actual costs of collection as defined in Garrett [v. Coast & Southern Fed. Sav. & Loan Assn., supra, 9 Cal.3d 731 ].” (Ante, p. 269.) We may wonder whether plaintiffs themselves will find this result preferable to that reached by the trial court.

In its answer to certain pretrial interrogatories of plaintiffs, defendant hospital stated that it normally follows these procedures and steps in the collection of overdue accounts:
“1. Request payment of patient balance at the time of discharge or arrangements made for payment plan.
“2. Submit an itemized statement showing the patient balance within a few days after discharge.
“3. Submit follow-up statements at the end of each month for approximately four months.
“4. Contact patient directly about 60 to 90 days after discharge if no payment, requesting payment or arrangements for payment plan.
“5. If steps 1 through 4 are unsuccessful is [j/c] obtaining or starting payments, send two pre-collection assignment letters (Exhibits 1 and 2) about two weeks apart about 150-180 days after discharge.
“6. If no payment or arrangements for payment plan thereafter, refer to collection agency about 180 to 210 days after discharge.
“Note: above schedule assumes no payments. If partial payment or payment plan are made at any point along the way, the above steps will vary accordingly.”
The preassignment letters referred to in step five are on the stationery of the collection agency, but they are sent out by the hospitál. They direct the debtor to make all payments, and address communications, directly to the creditor hospital. I express no present opinion as to whether the practice referred to in paragraph 5 above violates the provisions of subdivision (f) of section 6947 of the Business and Professions Code, which refers to the furnishing of forms to others by a collection agency licensee.

Collection agencies, of course, are extensively regulated under the provisions of the Collection Agency Act (Bus. & Prof. Code, §§ 6850-6956) and the rules and regulations issued pursuant thereto by the Director of Consumer Affairs (see § 6863; Cal. Admin. Code, tit. 16, ch. 7, §§ 600-699.7). (See also Civ. Code, tit. 1.6C (§§ 1788-1788.32) of pt. 4 of div. 3, the “Robbins-Rosenthal Fair Debt Collection Practices Act,” as added by Stats. 1977, ch. 907, § 1, eff. Jan. 1, 1978.) The instant action is not predicated upon a violation of any of these statutes or regulations. (See and cf. 57 Ops.Cal.Atty.Gen. 293, supra)