USURY AND THE FUNERAL CONTRACT

In this case, although a note existed which on its face was usurious, it was not a loan but part of a contract for services.

MATTER OF THOMPSON, 2021 NY Slip Op 50205 - NY: Surrogate's Court, Erie March 11 2021:

"....

The Note to the funeral home signed by Tarcia provides that a charge of 2% interest per month will be added after March 1, 2014 to any outstanding balance of the unpaid funeral expenses. Annualized at 2%, the interest rate being charged would be 24%. GOL §5-501 and NY Banking Law §14-a provide that it is illegal to "charge, take or receive any money, goods or things in action as interest on the loan or forbearance of any money, goods or things in action at a rate exceeding" 16% per year.

Where usury is claimed, "a loan or forbearance of money at the prohibited rate of interest must be shown if the defense is to prevail" (Morris Plan Industrial Bank v. Faulds, 269 App Div 238, 240 [1945]; see also Orvis v. Curtiss, 157 NY 657, 660 [1899]). In determining whether a transaction is usurious, a Court must examine several factors:

"`The rudimentary element of usury is the existence of a loan or forbearance of money' (Matter of City of Binghamton [Ritter], 133 AD2d 988, 989, lv dismissed 70 NY2d 1002; see, General Obligations Law § 5-501; see also, 72 NY Jur 2d, Interest and Usury, § 62, at 84). `[Where] there is no loan, there can be no usury' ( Oxhandler Structural Enters. v Billard, 104 Misc 2d 38, 39). When a transaction is challenged as usurious, courts traditionally look beyond the standard form of the transaction and attempt to ascertain its true nature (see, Kuklis v Treister, 83 AD2d 545). In other words, `[a] transaction must be considered in its totality and judged by its real character, rather than by the name, color, or form which the parties have seen fit to give it' (Lester v Levick, 50 AD2d 860, 862-863 [Christ, J., dissenting], revd on dissenting mem below 41 NY2d 940; see, 72 NY Jur 2d, Interest and Usury, § 56, at 76). Significantly, there is a strong presumption against a finding of usury ( see, Giventer v Arnow, 37 NY2d 305, 309; Lehman v Roseanne Investors Corp., 106 AD2d 617, 618), and this defense must be established by clear and convincing evidence as to all its elements (Giventer v Arnow, supra, at 309; Matter of City of Binghamton [Ritter], supra, at 989)" (Feinberg v. Old Vestal Rd. Assoc., 157 AD2d 1002, 1003-1005 [1990], emphasis added).

Furthermore, as the Court in Sogeti USA, LLC v. Whirlwind Bldg. Sys., 496 F. Supp. 2d 380, 382 [2007], pointed out:

"[T]he law of usury is not even applicable to agreements for the provision of goods and services as they are not considered to constitute loan agreements. In re Renshaw, 229 B.R. 552, 557 (2d Cir. BAP 1999) ('[t]he sale of goods and services are exempt from the usury law [because] [u]nlike an entity which lends money, it is not illegal for an entity providing goods and services to charge one price for cash and another price (original price plus a Service Charge) for a sale on credit.'). Feinberg v. Old Vestal Rd. Assocs., 157 AD2d 1002 (NY App. Div. 1990))" (emphasis added).

(ii)

Tarcia contends that the language and terms employed in the Note require this Court to construe it as a loan. Specifically, Tarcia refers to the title of the contract as a "Promissory Note", and to the use of the terms "lender" and "borrower", as evidence that the document is intended to have the same force and effect as a loan or forbearance agreement. The specific verbiage in the Note is not disputed, but the funeral home disagrees that such language turns the transaction into "a loan or forbearance" agreement.

The funeral agreement is a one page document that lists the merchandise selected for the decedent's funeral arrangements, including the purchase of a casket, death certificates, and use of the funeral home facilities and staff. Its terms are simple and itemized. There is no language in this agreement which would render it a loan or forbearance agreement. Rather, the terminology employed demonstrates that the purpose and intent of the agreement is for a sale of merchandise and services to be provided by the funeral home in connection with decedent's memorial service and burial.

The Note mirrors language that is included in the funeral agreement and, in essence, clarifies and expands those terms. While the terms "Lender" and "Borrower" employed in the Note are consistent with verbiage often used in loan or forbearance agreements, it is clear that the Note in this case was not intended to represent a loan agreement. The Note simply reinforced the terms of the funeral agreement, making clear what was required if the bill for decedent's funeral and associated services were not paid by March 1, 2014. So viewed, this was simply an agreement for the possible payment of those goods and services over time; and, if that extended period were to occur, the price would be higher by the addition of interest.

As our Court of Appeals pointed out in Mandelino v. Fribourg, 25 NY2d 145, 151 [1968]:

"`A contract which provides for a rate of interest greater than the legal rate upon a deferred payment, which constitutes consideration for a sale, is not usurious.' This principle seems to have been regularly followed at the Appellate Division. `There is no usury in the normal purchase-money transaction where a seller demands a higher price because the consideration is not all in cash'" (emphasis added, quoting McAnsh v. Blauner, 222 AD 381, 382 [1928]; and Butts v Samuel, 5 AD2d 1008 [1958]).^[2]

Accordingly, I find that the funeral agreement is not a loan, but a contract for the purchase of goods and services, and therefore is not governed by the usury laws. The inclusion of the language describing the charge of an additional 2% interest rate per month subsequently is also not deemed usurious, as rates higher than the legal rate of interest may be applied to contracts for the sale of goods on credit. I make the same findings with respect to the Note."