Procedural Posture

Respondent judgment creditors agreed to delay executing on their judgments in exchange for the payment of forbearance fees in addition to statutory postjudgment interest of 10 percent on the unpaid balance of the judgments. Appellant judgment debtors brought usury actions against the creditors and respondent creditors’ attorney. The Alameda County Superior Court (California) granted summary judgment for respondents. The debtors appealed.

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Overview

The court held the forbearance fees did not violate California’s usury law. Usury liability was wholly a creature of statute. Because the usury law did not expressly prohibit a party from entering into an agreement to forbear collecting on a judgment, usury liability did not extend to judgment creditors who received remuneration beyond the statutory 10 percent interest rate in exchange for a delay in enforcing a judgment. Although the court concluded nothing prohibited parties from entering into an agreement to forbear collecting a judgment, the court added that any forbearance fee did not become part of the judgment and was not an amount that had to be paid to satisfy the judgment under California’s Enforcement of Judgments Law, Code Civ. Proc., § 680.010 et seq. Rather, a forbearance agreement was a contract between the judgment creditor and the judgment debtor that was separate from the judgment to which it applied. Consequently, a forbearance agreement had to be enforced in a separate contract action and was subject to standard contractual defenses such as duress and unconscionability.

Outcome

The court affirmed the judgments.