When Is The Requirement Of Written Contract Not Met?

The Supreme Court of Ohio recently ruled that a merchant’s notation on its invoices or account statements of a purported interest rate applicable to unpaid balances in its “book accounts” does not meet the requirement of a “written contract,” and therefore does not allow the merchant to charge customers a higher rate of interest than the statutory rate set forth in R.C. 5703.47.

In the opinion, the Court limited the application of its ruling to the specific parties in this case and to transactions occurring after the announcement of the decision.

The case consolidated separate lawsuits filed against two farmers by a farm cooperative from which both defendants purchased feed, fertilizer, fuel and other farming supplies on a regular basis over a period of more than 10 years.

Both farmers developed overdue balances in their accounts with the co-op, and were assessed monthly finance charges on those balances. Both continued to make purchases and payments after interest charges were assessed against their accounts, but eventually stopped doing business with the co-op without paying off their accounts. The co-op continued to assess monthly interest charges on the overdue account balances. In 2005, the co-op filed suits seeking recovery of amounts owed from the farmers.

The farmers sought dismissal or reduction of the claims, arguing that the interest charges assessed against their accounts violated Ohio laws in effect at that time which limited the assessment of interest on an unpaid obligation to a statutory rate of 10 percent unless the creditor and debtor had entered into “a written contract” agreeing to a higher interest rate. The statutory maximum interest rate later became calculated through a formula set forth in R.C. 5703.47.

The trial court rejected the debtors’ argument and granted summary judgment in favor of the co-op. On review, the Court of Appeals affirmed the trial court’s holding regarding the interest charge notice but reversed the money award to the co-op and remanded the case for recalculation of damages. The farmers were granted Supreme Court review of the ruling.

The Supreme Court rejected the co-op’s argument that its assessment of interest charges should be analyzed under R.C. 1302.10, which states that when one party to a contract provides a written confirmation of a new condition to that agreement to the other party within a reasonable time that confirmation operates as an acceptance of the new condition.

The Court wrote that, “[w]hen statutes conflict, the more specific provision controls over the more general provision.” The Court found that R.C. 1302.10 addresses generally how provisions may be added to a contract while R.C. 1343.03(A) specifically establishes how parties can agree to an interest rate higher than the maximum allowed under R.C. 5703.47. R.C. 1343.03(A) requires a written contract, not simply an additional term added to an invoice and met without resistance by another party.

The Court further wrote that, “in order for a written contract to exist for purposes of R.C. 1343.03(A), there must be a writing to which both parties have assented...An invoice or monthly statement does not constitute such a writing...A meeting of the minds as to the essential terms of the contract is a requirement to enforcing the contract.” The co-op’s placement of an interest rate on invoices constituted no promise by the farmers and demonstrated no meeting of the minds between the parties.

For more information see full opinion at: http://www.supremecourtofohio.gov/rod/docs/pdf/0/2008/2008-Ohio-1259.pdf

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