In this diversity case we must interpret Mississippi's usury statute, Miss.Code Ann. § 75-17-1.
This suit was brought by Allied Chemical Corporation, a seller of agricultural chemicals, against Jack Mackay, a Mississippi farmer. In the summer of 1979 Mackay ordered a substantial quantity of fertilizer from an Allied agent. Allied delivered the fertilizer and sent Mackay a bill requiring payment within thirty days. The bill also stated that an interest rate of 1 1/2% per month would be charged on overdue amounts. Both parties agree that Mackay assented to this rate.
A dispute soon arose over whether Allied's agent had promised to allow Mackay to return the fertilizer if it was not used. Allied refused to take it back, and Mackay refused to pay. When negotiations stalled, Allied filed suit in district court seeking the contract price of slightly more than $10,000 plus accrued interest. Mackay answered, not mentioning usury as a defense, but later filed a motion for summary judgment in reliance on § 75-17-1. He argued that because the purchase agreement was not in writing the maximum interest rate that Allied could have charged was 6% under § 75-17-1(1). He further contended that because 1.5% per month is more than double 6% per year forfeiture of both principal and interest was required under § 75-17-1(9). The court found this logic persuasive and granted Mackay's motion. We affirm that decision in part, reverse it in part, and remand the case for further proceedings.
We examine first two issues raised by Allied that are unrelated to the central question of statutory interpretation.
Allied contends that Mackay waived the usury issue by failing to raise it as an affirmative defense in his initial responsive pleading. We agree that Fed.R.Civ.P. 8(c) requires affirmative defenses to be pled and that Mackay failed to plead usury. But under the circumstances here the failure was not fatal.
Federal Rule of Civil Procedure 8(c) requires any matter constituting an affirmative defense to be set forth in a defendant's responsive pleading. Failure to follow this rule generally results in a waiver. Wright and Miller, Federal Practice and Procedure: Civil § 1278. Where the matter is raised in the trial court in a manner that does not
Allied's second claim is that the district court failed to comply with Fed.R.Civ.P. 56(c) in not holding a formal hearing on Mackay's motion for summary judgment. But Rule 56(c) does not require an oral hearing in open court. Rather, it contemplates notice to the party opposing the motion and an adequate opportunity to respond to the movant's arguments. See, e.g., Barker v. Norman, 651 F.2d 1107, 1119 (5th Cir.1982); Kibort v. Hampton, 538 F.2d 90, 91 (5th Cir.1976). Allied was given notice here and, in fact, opposed Mackay's motion with a brief. Under our precedents it is clear that Allied got the "hearing" Rule 56(c) guarantees.
The proper interpretation of § 75-17-1 poses more difficult questions. We begin our analysis by quoting the relevant portions of the paragraphs of § 75-17-1 that are implicated in this case.
Paragraph (1) provides:
Paragraph (2) provides:
Paragraph (6) provides:
Finally, paragraph (9) provides:
This appeal raises two issues that require us to construe these provisions: (1) whether the 6% rate prescribed in paragraph (1) is the maximum legal rate for all contracts not "in writing"; and (2) whether the agreement between Allied and Mackay is described in paragraph (6).
Specifically, the scenario is this. If paragraph (1) provides the exclusive rate for unwritten contracts, then this agreement was more than doubly usurious, forfeiture
We address first the "in writing" requirement of paragraph (1). In doing so we are faced with two provisions between which there is no small amount of friction. Paragraph (1) provides that "contracts may be made, in writing, for payment of a finance charge as otherwise provided by this act ...." Paragraph (6) begins with the prepositional phrase "[n]otwithstanding the foregoing and any other provision of law to the contrary." Thus a preliminary question to be resolved is whether this introductory phrase "notwithstands" paragraph (1)'s writing requirement.
In choosing between reasonable alternative constructions of the statute's meaning we are guided by pronouncements of the Mississippi Supreme Court regarding interpretation of the usury statute and its forfeiture provision. That court has stated repeatedly that the usury statute is highly penal and must be construed strictly in favor of the creditor. See, e.g., Liddell v. Litton Systems, Inc., 300 So.2d 455, 456 (Miss.1974); Wilson Industries, Inc. v. Newton County Bank, 245 So.2d 27, 31 (Miss. 1971); Ready Mix Concrete & Concrete Prod. Co. v. Perry, 239 Miss. 329, 123 So.2d 241, 246 (1960); Tower Underwriters, Inc. v. Lott, 210 Miss. 389, 49 So.2d 704, 706 (1951). This is particularly true with respect to the provision calling for forfeiture of both principal and interest. See, e.g., Morgan v. King, 128 Miss. 401, 91 So. 30, 31 (1922). For example, in Byrd v. Link Newcomb Mill and Lumber Co., 118 Miss. 179, 79 So. 100, 101 (1918), the court stated: "The Statute provides a severe penalty of forfeiture of principal and all interest for its violation, and it must be strictly construed, and can be successfully invoked only where it is clear and certain, from the particular facts of each case, that usurious interest was either contracted for or received ...."
With these principles in mind we hold that a contract need not be in writing to qualify for the interest rate provided in paragraph (6). It is certainly reasonable to conclude that "notwithstanding the foregoing" means notwithstanding all of the foregoing, including the writing requirement. Nor does this construction excise altogether the statute's writing requirement. It certainly would still apply to transactions governed by paragraph (2), which is not introduced by the "notwithstanding" phrase.
We recognize that a cogent argument can be made that the introductory phrase of paragraph (6) was intended to make clear that 1 1/2% may be charged on "revolving charge agreements" despite the general rate limitations of paragraphs (1) and (2) and that it has no effect whatever on the writing requirement. But such a construction is no more reasonable than the one we have chosen. And, in picking between the two, the Mississippi Supreme Court has made our choice clear. When faced with one reasonable construction that triggers the provision calling for forfeiture of both principal and interest and one that does not, we must choose the latter.
The second issue for our review is whether the Allied/Mackay agreement is one governed by paragraph (6). Although no Mississippi decisions construing paragraph (6) have been brought to our attention, we do not find this question difficult.
Each of the provisions of § 75-17-1 creates a maximum interest rate for a specific type of loan transaction. Paragraph (6) establishes the maximum interest rate for extensions of credit that are incidental to retail sales. By providing a definition of
Despite the higher rates applicable to this revolving charge agreement, the interest provided in the Allied/Mackay contract was usurious to the extent 1½% per month was charged on the amount exceeding $800.00. But it was not so usurious as to mandate forfeiture of the principal obligation under § 75-17-1(9). Therefore, we affirm the judgment of the district court with respect to the forfeiture of interest, reverse with respect to the forfeiture of principal, and remand the case for further proceedings.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.