The opinion of the court was delivered by: BECKER
This memorandum disposes of the remaining post-trial motions in these consolidated cases. The first motion concerns the amount of interest due and the time on which interest should be computed on the note which was the subject of C.A. No. 76-2758 and on which the jury found for James J. McLaughlin. The second motion involves the application of East Coast Management ("ECM"), plaintiff in the remaining two cases, for an award of pre-judgment interest under Maryland law on the jury's verdict in its favor. We consider these issues seriatim.
I. The McLaughlin/Lamoreau Note
In answer to one of a number of special interrogatories, the jury found that Lamoreau was liable on a promissory note to McLaughlin. The note, written and signed by Lamoreau, and dated October 9, 1974, states that Lamoreau owes McLaughlin $ 28,862.99 plus interest computed at the rate of 13.5 percent per annum. The note further provides: "The above note is to be paid on demand March 30, 1975."
McLaughlin has asked that, in addition to receiving the principal on the note per the jury's award, he be awarded the stated amount of interest (13.5 percent per annum) from October 9, 1974, to the date of judgment.
Lamoreau opposes this motion on several grounds. First, Lamoreau contends that the legal rate of interest in Pennsylvania (whose law governs this note) is but six percent per annum, and that he should be required to pay no more than that amount of interest. Second, he contends that McLaughlin is entitled to interest on the note only from October 9, 1974, to January 1, 1975, the date (according to the jury's special finding) of the unlawful ouster of East Coast Management from the partnership, and then from October 1976, when McLaughlin made demand by filing suit to collect on the note, until judgment. These motions rest on the theory propounded by Lamoreau that the note was a hybrid demand/time note with demand the prime factor, in that it contemplated payment of the entire principal and interest, but only upon the demand of McLaughlin which could be made on March 30, 1975, but no earlier than that date. Under this theory, the note did not fall due until McLaughlin made demand by filing suit in October 1976.
Lamoreau also contends that interest should not be paid from January 1, 1975, until October 1976, because on January 1, 1975, when McLaughlin wrongly ousted ECM from the partnership, he converted to his own use the $ 28,862 principal of the note, which had been borrowed for use in the partnership and which had in fact been paid into the partnership. Lamoreau implies that, the note notwithstanding, McLaughlin is entitled to no interest for this period because interest is essentially compensation for the use of a sum of money by the borrower, whereas here the lender (McLaughlin), rather than the borrower (Lamoreau), had control over the money during this period.
We will first address the issue concerning the proper rate of interest, and then the time period on which interest must be paid.
A. The Appropriate Rate of Interest
In Pennsylvania, the maximum lawful interest rate, except as otherwise provided by law, for the loan or use of money in an amount of fifty-thousand dollars or less is six percent per annum. Pa.Stat.Ann.tit. 41, § 201 (Purdon Supp.1981). The ceiling on interest rates may not be waived by any oral or written agreement executed by any person. Id. § 408. When a rate of interest for the loan or use of money exceeds the maximum lawful rate, the debtor need not pay any excess over six percent per annum and may recover any excess interest paid. Id. § 501. Unless an exception to the lawful rate of interest applies, McLaughlin will be limited to recovering interest at six percent per annum.
McLaughlin contends that he may recover the full amount of interest as stated on the note under a provision which makes the maximum lawful rate of interest inapplicable to "business loans the principal amount of which is in excess of ten thousand dollars." Id. § 301. McLaughlin's citation to Section 301, which is buried obscurely in a much larger statute pertaining to residential mortgage interest rates, is astute, but does not exempt the note from the maximum lawful rate of interest. The Pennsylvania Secretary of Banking, who is empowered to issue regulations and clarifications to effectuate the purposes of the Commonwealth's interest rate laws, has issued a definition of "business loan" under Section 301:
Business loans-for the purposes of the act shall mean extensions of credit where the funds are to be utilized in a business enterprise and where the following conditions exist:
(i) the borrower exercises actual control over the managerial decisions of the enterprise in which the funds are to be utilized.
(ii) the borrower signs an affidavit under penalty of perjury setting forth the ...