NATIONAL BANK OF COMMERCE OF SEATTLE, Respondent, v. GREG E. THOMSEN, Appellant.
No. 40942
En Banc.
March 30, 1972.
Petition for rehearing denied June 12, 1972.
495 P.2d 332 | 80 Wash. 2d 406
McCord, Moen, Sayre, Hall & Rolfe and Charles L. Sayre, for respondent.
ROSELLINI, J.— This is a suit to recover the balance due upon the purchase price of an automobile, including “time price differential,” plus interest after the date of default,
The evidence1 showed that the defendant had gone to Carter Motors, Inc., on a Saturday and had signed an order for the purchase of a new, 1965 Volkswagen automobile. This order showed that the price would be paid as follows: a downpayment of $1,000, a trade-in allowance of $25 and the balance to be financed. The total amount to be paid exceeded the stated price of the vehicle, $1,999.29, in the amount of $242.15.
Later the same day, the defendant paid the $1,000 downpayment and signed a “conditional sales contract,” which showed the “time price differential” to be $242.15. This document provided that payments should be made to the National Bank of Commerce of Seattle, the plaintiff herein, and further provided that payment to anyone other than the National Bank of Commerce should not constitute payment thereunder. This instrument bore the seal of the plaintiff and was admittedly furnished to the dealer by the plaintiff. Charts for determining the amount of “time price differential” were also furnished the dealer by the bank.
On the following Monday, the contract was assigned to the plaintiff, which paid the dealer the amount of the purchase price. This assignment was effected in accordance with the terms of a contract between the dealer and the plaintiff, which provided that the dealer would sell to the plaintiff such “notes” as might be acceptable to the plaintiff and that the dealer guaranteed all such “notes.” Conditional sale contracts were expressly included within the definition of “notes.”
The defendant testified, without contradiction, that he had told the dealer that he intended to apply for a loan from a bank which had advertised an interest rate of $4.50 per $100 per year on new car loans. The dealer advised
The following week the defendant received, by mail, a payment book from the plaintiff. He made 11 of the 36 payments called for in the contract and then refused to make further payments, upon advice of counsel. Fruitless attempts to obtain further payments and to repossess the automobile culminated in this lawsuit.
Holding in favor of the plaintiff‘s view of the transaction, the trial court ruled that it was a bona fide conditional sale contract and that, under this court‘s decision in Hafer v. Spaeth, 22 Wn.2d 378, 156 P.2d 408 (1945), the usury statute (
The theory that the Small Loan Act applies to the plaintiff in this transaction is urged again on appeal. The plaintiff has not seen fit to answer the contention, but it is apparent upon a reading of the statute that the act was not intended to apply to national banks, such as the plaintiff.
Upon the remaining contention of the defendant, that the transaction is usurious, we are of the opinion that the trial court must be reversed. The case relied upon by that court, Hafer v. Spaeth, supra, did not dispose of the question presented by the circumstances of this case and is therefore not controlling.
In that case, the defendant‘s assignor had purchased a piano for the sum of $175, from a dealer in pianos. He had paid $30 in cash, and agreed to pay the balance at the rate of $5 per month, “with $3.50 handling charge per month or a fraction thereof.” During the period between August 4, 1936, and January 19, 1939, the purchaser paid the total sum of $160 on the stated purchase price, leaving an unpaid balance of $15. He then sold his interest in the piano to the defendant. The dealer, before the commencement of the action, assigned his claim to the plaintiff for collection. When suit was brought, the defendant contended that the $3.50 per month handling charge represented interest and that the contract violated the usury statute in force at that time. (
This court discussed that statute, which provided:
Any rate of interest not exceeding twelve (12) per centum per annum agreed to in writing by the parties to the contract, shall be legal, and no person shall directly or indirectly take or receive in money, goods, or thing in action, or in any other way, any greater interest, sum or value for the loan or forbearance of any money, goods or thing in action than twelve (12) per centum per annum.
The essential elements of usury, this court said, are
To determine whether all these essential elements are present, the courts will look through the form of the transaction and consider its substance. If all the requisites are found to be present, the transaction will be condemned as usurious, but, if any one or more of them are lacking, the parties cannot be charged with a usurious practice.
22 Wn.2d at 382.
The word “loan,” this court said,
imports an advancement of money or other personal property to a person, under a contract or stipulation, express or implied, whereby the person to whom the advancement is made binds himself to repay it at some future time, together with such other sum as may be agreed upon for the use of the money or thing advanced.
22 Wn.2d at 384.
It was stated that if usury does not exist at the inception of the contract, the contract is not usurious.
We also recognized there that we had held in Lyon v. Nourse, 104 Wash. 309, 176 P. 359 (1918), and in Hughbanks Inc. v. Gourley, 12 Wn.2d 44, 120 P.2d 523, 138 A.L.R. 658 (1941), that it is not the office of a conditional bill of sale to secure a loan of money, but rather, only to permit an owner of personal property to make a bona fide sale on credit, reserving title in himself for security until the purchase price is paid.
It was stated in that opinion that the “vast majority” of cases dealing with transactions of the kind before the court in that instance had held that such sales do not constitute loans or come within the ban of the law against usury
While it is perhaps still true that the majority of courts adhere to the view that a conditional sale is not a “loan or forbearance,” there is now respectable authority to the contrary. See Annot., 14 A.L.R.3d 1065, 1069 (1967). Also, the rationale which was commonly used to distinguish sales on credit from loans and which was set forth in Hafer v. Spaeth, supra, has been subjected to some rather severe criticism. See, for examples, W. Warren, Regulation of Finance Charges in Retail Instalment Sales, 68 Yale L. Rev. 839 (1959) and J. Bernstein, Background of a Gray Area in Law: The Checkered Career of Usury, 51 A.B.A.J. 846 (1965).
The author of the latter article says, quoting William D. Warren, professor of law at the University of Illinois, “‘Today, the belief that one borrows money from need but purchases on credit by choice is manifestly anachronistic.‘” If it is true that persons who purchase on installment terms automobiles and other items of merchandise which they feel they need are under economic pressure as severe as that which influences borrowers of money to accept oppressive terms, then there is no logical reason to make a distinction between the exacting of excessive charges for deferring payments and the exacting of such charges for loaning money.
However, we are not confronted in this case with a question which makes it necessary for the court to either affirm or overrule Hafer v. Spaeth, supra. That case did not involve a purchase which had been financed by the plaintiff. It is true that there was an assignment of the conditional sale contract, but that assignment was made only for collection purposes and after the purchaser had defaulted.
Before turning to the question before the court, however, we think it should be noted that this court did not approve the contract under consideration there. The trial court had entered judgment for the defendant, finding that the con-
The legislature of this state has since seen fit to regulate retail installment sales of goods and services, in
At the time of the transaction involved in this suit, there was no statutory limit placed upon the amount of service charge to be exacted in installment sales. Since the act does not purport to regulate third-party financing of purchases of goods or services, it does not cover the question presented in this case. That question is: When a purchase is financed by a third party, is the relationship between the purchaser and the financier that of vendee and vendor or that of borrower and lender?
We think the answer is obvious when the question is stated. The party who furnished the money with which the purchase is made and to whom the purchaser obligates himself to repay that money is a lender. It follows that the charge which is made for that loan is interest, and the usury statute prohibits the exacting of such interest at a rate greater than 12 per cent per annum.
All of the facts of this case are consistent with the theory of a loan and inconsistent with a theory of credit sale, except, of course, the form of the transaction.
The purchase order showed that the balance of the purchase price (after the cash payment of $1,000, and the trade-in allowance of $25) was to be financed. This means that the dealer was not to extend credit to the defendant, but rather was to be paid in full at the time of the sale. It is true that the dealer did not receive the money until the following Monday, but that was only because the lending institution was closed for the weekend. The dealer was certain that it would be paid—so certain that it exacted from the purchaser a promise to make all his time payments to the plaintiff.
The plaintiff‘s employees, in attempting to collect delinquent payments from the defendant, referred to the transaction as a loan. They referred to it as a loan in their testimony and also testified to the effect that there is no practical difference between “time price differential” and “interest.”
The plaintiff attaches much significance to the fact that there was no direct contact between it and the defendant prior to the signing of the contract. We do not find this fact controlling. Even if the plaintiff had not authorized the dealer to represent to purchasers that it would finance their purchases of new cars, the representation was made and it was ratified by the plaintiff when it accepted the contract, which showed on its face that all payments were to be made to the plaintiff.
Ratification is the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him. Restatement (Second) of Agency § 82 (1958). As stated in section 83 of this chapter, affirmance is either (a) a manifestation of an election by one on whose account an unauthorized act has been done to treat the act as authorized, or (b) conduct by him justifiable only if there were such an election.
The conduct of the plaintiff in this instance falls within these principles. The true nature of the transaction was
This court has recently held, in State ex rel. O‘Connell v. PUD 1, 79 Wn.2d 237, 484 P.2d 393 (1971), that the purchase of a conditional sale contract is a loan of money. While the opinion does not specify that the loan is made to the vendee, it is obvious that this is the case. The vendor receives no loan; he receives the purchase price for the sale of his interest. At the same time, the vendee‘s debt to the vendor is paid, and he is thereafter indebted to the purchaser of the contract for the balance owed.
It is correct that one who sells goods or services on credit is not a lender of money. But a third party who pays the seller on behalf of the purchaser is, insofar as his relations with the purchaser are concerned, a lender of money. In a case such as this, where the purchase is financed from the beginning, there is never a true conditional sale. The sale is complete as far as the vendor is concerned. He does not extend credit to the purchaser; rather, he is paid in full at the time of purchase. The “conditional sale contract” is then but a security device to protect the party who finances the purchase.
We have said that it is not the office of a conditional sale contract to secure a loan of money. Hughbanks Inc. v. Gourley, supra; Lyon v. Nourse, supra; Hafer v. Spaeth, supra.
In the Hughbanks case, this court said:
This particular security device [conditional sale], with its severe remedial incidents, is not favored in the law, and its use has been restricted to situations where per-
sons standing in the actual relation of vendor and vendee have desired to effect a credit sale. It is in such cases that it finds its only legitimate use.
12 Wn.2d at 49.
It was not for such a purpose that the conditional sale device was used in this case. Rather, a cash sale was effected and the conditional sale was used as a security device to protect the institution which loaned the defendant the money to purchase the automobile.
We bear in mind that usury must exist, if it exists at all, at the inception of the contract. Here, it was never contemplated that the dealer would extend credit to the defendant. Rather, the agreement was that the full purchase price would be paid, and that a portion of the purchase price which the defendant was not prepared to pay would be loaned to him by a financing institution. It was represented to him that the plaintiff would make the loan, and the plaintiff did so.
Since the transaction, as between the plaintiff and the defendant, was a loan of money, the time price differential represented interest, and the interest charged was greater than that permitted under
The plaintiff does not contend that it was unaware that the charges for the loan exceeded 12 per cent per annum, or that the amount was charged through mistake or inadvertence. On the contrary, its theory is that it had the right to collect the full amount provided in the contract.
The contract was usurious. Consequently, the plaintiff cannot recover the full amount of the balance under the terms of the contract, but only the principal amount owed, less the interest accrued and unpaid, and less twice the amount of interest paid.
The defendant has not challenged the award of attorney‘s fees. That portion of the judgment is affirmed.
The judgment is otherwise reversed and the cause remanded with directions to enter judgment in accord with the law as set forth herein.
HAMILTON, C.J., FINLEY, HUNTER, HALE, and WRIGHT, JJ., concur.
HALE, J. (concurring specially)— I have signed the court‘s opinion and concur in all of its implications except that part which implies that Hafer v. Spaeth, 22 Wn.2d 378, 156 P.2d 408 (1945), is not explicitly overruled. Despite the disparate analyses set forth in both the majority and the concurring-dissenting opinions, Hafer, I think, should be overruled and I would explicitly say so.
Hafer should be overruled because its reported facts do not, in my opinion, support the court‘s legal conclusion. There, a piano was sold on what is described as a conditional sale contract calling for payments of principal at $5 per month plus an additional $3.50 per month for “handling charges.” It was this handling charge—whether for handling the weekly payments or the piano is not completely clear—which gave rise to that case. Thus, of $8.50 paid each month, only $5 was applied to the debt and the $3.50 paid nothing except the “handling charge” which, according to the Hafer opinion, would continue to accrue until the principal balance had been finally paid off by the $5 monthly allotment. In what appears to me to have been an erroneous conclusion, this court, I think, misconstrued the language of the usury statute to hold that the $3.50 described as handling charges each month, that is $3.50 each month for handling the other $5, did not constitute usury because the statute, it was said, did not apply to the sale of goods on conditional sale but only to the loan of money. Hafer v. Spaeth, supra at 383. That opinion, I think, ignores the express language of the statute which says:
Any rate of interest not exceeding twelve (12) per centum per annum agreed to in writing by the parties to
the contract, shall be legal, and no person shall directly or indirectly take or receive in money, goods or thing in action, or in any other way, any greater interest, sum or value for the loan or forbearance of any money, goods or thing in action than twelve (12) per centum per annum.
(Italics mine.) Laws of 1899, ch. 80, § 2, p. 128.3
That statute, as I see it, should have been read then and should be read now in pari materia with
Every loan or forbearance of money, goods, or thing in action shall bear interest at the rate of six percent per annum where no different rate is agreed to in writing between the parties. The discounting of commercial paper, where the borrower makes himself liable as maker, guarantor or indorser, shall be considered as a loan for the purposes of this act.
In speaking of every loan or forbearance of money, goods or thing in action, the statute expressly included not only the forbearance to repossess the goods so long as the handling charges are paid each month, but encompasses the discounting of commercial paper (
FINLEY and WRIGHT, JJ., concur with HALE, J.
STAFFORD, J. (dissenting in part and concurring in part)— I agree with the majority that defendant, Greg Thomsen, should prevail. However, the divergent legal theories leading to that end necessarily produce results that differ in kind.
While acknowledging that a vast preponderance of the
The majority ignores the fact that the plaintiff bank was injected into the case as an assignee of Carter Motors, the automobile‘s original vendor. The opinion is based primarily on an assumption that a relationship of lender and borrower existed between the bank and Greg Thomsen. But, in doing so, the majority ignores the trial court‘s finding of fact that no contact or negotiations took place between the bank and Thomsen. The legal chasm is bridged by the simple expedient of declaring that Carter Motors was an agent of the bank.
This unique factual position is derived by ignoring the trial court‘s findings of fact without first having determined that they were either opposed to or unsupported by substantial evidence. In effect, the majority made its own findings on the subject of agency despite findings or lack of findings made by the trial court. Further it stems in part from the majority having accepted certain of Thomsen‘s unchallenged testimony. This, of course, flies in the face of numerous cases in which we have held that a trial court need not accept or give credence to testimony merely because it is unopposed.
Finally, the opinion may solve one litigant‘s immediate problem, but it does so by adopting a view that is decidedly minority in nature. It also makes a 180 degree turn which may place in jeopardy thousands of longtime commercial transactions made in good faith and in reliance upon our prior adherence to the view held by most courts and other legal authorities. This not only may have an adverse effect upon assignee banking institutions but on many small individual assignee holders of such paper.
The change should not be entered into in such a cavalier
At the risk of prolonging this, I am compelled to review the facts and statutes in existence at the time the case arose.
Greg Thomsen, the defendant, decided to buy a new automobile. On Saturday, July 31, 1965, when he entered Carter Motors, Inc., he was the owner of an old Studebaker and had $1,000 in his pocket. The car he wanted was in stock. As a result he emerged a few hours later with a new Volkswagen, a potential lawsuit, and copies of two written documents (i.e., one was entitled “Purchase Order” and the other was entitled “Automobile Conditional Sales Contract“). Each document had been executed by him, within a short time of the other, during separate conferences with the Carter Motors’ salesman.
Monday, August 2, was the next business day of the Ballard Branch of the National Bank of Commerce. On that date, Carter Motors assigned to it the “conditional sales contract“.
Greg Thomsen paid all installments to the bank up to and including the one due July 15, 1966. Thereafter he made no further payments.
The bank, as assignee of the “conditional sales contract“, sued for the balance said to be due thereunder. Thomsen answered and alleged that the true transaction did not involve a “conditional sales contract” but in fact was a “loan” for the balance due on the purchase price of the automobile. He also charged that the alleged “conditional sales contract“, and its subsequent assignment to the bank, was a sham to cover the true “loan” transaction between himself and the bank. By way of a partial defense, Thomsen asserted that the “loan” was tainted with usury.
The trial court held that the transaction involved a “conditional sales contract“; that the “service charge“, in the form of a “time price differential” (amounting to 14.61 per
Thomsen has appealed, assigning error to 11 of the trial court‘s findings of fact. Essentially, it is urged that the trial court should have believed testimony supporting his theory of the case. In this regard, it is clear the trial court found it necessary to resolve several disputes of fact and decided them in favor of the bank. It is not our function to reevaluate the credibility of witnesses. In re Estate of Kleinlein, 59 Wn.2d 111, 366 P.2d 186 (1961); Sheldon v. Hallis, 72 Wn.2d 993, 435 P.2d 988 (1967).
Thomsen asserts that although the Carter Motors’ agent (i.e., the automobile salesman who had prepared both the “purchase order” and the “conditional sales contract” for Thomsen‘s signature) was available, the bank failed to call him. Thus, Thomsen argues, the trial court erred by failing to find that had the salesman been called he would have testified adversely to the bank and would have supported Thomsen‘s theory that a “loan” had been transacted.
The argument is not well taken. The failure to call such a witness creates no more than a permissive inference. Wiehl, Instructing a Jury in Washington, 36 Wash. L. Rev. 378, 386-90 (1961); National Conference of Commissioners on Uniform State Laws, Uniform Rules of Evidence, Rule 13 (1953); 1 B. Jones, The Law of Evidence § 9 (5th ed. 1958). It neither takes the place of evidence of material facts nor shifts nor satisfies the burden of proof so as to relieve the party who has that burden. 31A C.J.S. Evidence § 156 “Strength of Inference” at 417 (1964).
A review of the full record reveals that, with the exception of findings of fact 3, 9, 12 and 13 (to be discussed hereafter) all are supported by substantial evidence. Thus, they should be accepted as established facts. Leonard v. Washington Employers, Inc., 77 Wn.2d 271, 461 P.2d 538 (1969); Moss v. Vadman, 77 Wn.2d 396, 463 P.2d 159 (1969). This being the case, one must conclude that the instrument upon which the instant action is based was a “conditional sales contract” and not a “loan“.
Mr. Thomsen contends we should overrule Hafer v. Spaeth, 22 Wn.2d 378, 156 P.2d 408 (1945). Hafer holds that a bona fide “conditional sales contract” does not constitute a “loan” of money; that “handling charges” are not “interest“; and that such a transaction does not come within the purview of the usury law.
It is argued that in an age when the financing agent has become so intimately involved in the original sales, the reasons relied on in Hafer no longer ring true. Nevertheless, the basic rule in Hafer still remains the prevailing view. 6A A. Corbin, Contracts § 1500 (1962); 6 S. Williston, A Treatise on the Law of Contracts § 1685, at 4766 (rev. ed. 1938); 2 Restatement of Contracts § 526, illustration 4 at 1023 (1932); Annot., 104 A.L.R. 245 et seq. (1936); 14 A.L.R.3d 1069 et seq. (1967).
Subsequent to Hafer the legislature adopted the Retail Installment Sales Act,
Despite the legislative amendment of 1967 and the 1968 amendment by initiative limiting the amount authorized as a “service charge“, “service charges” were neither eliminated nor restricted in their application as proper costs of
The legislative history of the Retail Installment Sales Act has served to emphasize, not abrogate, the difference between “loan” and “sales“, “interest” and “service charges” with which Hafer was concerned. In light of circumstances existing at the time the instant contract was executed, we should not overrule Hafer v. Spaeth, supra.
The trial court‘s memorandum opinion was incorporated in its findings of fact and conclusions of law. That opinion makes it evident the outcome of the case was governed by the 1963 version of the Retail Installment Sales Act.
The act authorizes the imposition of a “service charge“. Nevertheless, it also provides that a seller may not recover it if he fails to obey the requirements of the act.
The trial court found that Thomsen signed the “conditional sales contract” (exhibit 1) on July 31, 1965. It appeared to have been prepared in compliance with the Retail Installment Sales Act. It contained the requisite terms for payment of “time price differential“, a breakdown of the monthly installments to be paid, and the other items required by
The statement of facts and exhibits indicate that only a few hours prior to executing the “conditional sales contract“, a Carter Motors’ salesman filled out, and had Mr. Thomsen sign, a “purchase order” (exhibit 4) for exactly the same vehicle (i.e., a deluxe 1965 Volkswagen sedan, model 113, serial No. 115 859 858). The vehicle was actually in stock and was to be delivered to Mr. Thomsen in a matter of hours. The purchase order was signed by both Mr. Thomsen and the salesman.
Mr. Carter explained that ordinarily a “purchase order” is not binding without his personal signature. He testified, however, that he accepted and acted on it despite the lack of signature. In explaining the “purchase order‘s” significance, he said:
This is the offer and acceptance. It states what type of car that he is buying for how much and how.
The “purchase order” (exhibit 4) signed by Thomsen contained all data required to place it within the purview of the Retail Installment Sales Act with the exception of: (1) “the dollar amount or rate of the service charge” and (2) “the amount of time balance owed by the buyer to the seller . . .”
Herein lies the problem. The “conditional sales contract”
Each document was completed within a short time of the other. They are in similar, although not identical, terms. Each is enforceable and could lead to a similar legal result, yet, each has a real potential for a conflicting interpretation. At best, it can be said that Carter Motors’ preparation of the two documents for Thomsen‘s signature created both an ambiguity and a lawsuit.
The trial court erred in finding of fact 3 by failing to reflect that the transaction was contained in two documents (plaintiff‘s exhibit 1 and defendant‘s exhibit 4) rather than in one.
Finding of fact 12 was in error wherein it held that the “conditional sales contract” truly and fairly set forth the transaction between the parties. It, like finding of fact 3, failed to reflect that the true transaction was contained in two documents.
Every retail installment contract shall be contained in a single document which shall contain the entire agreement of the parties including any promissory notes or other evidences of indebtedness between the parties relating to the transaction . . .
(Italics ours.)
Obviously, the foregoing provision is designed to protect a buyer from deception or from ambiguities that may arise from the existence of more than one document covering the same transaction.
Whether the two contracts may have merged or may have become integrated is not before this court. These common-law doctrines were not changed by
If a seller desires to impose the authorized “service charges“, he must comply with the act. If he fails to do so, he
shall be barred from the recovery of any service charge, official fees, or any delinquency or collection charge under or in connection with the related retail installment contract or purchases under a retail charge agreement . . .
(Italics ours.)
Carter Motors prepared, and had executed, two similar documents covering the same motor vehicle. Each document was legally enforceable on its face. One was assigned to the bank (exhibit 1), and the other was retained in the files of Carter Motors (exhibit 4). This violated the “single document” provision of the Retail Installment Sales Act.
Finding of fact 9 was in error wherein it stated that $844.75 was presently due and owing the bank under the “conditional sales contract.” That amount incorrectly included “service charges” to which the assignee bank was not entitled.
Finding of fact 13 pertaining to the award of an attorney‘s fee is also in error. Under
The plaintiff bank, as assignee of Carter Motors, is entitled to judgment against defendant Thomsen. However, it is not entitled to collect any “service charges” in the form of “time price differential” and it is not entitled to an attorney‘s fee.
The application of this case to the “single document” provision of
One final point must be made. The majority states that the purchase of a conditional sale contract is a loan of money. For support of that proposition they cite State ex rel. O‘Connell v. PUD 1, 79 Wn.2d 237, 484 P.2d 393 (1971). That case does not support the proposition.
O‘Connell holds merely that the purchase of a vendor‘s interest in a conditional sale contract is a loan of money to the vendor, from the one who purchased the vendor‘s interest in the contract. Even under the facts used herein by the majority, no such proposition is before us. The majority should not attempt to extend O‘Connell beyond the facts and the law stated therein.
The judgment should be modified and affirmed as suggested herein.
DONWORTH and WEAVER, JJ. Pro Tem., concur with STAFFORD, J.
Petition for rehearing denied June 12, 1972.