Bell v. Loosier of Albany, Inc., 50840

• Decision Date: 18 November 1975
• Docket Number: 3,No. 50840,Nos. 1,2,50840,s. 1
• Citation: 222 S.E.2d 839,137 Ga.App. 50
• Parties: Lucy E. BELL v. LOOSIER OF ALBANY, INC
• Court: Georgia Court of Appeals

Page 839

222 S.E.2d 839

137 Ga.App. 50

Lucy E. BELL v. LOOSIER OF ALBANY, INC.

No. 50840.

Court of Appeals of Georgia, Division Nos. 1, 2, 3.

Nov. 18, 1975.

Rehearing Denied Dec. 12, 1975.

Sharon L. Tucker, Albany, Charles M. Baird, Atlanta, Myers & Parks, John R. Parks, Americus, for appellant.

Black & Black, Eugene C. Black, Jr., Albany, Crisp & Oxford, Henry L. Crisp, James C. Gatewood, Americus, for appellee.

CLARK, Judge.

Appellant seeks to have our court place transactions under the Retail Instalment and Home Solicitation Sales Act in the same verboten category as those appellate court rulings which have ruled that lenders who violate the Industrial Loan Act forfeit both finance charges and principal. This represents the main contention of appellant. Additionally, appellant attacks the right of plaintiff below to amend its complaint. The other item presented is appellant's contention that the trial court erred in ruling against defendant's counter-claim based on an alleged violation of Regulation Z of the Federal Truth in Lending Act.

Appellant-defendant ('buyer') made three separate purchases of single items of household goods (a stereo, rug, and refrigerator) from the furniture store operated by plaintiff-appellee ('installment seller'). At the time of each purchase the customer executed separate retail instalment sales contracts upon forms prepared by the Georgia Retail Furniture Dealers Association. The respective contracts were dated October 26, 1973, December 8, 1973, and January 12, 1974. Each contract provided for twelve monthly instalment payments. In connection with the second (rug) and third (refrigerator) purchases and execution of the second and third contracts the amount agreed to be paid represented the time purchase price after the seller had deducted the unearned finance charges which had been included in the previous instalment contracts. These deductions were computed under the 'Rule of 78' known also as 'the sum of the digits' method. Such computed deductions are required by the Georgia Retail Instalment and Home Solicitation Sales Act (Code Ann. § 96-903(c)). (We will hereafter refer to this statute as 'Retail Instalment Sales Act' which can be found in Ga.L.1967, p. 659 and Ga.L.1970, p. 98. It appears in the Annotated Code as Chapter 96-9. All citations will be to sections of the Annotated Code.)

Each contract gave the instalment seller the right to accelerate the entire balance of the account upon default. This clause reads as follows: '(3) Time is the essence of this contract and conditions and each and every provision thereof, and upon default in any payment when due, the entire amount of purchaser's indebtedness is at vendor's option, become due and payable and collectable by any legal process-all special remedies herein being merely cumulative.'

The buyer failed to make the agreed payments and after fruitless efforts to collect, the furniture store sued for $325.18. This amount was the total remaining due under the last contract which had included the balances due under the first two contracts after complying with the statutory mandate of deducting the balance of the unpaid finance charges in conformance with the 'Rule of 78.' The complaint alleged 'There is a balance owing on these Contracts, due, demanded and unpaid in the amount of $325.18.' Defendant answered and counter-claimed. She alleged that the amount demanded contained no pro rata rebate for unearned interest on the contract as it had not run for its full contractual period, and this type of acceleration violated Code Ann. Chapter 96-9. Her counter-claim asserted plaintiff's charging of excessive interest in violation of Code Ann. § 96-903(d) should be deemed 'wilful' and subject him to the penalties imposed by Code Ann. § 96-910. Defendant further alleged that plaintiff violated the Truth In Lending Act, 15 U.S.C.A. § 1601 et seq., and Federal Reserve Regulation Z, 12 C.F.R. § 226.1 et seq. by failing to properly disclose the nature of the security interest retained by the creditor, and not providing a 'description of the property brought forward from the previous contract as security.'

Plaintiff then amended the complaint and sought recovery in the reduced amount of $303.68. Testimony at the trial developed this amount was reached after deducting the unearned finance charge under the 'Rule of 78.' In turn, defendant amended the answer by striking the original counterclaim and substituting another counterclaim. Herein the same contention is made as to the violation of § 226.8(b)(5) of Regulation Z as to 'clear identification of the property to which the security interest relates . . .' The amount sought in the counterclaim is $122.84 plus the costs of this action, and for such further relief as the trial court may deem proper.

The case was tried before a judge without a jury. He awarded judgment to the plaintiff in the amount of $303.00 as being the amount proved. He denied the two counterclaims based respectively upon the Retail Instalment Act and the Federal Consumer Credit Protection Act. Held:

1. Because the Retail Instalment and Home Solicitation Sales Act is a totally different breed of animal than the Georgia Industrial Loan Act we are unable to agree with the appellant's thesis that decisions rendered under the latter lending statute declaring loan contracts invalid apply to the Retail Instalment and Home Solicitation Sales Act.

It should be noted that the appellant's attack upon the purchase contracts is limited to the presence in the contract of paragraph numbered (3) whereby '. . . upon default in any payment when due the entire amount of purchaser's indebtedness is at vendor's option, become due and payable and collectable by any legal process.' Appellant does not contend that the finance charges added to the unpaid balance of the cash price making up the total time payment exceeded the statutory maximum.

A comparison of the language of the two statutes and also of the contracts in the case sub judice with those documents which were ruled in violation of the Industrial Loan Act shows the verbiage of the statutes and contracts to be totally different. The seminal case dealing with the subject was Lewis v. Termplan, Inc., Bolton, 124 Ga.App. 507, 184 S.W.2d 473. There this court condemned two phrases as making operative the 'null and void' sentence of the loan regulatory statute. These two contractual phrases were 'Failure to pay any installment . . . when due hereunder shall at the option of the holder and without notice render all installments due and payable at once' and 'interest from maturity at the rate of 8% per annum.' Because all industrial lenders used forms containing substantially the same language in these two clauses, the stare decisis decisions subsequently rendered by our appellate courts pointed to the illegality resulting from these inculpatory phrases.

The instant contract was drafted for use by the members of the Georgia Retail Furniture Dealers Association. (T. 22; 31). It does not contain any phrase violative of the Retail Instalment and Home Solicitation Act. Nor does it impose 'interest from maturity.' The pertinent paragraph here which has been attacked by appellant reads: 'Time is the essence of this contract and conditions and each and every provision thereof, and upon default in any payment when due, the entire amount of purchaser's indebtedness is (sic) at vendor's option, become due and payable and collectible by any legal process-all special remedies herein being merely cumulative.' (T. 52, 53, 54).

What is meant by the term 'the entire amount of purchaser's indebtedness?' That is determined by the statute applicable to such retail instalment sales. 'An intention contrary to the law should not be read into a contract by placing such a construction upon a provision therein, when the provision is just as susceptible of a construction that will show a lawful intention.' Southern Loan Co. v. McDaniel, 50 Ga.App. 285, 286(2), 177 S.E. 834, 835, and citations therein. Code Ann. § 96-903(d) specifies the permissible rates which 'the seller under a retail installment contract may charge, receive and collect a time price differential.' Sub-paragraph (i) of that same section makes mandatory a refund computed according to the 'Rule of 78' to the buyer who exercises the right given in the same sub-paragraph to 'prepay in full.' Accordingly the proper construction of this language is to read therein the statutory rates. The directive as to computation of refund is limited to those who 'prepay in full.'

We are here dealing with a time purchase situation. Accordingly, as was said in General Finance Corp. v. Davis, 126 Ga.App. 821, 824(1a), 191 S.E.2d 865, 868, 'There was no loan of money.' In Richardson v. C.I.T. Corp., 60 Ga.App. 780, 791(2), 5 S.E.2d 250, 257, this court ruled that the sum added to the cash price was not 'interest, but was a sum which the purchasers agreed should be added to a base price to establish a 'time price. " This principle was reiterated in Smith v. Singleton, 124 Ga.App. 394, 184 S.E.2d 26 (decided after the passage of the Retail Installment Act, where the court said (Headnote 5): '(I)t is settled law in this State that the usury statutes are inapplicable to a retail instalment contract as here shown, which included a stated 'Finance Charge' or 'Time Charge' or 'Time Price Diff.' added to the cash balance to arrive at a 'Time Balance' payable in monthly instalments.' See also Bowen v. Consolidated, etc., Corp., 115 Ga.App. 874, 877, 156 S.E.2d 168. We must therefore consider the instant case within the boundaries of the Retail Instalment Act and not in the context of a loan of money.

As filed in the case at bar the furniture dealer's complaint sought recovery of the full contractual amount. The defendant did not defend on the basis of the original finance charges being in excess of the statutory ceiling. Instead defendant...