Edwards v. Alabama Farm Bureau Mut. Cas. Ins. Co.

• Decision Date: 02 July 1986
• Citation: 509 So.2d 232
• Parties: Tommie L. EDWARDS v. ALABAMA FARM BUREAU MUTUAL CASUALTY INSURANCE COMPANY. Civ. 5150.
• Court: Alabama Court of Civil Appeals

Page 232

509 So.2d 232

Tommie L. EDWARDS v. ALABAMA FARM BUREAU MUTUAL CASUALTY INSURANCE COMPANY.

Civ. 5150.

Court of Civil Appeals of Alabama.

July 2, 1986.

Rehearing Denied July 23, 1986.

Robert J. Varley, of Legal Services Corp., Montgomery, for appellant.

Robert W. Bradford, Jr., of Hill, Hill, Carter, Franco, Cole & Black, Montgomery, for appellee.

BRADLEY, Judge.

This is a consumer credit case involving application of the Alabama Mini-Code (§§ 5-19-1 to -31, Code 1975), and the Federal Truth-in-Lending Act (15 U.S.C.A. §§ 1601-1667 (West 1982)).

This is the second appeal of this case. Since the relevant facts, as set forth in the first appeal, are essentially without dispute, we find it unnecessary to set them forth in great detail once again. For the facts in this case see Edwards v. Alabama Farm Bureau Mutual Casualty Insurance Co., 453 So.2d 746 (Ala.Civ.App.1983).

In the first appeal we addressed the issue of whether the note executed by Edwards and Farm Bureau was a consumer credit transaction subject to the provisions of the Alabama Mini-Code and the Federal Truth-in-Lending Act. We answered this issue in the affirmative and reversed and remanded the case for a full hearing on Farm Bureau's claim and Edwards's counterclaim.

Following remand, Farm Bureau amended its complaint seeking to recover on an "account stated" and charging Edwards with fraud in the execution of the installment loan contract. Edwards then filed a motion to strike and/or dismiss Farm Bureau's amended complaint. Edwards's motion was denied and Farm Bureau's amendment was allowed.

During the course of the trial Farm Bureau admitted that it had assessed Edwards a finance charge in excess of that permitted under section 5-19-3, Code 1975. Over timely objection of counsel for Edwards, Farm Bureau was then allowed to introduce evidence intended to show that the excessive finance charge had resulted from a "bona fide" clerical error pursuant to section 5-19-19, Code 1975. Prior to the close of trial, over renewed objection, Farm Bureau was then allowed to orally amend its complaint to allege that any error in the note between Edwards and Farm Bureau was a bona fide clerical error.

At the conclusion of Farm Bureau's evidence, Edwards was granted a directed verdict with respect to Farm Bureau's allegations of fraud. Thereafter, the trial court held that the subject transaction was not a "consumer loan" pursuant to section 5-19-22, Code 1975, and therefore Farm Bureau was not subject to the licensing provision of that section of the Mini-Code. In regard to the other Mini-Code violations and the Truth-in-Lending violations alleged by Edwards, the trial court concluded that they were the result of bona fide errors.

The trial court then entered an order finding the "issues" in favor of Farm Bureau for the entire amount claimed in its complaint, $2,449.52, and against Edwards on his counterclaim. It is from this order that Edwards appeals.

On appeal, Edwards first argues that the trial court erred in holding that the subject transaction was not a "consumer loan," and that, therefore, Farm Bureau was not subject to the licensing requirements of section 5-19-22, Code 1975. He argues that the installment note evidencing the credit transaction was a loan or a forbearance. He argues that the Mini-Code is a usury statute and that pursuant to such statutes a loan and a forbearance are one and the same.

Prior to 1979 Farm Bureau possessed a license pursuant to the Mini-Code. Farm Bureau argues that it did not renew its license in 1979 because of advice from the State Banking Department that a license was no longer required. It contends that its actions were therefore justified. Farm Bureau also states that it does not disagree with Edwards that the transaction is a forbearance. It argues, however, that a forbearance is not the equivalent of a loan. Farm Bureau then states that throughout the Mini-Code reference is made to "forbearance" specifically. It thus argues that since the legislature did not specifically refer to a "forbearance" in section 5-19-22, Code 1975, that it did not intend for a loan and a forbearance to be synonymous. Finally, Farm Bureau states that even if the installment note does amount to a consumer loan, thus voiding the note, Edwards would still be liable to Farm Bureau for the underlying debt as an account stated.

Section 5-19-22(a) provides in pertinent part that, "No creditor shall engage in the business of making consumer loans or taking assignments of consumer credit contracts without first having obtained a license...." Certain creditors are specifically excluded from this provision. Casualty insurance companies, such as Farm Bureau, are not, however, expressly denominated as excluded creditors. Thus, in order for Farm Bureau to have violated section 5-19-22 of the Mini-Code, the installment note executed by Edwards and Farm Bureau must constitute a "consumer loan."

The record reveals that throughout the proceedings regarding the first appeal of this case Farm Bureau denominated the installment note as a "loan." Farm Bureau's ledger sheet, showing Edwards's payment history, also referred to this transaction as a loan.

The record also reveals that from April 12, 1972 until October 1978 Farm Bureau was licensed pursuant to section 5-19-22, Code 1975. In 1978 Farm Bureau decided to organize another corporation to handle installment notes on subrogation matters. Farm Bureau then discussed this venture with the State Banking Department and was informed that if a new corporation were established Farm Bureau itself was no longer required to be licensed under the Mini-Code. Shortly after our first decision in this case, however, Farm Bureau obtained a license pursuant to the requirements of section 5-19-22, Code 1975.

Additionally, the record shows that on remand the trial court recalled the issues constituting the first appeal as being whether the note executed by Edwards to Farm Bureau was a loan.

A loan is "a sum of money lent at interest." The American Heritage Dictionary of the English Language 413 (1981). A forbearance "signifies the contractual obligation of the creditor to forbear during a given period to require of the debtor payment of an existing debt then due and payable." 91 C.J.S. Usury § 23(a) (1955) (footnote omitted). See also, Black's Law Dictionary 773 (rev. 4th ed. 1968).

"Usury" is the contracting for or reserving of something in excess of the amount allowed by law for the loan or forbearance of money. 91 C.J.S. Usury § 1 (1955). See also, Miller v. Graham, 196 Ala. 230, 72 So. 87 (Ala.1916). Alabama's Mini-Code, §§ 5-19-1 to -31, Code 1975, seeks to regulate usurious contracts or transactions. As such, it can fairly be said that our Mini-Code is a "usury law."

The common law rule in Alabama is that a loan and a forbearance are identical in purpose and effect for purposes of interpreting usury laws. Law, Clark & Co. v. Mitchell, 200 Ala. 565, 76 So. 923 (1917). See also, 91 C.J.S. Usury § 23(a) (1955). It is also well settled that:

"[S]tatutes are to be construed with reference to the principles of the common law in force at the time of their passage; and.... Words used in a statute which have a definite and settled meaning at common law are presumed to be employed in the same sense, and will be so construed unless an intent to the contrary clearly appears."

82 C.J.S. Statutes § 363 (1953) (emphasis added) (footnotes omitted). See also, Ex parte Pittman Construction Co., 28 Ala.App. 134, 180 So. 725, cert. denied, 236 Ala. 22, 180 So. 728 (1938). Thus, in light of this principle, we must examine the Mini-Code to determine if it was the intent of the legislature to alter the meaning of the terms "loan" and "forbearance" as used in this usury statute.

It appears that only three subsections of the Mini-Code are applicable to this analysis. See, §§ 5-19-3(a), -4(b), -31(a), Code 1975. In those sections the phrase "loan or forbearance" (emphasis added) is always distinguished from a "credit sale." Thus, the aggregation of "loans" with "forbearances" as distinct from "credit sales," indicates that the relevant distinction for Mini-Code purposes is between "loans," which includes "forbearances," and "credit sales." Therefore, we find no indication that the legislature intended to change the common law meaning of the terms "loan" and "forbearance." Bound by the principles as set forth above, we thus conclude that the term "loan" as used in section 5-19-22, Code 1975, incorporates the term "forbearance" into that section.

Based on the above, we find that Farm Bureau should have been licensed when entering into the transaction with Edwards. Furthermore, whether willful or not, the law states that the failure to have a license before making a consumer loan renders the loan instrument unenforceable as a matter of public policy. See, Derico v. Duncan, 410 So.2d 27 (Ala.1982). As such, we find the installment note in the instant case to be void, and that Edwards is thus not liable on that instrument.

Since the trial court held for Farm Bureau "on all issues" without further rationale, we must now turn to Farm Bureau's contention that if the installment note is void Edwards is still liable to Farm Bureau for an account stated on the underlying debt.

Before deciding this issue, we find it necessary to set forth the purpose of the Federal Truth-in-Lending Act and Alabama's Mini-Code.

To resolve the problems of a misled consumer in a consumer credit transaction, Congress and many state legislatures passed acts requiring certain disclosures to be made to the borrowing consumer. See, 15 U.S.C.A. § 1601-1667 (West 1982). Several of the state acts that have been passed are patterned after the Uniform Consumer Credit Code (U.C.C.C.) adopted by the National Conference of Commissioners on Uniform State Laws.

In pertinent part the U.C.C.C. appears to provide that although a loan agreement may be...