Hollingsworth v. American Finance Corp.

• Decision Date: 28 November 1978
• Docket Number: No. 76-023,76-023
• Citation: 86 Wis.2d 172,271 N.W.2d 872
• Parties: Clarence HOLLINGSWORTH and Florida Hollingsworth, Respondents, v. AMERICAN FINANCE CORPORATION, Appellant.
• Court: Wisconsin Supreme Court

Page 872

271 N.W.2d 872

86 Wis.2d 172

Clarence HOLLINGSWORTH and Florida Hollingsworth, Respondents, v. AMERICAN FINANCE CORPORATION, Appellant.

No. 76-023.

Supreme Court of Wisconsin.

Submitted on Briefs Sept. 7, 1978.

Decided Nov. 28, 1978.

Jerome A. Tepper and Tabak & Tepper, Milwaukee, submitted brief for appellant.

James C. McNeely, Milwaukee, submitted brief for respondents.

CALLOW, Justice.

This appeal seeks review of three orders: one granting default judgment against the defendant, American Finance Corporation; the second, vacating a previous order to reopen the same default judgment; and the third, denying the defendant's motion to vacate the judgment. The ultimate question presented is whether the trial court abused its discretion in entering default judgment and denying the motion to vacate the judgment.

This action arose out of a loan transaction. Clarence Hollingsworth and his mother, Florida, filed a summons and complaint seeking relief against American Finance for its alleged violations of the Wisconsin Consumer Act. The complaint was served on an agent of the defendant and filed with the court on January 30, 1976.

On February 20, 1976, the plaintiffs moved for default judgment because the defendant had not answered within twenty days. Sec. (Rule) 802.06(1), Stats. On February 24, 1976, the court held a hearing on the motion. The following was adduced at the hearing: After a bank and a finance company denied Hollingsworth a personal loan, Robert Posey offered to help him get a loan and introduced him to Gerry Potter, manager of the local office of American Finance Corporation. Hollingsworth testified that, as a condition of getting a $10,000 loan, he was required to give a thousand dollars to Potter. Testifying after Hollingsworth, Posey said that Potter explained to Hollingsworth that he needed some money and was willing to arrange the loan if he could get $1,000 in cash.

On May 24, 1974, Hollingsworth signed a note and received the loan check at Potter's office. The note called for repayment over five years in equal monthly installments, at an annual percentage rate of 18 percent. Florida Hollingsworth also signed the note as a "borrower" and gave American Finance a mortgage on real estate she owned. Hollingsworth testified that to his knowledge his mother was not given any notice of the nature of her obligation as a co-signer. After receiving the check, Hollingsworth cashed it at a bank and gave $1,000 in cash to Posey who delivered it to Potter.

Hollingsworth made several payments which were credited against the balance due on the note. On March 29, 1975, Potter told Hollingsworth that he needed $40 and that he would credit Hollingsworth's account accordingly. Hollingsworth gave him a check for $40, made payable to American Finance. Reading from an American Finance payments record, Hollingsworth testified that he was not given credit for this payment.

During 1975 Hollingsworth, doing business as H & W Tire & Auto Electric Company, repaired cars that had been repossessed by American Finance. Potter told Hollingsworth that American Finance would credit his account for the value of the repairs. On four occasions Hollingsworth billed American Finance, and he was paid by check. Hollingsworth testified that Potter would deliver the check and take it back after Hollingsworth endorsed it. Only one of the four payments was credited to Hollingsworth's account.

American Finance sent Hollingsworth an audit slip in November of 1975. He believed it overstated his balance and called Potter who said it would be straightened out.

One Friday in December, 1975, Hollingsworth called Potter to ask how much it would require to bring his account up to date. Potter suggested that they meet for breakfast the following morning. Hollingsworth gave Potter $500 in cash. Potter told him that he would credit his account and mail him a receipt. The account was not credited. Potter was fired later that month.

The plaintiffs offered in evidence the affidavit of an examiner in the office of the Commissioner of Banking which stated that if each of the payments the $1,000 initial payment, the $40 payment, the total of $855 from three car repairs, and the $500 payment were not credited toward Hollingsworth's account and were construed as interest, the annual percentage rate would be 27.43 percent.

At the February 24, 1976, hearing on this evidence, the court found that the uncredited payments constituted interest payments which were excessive under the provisions of the Wisconsin Consumer Act (See : sec. 422.201, Stats., et seq.), and that pursuant to sec. 425.305, Stats., Hollingsworth was entitled to retain the unpaid balance of the loan and to recover the amounts he paid. The court found that as to Florida Hollingsworth the note was void and the mortgage satisfied. It awarded reasonable attorneys' fees, to be determined on the basis of an affidavit of counsel, and directed counsel to draft findings of fact and conclusions of law in accordance with the court's determinations.

The court signed the findings and conclusions April 20, 1976. Judgment was entered April 21; an amended judgment was entered May 14, 1976.

On February 25, 1976, the defendant, by Milwaukee attorney Jerome Tepper, moved to vacate the default judgment on grounds of inadvertence or excusable neglect. Attached to the motion was a proposed answer in which the defendant alleged, among other things, that any unlawful acts Potter may have committed were without the knowledge of the defendant and were outside Potter's authority and scope of employment. A hearing was held on March 15, 1976.

At the hearing Daniel Neilson, assistant manager of the American Finance office on January 30, 1976, testified that he mailed the summons and complaint to the parent corporation's legal staff in Maryland on the first working day following service of the papers. Neilson phoned Attorney Tepper concerning this matter shortly after service though Neilson believed that Chicago counsel would probably handle the case. On February 19, 1976, Neilson again called Tepper to see if he had heard anything more about the case. Tepper told him that he had not been retained.

American Finance closed its Wisconsin offices about February 5, 1976, and sold its accounts receivable to Beneficial Finance. Grover Thomas, a vice president of American Finance, testified he assumed responsibility for closing out operations which had been sold and specifically the Milwaukee offices on February 9, 1976. On that day the district manager, Warren Mackey, told him about this lawsuit and two others. Thomas called the Maryland office and was told it would forward copies of the papers to him. He was instructed to get in touch with Attorney Tepper. Thomas was out of town when the documents arrived. The photocopies were incomplete in that the page showing the date of service was not included. The Maryland legal staff gave him no instructions concerning a time limit. About February 20, 1976, Thomas phoned Attorney Tepper to arrange an appointment which resulted in the February 25 motion by Tepper to vacate the judgment.

At the close of the evidence, the court, without giving reasons, granted the defendant's motion to vacate the judgment and ordered Hollingsworth to make his monthly payments to the clerk of courts. The court at the May 17, 1976, hearing noted that it had not made a finding of excusable neglect at the time it vacated the judgment. The court signed an order vacating the judgment on March 24, 1976.

On April 1, 1976, the court ordered the defendant to show cause on April 5, 1976, why the March 24 order should not be rescinded on the grounds that (1) there was no showing or finding of excusable neglect; (2) the defendant was insolvent; (3) the plaintiffs could not afford to seek extraordinary relief; and (4) the plaintiffs did not have an opportunity to respond to the motion to vacate. At the hearing counsel for both parties argued the "excusable neglect" standard. At the close of the hearing, the court vacated the order reopening the judgment without setting forth its reasoning. By an order dated May 14, 1976, the court rescinded its order vacating the judgment and reinstated the judgment.

On May 3, 1976, the defendant again moved to vacate the judgment. The motion reasserted the defendant's excusable neglect and also was grounded on newly discovered evidence, and on the plaintiffs' alleged fraud in procuring the judgment. At the May 17, 1976, hearing on the motion, the defendant rested its claim of excusable neglect on the testimony adduced at the March 15 hearing. The defendant offered newly discovered evidence through a former American Finance cashier, and also through a supervisor at plaintiff's bank, that Hollingsworth received two checks for repairing repossessed vehicles which he did not endorse and return to Potter as he testified at the February 24 hearing. Instead, he cashed one and deposited one. Daniel Neilson, the former assistant manager of the American Finance office, testified that he was present when Robert Posey, one of the witnesses for the plaintiff at the February 24 hearing, made an offer to Attorney Tepper to testify for pay on behalf of the defendant. On cross-examination Neilson recalled at least one occasion when Hollingsworth endorsed a check for repairs and gave it back to Potter. On redirect, Neilson testified that the $500 payment from Hollingsworth to Potter was a personal loan. Neilson repaid Hollingsworth $250 of the $500. Hollingsworth explained that, while initially he would endorse the repair checks and return them to Potter, Potter later insisted on payment in cash because it made bookkeeping easier. He said that, in the cases where he cashed the checks, he gave the cash to Potter. He said that in his February 24 testimony he may have confused "check" and "cash." The defendant argued on this evidence that the judgment was procured by...