In re Oszajca

• Decision Date: 28 June 1996
• Docket Number: 95-10180. Adv. No. 95-1079.,Bankruptcy No. 95-10300,95-10552
• Citation: In re Oszajca, 199 B.R. 103 (Bankr. Vt. 1996)
• Court: U.S. Bankruptcy Court — District of Vermont
• Parties: In re Beverly OSZAJCA, Debtor. Beverly OSZAJCA, Debtor, Plaintiff, v. SEARS, ROEBUCK & CO., Defendant. In re Russell N. BROWN, Sheila L. Brown, Debtors. In re Ann-Marie PERRY, Debtor.

199 B.R. 103 (1996)

In re Beverly OSZAJCA, Debtor Beverly OSZAJCA, Debtor, Plaintiff, v. SEARS, ROEBUCK & CO., Defendant In re Russell N. BROWN, Sheila L. Brown, Debtors In re Ann-Marie PERRY, Debtor.

Bankruptcy Nos. 95-10300, 95-10552, 95-10180. Adv. No. 95-1079.

United States Bankruptcy Court, D. Vermont.

June 28, 1996.

COPYRIGHT MATERIAL OMITTED

J. Hollar, Wilson & White, P.C., Montpelier, Vermont, for Beverly Oszajca, Debtor.

G. Rees, Lobe & Rees, Burlington, Vermont, for Sears, Roebuck & Company.

T. Taylor, Law Offices of Todd Taylor, P.C., Burlington, Vermont, for Debtors Russell and Sheila Brown and Ann Marie Perry.

MEMORANDUM DECISION

FRANCIS G. CONRAD, Bankruptcy Judge.

The issue in these consolidated actions comes before us¹ upon cross-motions for summary judgment in the Oszajca v. Sears adversary proceeding. The debtors in the other two cases have asked that their fates be determined according to our resolution of the underlying issue in the Oszajca case — whether Sears' lending and sales procedures render it secured under Vermont's Retail Installment Sales Act (VRISA).² We hold that Sears is not entitled to take a security interest under VRISA and is, accordingly, unsecured. Due to factual differences among the debtors' situations, however, the Brown and Perry cases will be addressed separately following our discussion of the Oszajca issue. We first turn to the validity of the Sears agreement (the "Searscharge" Agreement), as signed by Oszajca.

OSZAJCA

FACTS

Oszajca entered an agreement with Sears to purchase merchandise on credit.³ On June 10, 1994, she purchased goods in the amount of $2,001.25 by placing the purchases on her new Searscharge account. Oszajca paid only $42 through April 26, 1995, when she filed her Chapter 7 petition. Sears timely filed a proof of claim in the amount of $2,268.38. Sears contends that $1,524.76 of the claim is secured by a purchase money security interest in the items purchased by Oszajca. This figure represents the current value of the items.

Oszajca filed this adversary seeking to avoid Sears' lien on the grounds that it is invalid under VRISA. Specifically, Oszajca argues that because the Searscharge Agreement contained a security agreement, it is a "retail installment contract"⁴ which, by statute, cannot charge interest in excess of 18%. Alternatively, Oszajca contends that if the agreement is not a retail installment contract, then Sears is prohibited from taking a security interest. Sears has moved for summary judgment stating that as a matter of law the Searscharge agreement is actually a "retail charge agreement".⁵ The statutory sections governing retail charge agreements allow a maximum interest rate of 21% and do not expressly prohibit the taking of security interests. Thus, with no facts in dispute, we must interpret VRISA to determine the nature and limitations of the Searscharge.

DISCUSSION

We begin by laying out various provisions of the Searscharge Agreement and applicable Vermont law. The Searscharge Agreement at issue provides that the seller takes a security interest in each item purchased. Each item secures only the purchase price of that item; the security for each item is released when that item is paid for. The charge slip signed by each customer with every purchase obtains additional assent to the creation of a security interest, and purports to incorporate the main Searscharge Agreement. The Agreement also provides that payments are applied first to unpaid service charges, next to the earliest item purchased, and then to each successive item as earlier purchased items are paid off. Finally, the Searscharge Agreement provides for finance charges of 1.75% per month on the average daily balance outstanding (21% per year). The customer can avoid these charges by paying off the entire balance at any time.

The only two types of retail credit arrangements permitted under VRISA are a "retail installment contract" and a "retail charge agreement." A retail installment contract is defined as follows:

A contract entered into in this state and designated as a retail installment transaction, but not a retail charge agreement, or a document reflecting a sale under it, evidencing an agreement to pay the retail purchase price of goods, or any part thereof, in two or more installments over a period of time, and pursuant to which title to or a lien upon, or a security interest in, the goods is retained or taken by the retail seller to secure the payment of a price which includes the charge as limited by section 2405 of this title. The term includes, but is not limited to, a chattel mortgage, a conditional sales contract and a contract in the form of a bailment or lease . . . The term shall also include any amendment of the retail installment contract in which the parties agree to renew, restate or reschedule the unpaid balance thereof, or to extend the scheduled due date of all or any part of any installment or installments.

9 VSA § 2401(7), emphasis added. A retail charge agreement is defined as:

An agreement other than a retail installment contract, which prescribed the terms of retail installment transactions which may be made thereafter from time to time under it, under which the buyer\'s total unpaid balance thereunder, whenever incurred, is payable in one or more deferred installments and under the terms of which the retail buyer pays a price which includes a charge as limited by section 2406 of this title, which charge is to be computed in relation to the buyer\'s unpaid balance from time to time.

9 VSA § 2401(8), emphasis added. While the Searscharge Agreement seems to embody characteristics of both types of arrangements, there is one certainty in these definitions: a retail contract cannot be both. We shall exist the world of lawyers, rampant with fuzzy grey middles, and enter the world of sobering practicality. Here, "each thing is what it is," said the poet T.S. Eliot, "and not some other thing."

Momentarily skirting the issue of whether Sears is permitted to take a security interest in the goods purchased, we initially find that the Searscharge Agreement is a "retail charge agreement" rather than a "retail installment contract." We agree with Sears that the Searscharge is an "open-end" or revolving credit arrangement which cannot comply with the disclosure requirements imposed upon the "close-end" "retail installment contracts" of 9 VSA § 2405(a)-(q). Retail installment contracts are required to contain certain disclosures such as the total sales price of the items, the total finance charge and the number of installments to be made. 9 VSA § 2405(g)(7), (8) & (9). The Searscharge cannot comply with these disclosure requirements because it allows a customer to pay anywhere between the full balance due and 1/48th of the balance each month. The amount of finance charges and number of installments remaining vary accordingly and cannot be estimated beforehand.

The Searscharge instead squarely fits within the requirements of 9 VSA § 2406 for retail charge agreements. This section prescribes monthly statements which summarize payments made and charges incurred in the previous month. Section 2406 reflects the flexible nature of the Sears-type arrangement. Our analysis is consistent with that of the Senate Finance Committee who, upon discussing the difference between bank credit cards and retail credit cards on April 5, 1979 said:

COMM. LEDBETTER: . . . A retail charge agreement is any written agreement to extend credit on a revolving nature to a retail consumer from a retailer. It would include Sears Roebuck . . .

SEN. REYNOLDS: . . . It can be a retail credit card or it can be simply a retail charge agreement with the Senator\'s friendly hardware.

We find, then, that the Searscharge Agreement is a retail charge agreement because of its revolving nature. The only remaining issue is whether the Searscharge, a retail charge agreement, may contain security agreements or allow the taking of security and if so, what is the extent of that interest in the case before us.

Oszajca argues that the definitions of the two types of agreements dictate that Sears is forbidden from taking a security interest in the goods sold. By definition, a retail installment contract contains a security agreement and a retail charge agreement does not. In fact, a retail charge agreement cannot because of the doctrine of expressio unius est exclusio alterius which states that omissions of a thing once designated are understood as exclusions. Sutherland Stat. Const. § 47.23 (5th Ed.1992). In other words, because security interests are mentioned in the first definition and not the second, they were meant to be excluded in the second. This doctrine seems especially plausible because the mention of security is one of the few stated differences between the two types of contracts that the two definitions could be describing.

Sears counters Oszajca's argument by pointing to a contrary but equally plausible pillar of statutory construction. This title-less but no less useful doctrine states that "rules of the common law are not to be changed by doubtful implication, nor overturned except by clear and unambiguous language." Estate of Kelley v. Moguls, Inc., 160 Vt. 531, 533, 632 A.2d 360 (1993). Sears points to the fact that the taking of a security interest, as with the traditional conditional sales contract, is a common law right. Such a right should not be deemed abrogated without a statute expressly doing so.

When dealing with statutory construction, the starting point in the analysis should be the language itself. In re Burke Mountain, Inc., 64 B.R. 799, 802 (Bkrtcy. D.Vt.1986), citing, Medor v. Lamb (In re Lamb), 47 B.R. 79 (Bkrtcy.D.Vt.1985). As a general rule, a statute should be read according to its literal terms, unless so reading renders the statute ineffective or leads to irrational consequences. In re Burke Mountain Recreation, Inc., 64 B.R. 799,...