In re Oszajca
| Decision Date | 09 April 1997 |
| Docket Number | Bankruptcy No. 95-10300 (FGC),Adv. No. 95-1079.,BAP No. 96-50006 |
| Citation | 207 BR 41 |
| Parties | In re Beverly OSZAJCA, Debtor. SEARS, ROEBUCK & CO., Appellant, v. Beverly OSZAJCA, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Tenth Circuit |
Before: LIFLAND, GALLET and BUCKI, Bankruptcy Judges.
Sears, Roebuck & Co. ("Sears") appeals from an order of the bankruptcy court finding that, under Vermont law, the retention of a purchase money security interest in connection with a retail charge agreement is prohibited.
Prior to the filing of her bankruptcy petition, Beverly Oszajca (the "Debtor") entered into a SearsCharge Agreement (the "Agreement") with Sears1. The Agreement provides, inter alia, that Sears retains a security interest in items purchased on the SearsCharge account, with the security interest in each item released when the outstanding balance for that item is paid. In addition, the charge slip signed for each purchase made on the SearsCharge account contains provisions for the creation of a security interest in the goods purchased and provides that the additional purchase is made under the provisions of the Agreement, which is incorporated by reference.
On June 10, 1994, the Debtor charged purchases in the amount of $2,001.25 on her SearsCharge account. The Debtor subsequently made payments on the account in the total amount of $42.00 through April 26, 1995, the date when she filed her Chapter 7 petition. Sears filed a proof of claim against the Debtor's estate in the amount of $2,268.38, of which $1,524.76 was purportedly secured by a purchase money security interest in the goods.
Sears filed a motion to compel the Debtor to file a statement of intention under sections 521(2)2 and 722 of the Bankruptcy Code (the "Code") and Federal Rules of Bankruptcy Procedure 1007(b)(2) and 1009(b). The Bankruptcy Court denied the motion and, shortly thereafter, the Debtor commenced an adversary proceeding seeking a determination as to the validity, priority and extent of the lien claimed by Sears in the goods. The Debtor moved for summary judgment, arguing first that the Agreement constituted a retail installment contract rather than a retail charge agreement under the Vermont Retail Installment Sales Act, Vt.Stat.Ann. tit. 9, §§ 2401-2410 ("VRISA"). Alternatively, the Debtor argued that if the Agreement was determined to be a retail charge agreement then the lien was void because the VRISA prohibits the taking of security interests in connection with such agreements.
The bankruptcy court granted summary judgment in favor of the Debtor. Oszajca v. Sears, Roebuck & Co. (In re Oszajca), 199 B.R. 103 (Bankr.D.Vt.1996). First, the bankruptcy court held that the Agreement was a retail charge agreement, not a retail installment contract. This portion of the bankruptcy court's decision was not appealed and remains undisturbed.
Second, the bankruptcy court held that Sears is not entitled to take a security interest under the VRISA and, therefore, is unsecured. Accordingly, the sole issue before this court is whether, under Vermont law, a retail seller may retain a security interest in goods sold pursuant to a retail charge agreement as defined in the VRISA.
Where the issue on appeal is a question of law, the standard of review is de novo. General Motors Acceptance Corp. v. Valenti (In re Valenti), 105 F.3d 55, 59 (2d Cir.1997) (citing Bellamy v. Home Loan Mortgage Corp. (In re Bellamy), 962 F.2d 176, 178 (2d Cir.1992).
The VRISA provides for two types of retail installment transactions — a retail installment contract and a retail charge agreement. The bankruptcy court noted that by definition a retail installment contract3 contains a security agreement and a retail charge agreement4 does not. Accordingly, the bankruptcy court found that, because of the maxim of expressio unis est excludio alterius5, a retail charge agreement cannot contain a security agreement. In re Oszajca, 199 B.R. at 107. The court further noted that this doctrine was especially plausible because the mention of security is one of the few stated differences between the two types of contracts. Id. at 108.
The bankruptcy court also found that the legislative intent to exclude security interests from retail charge agreements was apparent by looking at the ceilings prescribed for the different rates of finance charge allowable for each type of transaction. Under Vermont law, the finance charge for a retail installment contract is capped at 18% per annum while the finance charge for a retail charge agreement is capped at 21% per annum. Id. at 108; 9 Vt.Stat.Ann. tit 9, §§ 41a(a), 2405, 2406 (1995). The bankruptcy court believed that the difference in the prescribed rates was based on the presence of security in a retail installment contract and the lack of it in a retail charge agreement.
Lastly, the bankruptcy court found that the prohibition against the retention of security interests in connection with retail charge agreements was consistent with the purpose of the statute as a whole — consumer protection. 199 B.R. at 109.
Generally, the purpose of retail installment sales legislation is to protect retail buyers of goods from unknowingly assuming excessive charges by requiring that all charges and terms be set forth by a retail seller before a contract is signed by the buyer. See Keyes v. Brown, 155 Conn. 469, 232 A.2d 486 (1967). Virtually every state has adopted some form of consumer credit protection legislation. See Am Jur 2d, New Topic Service, Consumer & Borrower Protection, § 195 (1982) (hereinafter "Am Jur 2d"). As is true under the federal Truth in Lending Act,6 state statutes affording consumer protection are directed to disclosure. Am Jur 2d at § 196. Generally, these statutes recognize the two types of retail credit transactions that are addressed in the VRISA.
Op.Atty.Gen. of Florida, 061-23, Feb. 8, 1961. (regarding Florida's Retail Installment Sales statute, Fla.Stat.Ann. § 520.31 et seq.). See also Singer Co. v. Gardner, 65 N.J. 403, 323 A.2d 457 (1974) (); Brown v. Jenkins, 135 Ga.App. 694, 218 S.E.2d 690, 693 (1975) ( ).
Consumer credit as we know it today had its origin in the sale of hard goods by local retailers. Brown v. Jenkins, 218 S.E.2d at 692. Traditionally, under a conditional or installment sale contract, a seller retained a security interest in the property because the usual sale was that of hard goods which would have some resale value after repossession. See W.T. Grant Co. v. C.I.R., 483 F.2d 1115, 1119 n. 6 (2d Cir.1973), cert. denied, 416 U.S. 937, 94 S.Ct. 1937, 40 L.Ed.2d 288 (1974). In addition, in return for the credit extended, the seller added a finance charge, a "time-price differential," to his cash price. However, the increasing expansion of retail credit to mass sales of soft goods and consumables necessitated certain changes in the mechanics of credit sales. Clerical costs and convenience made it impractical to assign a time-price differential to each item bought and to enter into a separate contract providing for payment in installments of each time-price. Instead, it was more efficient and convenient simply to add the cash price of each purchase to a customer's account and apply some periodic credit charge to the total. See R.L. Jordan and W.D. Warren, Uniform Consumer Credit Code, 68 Colum.L.Rev. 387, 403 (1968). Thus, the revolving account emerged as a method of combining volume merchandising with credit sales. Brown v. Jenkins, 218 S.E.2d at 693. In many instances, items bought on a revolving credit plan were not subject to the seller's security interest because, more often than not, such items were soft goods which have relatively little resale value after repossession. See W.T. Grant Co. v. C.I.R., 483 F.2d at 1119 n. 6; J.G. Donaldson, An Analysis of Retail Installment Sales Legislation, 19 Rocky Mountain Law R. 135, 140 n. 9-11 (1947) ...
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