Miller v. Colortyme, Inc.
| Decision Date | 03 August 1993 |
| Docket Number | No. C2-92-2595,C2-92-2595 |
| Citation | 504 N.W.2d 258 |
| Parties | Delilah MILLER, et al., Respondents, v. COLORTYME, INC., et al., Appellants. |
| Court | Minnesota Court of Appeals |
Syllabus by the Court
1. Sellers or lessors are not extending credit to their rent-to-own customers who prepay for use of consumer goods during the rental term. Thus, these transactions are not consumer credit sales for all purposes under Minn.Stat. §§ 325G.15-.16 (1992).
2. The substantive elements of usury must be present to hold usurious a transaction Seymour J. Mansfield, Richard J. Fuller, Mansfield & Tanick, P.A., Mark N. Stageberg, Joel Lavintman, Lommen, Nelson, Cole & Stageberg, P.A., David L. Ramp, Law Offices of the Legal Aid Society of Minneapolis, Minneapolis, William Crowder, Susan Bedor, Crowder & Bedor, St. Paul, for amicus curiae Mary Weber.
constituting a consumer credit sale for all purposes.
Sue Halverson, Jay M. Quam, Fredrickson & Byron, P.A., Minneapolis, for appellants Colortyme, Inc., et al.
James E. Rolshouse, Minneapolis, for amicus curiae Minnesota Ass'n of Rental Dealers.
Considered and decided by HUSPENI, P.J., and HARTEN and HOLTAN *, JJ.
Appellants challenge a grant of partial summary judgment that their rent-to-own contracts constitute consumer credit sales for all purposes under the Consumer Credit Sales Act and that their contracts are usurious as a matter of law. We reverse.
Appellant D.E.F. Investments, Inc. and its subsidiaries operate four rent-to-own dealerships of new and used furniture and appliances in Minnesota. Under appellants' contracts, customers elect to rent consumer items for a term, ranging from one week to one month. At the end of that term, the customer may either return the item or renew the agreement for an additional term. Full payment must be made before or at the beginning of each term.
If the customer renews the agreement for a specified, predetermined number of terms, he obtains title to the property. The number of terms entitling the customer to ownership ranges from 12 to 36 months. Any time after the first lease payment, the customer may obtain ownership by prepaying 55% of the remaining payments. 1
On October 17, 1990, respondent Craig Stenzel entered an agreement with appellants to rent-to-own a consumer item manufactured by Zenith. The agreement lists the fair market value as $470. It also explains that in order to own the property, the customer must either make 18 monthly payments of $47.70 for a total of $858.60 or 78 weekly payments of $12.75 for a total of $994.50. Although Stenzel elected to make bimonthly payments, no such rate is discussed. The agreement also states:
If you renew this lease for the number of terms necessary to acquire ownership the cost of lease services will be $388.60.
On April 7, 1992, respondents Stenzel and Delilah Miller, another customer with a similar contract, filed a class action suit against appellants, seeking declaratory, monetary, and injunctive relief. The relevant counts in the seven-count complaint are respondents' claim that these rent-to-own transactions constitute consumer credit sales for all purposes under Minn.Stat. §§ 325G.15-.16 (1992) and respondents' claim that the contracts are usurious. On August 3, 1992, respondents moved for partial summary judgment, asking for a declaratory judgment that appellants' contracts constitute credit sales.
On August 5, 1992, appellants moved for partial summary judgment, seeking dismissal of the usury claim. Respondents argued for partial summary judgment in their favor on this claim since, in their view, the transactions constitute consumer credit sales, thereby forcibly involving the extension of credit.
On November 30, 1992, the district court filed an order declaring contracts entered by "Class One" 2 as "consumer credit sales for all purposes within the meaning of Minn.Stat. §§ 325G.15 and 325G.16." The court also granted summary judgment for respondents on the usury claim, reserving measure of the damages for the fact finder.
On January 21, 1993, this court granted discretionary review of the district court's order for partial summary judgment. On May 4, 1993, we denied respondents' motion to file an additional brief in response to appellants' reply brief and to strike portions of appellants' reply brief, and we stated matters outside the record on appeal would be disregarded by this court.
I. Did the district court err in ruling that appellants' rent-to-own contracts constitute credit sales for all purposes under the Consumer Credit Sales Act?
II. Did the district court err in ruling that appellants' rent-to-own contracts are usurious as a matter of law?
In reviewing an appeal from summary judgment, this court must examine the record to determine whether any genuine issues of material fact exist and whether the district court erred in applying the law. Offerdahl v. University of Minn., 426 N.W.2d 425, 427 (Minn.1988).
Appellants contest the district court's determination that their rent-to-own agreements constitute credit sales "for all purposes" within the meaning of the Consumer Credit Sales Act (CCSA), Minn.Stat. §§ 325G.15-.20 (1992). De novo review is appropriate when applying a statute to undisputed facts. Meister v. Western Nat'l Mut. Ins. Co., 479 N.W.2d 372, 376 (Minn.1992).
Under the CCSA's scheme, a lease of goods constitutes a "sale of goods" if:
(a) the * * * lessee has the option to renew the contract by making the payments specified in the contract;
(b) the contract obligates the * * * lessor to transfer ownership of the property to the * * * lessee for no other or a nominal consideration upon full compliance by the * * * lessee * * *; and
(c) the payments contracted for by the * * * lessee, including those payments pursuant to the exercise of an option by the * * * lessee to renew the contract, are substantially equivalent to or in excess of the aggregate value of the property and services involved.
Minn.Stat. § 325G.15, subd. 5.
A sale of goods, in turn, constitutes a "consumer credit sale" if:
(a) credit is granted by a seller who regularly engages as a seller in credit transactions of the same kind;
(b) the buyer is a natural person; and
(c) the goods or services are purchased primarily for a personal, family or household purpose.
Minn.Stat. § 325G.15, subd. 2.
Finally, section 325G.16, subdivision 4, provides:
Any lease or bailment of goods which constitutes a consumer credit sale shall be deemed to be a sale for all purposes.
(Emphasis added.)
In the instant case, appellants' contracts clearly constitute a "sale of goods" under section 325G.15, subdivision 5. However, these sales of goods do not constitute "consumer credit sales" within the meaning of section 325G.15, subdivision 2(a). That is, because customers prepay for use of the leased goods with no obligation to renew the lease, appellants are not sellers granting credit. We hold, therefore, that these transactions cannot be "deemed to be a sale for all purposes" under section 325G.16, subdivision 4.
Appellants also challenge the district court's ruling that the rent-to-own contracts are usurious as a matter of law. Unless a particular exception applies, extensions of credit are usurious if more than six percent interest is charged. See Minn.Stat. § 334.01, subd. 1 (1992).
Appellants contend they are exempt from the usury statute under the time-price doctrine. Under this judicially-created doctrine:
The owner has the right to determine the price at which he will sell his property. He may fix one price for cash and another price for credit. The fact that the credit price exceeds the cash price by a greater percentage than is permitted by the usury law does not make the transaction usurious for the very plain reason that the transaction is a sale and not a loan.
Rathbun v. W.T. Grant Co., 300 Minn. 223, 231, 219 N.W.2d 641, 647 (1974) (quoting Dunn v. Midland Loan Finance Corp., 206 Minn. 550, 553, 289 N.W. 411, 413 (1939)). Similarly, this court has held that time-price transactions are outside the scope of the usury statute because they represent
merely a sale of goods and not a loan of money, and there is no forbearance or loan because the debt is based on a future price and not on an amount then due.
St. Paul Bank for Cooperatives v. Ohman, 402 N.W.2d 235, 238 (Minn.App.1987).
The time-price doctrine cannot apply in this case, however, since there is no cash price as opposed to a credit price. 3 Appellants do not offer consumer items either for immediate sale at fair market value or for sale by installments at a higher credit price. That is, no outright cash sales may occur. Customers exercising the prepayment option must first lease the property for at least one term and then pay 55% "of the difference between the total of scheduled payments and the total amount paid on the account." Moreover, the Minnesota Supreme Court has cautioned against any expansion of the time-price doctrine. See Rathbun, 300 Minn. at 232-33, 219 N.W.2d at 648.
Respondents, on the other hand, appear to argue that since appellants' contracts constitute credit sales for all purposes, the various elements of usury are forcibly met. Respondents fail to recognize, however, that not all credit sales are usurious in nature. Even if we had determined that these transactions constitute consumer credit sales for all purposes under the CCSA, we could not hold these contracts to be usurious without establishing that the substantive elements of usury are met. The CCSA does not state that rent-to-own transactions are usurious, but merely that sometimes they constitute credit sales, which are implicitly subject to usury laws.
Given the absence of any statutory or judicial exceptions to the application of the usury statute here, we must determine whether the requirements are met. Minnesota courts will hold a...
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Miller v. Colortyme, Inc., C2-92-2595
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