Morris v. Marshall

• Decision Date: 29 June 1983
• Docket Number: No. 15618,15618
• Citation: 172 W.Va. 405,305 S.E.2d 581
• Court: West Virginia Supreme Court
• Parties: Ralph C. MORRIS, et al. v. E.G. MARSHALL, Trustee, et al.

Page 581

305 S.E.2d 581

172 W.Va. 405

Ralph C. MORRIS, et al. v. E.G. MARSHALL, Trustee, et al.

No. 15618.

Supreme Court of Appeals of West Virginia.

June 29, 1983.

Syllabus by the Court

1. Loans made for commercial purposes are not "consumer loans" within the purview of the West Virginia Consumer Credit and Protection Act.

2. The lending of money from its own assets by a private corporation which has no

depositors does not constitute the banking business and does not make such a corporation subject to the West Virginia banking statutes, W.Va.Code, 31A-1-1 et seq.

3. "The sale of a homestead under a deed of trust, or under a decree of foreclosure of mortgage thereon, is not a 'forced sale,' within the meaning of the constitution, which exempts a homestead from a 'forced sale.' " Syllabus Point 3, Moran v. Clark, 30 W.Va. 358, 4 S.E. 303 (1887).

Robert A. Yahn, Wheeling, for appellants.

Marshall & St. Clair and James W. St. Clair, Huntington, for appellees.

MILLER, Justice:

This is an appeal from the Circuit Court of Nicholas County, where the court refused to grant a permanent injunction to prevent a trustee's foreclosure sale on real property belonging to the appellants, Ralph C. and Helen C. Morris. The appellants contend that the loans they guaranteed on behalf of their corporation and on which they gave deeds of trust as security violated our Consumer Credit and Protection Act and our banking laws. We affirm the circuit court.

In 1975, when transactions between the parties began, Ralph C. and Helen C. Morris were the officers and owners of A.C. Morris Garage, Inc., a West Virginia corporation, (hereinafter Morris Garage). The corporation, located in Summersville, West Virginia, was in the business of buying and selling new and used trucks and automobiles. Ashland Finance Company of West Virginia was also located in Summersville, and was a wholly owned subsidiary of Ashland Finance Company, a Kentucky corporation.

The evidentiary record is rather sparse ¹ but does reflect a number of loans obtained by the Morris Garage, beginning in November, 1975. Several of the earlier loans were repaid out of the proceeds of later loans.

The loan which appears to form the major area of default was made on December 29, 1977, in the amount of $219,293.03. Here, the lender and secured party is identified as Ashland Finance Company, and the Kentucky address is given. This loan was characterized as a "Dealer Agreement." The corporate note and a "Closed End Credit Disclosure Statement" were guaranteed by the appellants, Mr. and Mrs. Morris, and they gave three deeds of trust to secure the debt. Part of the proceeds from this loan paid off debts incurred on October 30, 1976, on November 10, 1977, and on March 17, 1976. An October 1976 Floor Plan Agreement ("Dealer Agreement") ² was consolidated into a new Dealer Agreement, in which Morris Garage's line of credit was increased. Later, after problems arose, Ralph C. Morris pledged all of his stock in the corporation as collateral for this debt.

Two final "demand" loans were made to Morris Garage by Ashland Finance Company of West Virginia. On March 30, 1978, $150,000 was loaned, and on November 30, 1978, $22,015 was loaned.

In 1979, various problems arose in the Morris' business, and proceeds from cars sold were not paid to Ashland Finance under the Dealer Agreement. Eventually, the Morris Garage corporation became defunct. Efforts were begun to foreclose on the real estate pledged as security on the loans, and in January, 1982, the appellants brought suit to enjoin the trustee's foreclosure sale. An ex parte preliminary injunction was granted, but a permanent injunction was denied, which denial is the basis for this appeal. According to the deposition of the executive vice president of Ashland Finance Company of Kentucky, the amount owed by the appellants as of February 20, 1982, was $234,731.92.

The limited evidentiary record does not extensively develop the activities and interrelationship between Ashland Finance Company of West Virginia and Ashland Finance Company, the Kentucky corporation. Our main task, however, is to determine whether the trial court erred in refusing to grant the permanent injunction.

I.

Appellants assert that Ashland Finance Company of West Virginia is a supervised lender under the provisions of W.Va.Code, 46A-1-101 et seq. Under W.Va.Code, 46A-1-102(44), a " 'supervised lender' means a person authorized to make or take assignments of supervised loans." In W.Va.Code, 46A-1-102(45), a "supervised loan" is defined:

"[It] means a consumer loan made by other than a supervised financial organization, including a loan made pursuant to a revolving loan account, where the principal does not exceed one thousand five hundred dollars and in which the rate of the loan finance charge exceeds eight percent per year as determined according to the actuarial method."

The term "consumer loan" plays a vital role in the foregoing definition because the entire thrust of the West Virginia Consumer Credit and Protection Act is to protect the "consumer" as therein defined, ³ which "means a natural person who incurs debt pursuant to a consumer credit sale or a consumer loan." W.Va.Code, 46A-1-102(11).

Because this case involves loans, we look to the definition of a "consumer loan" to determine if it is within the ambit of the statute. W.Va.Code, 46A-1-102(14), provides:

" 'Consumer loan' is a loan made by a person regularly engaged in the business of making loans in which:

"(a) The debtor is a person other than an organization;

"(b) The debt is incurred primarily for a personal, family, household or agricultural purpose;

"(c) Either the debt is payable in installments or a loan finance charge is made; and

"(d) Either the principal does not exceed twenty-five thousand dollars or the debt is secured by an interest in land."

In those jurisdictions which have a similar statute, courts have uniformly held that unless the loan meets the terminology of a "consumer loan," then the provisions of the act do not apply. Of some interest is Hall v. Owen County State Bank, 175 Ind.App. 150, 370 N.E.2d 918, 933 (1977), where the owner of a trucking business borrowed $56,000 from the bank to purchase several tractor-trailer rigs. Upon default, he contended that the bank had violated the Indiana Consumer Credit Code, but the court rejected this argument:

"However, the statute cited by Hall, which is § 5-202(8) of the Uniform Consumer Credit Code as adopted in Indiana, is limited to consumer credit sales, IC 1971, 24-4.5-2-102 and consumer loans, IC 1971, 24-4.5-3-102. A loan for the purchase of semi-tractor trailers for use in a trucking business does not fit under the definitions of consumer transactions in IC 1971, 24-4.5-2-104(1) and IC 1971, 24-4.5-3-104(1)."

An argument similar to appellants' was made in Stricklin v. Investors Syndicate Life Insurance & Annuity Co., 391 F.Supp. 246 (W.D.Okl.1975), applying the Oklahoma Uniform Consumer Credit Code, Okla.Stat.Ann. tit. 14A, §§ 1-102(2)(d), 3-501(1), 3-602, 3-605, 5-107, which was also modeled after the Uniform Act. Loans were made to the plaintiffs for construction of two apartment complexes. The plaintiffs conceded that the loans were for commercial purposes, but they argued that the Consumer Credit Code applies because the Code should cover all loans made above a specified interest rate. Rejecting this argument, the court concluded that the:

"Code does not govern large loans for a commercial purpose for the following reasons: (1) The Title of the Act, which is a part of the Act, is the Uniform Consumer Credit Code. (2) The underlying purpose of the Act is inter alia, 'to protect consumer ... borrowers against unfair practices' § 1-102(2)(d). (3) The scope of Article 3 is limited to all consumer loans and consumer related loans." 391 F.Supp. at 248. (Emphasis in original)

In another Oklahoma case, Barnes v. Helfenbein, 548 P.2d 1014 (Okl.1976), the definition of "consumer loan" was considered. The definitions of "consumer loan" under the Oklahoma statute, the Uniform Act, and the West Virginia Code are identical. The Oklahoma court found that the loan was not a "consumer loan" because it "fails to satisfy the requirement that the debt be incurred for a personal, family, household or agricultural purpose. It is obvious that the loan was made in pursuit of the borrower's commercial ventures." 548 P.2d at 1018.

In United Kansas Bank & Trust Co. v. Rixner, 4 Kan.App.2d 662, 610 P.2d 116 (1980), aff'd, 228 Kan. 633, 619 P.2d 1156, the court made this rather terse statement: "The loan was admittedly taken for a business purpose, and, therefore, would not qualify as a consumer loan under K.S.A. 16(a)-1-301(14)(a)(ii)." 610 P.2d at 119. See also Annot., Construction and Effect of the Uniform Consumer Credit Code, 86 A.L.R.3d 317, 328-29 (1978).

In the present case, because the loans were made for commercial purposes, the financing of an automobile dealership, they are not "consumer loans" within the purview of the West Virginia Consumer Credit and Protection Act. ⁴

Appellants also argue that Ashland Finance Company of West Virginia was only a supervised lender under W.Va.Code, 46A-4-101 et seq., and, therefore, could not have made commercial loans. We decline to address this issue for two reasons. First, the record is not developed in any detail as to the status of the institution. ⁵ Second, regardless of the status of Ashland Finance Company of West Virginia, appellants are seeking to void the loans based on W.Va.Code, 46A-5-101(2), or to claim excessive interest charges under W.Va.Code, 46A-4-111, or improper acquisition of a deed of trust under W.Va.Code, 46A-4-109(1). Each of these provisions applies only to a "consumer loan" and as previously pointed out, this was not a "consumer loan" under W.Va.Code, 46A-1-102(14). They point to no provision in the Consumer Credit and Protection Act which extends...