Orlando v. Finance One of West Virginia, Inc.

• Decision Date: 20 May 1988
• Docket Number: No. 17902,17902
• Parties: Joseph N. ORLANDO, Jr. and Lisa L. Orlando, Individually, etc. v. FINANCE ONE OF WEST VIRGINIA, INC., A Corporation.
• Court: West Virginia Supreme Court

Page 882

369 S.E.2d 882

179 W.Va. 447

Joseph N. ORLANDO, Jr. and Lisa L. Orlando, Individually, etc. v. FINANCE ONE OF WEST VIRGINIA, INC., A Corporation.

No. 17902.

Supreme Court of Appeals of West Virginia.

May 20, 1988.

Syllabus by the Court

1. "The legislature in enacting the West Virginia Consumers Credit and Protection Act, W.Va.Code, 46A-1-101, et seq., in 1974, sought to eliminate the practice of including unconscionable terms in consumer agreements covered by the Act. To further this purpose the legislature, by the express language of W.Va.Code, 46A-5-101(1), created a cause of action for consumers and imposed civil liability on creditors who include unconscionable terms that violate W.Va.Code, 46A-2-121 in consumer agreements." Syl. pt. 2, U.S. Life Credit Corp. v. Wilson, 171 W.Va. 538, 301 S.E.2d 169 (1982).

2. "[T]he particular facts involved in each case are of utmost importance since certain conduct, contracts or contractual provisions may be unconscionable in some situations but not in others." Uniform Consumer Credit Code, § 5.108 comment 3, 7A U.L.A. 170 (1974).

John C. Purbaugh, Joseph P. Henry, WV Legal Services Plan, Inc., Charleston, William T. Wertman WV Legal Services Plan, Martinsburg, for appellants.

Walter M. Jones, III, Arthur W. Boyce, Martinsburg, for appellee.

BROTHERTON, Justice:

Joseph N. Orlando and Lisa L. Orlando, husband and wife, appeal the final order of the Circuit Court of Berkeley County dismissing their complaint against Finance One of West Virginia, Inc., seeking statutory penalties for violations of the West Virginia Consumer Credit and Protection Act. For the reasons set forth below, we affirm in part and reverse in part the judgment of the Circuit Court of Berkeley County.

Finance One of West Virginia, Inc. (Finance One) is a small loan company licensed by the West Virginia Department of Banking. On September 6, 1984, the Orlandos executed a "Promissory Note and Security Agreement" in favor of Finance One. The preprinted contract contained, on the reverse side, Clause # 14, which provided:

Waiver of Homestead and Exemption Rights. To the extent permitted by law, I hereby waive and transfer to Lender any homestead or other exemption rights granted to me under applicable law.

The Orlandos defaulted on the loan and were the subject of nonjudicial collection activities. Finance One made no attempt to judicially enforce Clause # 14.

On August 28, 1985, the Orlandos filed a class action suit seeking declaratory and injunctive relief and recovery of statutory penalties on behalf of themselves and all other similarly situated persons for violations of the West Virginia Consumer Credit and Protection Act. ¹ The Orlandos alleged first, that Clause # 14 was unconscionable under W.Va.Code § 46A-2-121 (1986) because any attempted waiver of the exemptions granted by the West Virginia Constitution Article 6, § 48 is expressly forbidden by W.Va.Code § 38-9-6 and § 38-8-15 (1985); second, that the inclusion of Clause # 14 in the loan contract was an unfair and deceptive act or practice prohibited by W.Va.Code § 46A-6-104 (1986); and third, that it constituted an unfair debt collection practice prohibited by W.Va.Code § 46A-2-127 (1986).

Following a hearing on cross motions for summary judgment, the trial court issued its final order which contained findings of fact and conclusions of law. The trial court found that class action status had been established and determined the case as a class action suit. The trial court dismissed the plaintiffs' motion for partial summary judgment, finding "a technical violation of a statute" and ordered that the contracts or any similar contracts "be immediately destroyed or removed from the State of West Virginia and no longer be used." R. at 243. The trial court dismissed the plaintiffs' claims for statutory penalties.

The appellants argue that the trial court erred by failing to impose statutory penalties and request that this Court reverse the judgment of the Circuit Court of Berkeley County and remand with instructions to enter summary judgment in their favor and determine the appropriate amount of civil penalties as provided by W.Va.Code § 46A-5-101 and § 46A-2-127. ²

I.

The appellants argue first that Clause # 14 is unconscionable under W.Va.Code § 46A-2-121 because any attempted waiver of the exemptions granted by the West Virginia Constitution Article 6, § 48 is expressly forbidden by W.Va.Code § 38-9-6 and § 38-8-15.

Article 6, § 48 of the West Virginia Constitution provides for a $5,000 homestead exemption and $1,000 personal property exemption from forced sale. The West Virginia Constitution, art. 6, § 48 provides:

Any husband or parent, residing in this State, or the infant children of deceased parents, may hold a homestead of the value of five thousand dollars, and personal property to the value of one thousand dollars, exempt from forced sale, subject to such regulations as shall be prescribed by law....

The statutory provisions governing the homestead exemption are found in Chapter 38, Article 9 of the West Virginia Code. Section 38-9-1 reiterates the homestead exemption of $5,000. West Virginia Code § 38-9-6 proscribes the waiver of the homestead exemption provided for in W.Va.Code § 38-9-1 except under certain conditions. West Virginia Code § 38-9-6 provides:

Any waiver of the rights conferred by this article shall be void and unenforceable except to the extent that (1) such waiver is accompanied by a consensual security interest in the property in which the homestead exemption is asserted and (2) such security interest cannot be satisfied without encroaching upon the homestead exemption so asserted.

The statutory provision concerning the personal property exemption is W.Va.Code § 38-8-1. West Virginia Code § 38-8-15 provides that "[a]ny waiver of the rights conferred by [article 8] shall be void and unenforceable."

The appellants argue that because any attempted waiver of the homestead and personal property exemptions is void and unenforceable, Clause # 14 is "unconscionable" under § 46A-2-121 of the West Virginia Consumer Credit Protection Act. West Virginia Code § 46A-2-121 provides:

(1) With respect to a transaction which is or gives rise to a consumer credit sale or consumer loan, if the court as a matter of law finds:

(a) The agreement or transaction to have been unconscionable at the time it was made, or to have been induced by unconscionable conduct, the court may refuse to enforce the agreement, or

(b) Any term or part of the agreement or transaction to have been unconscionable at the time it was made, the court may refuse to enforce the agreement, or may enforce the remainder of the agreement without the unconscionable term or part, or may so limit the application of any unconscionable term or part as to avoid any unconscionable result.

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"The legislature in enacting the West Virginia Consumer Credit and Protection Act, W.Va.Code 46A-1-101, et seq., in 1974, sought to eliminate the practice of including unconscionable terms in consumer agreements covered by the Act. To further this purpose the legislature, by the express language of W.Va.Code, 46A-5-101(1), created a cause of action for consumers and imposed a civil liability on creditors who include unconscionable terms that violate W.Va.Code, 46A-2-121 in consumer agreements." Syl. pt. 2, U.S. Life Credit Corp. v. Wilson, 171 W.Va. 538, 301 S.E.2d 169 (1982). The West Virginia Consumer Credit Protection Act, however, contains no definition of "unconscionable." The West Virginia Consumer Credit and Protection Act is derived in part from the Uniform Consumer Credit Code. See Clendenin Lumber & Supply Co. v. Carpenter, 172 W.Va. 375, 305 S.E.2d 332, 336 n. 4 (1983). Section 5.108(1)(a) & (b) of the Uniform Consumer Credit Code concerning unconscionability as it relates to a consumer credit transaction is identical to W.Va.Code § 46A-2-121(1)(a) & (b). The drafters of the Uniform Consumer Credit Code explained that the principle of unconscionability "is one of the prevention of oppression and unfair surprise and not the disturbance of reasonable allocation of risks or reasonable advantage because of superior bargaining power or position." See Uniform Consumer Credit Code, § 5.108 comment 3, 7A U.L.A. 170 (1974). The drafters stated:

The basic test is whether, in the light of the background and setting of the market, the needs of the particular trade or case, and the condition of the particular parties to the conduct or contract, the conduct involved is, or the contract or clauses involved are so one sided as to be unconscionable under the circumstances existing at the time the conduct occurs or is threatened or at the time of the making of the contract.

Id. The drafters explained further that "[t]he particular facts involved in each case are of utmost importance since certain conduct, contracts or contractual provisions may be unconscionable in some situations but not in others." Id. Similarly, in syllabus point 3 of Troy Mining Corp. v. Itmann Coal Co., 176 W.Va. 599, 346 S.E.2d 749 (1986), this Court stated that "[a]n analysis of whether a contract term is unconscionable necessarily involves an inquiry into the circumstances surrounding the execution of the contract and the fairness of the contract as a whole." ³

In the present case, the trial court reasoned that the determining factor in whether Clause # 14 was unconscionable was "the ability of a creditor through the use of that clause to intimidate a debtor into payment where the payment would not otherwise be made except through use of that clause." R. at 242. The trial court stated that it could not conclude that "the use of this language and the attitudes and beliefs of a consumer would constitute or justify an intimidation upon the debtor to waive or abrogate certain rights." R. at 243. ⁴

The clause in question provided that "to the extent permitted by law, I hereby...