Petersen v. Philco Finance Corp.

• Decision Date: 16 June 1967
• Docket Number: No. 9881,9881
• Citation: 428 P.2d 961,91 Idaho 644
• Parties: Lloyd PETERSEN and JoAnn Petersen, husband and wife, and Dean J. Storer and Elaine B. Storer, husband and wife, Plaintiffs-Appellants, v. PHILCO FINANCE CORPORATION, and Day-Nite Coin-Op Dry Cleaning, Inc., Defendants-Respondents. Ronald L. BIRD and Flora May Bird, husband and wife, Plaintiffs-Appellants, v. PHILCO FINANCE CORPORATION and Day-Nite Coin-Op Dry Cleaning, Inc., Defendants-Respondents. PHILCO FINANCE CORPORATION, Plaintiff-Respondent, v. Lloyd PETERSEN and JoAnn Petersen, husband and wife, Dean J. Storer and Elaine B.Storer, husband and wife, and Ronald L. Bird and Flora May Bird, husband and wife, Defendants-Appellants.
• Court: Idaho Supreme Court

Page 961

428 P.2d 961

91 Idaho 644

Lloyd PETERSEN and JoAnn Petersen, husband and wife, and Dean J. Storer and Elaine B. Storer, husband and wife, Plaintiffs-Appellants, v. PHILCO FINANCE CORPORATION, and Day-Nite Coin-Op Dry Cleaning, Inc., Defendants-Respondents.

Ronald L. BIRD and Flora May Bird, husband and wife, Plaintiffs-Appellants, v. PHILCO FINANCE CORPORATION and Day-Nite Coin-Op Dry Cleaning, Inc., Defendants-Respondents.

PHILCO FINANCE CORPORATION, Plaintiff-Respondent, v. Lloyd PETERSEN and JoAnn Petersen, husband and wife, Dean J. Storer and Elaine B.Storer, husband and wife, and Ronald L. Bird and Flora May Bird, husband and wife, Defendants-Appellants.

No. 9881.

Supreme Court of Idaho.

June 16, 1967.

Sharp, Anderson & Bush, Idaho Falls, for appellants.

Hansen & Hansen, Idaho Falls, for respondents.

SPEAR, Justice.

The principal issue presented by this appeal is whether the Idaho law with respect to usury has application to the finance charge in a conditional sale contract. The appeal is from a determination of the legal rights and obligations of the parties with regard to the sale and purchase of certain coin operated dry cleaning equipment. The cases arose from three separate conditional sale contracts, and were consolidated for trial upon motion by the parties before the district court. One of the contracts, involving only a small amount of money, was eliminated prior to the entry of judgment.

Day-Nite Coin-Op Dry Cleaning, Inc. was the seller of the equipment. Under one contract, Ronald L. Bird and Flora May Bird, husband and wife, were the purchasers; and, under the other contract, Lloyd Petersen and JoAnn Petersen, husband and wife, and Dean J. Storer and Elaine B. Storer, husband and wife, were purchasers.

Both contracts were assigned by the seller to Philco Finance Corporation. The contract last referred to was modified by agreement between the parties, and the time for payments extended. The modifications were incorporated in an extension agreement signed by the parties; and, except for the modifications therein included, the original conditional sale contract remained in full force and effect.

The facts relating to the two contracts and the extension agreement involved in this appeal were stipulated by the parties. The facts stipulated are as follows:

Contract dated December 1, 1961:

On or about December 1, 1961, Ronald L. Bird and Flora May Bird, husband and wife, entered into a conditional sale contract with Day-Nite Coin-Op Dry Cleaning, Inc., for the sale by the latter and the purchase by the former of certain dry cleaning equipment. The contract provided for a cash price of $15,097.45 and a down payment of $1,009.75, leaving an unpaid balance of the cash price of $14,087.70. A finance charge of $3,381.05 was added to the balance of the cash price, making a total time balance of $17,468.75. The contract provided for the payment of this sum in 48 equal consecutive monthly installments of $363.97 each, beginning on February 1, 1962. By written assignment on the contract dated December 1, 1961, the contract was assigned by Day-Nite Coin-Op Dry Cleaning, Inc., to Philco Finance Corporation. The monthly installment payments which became due on April 1, 1964, and thereafter, have not been paid. Of the total time balance of $17,468.75, there is an unpaid balance on the contract in the sum of $8,005.53. Contract dated February 9, 1962:

On or about February 9, 1962, Dean J. Storer and Elaine B. Storer, husband and wife, and Lloyd Petersen and JoAnn Petersen, husband and wife, entered into a conditional sale contract with Day-Nite Coin-Op Dry Cleaning, Inc., for the sale by the latter and the purchase by the former of certain dry cleaning equipment. This contract provided for a cash price of $23,750.95 and a down payment of $2,247.50, leaving an unpaid balance of the cash price of $21,503.45. A finance charge of $5,160.55 was added to the balance of the cash price, making a total time balance of $26,664.00. The contract provided for payment of 48 consecutive monthly installments of $550.50 each, beginning on February 18, 1962. By written assignment on the contract dated February 9, 1962, the contract was assigned by Day-Nite Coin-Op Dry Cleaning, Inc., to Philco Finance Corporation. Commencing with the monthly installment payments dur on February 18, 1962, the purchasers made 13 monthly installment payments of $550.50 each on the contract, including the onthly installment payments which became due from February 18, 1962 through February 18, 1963. The total amount of the monthly installment payments made prior to the execution of the extension agreement, was $7,221.50, reducing the contract balance to $19,442.50.

On or about August 1, 1963, Philco Finance Corporation and these purchasers entered into an extension agreement modifying and extending the terms of payment provided in the Storer-Petersen contract. At the time the extension agreement was entered into, the unpaid balance on the contract was $19,442.50. Under the terms of the extension agreement, the term of payment was extended by 25 months to a total remaining term of 58 months. Interest in the total amount of $2,430.31 was added to the unpaid balance, making a total balance of $21,872.81, to be paid in 58 consecutive monthly installments. The extension agreement provided for the monthly installment payments to be made beginning August 18, 1963, and continuing each month thereafter in accordance with a schedule of payments agreed upon by the parties.

The monthly installment payments which became due on March 18, 1964, and thereafter, have not been paid. The total monthly installment payments made pursuant to the extension agreement prior to March 18, was $2,760.55. Of the total balance of $21,872.81, as modified by the extension agreement, there is an unpaid balance on the contract in the amount of $19,112.26. However after applying the payments made subsequent to the extension agreement to the balance remaining due upon the contract obligation of the purchasers at the time of the extension agreement, the balance due upon the sale contract is in the amount of $16,681.95.

All the purchasers contended (1) that the finance charge included in the conditional sale contracts amounted to a 'taking, receiving, reserving or charging' of a usurious rate of interest in contravention of I.C. §§ 27-1905 and 27-1907, or (2) that the contracts were devices to circumvent the usury law, and sought application of the forfeiture and penalty provisions of the usury statute to offset that amount in default on each contract. Additionally, the purchasers under the Storer-Petersen contract, sought an adjudication that the extension agreement of August 1, 1963 was usurious. The sellers (Day-Nite Coin-Op Dry Cleaning, Inc.) and Philco Finance Corporation, as holder of the sale contracts, sought personal judgment against the purchasers for the amount in default on each contract.

The consolidated cases were submitted to the court on the motions of the respondents (sellers) and the cross-motion of the appellants (purchasers) for judgment on the pleadings. The trial court made findings of fact, conclusions of law and entered judgment. Appellants have appealed from that part of the judgment holding that the two contracts are not usurious. Respondent, Philco Finance Corporation, has cross-appealed from that part of the judgment holding the extension agreement usurious, and the trial court's computation of the offset for usurious interest charged.

Appellants by their assignments of error raise four issues, summarized as follows: (1) Is the finance charge in the conditional sale contract interest within the scope and purview of the Idaho usury statute? (2) Are the conditional sale contracts involved merely devices to circumvent the usury law? (3) Are the sellers under a conditional sale contract required to pursue their security, i. e., the property sold, before obtaining a personal judgment against the purchasers for the amount owed on the contract? (4) Are the attorney's fees allowed by the court in this case excessive?

The central issue is whether the amount exacted as a finance charge in both conditional sale contracts is interest within the scope and purview of the Idaho usury statute, I.C. § 27-1907. That section proscribes the 'taking, receiving, reserving, or charging a rate of interest greater than is allowed by this chapter.' I.C. § 27-1905 limits the 'rate of interest, on money due or to become due on any contract' to eight percent (8%) per annum.

The Idaho cases have consistently recognized the distinction between a loan of money and a time sale of property, and have held the latter are exempt from the state usury law. The rationale of those decisions has been that a seller may offer to sell at a designated price for cash or at a higher price for credit. Sale at a credit price will not constitute usury, although the difference between cash and credit price exceeds the lawful rate of interest that may be charged on a cash basis, so long as the transaction is not merely a form or device for defeating the usury laws. Consequently, the bona fide sale of property under a contract providing for the payment of the purchase price, in whole or in part, in the future, in one or more installments, is in no sense a loan; and the usury statute has no application to such sales. Meridian Bowling Lanes, Inc. v. Brown, 90 Idaho 403, 412 P.2d 586; Freedman v. Hendershott, 77 Idaho 213, 290 P.2d 738; Bell v. Idaho Finance Co., 73 Idaho 560, 255 P.2d 715; Milo Theater Corp. v. National Theater Supply, 71 Idaho 435, 233 P.2d 425. See generally, Anno. 143 A.L.R. 238.

Bell v. Idaho Finance Co., supra, involved a suit filed by the purchaser of an automobile under a conditional sale contract against the finance company assignee of the contract on the ground the contract was usurious. The case came before the supreme court after the district court...