Randolph v. Franklin Investment Co., Inc.

• Decision Date: 27 January 1977
• Docket Number: No. 8392.,8392.
• Citation: 368 A.2d 1151
• Parties: Joseph T. RANDOLPH and Antoinette M. Randolph, Appellants, v. FRANKLIN INVESTMENT CO., INC., Appellee.
• Court: D.C. Court of Appeals

368 A.2d 1151

Joseph T. RANDOLPH and Antoinette M. Randolph, Appellants, v. FRANKLIN INVESTMENT CO., INC., Appellee.

No. 8392.

District of Columbia Court of Appeals.

Argued May 8, 1975.

Decided January 27, 1977.

Robert B. Cornell, Washington, D.C., for appellants.

Bernard D. Lipton, Silver Spring, Md., for appellee.

Before KELLY and HARRIS, Associate Judges, and REILLY, Chief Judge, Retired.

REILLY, Chief Judge, Retired:

This is an appeal by purchasers of an automobile from a judgment entered against them in an action by a finance company, which had repossessed the car, resold it, and sued to recover $1,128.00, the difference between the proceeds of the resale and the asserted balance owed by appellants under the terms of a conditional sales contract. The trial court, sitting without a jury, awarded damages in the amount of $750.00 to the plaintiff, the assignee of such contract.

The record shows that on November 15, 1968, appellants entered into a conditional sales agreement with G. B. Enterprises, t/a Lee Ford, for the purchase of a 1965 Pontiac. After a downpayment, a balance of $1,445.00 remained, to which sum insurance and finance charges were added, leaving a total obligation of $2,073.-84. Payments were to be made in fiftyone (51) biweekly installments of $39.88. The dealer assigned the contract to appellee Franklin Investment Company (Franklin) in consideration for the "cash" balance of $1,445.00.

During the first nine months of the contract, appellants were frequently a few days late in making payments on the dates the particular installments were due. Nevertheless, the payments were always accepted. The finance company had a general policy of mailing reminders to clients whenever payments were overdue, but appellants fell further and further behind. By August 19, 1969, appellants had missed two full payments. On that date they submitted a payment which was actually due on July 26, 1969. After none of the scheduled payments due in August were forthcoming, the company repossessed the car in early September.

After an advertised public sale at which no bids were submitted, the car was sold at a private sale in January 1970, for $125.00. In the action for a deficiency judgment, the trial court, having heard testimony as to the condition of the car immediately prior to repossession, offset $378.00 against the claimed amount, thus limiting recovery to $750.00.

Appellants urge several different grounds for reversal, two of which present important issues of statutory construction not previously resolved in this jurisdiction. One such contention is that the conditional sales agreement and the accompanying promissory note upon which plaintiff sued were usurious, as contemplating a rate of interest in excess of 8% per year, the maximum permissible at the time of the transaction. D.C.Code 1973, § 28-3301. It is well established in this jurisdiction that a sale of an article on credit at a figure that exceeds cash price by more than the legal rate of interest does not constitute usury because a vendor may fix one price for cash and another for credit. Morris v. Capitol Furniture & Appliance Co., Inc., D.C.App., 280 A.2d 775 (1971). Appellant points out, however, that this principle— popularly known as the time-price rule— has no application to lending companies purchasing the instrument from the merchant for the actual cash price when they are privy to the terms of the original transaction, which seems to be the situation here. Lee v. Household Finance Corporation, D.C.App., 263 A.2d 635 (1970). This doctrine was held to bar recovery of unpaid interest by the assignee of a note executed in connection with the conditional sale of an automobile on the ground that the assignee, not being a holder in due course, could not invoke the time-price rule. Beatty v. Franklin Investment Co., 115 U.S.App.D.C. 311, 319 F.2d 712 (1963).

The Beatty case, however, dealt with a sale which occurred in 1959. The following year Congress enacted a law regulating installment sales of automobiles, now incorporated in D.C.Code 1973 as Chapter 9 of Title 40, which contains, inter alia, a schedule of maximum finance charges that permit rates in excess of 8% per year on certain categories of motor vehicles. Insofar as relevant, § 40-902, authorizing such charges, provides:

(a) Notwithstanding the provisions of any instrument of security, refinancing contract, or other instrument to the contrary, made or entered into on or after the effective date of this chapter, no person shall charge, contract for, receive, or collect a finance charge if such charge exceeds the larger of $25 or an amount determined under the following schedule:

* * * * * *

Class 3. Any used motor vehicle not in Class 2, and, if a domestic motor vehicle, designated by the manufacturer by a year model not more than four years prior to the year in which the sale is made, and, if a foreign motor vehicle, not more than four years old—$14 per $100 per year.

As the record shows that the second-hand Pontiac bought by appellants was within the Class 3 category, it is our opinion that the 14% annual rate on the unpaid balance of the loan—which is what the finance charge amounted to—was proper, notwithstanding appellants' position that this subsection is applicable only when action is brought by the original payee of the note (the car dealer) or a holder in due course. Their argument is that because the term "retail installment contract" is defined in § 40-901(9) as a contract entered into by a "seller" under which a security interest in the vehicle is retained to secure the buyer's obligation, only the seller may make finance charges in accordance with the schedule set out in § 40-902. We cannot accept such a narrow view of the statute, for § 40-902(a), previously quoted, is not limited to the words of art in the preceding section. Moreover, § 40-902(d) gives the District Council authority to modify the statutory schedule of maximum charges to afford a "fair return on investment to persons engaged in the business of financing retail installment transactions" and subsection (e)(1), authorizing further regulations, specifically refers in one paragraph to "a seller . . . or his assignee" (italics supplied). Hence the wording of the act itself shows that finance companies complying with it are outside the rule of the Beatty case, supra, with respect to installment loans on motor vehicle sales.

Appellants also assail as invalid the regulations issued under this chapter of Title 40 insofar as these purport to authorize claims for deficiency judgments on the resale of repossessed vehicles.¹ Their point is that to such degree as the regulations conflict with the Consumer Credit Protection Act of 1971, these have been superseded. Specifically, they contend that one subparagraph of a section of this act, D.C. Code 1973, § 28-3812, entitled "Limitation on Creditors' Remedies", precluded the trial court from entering a deficiency judgment² because the cash price quoted by the dealer when applicants bought the car was less than $2,000. This would be true if conditional sales of motor vehicles were covered by the 1971 Act but one provision of that Act exempts (at least some) motor vehicle sales, viz., the opening subsection of the same section relied upon by appellants, § 28-3812(a):

(a) This section applies to actions or other proceedings to enforce rights arising from consumer credit sales, consumer leases, and direct installment loans (other than a loan directly secured on real estate or a direct motor vehicle installment loan covered by chapter 36 of title 28, District of Columbia Code); and, in addition, to extortionate extensions of credit.

According to appellants, this language does not exclude the sales contract to which they were parties because it was not financed by a banking institution, as the only reference to "motor vehicle installment loans" in chapter 36 of title 28 is contained is the following section of the Code:

§ 28-3601. Direct motor vehicle installment loans

The provisions of the Act approved April 22, 1960 (Public Law 86-431, 74 Stat. 69; ...