Rangen, Inc. v. Valley Trout Farms, Inc.

• Decision Date: 03 February 1983
• Docket Number: No. 13808,13808
• Citation: 104 Idaho 284,658 P.2d 955
• Parties: , 35 UCC Rep.Serv. 1129, 35 UCC Rep.Serv. 52 RANGEN, INC., an Idaho Corporation, Plaintiff, Counter-Defendant, Respondent, Cross-Appellant, v. VALLEY TROUT FARMS, INC., an Idaho Corporation, Defendant, Counter-Claimant, Appellant, Cross-Respondent.
• Court: Idaho Supreme Court

Page 955

658 P.2d 955

104 Idaho 284, 35 UCC Rep.Serv. 1129, 35 UCC Rep.Serv. 52

RANGEN, INC., an Idaho Corporation, Plaintiff, Counter-Defendant, Respondent, Cross-Appellant, v. VALLEY TROUT FARMS, INC., an Idaho Corporation, Defendant, Counter-Claimant, Appellant, Cross-Respondent.

No. 13808.

Supreme Court of Idaho.

Feb. 3, 1983.

Dale G. Higer and Thomas R. Linville of Eberle, Berlin, Kading, Turnbow & Gillespie, Boise, for defendant, counter-claimant, appellant, cross-respondent.

G. Kent Taylor, of Taylor, Beito & Stubbs, Twin Falls, for plaintiff, counter-defendant, respondent, cross-appellant.

McFADDEN, Justice Pro Tem.

Appellant Valley Trout Farms, Inc. is in the business of raising, feeding, caring for, harvesting, and marketing trout. Respondent and cross appellant Rangen, Inc. is engaged in, among other things, the manufacture and sale of fish food. For some time prior to July 1, 1977 the parties had frequent business dealings involving the sale of fish food. These transactions began when Valley Trout farms would send a purchase order to Rangen requesting certain amounts of feed, Rangen would then deliver it.

Some time prior to July 1, 1977, Rangen advised Valley Trout that it would close its books with respect to Valley Trout's purchase of fish food on the twenty-fifth of each and every month and that Rangen would send Valley Trout its bill indicating the previous month's purchases, and that the previous month's purchases would be due and payable thirty days after the billing date.

Around July 1, 1977, Rangen advised Valley Trout that it would cancel any "finance charge" debited to Valley Trout's account prior to July 1, 1977, but would charge on all purchases made after July 1, 1977, a "late charge" of 1% per month to be computed between the due date and the date paid on the principal amount owing between said dates. Subsequently, Rangen advised Valley Trout that the "late charge" would be computed at the rate of 1 1/2% per month beginning April 1, 1978.

The transactions after the July 1, 1977 meeting began when Valley Trout would send a purchase order to Rangen requesting feed. Rangen would deliver the feed and at the time of delivery an invoice would be left with an employee of Valley Trout who would then acknowledge receipt of the fish food. Each invoice bore the following notation:

"Accounts due and payable before the 10th of month following month of purchase. 1% per month FINANCE CHARGE (ANNUAL PERCENTAGE The late charge appeared on the monthly statements sent to Valley Trout and the charge was paid on one occasion by Valley Trout in August 1977.

[104 Idaho 286] RATE 12%) applied to balance of all past due accounts from date due. Purchaser agrees to pay collection costs including a reasonable attorney fee if account is collected by suit or otherwise. Title to this property does not pass until fully paid for." ¹

In April 1979 Rangen Inc. brought suit to recover on its open account for monies past due, finance charges and attorney fees. Valley Trout answered, asserting usury as a defense and counterclaimed for a quantity discount that had not been credited to their account.

Trial was held by the court sitting without a jury. Findings of fact, conclusions of law and judgment were entered in favor of Rangen for the monies past due with a credit to Valley Trout for the quantity discount. The district court held that there was no express contract for the imposition of the late charge and therefore disallowed that amount but allowed the statutory rate of interest pursuant to I.C. § 28-22-104. The district court also found that the usury defense was inapplicable because the transaction was not a loan of money or a forebearance. Both parties appeal from the judgment of the trial court. The issues raised by appellant Valley Trout on appeal are: (1) did Rangen charge a usurious rate of interest? (2) did the trial court err in not admitting evidence concerning the credit practices utilized by Rangen with its other customers? On its cross appeal Respondent Rangen raised the third issue: did the trial court err in failing to conclude as a matter of law that a contract existed for the payment of late charges on the open account? We affirm as to the issues presented by Valley Trout, but reverse as to the issues presented by Rangen.

I

Usury is "[t]he taking, receiving, reserving, or charging a rate of interest greater than is allowed by this chapter when knowingly done." I.C. § 28-22-107. It has been established that to constitute usury there must be excessive interest or compensation on either a loan of money or forbearance or extension of time of payment on an existing debt. Transportation Equipment Rentals, Inc. v. Ivie, 96 Idaho 223, 526 P.2d 828 (1974); Meridian Bowling Lanes, Inc. v. Brown, 90 Idaho 403, 412 P.2d 586 (1966); Freedman v. Hendershott, 77 Idaho 213, 290 P.2d 738 (1955); Bell v. Idaho Finance, 73 Idaho 560, 255 P.2d 715 (1953).

The trial court concluded that the transaction involved here was neither a loan of money nor a forbearance on an existing debt. In Bell v. Idaho Finance Co., 73 Idaho 560, 255 P.2d 715 (1953), this court stated

"It has become an accepted and settled rule of law that to constitute usury there must be an excessive interest or compensation on either a loan of money or forbearance or extension of time of payment of an existing debt."

Forbearance has been defined "as used in the law of usury [the term] signifies a contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due or payable." State ex rel. Turner v. Younker Brothers, Inc., 210 N.W.2d 550 (Iowa 1973); Hafer v. Spaeth, 22 Wash.2d 378, 156 P.2d 408 (1945), overruled on other grounds in Whitaker v. Spiegel, Inc., 95 Wash.2d 408, 623 P.2d 1147, 1152 (1981); Cecil v. Allied Stores Corp., 162 Mont. 491, 513 P.2d 704 (1973); Whitaker v. Spiegel Inc., 95 Wash.2d 408, 623 P.2d 1147 (1981). Even in Crestwood Lumber Co. v. Citizens Savings and Loan Ass'n, 83 Cal.App.3d 819, 148 Cal.Rptr. 129 (1978), which will be discussed more fully below, the California Court of Appeals First District The issue therefore becomes: did Rangen agree to extend the time for payment in consideration for late charges computed at the 12% and 18% annual rate. The trial court concluded that there was no forbearance and that conclusion is supported by the record. On its face the term provides that the finance charge will be levied for all past due accounts. The testimony at trial reflects that the account was due within 30 days from the date of billing and Rangen never gave Valley Trout more than 30 days to pay its bill. There was no express agreement or contractual obligation for Rangen to forego an immediate action on the account if it became overdue or to forego a demand for immediate payment. This element being absent from the transaction, there was no forbearance within the meaning of the usury statutes and such statutes are inapplicable. Hafer v. Spaeth, supra; Cecil v. Allied Stores Corp., supra; State ex rel. Younker Bros., supra; Whitaker v. Speigel Inc., supra.

[104 Idaho 287] defined forbearance as "the giving of further time for the repayment of an obligation or an agreement not to enforce a claim at its due date."

Valley Trout Farms contends that there was a forbearance of an existing debt, relying on the California Court of Appeals' decision in Crestwood Lumber Co. v. Citizens S & L Ass'n, supra, as authority. The court in Crestwood Lumber held that there was a forbearance. The court stated, in regard to the language imposing the charge on overdue accounts,

"Appellant's other contention, that no forbearance occurred because it never agreed to provide further time for payment, is not reconcilable with the record. Appellant's own invoices and sales orders plainly state that 'A FINANCE CHARGE OF 1 1/2% PER MONTH (ANNUAL PERCENTAGE RATE OF 18%) WILL BE MADE ON ALL OVERDUE ACCOUNTS.' It can hardly be asserted that such language did not constitute an implied agreement to give further time for payment in exchange for an 18 percent surcharge on the principal."

In our opinion the reasoning of the Crestwood court is flawed and we decline to follow it. We cannot agree that an implied agreement to forego payment arose under those facts. There was no refinancing in the Crestwood case. Under those facts the buyer would be free to ignore the payment of the principal amount due as long as he paid the service charge each month. There was no provision for the amount of principal or interest to be paid each month nor a time limit within which it must be paid. In this situation it is conceivable that the forbearance could extend ad infinitum and the creditor would never recover the principal. The conclusion is that creditor would never be able to sue to collect the money past due because it was receiving consideration for its "agreement" to forbear on the account. The facts do not support such a conclusion.

The Crestwood court also stated:

"Although the trial court's judgment was correct as far as it resolved the issues presented to it, recent California cases have viewed 'late charge' provisions such as the one before us not as interest, but as liquidated damage clauses....

If we examine the provision in question closely, it appears to be an attempt to assess liquidated damages."

There is an internal inconsistency in finding that the late charge term can be interest on the forbearance of money and, at the same time a liquidated damages clause. The former deals with a creditor agreeing to wait for his money and receiving consideration for the delay while the latter concerns a penalty for making him wait. In light of the faulty logic used in Crestwood we do not find it to be persuasive authority. ² The California Court of Appeals, Second District, rendered an opinion in the case of Fox v. Federated Department Stores Inc., 94 Cal.App.3d 867...