Rathbun v. W. T. Grant Co.

• Citation: 219 N.W.2d 641,300 Minn. 223
• Decision Date: 14 June 1974
• Docket Number: 44332,Nos. 44328,s. 44328
• Parties: Mr. Albert C. RATHBUN, et al., Respondents, v. W. T. GRANT COMPANY, Appellant. Walter O. JOHNSON, et al., Respondents, v. W. T. GRANT COMPANY, Appellant.
• Court: Supreme Court of Minnesota (US)

Page 641

219 N.W.2d 641

300 Minn. 223

Mr. Albert C. RATHBUN, et al., Respondents, v. W. T. GRANT COMPANY, Appellant.

Walter O. JOHNSON, et al., Respondents, v. W. T. GRANT COMPANY, Appellant.

Nos. 44328, 44332.

Supreme Court of Minnesota.

June 14, 1974.

Syllabus by the Court

1. In an action to declare a credit plan usurious under the laws to this state, to grant summary judgment the trial court must find that there is no genuine issue as to any material fact and that either party is entitled to judgment as a matter of law.

2. Usury is the taking or receiving of more interest or profit on a loan than the law allows. To conclude that a transaction is usurious within this definition, the court must find (a) a loan of money or its equivalent or the forbearance of a debt; (b) an agreement between the parties that the principal shall be repayable absolutely; (c) the exaction of a greater amount of interest or profit than is allowed by law; and (d) the presence of an intention to evade the law at the inception of the transaction.

3. Defendant's retail installment credit coupon plan is subject to the allowable rate of interest set forth in Minn.St. 334.01 as it does not fall within any statutory exception or the 'time-price' doctrine.

4. Where there are no material facts in dispute as to the factual basis for the trial court's findings that defendant's credit coupon plan constitutes a loan of a money equivalent, repayable absolutely, with an amount of interest greater than allowed by law and with the intent to evade the law at its inception, the entry of summary judgment was proper. Defendant's motion for amended findings and its accompanying affidavits did not establish that the trial court's findings were without support and thus was properly denied.

5. This decision does not overrule existing law or statute. Therefore, we will not give it prospective effect only.

6. As limited to the issue of usury and the question of liability, the class action permitted under Rules 23.01 and 23.02(3), Rules of Civil Procedure, is the superior method for the fair and efficient adjudication of the controversy in the Johnson litigation (No. 44332), which seeks the recovery of illegal interest. Since the Rathbun action (No. 44328) seeks remedies in addition to recovery of illegal interest, the orders consolidating the two actions and permitting Rathbun to be maintained as a class action are reversed. The summary judgment in Rathbun is affirmed; the summary judgment in Johnson is vacated and the matter remanded to the trial court for the issuance of an amended notice of class action consistent with this opinion. Faegre & Benson, John S. Holten, and Gordon G. Busdicker, Minneapolis, for appellant.

Mark Reinhardt, Paul W. Onkka, Jr., Legal Assistance of Ramsey County, Inc., St. Paul, for Rathbun.

Sigal & Savelkoul and Donald C. Savelkoul, Minneapolis, for Johnson.

Considered and decided by the court en banc.

TODD, Justice.

In each of these cases, defendant appeals from a partial summary judgment declaring its retail installment credit coupon book plan to be usurious under the laws of the State of Minnesota. Defendant also challenges in these appeals the orders of the court entered in these matters allowing a class action. We conclude that the trial court properly found the coupon plan to be usurious, but vacate the court's orders on the class action in part and remand to the trial court for further proceedings.

Defendant is national merchandiser of a large range of consumer products, ranging from the smallest household items to large major appliances. In 1972, it had sales in excess of $1,600,000,000. In Minnesota, defendant operates five retail stores, in St. Paul, Crystal, Cottage Grove, St. Cloud, and Winona. Defendant offers to customers three basic types of credit plans: (1) The revolving charge agreement plan; (2) the retail installment credit special purchase plan under which single items are financed on an installment payment basis; and (3) the retail installment credit coupon book contract plan. Only the final plan is involved in this litigation. This plan has been available to defendant's customers since 1946.

Under the coupon plan, the customer purchases a book of coupons in denominations ranging from 50 cents to $10, and totaling from $10 to $200. The coupon books can be purchased for cash and apparently are so purchased for use as gift certificates, clothing allowances, or the like.

However, a large majority of the coupon books are sold on a finance plan. A customer so purchasing a coupon book must fill out standard credit applications and obtain a line of credit. He is issued coupons pursuant to a contract. Prior to January 1, 1971, the finance charges provided by the contract began to accrue on the date of purchase of the coupons, with the first payment due 30 days after the signing of the contract.

The accrual of finance charges on new accounts opened after January 1, 1971, commences only after the first negotiation of a coupon. The first payment is due 30 days thereafter.

The third variation of the plan is the add-on account which permits a customer who has previously purchased a coupon book, but has not fully paid for it, to have additional coupons issued to him. Under this plan, finance charges commence immediately upon execution of the new add-on agreement. At the time of the execution of the finance or add-on agreement, the customer is offered credit life insurance, credit health insurance, or both. If desired, this insurance is added to the plan and financed in accordance with the prevailing rate schedule.

The standard period of payment has averaged 24 months for each coupon contract. Prior to 1971, the plan provided that if the coupons were returned within 30 days of the execution of the agreement, no finance charges or principal were due. After January 1, 1971, all coupons could be returned at any time without charge. A customer who returns unused coupons is given full credit, including credit for finance charges attributable to the unused coupons. ¹

The coupons are nonnegotiable and cannot be redeemed for cash. Cash change will be returned only on amounts of 49 cents or less. The coupons cannot be used for payment of finance contracts or installment sales, but are otherwise unlimited in the purchase of merchandise and services in defendant's stores.

The coupon book contains the following instructions regarding the use of the coupons:

'How to use your GRANT-a-CHARGE credit coupons

'1. Use them like cash for goods or services in any department of the W. T. Grant Company. However, they cannot be accepted as down-payment or for payment on your account.

'2. The buyer may return unused coupons at any time and GRANTS will give the buyer a full credit refund for the face amount thereof, plus a complete service charge refund on the unusued coupons.

'3. If you wish to purchase with credit coupons a single item of merchandise and/or services of greater value than the coupons you now hold, you may save credit service charge by returning your unused coupons to GRANTS for credit and purchasing new coupons.'

On December 11, 1970, plaintiffs Walter O. Johnson and Rosemary Johnson entered into an add-on agreement with defendant under its retail installment credit coupon book plan. Their existing balance of $201.96 was reduced by the unearned finance charges and was added to the cost of two new coupon books, property insurance, credit life insurance, credit health and sickness insurance, and finance charges, resulting in a new balance of $371.07. The annual percentage rate designated in this contract under the truth-in-lending regulations is 19.90 percent. The Johnsons commenced action against defendant alleging a proper class action and asking in their prayer for relief in their amended complaint that all interest charges be adjudged illegal, be declared null and void, and be canceled; that the plan be adjudged illegal under the Minnesota usury statute; and that attorneys' fees be awarded.

Plaintiffs Albert C. Rathbun and Elaine J. Rathbun on July 10, 1970, executed an add-on retail installment sales contract under defendant's coupon book plan and became indebted to defendant in the amount of $707.09, which included a prior balance with adjustment of finance charges, $115 in new coupons, insurance charges, and finance charges. The Rathbuns commenced action against defendant and in their amended complaint sought judgment of the court that the matter be declared a proper class action. They further sought declaration that defendant's contracts are null and void under the Minnesota usury statute, or, alternatively, that they violate Minn.St. 334.16, or were made in violation of the small loan licensing law of Minnesota. They further requested injunctive relief, barring defendant from entering coupon contracts or similar devices and sought an injunction ordering defendant to serve a copy of the judgment on all persons who have entered into agreements and upon any finance companies or others to which said agreements were assigned. They also requested that damages be awarded in an amount equal to three times any finance charge imposed, charged, or collected, or, alternatively, that damages be awarded to plaintiffs in an amount equal to the full amount of interest paid to defendant pursuant to the usury statute, plus attorneys' fees and costs. ²

On August 8, 1972, motions for partial summary judgment filed by the plaintiffs in both actions were orally argued to the court. Submission was deferred, pending a determination as to whether the captioned actions should be maintained as class actions and whether they should be consolidated for trial. Pursuant to the court's order of October 10, 1972, it was determined that the captioned actions should be consolidated and should be conditionally maintained as class actions. The class was defined as all resident customers of defendant from and after November 8,...