Smith v. Sherwood & Roberts, Spokane, Inc.

Decision Date02 May 1968
Docket NumberNo. 9798,9798
CourtIdaho Supreme Court
PartiesRobert F. SMITH, and Claude A. Morgan, dba Morgan & Morgan Plaintiffs-Appellants, v. SHERWOOD & ROBERTS, SPOKANE, INC., Defendant-Respondent.

McFadden & Park, St. Maries, for appellants.

Scott W. Reed, Coeur d'Alene, for respondent.

McQUADE, Justice.

In this action there are two plaintiffs, the conditional sale purchaser of a used crawler tractor and dozer, and the company owning a garage which repaired the tractor. Defendant is a finance company. The purchaser brought an action against the finance company, assignee of the conditional sale contract, on grounds of usury in the following transactions: the contract itself; a promissory note later made by the purchaser payable to the finance company; and a renewal and extension agreement of the note. The purchaser also asked damages for wrongful repossession of the tractor by the finance company. The garage owner sued on an alleged liability of the finance company for payments for repairs done to the tractor while it was in the purchaser's possession. The district court entered judgment in favor of the finance company on all counts. Finding no error, we affirm.

Following is a statement of facts in this somewhat complex action.

April 22, 1963, appellant Robert F. Smith, as purchaser, and Dart Truck and Tractor Co., Inc., as seller, signed a conditional sale contract for a used tractor and angle dozer. The contract was executed and was intended to be performed in the State of Washington.

The contract was on a form provided by respondent Sherwood & Roberts-Spokane, Inc., which had respondent's name in bold print at its top. The agreement stated a 'TOTAL CASH PRICE' of $2,350.00, less a down payment of $350.00, plus insurance of $47.51, for a 'BALANCE TO BE FINANCED' of $2,047.51. To this balance was added a 'FINANCE CHARGE' of $327.53, for a 'TOTAL TIME PURCHASE PRICE' of $2,375.40, 'which Purchaser agree(d) to pay 'Seller' beginning May 25, 1963, in twenty-one monthly installments of $107.95 and one of $108.09, skipping March and April, 1964.

The contract contained on its reverse side an assignment form, with 'Sherwood & Roberts-Spokane, Inc.,' printed as assignee. On the day of the contract's execution, April 22, 1963, or soon thereafter, it was assigned by Dart to respondent. The amount paid for this assignment is not disclosed by the record.

Shortly after appellant Smith took delivery of the tractor, it broke down and needed repairs. Appellant Morgan & Morgan made the necessary repairs in its Tekoa, Washington shop, completing them at the beginning of September 1963. Although Smith's first payment of $107.95 under the conditional sale contract had been due May 25, 1963, and additional payments of that sum were due on the 25th day of each succeeding month, Smith had not made a single payment-nor does he claim these failures were excused by respondent-by the time the tractor was repaired.

Respondent had previously agreed with Smith to finance the repairs. In part to accomplish this, September 6, 1963 Smith executed a promissory note for $3,998.88, secured by a chattel mortgage on the tractor, payable to respondent in monthly installments of $166.62 commencing October 23, 1963. The mortgage was never filed of record in Washington.

As computed by respondent, the principal amount of the note included: $2,375.04 to pay respondent the debt owing from the defaulted April 22, 1963 conditional sale contract; $1,045.21 paid by respondent to appellant Morgan & Morgan for the repairs; and a property insurance premium of $45.00. Also charged was $80.46 for a credit life insurance premium and $14.75 for miscellaneous costs (credit report, filing fees, and appraisal).

The trial court, however, found the amount required to pay respondent the principal of the conditional sale contract was $2,346.31, not $2,375.04. The difference appears to be an adjustment for unexpired life insurance prepaid on the conditional sale contract.

By February 6, 1964, appellant Smith was four months in default on his promissory note of September 6, 1963. On that day, Smith executed a revision and extension agreement in which respondent extended the time for payment by four months, charging for this forbearance one per cent per month on the balance owing during the delinquent period. The amount charged was $153.44.

Again needing repairs, about the end of January 1964, the tractor was taken to the Tekoa, Washington, shop for appellant Morgan & Morgan. The repairs were performed through March 1964, and had a reasonable value based on costs, the parties agreed at trial, of $1,289.46. The district court found Morgan & Morgan, though actually knowing of respondent's mortgage on the tractor, did not notify respondent prior to making repairs. In fact, the court also found, respondent had no knowledge of these repairs before their completion, and respondent never agreed to pay Morgan & Morgan for them.

In early June 1964, an agent of respondent accompanied appellant Smith to Morgan & Morgan's shop in Tekoa, in order to discuss the bill for the 1964 repairs with Morgan's manager. By letter dated June 11, 1964, respondent advised appellant Smith that it, respondent, would not assume Smith's obligation for these repairs. The district court found the evidence conflicting but insufficient to establish respondent ever agreed to assume or pay this repair bill.

Toward the end of May 1964, without notice to respondent, appellant Morgan & Morgan permitted appellant Smith to take the tractor away from Morgan's premises to use it on a job near Tekoa. Soon thereafter, Morgan permitted Smith to take the tractor into Benewah County, Idaho, to use it a logging job. Morgan never filed of record a notice of any lien for the 1964 repairs.

About June 9, 1964, Smith still had made no payments under the revision and extension agreement of February 6, 1964. An agent of respondent while discussing this situation with Smith, suggested Smith might request the managers of a mill to which he had been hauling logs to withhold some amount from monies due Smith and pay that amount directly to respondent. Smith then executed such an authorization for three dollars per thousand feet of timber hauled to the mill. The trial court found this authorization was not binding on Smith and could be terminated by him at his whim, and that the arrangement was only a new method for absolving the previously contracted debt.

About June 19, 1964, in Tekoa, an agent of respondent met with both appellants, told them he had a prospective buyer for the tractor in Smelterville, Idaho, and proposed that he take the tractor there and sell it, paying all proceeds over the amount due respondent from Smith to appellant Morgan & Morgan to apply on their unsatisfied repair bill. Apparently, the offered price would have left little if anything for payment to Morgan & Morgan. In any event, the manager of Morgan & Morgan's Tekoa shop refused to transport the tractor to the prospective buyer and refused to grant permission for such sale.

About one week later, respondent instituted summary foreclosure proceedings and the sheriff of Benewah County took possession of the tractor on or about June 26, 1964. At the foreclosure sale on July 2, 1964, respondent bid the tractor in for the balance due on Smith's contract, $3,724.61. Appellants concede the foreclosure sale was properly conducted.

For clarity, the several issues involved in the present action will be separately discussed.

A. Governing Law

The conditional sale contract, the promissory note, and the renewal and extension agreement each was made and was to be performed in the State of Washington. There has been no claim that any party acted in bad faith to evade the usury laws of Idaho. Washington law governs our determination of the issues concerning usury. 1

B. Conditional Sale Contract

When the contract was executed, there was no Washington statute specifically regulating finance charges for conditional sales. 2

Under Washington law, twelve per cent is the maximum legal rate of interest,

'and no person shall directly or indirectly take or receive in money, goods or thing in action, or in any other way, any greater interest, sum or value for the loan or forbearance of any money, goods or thing in action than twelve per cent per annum.' 3

The finance charge on the 'balance to be financed' of the conditional sale contract was at least 14.68% on the declining balance. 4 Thus, if the contract was subject to the usury law of Washington, respondent violated that law by charging appellant Smith an usurious rate for the use of respondent's money.

In the Washington case of Hafer v. Spaeth, 5 a merchant sold a piano on an installment (conditional) sale contract. The balance of the agreed purchase price-$175.00 less $30.00 down payment-was to be paid in monthly installments of $5.00 "with $3.50 handling charge per month or a fraction thereof." The trial court found the conditional sale contract was a loan and the handling charge was interest, and determined the transaction was usurious. The Washington Supreme Court reversed saying:

'The contract simply provided the terms upon which the vendor was willing to sell, and upon which the purchaser expressed his willingness to buy, the piano. In other words, the transaction was one which contemplated the sale of a chattel upon specified terms, and not one which exacted a consideration for the extension of payment of an existing or prospective, indebtedness.' 6

'it is not the office of a conditional bill of sale to secure a loan of money, but, rather, only to permit an owner of personal property to make a bona fide sale on credit, reserving title in himself for security until the purchase price is fully paid.' 7, 8

As far as we can determine, Hafer v. Spaeth is the most recent pronouncement of the Supreme Court of Washington on...

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