State v. Western Capital Corp.

• Decision Date: 26 March 1980
• Docket Number: No. 12618,12618
• Citation: 290 N.W.2d 467
• Parties: STATE of South Dakota, Plaintiff and Respondent, v. WESTERN CAPITAL CORPORATION, Defendant and Appellant.
• Court: South Dakota Supreme Court

Page 467

290 N.W.2d 467

STATE of South Dakota, Plaintiff and Respondent, v. WESTERN CAPITAL CORPORATION, Defendant and Appellant.

No. 12618.

Supreme Court of South Dakota.

Argued Sept. 12, 1979.

Decided March 26, 1980.

Kevin F. Manson, Asst. Atty. Gen., Pierre, for plaintiff and respondent; Mark V. Meierhenry, Atty. Gen., Pierre, on the brief.

Robert B. Anderson of May, Adam, Gerdes & Thompson, Pierre, for defendant and appellant.

HENDERSON, Justice.

ACTION

Western Capital Corporation, appellant, appeals from a judgment of the circuit court ordering appellant to refund the sum of $23,900 in restitution for the down payment on eleven contracts entered into with South Dakota consumers, and from the same judgment, requiring appellant to pay to the State of South Dakota $22,000 in civil penalties for engaging in deceptive trade practices. The trial court also entered a permanent injunction enjoining appellant from transacting business within the state unless it was in full compliance with Chapter 37-24: The Deceptive Trade Practices and Consumer Protection Law. We affirm.

FACTS

Appellant is known as Western Capital Corporation. It is a Kansas corporation with its principal place of business in Omaha, Nebraska, and is engaged in business as a loan broker. Appellant prepares and packages loan applications for customers, and then seeks out prospective lenders who may be willing to lend money to these customers. A fee is exacted for these services. It is evident from the record that appellant had salespeople in South Dakota, advertised extensively through South Dakota newspapers and radio stations, and mailed contracts into the state.

Western Capital entered into fifty contracts with South Dakota customers. Out of these fifty customers, only two ever received loans. Material to this appeal are thirteen of these contracts. Of the thirteen consumers who contracted with and paid Western Capital, not one obtained the loan for which he bargained. Only six of the thirteen ever obtained loan commitments, but none of these were on the terms and conditions bargained for or represented by appellant's salesmen.

Agents of Western Capital, in inducing South Dakota consumers to purchase its services, represented that it could secure long-term financing in the area of fifteen to twenty-five years. However, at the time these representations were made, appellant was aware that the length of the loans and the loan commitments that were actually being offered through lending institutions were ten-year amortized loans with five-year calls. Appellant withheld this information. This type of loan was totally unacceptable, especially in the agricultural area. In addition, appellant misrepresented to each customer the likelihood of securing a loan under the terms and conditions represented by its salesmen, and the likelihood that such loans would be offered in a relatively short period of time. Furthermore, appellant led customers into believing that other than its fees and interest charged by the lender, no other costs would be incurred. In reality, however, other substantial costs and escrow fees were charged.

Aside from these misrepresentations, appellant also failed to comply with the statutory requirements contained in Chapter 37-24. At all times during its negotiations with these thirteen and the other customers who entered into contracts, appellant was in violation of SDCL 37-24-5.3 and SDCL 37-24-5.4. Furthermore, appellant refused to refund the service fee in the event of cancellation.

During the trial, the court permitted appellant to introduce evidence of its claimed expenses in preparing each customer's loan package. The testimony was offered for the express purpose of determining whether appellant was entitled to any setoff against the money which it had already received from each customer. The trial court received this offered testimony under the condition that appellant "would be required to show it made a bona fide effort to obtain loans under the terms discussed with each customer and to substantiate any claimed expenses with each customer." This testimony was presented in the form of "summaries" which were prepared by appellant expressly for litigation, and not in the ordinary course of business. The trial court denied appellant any setoffs and ordered that each customer be fully refunded on the basis that the summaries were of "doubtful accuracy," were speculative in nature, and that such costs were incurred in furtherance of a deceptive trade practice.

ISSUES

I.

Did the trial court err in concluding that appellant committed a deceptive trade practice with regard to each of the contracts in question?. We hold that it did not.

II.

Did the trial court err in ruling that it had proper jurisdiction over two contracts which were negotiated outside the state? We hold that it did not.

III.

Did the trial court err in ordering appellant to refund all of the advance fees received on the contracts in question, and in refusing to give appellant credit for amounts expended in efforts to procure financing for customers? We hold that it did not.

IV.

Did the trial court err in awarding civil penalties under SDCL 37-24-27, notwithstanding appellant's allegation that the statute is criminal in nature, thereby rendering such penalties void and unlawful? We hold that the penalties imposed are civil in nature and that the court committed no error.

DECISION

I.

A.

Appellant admits that the contracts in question, all identical in form, were not in strict conformance with the precise terms of SDCL 37-24-5.3 and SDCL 37-24-5.4. It contends, however, that because each contained a cancellation provision, and was therefore in substantial compliance with these statutes, the court erred in finding it guilty of deceptive trade practices. Appellant refers to paragraph G that appeared at the bottom of each of the form contracts which reads: "CLIENT has the right to cancel this AGREEMENT within three calendar days. CLIENT also acknowledges receipt of a copy of this AGREEMENT."

SDCL 37-24-5.3 provides that the buyer be furnished with a receipt or a copy of any contract which, in addition to other information, must include "in boldface type of a minimum size of ten points," a statement that must substantially conform to the cancellation provision appearing therein. Here, the cancellation provision contained in paragraph G was not set out in bold face type. In addition, the word "cancel" was not capitalized or in any way accentuated to call attention to the nature of its content. On the other hand, the words "client" and "agreement" were consistently capitalized, lending the impression that the agreement was binding. The fact that the statute provides for boldface, ten-point type evidences an intent that the notice contain a certain emphasis or prominence. Furthermore, appellant did not provide a separate notice of cancellation form which must contain a provision notifying customers of their right to recover any advance payments in the event of cancellation, as required by SDCL 37-24-5.4. To the contrary, and in blatant derogation of the statute, paragraph D of appellant's contract states that "the parties mutually agree as follows: CORRESPONDENT be paid a non refundable service fee of $________ for the preparation of a loan packet . . ." (emphasis added).

Accordingly, we hold that the court's finding is not clearly erroneous, and therefore will not be set aside. SDCL 15-6-52(a); In Re Estate of Hobelsberger, 85 S.D. 282, 181 N.W.2d 455 (1970).

B.

Appellant also maintains that the court's findings that its agents or employees made other misrepresentations and failed to disclose material facts in its negotiations are not supported by competent, credible evidence and are clearly erroneous. Appellant contends that most of the customers were apprised of the nature of the loan arrangements and that additional points could be charged by lending institutions. Appellant further asserts that each customer realized Western Capital was not a lending source, and that its task was simply one of presenting and packaging loan applications to prospective lending institutions on the terms discussed.

We have reviewed the record and find that appellant has failed to show that the evidence clearly preponderates against the findings. Cunningham v. Yankton Clinic, 262 N.W.2d 508 (S.D.1978). The record is replete with evidence of misrepresentations made to each customer: (1) Appellant misrepresented the likelihood of securing loans and loan commitments. Western Capital had only obtained loans for two out of fifty of its South Dakota customers, and neither of them were under the terms discussed; (2) Appellant was aware that long-term financing (fifteen to twenty-five years) could not be obtained, yet these were the terms under which the contracts were negotiated; (3) Appellant represented that these loan proceeds would be coming forth promptly; (4) Although paragraph D in each contract states, in part, "CORRESPONDENT'S fee in no way is applicable to or connected with any fee charged by lender," appellant nonetheless implied that other than its fees and interest charges of the lender, no other costs were involved in obtaining a loan. These undisclosed costs, by way of points or escrow fees, in some instances, would have amounted to tens of thousands of dollars. Therefore, in light of this evidence, we cannot say that the trial court's findings are clearly erroneous.

II.

Appellant argues secondly that because two of the contracts in question, the Lindeman and Siebrasse contracts, were executed and negotiated in Omaha, Nebraska, South Dakota lacks jurisdiction.

Mr. Lindeman had seen Western Capital's ads in two South Dakota newspapers and a Kansas newspaper. He called the toll-free number listed in the advertisement from South Dakota to set up a meeting with appellant's representatives in Omaha. He drove there on November 2, 1976; however, at that time no...