Steffenauer v. Mytelka & Rose, Inc.

Citation87 N.J.Super. 506,210 A.2d 88
Decision Date03 May 1965
Docket NumberB-W,No. C--231,C--231
PartiesJohn STEFFENAUER, Plaintiff, v. MYTELKA & ROSE, INC., D.M. & F.R., Inc., a corporation of New Jersey, andAcceptance Corporation, a corporation of New Jersey, Defendants.
CourtNew Jersey Superior Court

Cyril, J. McCauley, Union City, for plaintiff (Samuel J. Davidson, Jersey City, on the brief).

Ira A. Levy, Newark, for defendants (Gallanter & Levy, Newark, attorneys).


In this action plaintiff seeks a determination that the transaction between the defendants and him, as described hereinafter, is usurious. His complaint demands discovery of the real nature of the transaction pursuant to N.J.S.A. 31:1--4, and he seeks to compel the defendant B-W Acceptance Corporation to accept payment of principal only, as provided in that statute.

The matter is presently before me on defendants' motion for summary judgment. At the time of argument plaintiff originally took the position that many questions of fact existed, thus precluding relief by way of summary judgment. When pressed for particulars as to factual issues, he conceded that a plenary hearing could produce no facts other than those set forth in his affidavit and answers to interrogatories. I am satisfied that no dispute as to material facts exists. Accordingly, for the purposes of this motion the statement of facts following, as taken from plaintiff's affidavits and answers to interrogatories, is accepted as true.

During May 1961 plaintiff became interested in the coin-operated dry cleaning business. He contacted defendant Mytelka & Rose, Inc., which acts as the manufacturer's representative and distributor of machines for this type of operation. He was contacted at his home by Rickstein, a salesman for Mytelka & Rose. The two conferred at some length, and during the discussion Rickstein acquainted plaintiff with the details of the operation of the dry cleaning business. Rickstein explained that the machines necessary for the operation, plus related equipment, would cost approximately $18,750, and that this amount could be financed through Mytelka & Rose with defendant B-W Acceptance Corporation at an 'interest' rate of 7% Per year for four years on the balance of any unpaid purchase price. Plaintiff informed Rickstein that he thought the interest charge was quite high, but he states that he was told that a business loan was contemplated and that 7% 'interest' was the standard rate at which a transaction of this nature was customarily financed. There followed several more discussions between plaintiff and Rickstein, following which plaintiff made a down-payment of $1,000 toward the purchase of the equipment necessary to commence operations on June 27, 1961. During the ensuing six months negotiations took place which produced some minor changes in the purchase plan and which decreased the price of the equipment required to $18,500. Following these latter negotiations, plaintiff decided to increase his down-payment on the equipment to $8,750, in order to cut down the high 'interest' charges. This left a balance payable on the purchase of $9,750, plus 7% 'interest' per year for four years, or $2,730, making a total amount due of $12,480 to be paid by plaintiff in 48 monthly installments of $260 each.

On April 13, 1962 plaintiff and defendant Mytelka & Rose entered into a conditional sales contract, and he simultaneously executed a note payable to the order of Mytelka & Rose, Inc., at B-W Acceptance Corporation, in the principal amount of $12,480, to be paid in 48 equal successive monthly installments of $260. The conditional sales contract contained the following legend:

                "Cash Selling Price                     $18,500
                 Less       )        A. Cash         $    8,750
                 Down       )        B. Trade-in     $
                 Payment    )        C. Allowances   $
                 Unpaid Balance                           9,750
                 Add: Ins. Prems
                 Add: Filing Fees
                 Balance to be financed                   9,750
                 Add: Credit Service Charge               2,730
                 Balance Payable in Installments         12,480."

Plaintiff now claims that the credit service charge of $2,730 was explained to him as being 'interest' at the rate of 7% Per annum for four years on the sum of $9,750, which was the 'Balance to be financed.' He states that at no time was the term 'time price differential' used by Rickstein during negotiations and, he says, he does not know the meaning of that phrase.

On the same date the note and conditional sales contract were executed, Mytelka & Rose assigned the papers to B-W Acceptance Corporation, for which Mytelka & Rose received $9,262.50. Although the forms of the note and contract which Mytelka & Rose used in the transaction were supplied by B-W Acceptance Corporation, it is not disputed that the two corporations are wholly separate and independent of each other. It is conceded that B-W Acceptance Corporation purchases notes and other evidences of indebtedness from Mytelka & Rose from time to time. Mytelka & Rose is a sales representative for Borg Warner, which manufactures the equipment in question. B-W Acceptance Corporation is affiliated with Borg Warner. Although the actual mechanics by which Mytelka & Rose arrived at the credit service charge have not been proven before me, it appears from the record that Mytelka & Rose and B-W Acceptance Corporation had previously agreed that B-W Acceptance Corporation would discount contracts and notes for Mytelka & Rose, based on a discount schedule which was the equivalent of 7% Of the cash purchase price for each year that any obligation was to be outstanding.

Defendants contend that the transaction in question is a Bona fide sale of equipment by Mytelka & Rose to plaintiff; that the credit service charge is not interest but a time price differential, and that B-W Acceptance is the holder in due course of paper which arose out of a lawful transaction. Plaintiff contends that the 'credit service charge' is nothing more than a cloak to cover a usurious transaction; that no credit price was ever actually stated or agreed upon, but rather that there was a mere balance stated to be due on a cash price, with interest on the unpaid balance in an amount exceeding the lawful rate of interest; further, that the relationship between Mytelka & Rose and B-W Acceptance Corporation is such that B-W Acceptance had notice of the usurious nature of the transaction, and therefore cannot be considered to be a holder in due course.

The primary issue here is whether the 'credit service charge' stated in this conditional sales contract, which in effect represents the amount that the purchaser has agreed to pay for the privilege of paying the purchase price for the equipment in deferred installments, is interest for the loan or forbearance of money and, therefore, in contravention of our general usury statute, N.J.S.A. 31:1--1. Although this question has been litigated to a great extent in other jurisdictions, New Jersey has yet to pass directly upon the question.

The general rule of the majority of jurisdictions with respect to charges in transactions such as that under investigation here is stated in an annotation in 143 A.L.R. 238 (1943) as follows:

'It is well settled that where the contract of conditional sale is bona fide and the finance charge or other similar charge is included therein as a part of the total 'time' or credit price of the chattel which the purchaser thereby agrees to pay upon a deferred payment basis, the finance charge does not constitute usury, even though such charge, if considered as interest, would be in excess of the highest lawful interest upon the cash purchase price for the time payment thereof is deferred under the contract, provided of course that the transaction was what it purported to be and not in fact a loan.' (at p. 242)

A collection of the jurisdictions subscribing to the general rule may be found in 91 C.J.S. Usury § 18; 55 Am.Jur., Usury, § 23. The rule is subscribed to by our sister jurisdictions of New York, Pennsylvania, Delaware, District of Columbia, Connecticut and Rhode Island. See Levine v. Nolan Motors, 169 Misc. 1025, 8 N.Y.S.2d 311 (Sup.Ct.1938), which specifically rejects the contrary view taken in Universal Credit Co. v. Lowell, 166 Misc. 15, 2 N.Y.S.2d 743 (City Ct.1938); Failing v. National Bond and Investment Corp., 12 N.Y.S.2d 260 (Cty.Ct.1938), reversing 168 Misc. 617, 6 N.Y.S.2d 67, affirmed 258 App.Div. 778, 14 N.Y.S.2d 1011 (App.Div.1939); Equitable Credit & Discount Co. v. Geier, 342 Pa. 445, 21 A.2d 53 (Sup.Ct.1941); Melnicoff v. Huber Investment Co., 12 Pa.D. & C.Rep. 405 (Mun.Ct.1929); Langille v. Central-Penn. Nat. Bank of Philadelphia, 153 A.2d 211 (Del.Ch.1959), affirmed 156 A.2d 410 (Del.Sup.Ct.1959); Brooks v. Auto Wholesalers, Inc., 101 A.2d 255 (D.C.Mun.App.1953); Zazzaro v. Colonial Acceptance Corp., 117 Conn. 251, 167 A. 734 (Sup.Ct.Err.1933); Luchesi v. Capitol Loan & Finance Co., 83 R.I. 151, 113 A.2d 725 (Sup.Ct.1955); and cf. Nazarian v. Lincoln Finance Corp., 77 R.I. 497, 78 A.2d 7 (Sup.Ct.1951).

Courts adopting the majority view usually exclude transactions of this nature from the ambit of the general usury statutes because of the real nature of the transaction involved. A good expression of a general approach is found in General Motors Acceptance Corp. v. Weinrich, 218 Mo.App. 68, 262 S.W. 425 (App.Ct.1924), where it was stated:

'A loan may be cloaked in the outward form and appearance of a purchase, in which case that will not change the substance of the transaction or hide the usury. But if there is a real and bona fide purchase, not made as the occasion or pretext for a loan, the transaction will not be usurious even though the sale be for an exorbitant price, and a note is taken, at legal rates, for the unpaid purchase money. The reason is that the statute against usury is striking at and forbidding the exaction or receipt of more than a specified legal rate...

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