Vermont Development Credit Corp. v. Kitchel

• Decision Date: 11 March 1988
• Docket Number: No. 85-546,85-546
• Citation: 149 Vt. 421,544 A.2d 1165
• Court: Vermont Supreme Court
• Parties: VERMONT DEVELOPMENT CREDIT CORP. v. Douglas B. KITCHEL.

Page 1165

544 A.2d 1165

149 Vt. 421

VERMONT DEVELOPMENT CREDIT CORP. v. Douglas B. KITCHEL.

No. 85-546.

Supreme Court of Vermont.

March 11, 1988.

Andrew R. Field, Montpelier, for plaintiff-appellee.

John H. Fitzhugh and Peter H. Zamore of Sheehey, Brue & Gray, Burlington, for defendant-appellant.

Before ALLEN, C.J., HILL, PECK and GIBSON, JJ., and BARNEY, C.J. (Ret.), Specially Assigned.

GIBSON, Justice.

Defendant appeals from a judgment against him as guarantor of eight promissory notes on which Burke Mountain Recreation, Inc. was the principal borrower. We reverse in part and affirm in part.

The issues on appeal are: (1) whether the plaintiff, Vermont Development Credit Corporation (VDCC), is required to be licensed under the Licensed Lenders Act, chapter 73 of Title 8 (8 V.S.A. §§ 2201-2235), thus making one of the notes unenforceable under the terms of that Act; and (2) whether defendant is, in effect, a co-signer rather than a guarantor, thereby making six of the notes and guaranties unenforceable because they lack the statutory notice to co-signers mandated by 9 V.S.A. § 102.

On November 12, 1985, the trial court granted plaintiff's motion for summary judgment and entered judgment for plaintiff in the amount of $3,034,107.17 plus interest from October 1, 1985. Defendant's Motion to Amend or Alter Findings and Judgment was denied by the trial court. We conclude that VDCC is required to be licensed under 8 V.S.A. § 2201 and therefore reverse as to the one note that was issued contrary to that statute. In all other respects, the judgment is affirmed.

I.

VDCC is a nonprofit development credit corporation chartered under chapter 65 of Title 8 (8 V.S.A. §§ 1801-1804). VDCC was created to extend credit to "industrial, agricultural, recreational or other enterprises potentially valuable to the state or its citizens...." 8 V.S.A. § 1801(1). It acts as a conduit through which Vermont banks can make loan funds available to worthy, but high-risk, Vermont commercial and industrial enterprises, and in this manner, it serves to spread the exposure of high-risk loans among a large number of conventional bank lenders. Under 8 V.S.A. § 1803, VDCC is subject to annual audits by the Vermont Department of Banking and Insurance. VDCC has never, however, been licensed under 8 V.S.A. § 2201 of the Licensed Lenders Act.

8 V.S.A. § 2201 provides that

No person, partnership, association, or corporation other than a bank, savings and loan association, credit union, pawnbroker, insurance company or seller of the merchandise or service financed shall engage in the business of making loans of money, credit, goods or things in action and charge, contract for or receive on any such loan a rate of interest, finance charge, discount or consideration therefor greater than twelve percent per annum without first obtaining a license under this section, section 1921 of this title, or sections 2352 and 2402 of Title 9 from the commissioner. ¹

Prior to April 30, 1980, § 2201 applied only to loans of $1,500 or less, and chapter 73 was entitled "Small Loans." Effective April 30, 1980, the Legislature broadened the act to include licensed lenders generally, eliminating in the process the $1,500 loan limit and exempting banks and the other named entities from the licensing requirement. Development credit corporations were not included in the list of exemptions.

Because of the amounts involved in the promissory notes at issue herein and the dates on which the loans were made, seven of the eight notes ² in question do not fall within the parameters of 8 V.S.A. § 2201. The most recent of the eight notes, executed on October 31, 1980, for $175,000 at fifteen percent interest, does meet the specifications of a loan whose lender, unless exempted, would be required to be licensed under 8 V.S.A. § 2201.

VDCC contends that the Legislature did not intend to subject development credit corporations to the licensing requirements of § 2201. Plaintiff argues that such a requirement would be redundant because the Legislature has otherwise specially provided for their regulation under § 1803, which authorizes the commissioner of banking and insurance to charter development credit corporations and examine their affairs annually. Plaintiff further contends it would be unreasonable and absurd to construe § 2201 as voiding a loan of VDCC, whose purpose is to serve the general welfare of the state of Vermont. VDCC also argues that the Department of Banking and Insurance itself construes § 2201 as inapplicable to VDCC and that this Court should give deference to such interpretation.

As we have frequently noted, the primary objective in matters of statutory construction is to give effect to the intent of the Legislature. Hill v. Conway, 143 Vt. 91, 93, 463 A.2d 232, 233 (1983). When the meaning of a statute is plain on its face, the intent is to be ascertained from the language of the statute itself. Lomberg v. Crowley, 138 Vt. 420, 423, 415 A.2d 1324, 1326 (1980). In such case, the statute must be enforced according to its terms and there is no need for construction. Conway, 143 Vt. at 93, 463 A.2d at 233. A statute may not be construed or applied, however, in a manner that will render it ineffective or lead to irrational consequences, In re A.C., 144 Vt. 37, 42, 470 A.2d 1191, 1194 (1984), nor will we presume that the Legislature intended absurd or irrational consequences. In re Judy Ann's Inc., 143 Vt. 228, 232, 464 A.2d 752, 755 (1983).

We find no ambiguity in § 2201. The language is clear; it exempts "a bank, savings and loan association, credit union, pawnbroker, insurance company or seller of the merchandise or service financed" from its licensing requirement. It does not exempt development credit corporations. As a general rule, when a statute explicitly enumerates certain exceptions, no other exceptions will be implied, in the absence of evidence of a contrary legislative intent. Andrus v. Glover Constr. Co., 446 U.S. 608, 617-18, 100 S.Ct. 1905, 1910-11, 64 L.Ed.2d 548 (1980); see Fairbanks, Morse & Co. v. Commissioner of Taxes, 114 Vt. 425, 431, 47 A.2d 123, 126 (1946) ("Where express exceptions are made, the legal presumption is that the Legislature did not intend to save other cases from the operation of the statute."). Since development credit corporations are not included among the exemptions listed in § 2201, we presume that the Legislature intended them to obtain a license before engaging in the business of making loans at a rate of interest in excess of the twelve percent rate designated in the statute. See Fairbanks, Morse, 114 Vt. at 431, 47 A.2d at 126. If the Legislature had intended to exempt development credit corporations from the requirement of obtaining a license under § 2201, it could easily have added them to the exemptions listed therein, or have added a provision to chapter 65 to the effect that § 2201 did not apply to such corporations.

VDCC argues that to require it to obtain a license under § 2201 would be to subject it to redundant regulation. VDCC points to § 1803, which requires the commissioner of banking and insurance, prior to granting a charter to a development credit corporation, to determine the convenience and advantage to the state of such corporation, and thereafter, annually, or more often, as in the commissioner's opinion shall be deemed necessary, to examine the affairs of the corporation. VDCC contends that this is the only regulatory supervision contemplated for it by the Legislature. We disagree.

A review of chapter 73 (§§ 2201-2235) of Title 8 reveals a much more comprehensive regulatory scheme for licensed lenders than that set forth for development credit corporations in chapter 65 (§§ 1801-1804). Among other things, chapter 73 provides for bonding requirements (§§ 2203 and 2207); minimum liquid assets (§ 2207); investigation into the financial responsibility, experience, character and general fitness of corporate officers and directors (§ 2204); place of business restrictions (§ 2208); revocation of license for cause (§ 2210); annual reports under oath (§ 2216); advertising restrictions (§ 2218); disclosure requirements, and the prepayment of loans without penalty (§ 2225); and the imposition of criminal penalties on all who violate any of the provisions of chapter 73, together with the voiding of any loan when there has been an offense under the statute (§ 2233). No such requirements are prescribed for development credit corporations in chapter 65.

Further, we note that those entities that are exempted from the licensing requirement of § 2201 are subject to substantial regulatory supervision under other provisions of Titles 8 and 9. ³ By comparison, the regulatory requirements of chapter 65 are virtually nonexistent. In promoting the development of industrial, agricultural recreational or other enterprises potentially valuable to the state of Vermont, development credit corporations are authorized to provide financing that lies "beyond the prescribed limits of laws governing banks of deposit." 8 V.S.A. § 1801. But for the provisions of chapter 73, there would be an almost complete lack of statutory restraints on such transactions.

VDCC contends that it would be unreasonable and absurd to construe § 2201 in a manner that would result in the voiding of one of its loans inasmuch as a primary purpose of the corporation is to promote the general welfare of the state of Vermont. Ordinarily, where the meaning of a statute is plain and unambiguous, we will not consider the consequences flowing therefrom, for to do so would be to appropriate to outselves a legislative function. Donoghue v. Smith, 119 Vt. 259, 267, 126 A.2d 93, 98 (1956). We recognize, however, that there must be some latitude for adopting a restricted rather than a literal meaning of a statute where acceptance of the literal meaning would lead to absurd results or would thwart the obvious purpose of the statute....