Western Auto Supply Co. v. Vick

• Decision Date: 05 May 1981
• Docket Number: No. 11,11
• Citation: 277 S.E.2d 360,303 N.C. 30
• Court: North Carolina Supreme Court
• Parties: WESTERN AUTO SUPPLY COMPANY, v. James Oliver VICK, Trading and doing business as a Western Auto Associate Store.

Page 360

277 S.E.2d 360

303 N.C. 30

WESTERN AUTO SUPPLY COMPANY, v. James Oliver VICK, Trading and doing business as a Western Auto Associate Store.

No. 11.

Supreme Court of North Carolina.

May 5, 1981.

Defendant appealed from the entry of judgment in favor of plaintiff. Plaintiff cross-appealed from the trial court's denial of its motion to dismiss. The Court of Appeals, in an opinion by Judge Wells, concurred in by Judges Webb and Martin (Harry C.), affirmed the trial court's denial of the motion to dismiss, but it reversed the entry of judgment in favor of plaintiff. On 4 November 1980, we allowed plaintiff's petition for discretionary review of the decision of the Court of Appeals pursuant to G.S. § 7A-31 (1969).

Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan by Michael E. Weddington and Carl N. Patterson, Jr., Raleigh, for plaintiff.

Biggs, Meadows, Etheridge & Johnson by M. Alexander Biggs and Samuel W. Johnson, Rocky Mount, for defendant.

Berry, Bledsoe, Hogewood & Edwards, P.A., by Harry A. Berry, Jr., Dean Gibson and Gary D. Chamblee, Charlotte, for the North Carolina Consumer Finance Ass'n, Inc., amicus curiae.

A. Thomas Small, Raleigh, for First Union Nat. Bank of North Carolina, amicus curiae.

BRITT, Justice.

The Court of Appeals held that the transactions between the parties which gave rise to defendant's counterclaim involved the payment of interest in return for the forbearance of money owed on account. Accordingly, the court concluded that the North Carolina usury statutes governed the conduct of the parties in the transfer of the chattel paper under the purchase agreement. In particular, the Court of Appeals directed its attention to two of the findings of fact which had been made by the trial court and excepted to by defendant. The challenged findings are:

10. Without regard to whether payment for merchandise purchased by Vick from Western Auto and reflected on a 'statement of account' rendered by Western Auto to Vick was made in cash or with chattel paper, the amounts for which Vick was given cash or chattel paper equivalent credit upon his account(s) were no longer deemed by Western Auto or Vick to be owed by Vick to Western Auto for the merchandise purchases by Vick reflected in his account(s).

16. From the written agreements entered into between Western Auto and Vick and their course of dealing thereunder, which was not inconsistent therewith, it is clear that Western Auto and Vick intended and viewed the transactions between them as the purchase and sale of merchandise and the purchase and sale of chattel paper.

While the findings of fact entered by a trial court are conclusive on appeal if they are supported by any competent evidence, even though there may be evidence in the record to support contrary findings, e. g., Henderson County v. Osteen, 297 N.C. 113, 254 S.E.2d 160 (1979), if there is no evidence in the record to support the findings to which proper exceptions have been entered, such findings must be set aside. Textile Insurance Co. v. Lambeth, 250 N.C. 1, 108 S.E.2d 36 (1959). The Court of Appeals concluded that these findings are unsupported by any competent evidence and with that conclusion and the decision favorable to defendant we agree.

I.

It is well-established in North Carolina that the elements of usury are a loan or forbearance of money, an understanding that the money loaned shall be returned, payment or an agreement to pay a rate of interest greater than that allowed by law, and a corrupt intent to take a greater return than that allowed by law for the use of money loaned. Kessing v. National Mortgage Corp., 278 N.C. 523, 180 S.E.2d 823 (1971); Henderson v. Security Mortgage and Finance Co., 273 N.C. 253, 160 S.E.2d 39 (1968); Preyer v. Parker, 257 N.C. 440, 125 S.E.2d 916 (1962). A commercial transaction which involves chattel paper is often structured in such a manner that its essential character is masked. The courts of this state regard the substance of a transaction, rather than its outward appearance, as controlling. Thompson v. Soles, 299 N.C. 484, 263 S.E.2d 599 (1980). Specifically, when there is an allegation that the usury laws have been violated by a particular act or course of conduct, the courts of North Carolina will not hesitate to look beneath the formality of the activity to determine whether such an incident is, in fact, usurious. Kessing v. National Mortgage Corp., supra; Sherrill v. Hood, 208 N.C. 472, 181 S.E. 330 (1935); Ripple v. Mortgage and Acceptance Corp., 193 N.C. 422, 137 S.E. 156 (1927).

When it is broken down into its component parts, the course of dealing between the parties to the present litigation was not complicated. Under the terms of his franchise, defendant was entitled to make wholesale purchases from plaintiff on open credit accounts. The accounts could be collected on ten days notice to defendant. At all times, defendant had the option of paying for the amount due either in cash or by transferring to plaintiff the chattel paper which had been generated by the sale of the merchandise which he had received. Though, in effect, defendant had assigned the installments which were due to plaintiff, he remained liable for collecting the amounts due from the individual installment debtors and forwarding the collections to plaintiff. Whether or not the individuals made the appropriate payments to defendant, he remained obligated to pay the installments as they became due. In the event that a particular account became more than ninety days in arrears, defendant was required to repurchase the chattel paper from plaintiff even though the payments on the account might have been current.

The trial court concluded that the transactions outlined above did not amount to a loan or a forebearance; that if defendant owed any amount to plaintiff, it was in excess of $300,000 and not subject to the usury laws; that defendant was not obligated to make any interest payments; that plaintiff did not intend to reserve for itself any interest in the transactions; and that the time-price doctrine served to remove the parties' course of conduct from the purview of the usury laws. The Court of Appeals disagreed, and it concluded that the substance of the transactions between the parties involved the payment of interest in return for the forbearance in the collection of money owed on account.

II.

Throughout the relationship between the parties, plaintiff regularly extended credit to defendant for purchases by him of merchandise. Under the terms of the purchase agreement, plaintiff agreed to accept as payment for merchandise it had sold to defendant, in lieu of cash, chattel paper owned by defendant and generated in the prosecution of his business, provided that the chattel paper was delivered to the company; that no payment on the chattel paper was then past due; and that the assignment was properly executed. At all times, defendant remained obligated to collect, at his own expense, the payments which became due on the accounts so submitted. In the event that defendant failed to collect such payments from the debtors, he remained obligated to pay the amount then due to plaintiff. If any account became more than ninety days in arrears or if the merchandise to which the chattel paper related was repossessed, defendant was required by the terms of the purchase agreement to "repurchase" the chattel paper in question.

A loan is a delivery or transfer of a sum of money to another under a contract to return at some future time an equivalent amount with or without an additional sum being agreed upon for its use. E. g., Boerner v. Colwell Co., 21 Cal.3d 37, 577 P.2d 200, 145 Cal.Rptr. 380 (1978). At no time did plaintiff make any sum of money available to defendant's use. That being the case, if the series of transactions involved in the case sub judice are to come within the scope of the usury statutes, it must be demonstrated that in some manner there has been a forbearance in the payment of money.

For the purpose of applying the law of usury to a given transaction in order to determine its applicability, the term "forbearance" means the contractual obligation of a lender or creditor to refrain for a given period of time from requiring the borrower or debtor to repay the loan or debt which is then due and payable. E. g., State ex rel. Turner v. Younker Brothers, Inc., 210 N.W.2d 550 (Iowa 1973); Cecil v. Allied Stores Corp., 162 Mont. 491, 513 P.2d 704 (1973); Carper v. Kanawha Banking & Trust Co., 207 S.E.2d 897 (W.Va.1974); compare Boerner v. Colwell Co., 21 Cal.3d at 44, 577 P.2d at 204, 145 Cal.Rptr. at 384.

The essence of plaintiff's theory of the case sub judice as it relates to the concept of forbearance is that during the course of the series of transactions in question, defendant did not owe any debt to it the collection of which was forborne. In support of its argument, plaintiff has directed this court to three primary considerations. First, according to stipulation of fact number 10, "Vick satisfied the charges made to his regular account, and in some instances the charges made to ... (his other accounts) ...., by either sending to Western Auto cash payments or by submitting to Western Auto chattel paper." Second, the chattel paper transferred to plaintiff had an inherent cash value which was equivalent to the amount of credit which defendant had received. Third, after there had been a transfer of chattel paper to plaintiff, both parties regarded the series of transactions as being the purchase and sale of goods, and the purchase and sale of chattel paper. We find plaintiff's position to be untenable.

Throughout the course of his business relationship with plaintiff, defendant had two options which were open to him regarding debts he had incurred with the firm regarding merchandise he had ordered for display and sale in his Rocky Mount place of business. While defendant could have extinguished the amount due on...