Title: Schauman v. Solmica Midwest, Inc.

State: minnesota

Issuer: Minnesota Supreme Court

Document:

168 N.W.2d 667 (1969) Gilbert SCHAUMAN, et al., Appellants, v. SOLMICA MIDWEST, INC., Respondent, Mortgage Associates, Inc., Defendant. No. 41282. Supreme Court of Minnesota. May 29, 1969. *669 Carl A. Jensen, Sleepy Eye, for appellants. Gainsley & Gainsley, Minneapolis, for respondent. Heard before KNUTSON, C. J., and NELSON, SHERAN, PETERSON, and FRANK T. GALLAGHER, JJ. NELSON, Justice. This appeal involves the question of whether a contract between plaintiffs, Gilbert Schauman and Janette Schauman, husband and wife, and defendant Solmica Midwest, Inc., was usurious. It appears that on October 27, 1966, plaintiffs entered into a "CONTRACT AND GUARANTEE" with defendant Solmica for the application of aluminum siding on a home owned by plaintiffs. The contract provided that the cash price for the work was $3,200 and the credit price therefor was $4,879.56, payable in 84 monthly installments of $58.09 each, commencing January 25, 1967. Title to the materials was to remain in Solmica until the price was paid in full. As security for a note signed by plaintiffs in the amount of $4,879.56, payable in the foregoing monthly installments, plaintiffs signed a real estate mortgage covering their home. The mortgage was filed in the office of the register of deeds, Brown County, on November 22, 1966. On November 21, 1966, for a valuable consideration defendant Mortgage Associates, Inc., purchased from defendant Solmica the note and mortgage. Plaintiffs, upon being advised of this, made the payments on the note to Mortgage Associates. In this action plaintiffs sought cancellation of the note and mortgage and the return of all payments they had made. At the close of the testimony the trial court granted defendants' motion for judgment of dismissal with prejudice. Plaintiffs on this appeal do not challenge the finding of the trial court that Mortgage Associates was a holder in due course of the note, but contend that their contract with Solmica was usurious, relying on Minn.St. 334.01, which provides in part that "no person shall directly or indirectly take or receive in money, goods, or things in action, or in any other way, any greater sum, or any greater value, for the loan or forbearance of money, goods, or things in action, than $8 on $100 for one year * * *," and on § 334.03, which provides that "[a]ll * * * contracts * * * whereby there shall be reserved, secured, or taken any greater sum or value for the loan or forbearance of any money, goods, or things in action than hereinbefore prescribed, * * * shall be void * * *." 1. Plaintiffs fail to recognize that in the case at bar we are dealing with a transaction constituting a sale of property and not a loan of money or a forbearance of a debt. Usury is generally defined as taking or receiving more interest or profit on a loan than the law permits. In order to conclude that a transaction is void for usury within this definition, the court must find that it involves (a) a loan of money or forbearance of a debt; (b) an agreement between the parties that the principal shall be payable absolutely; (c) the *670 exaction of a greater amount of interest or profit than is allowed by law; and (d) the presence of an intention to evade the law at the inception of the transaction. Note, 21 Minn.L.Rev. 585. It is well settled that a vendor may have one price for cash and another when extending credit, and the mere fact that the credit price exceeds the cash price by a greater percentage than is permitted by the usury laws does not make the contract usurious. A contract has been held to be usurious where the property was sold on a cash basis and an illegal rate of interest was charged on deferred payments. 10 Minn.L.Rev. 550. We have no such situation in the instant case. The courts have made no distinction between conditional sales and outright sales on credit in determining whether or not they were usurious. In a number of cases where the finance company did not deal directly with the purchaser, and where there was no prior agreement to sell at the cash price, the courts have held the transaction not usurious regardless of the fact that the installment price was ascertained by reference to the discount rates of the finance company or that the purchaser's payments were conditionally guaranteed by the dealer. 24 Minn.L.Rev. 602. 2. This court in Dunn v. Midland Loan Finance Corp., 206 Minn. 550, 289 N.W. 411, 24 Minn.L.Rev. 602, said that the power to determine the extent of the increase of the credit price over the cash selling price is incident to the owner's right to fix the latter and is a matter of contract between the parties. Courts have observed that in calculating the addition to the cash price the owner may consider all factors which influence vendors, such as profit, return on investment, overhead, handling charges, risks involved, insurance, sale discount of contract for deferred payments, and perhaps other items. Thus, other considerations than interest are properly involved in the credit price, such as risk incident to financing the contract, expenses connected therewith, etc. 3. Plaintiff Gilbert Schauman testified that Solmica's representative had said that under the credit-time price plaintiffs would have to pay only 5 to 6 percent more. There is no explanation as to whether this remark referred to interest only or whether it included the many other items that would go into the credit-sale price. The testimony of Schauman on cross-examination indicates that he understood that the transaction was a sale on credit and that the seller made use of a mortgage finance institution, namely, Mortgage Associates. Mortgage Associates had no interest in plaintiffs; defendant Solmica had no interest in Mortgage Associates. Plaintiffs made payments under the note to Mortgage Associates and never to the seller. Schauman testified: On October 27, 1966, when plaintiffs signed their contract with Solmica, they also signed the note now claimed to be usurious and a credit statement wherein the total time balance was stated as "(Amount of Note) $4879.56" and the number of months as 84. Schauman signed a completion certificate November 18, 1966, wherein he states, "I (We) hereby certify that all articles and materials have been furnished and installed and the work satisfactorily completed on premises indicated in my (our) Credit Application." Plaintiffs also executed the real estate mortgage on November 18, 1966, as security for the note of $4,879.56. Maynard Groshek, Twin City credit manager of the credit financing division of Mortgage Associates, testified as follows during cross-examination by plaintiffs' counsel: *672 What was attempted by plaintiffs' counsel in this cross-examination does not prove that their contract with Solmica was usurious. The general rule is as follows: Thus, a bona fide sale of property on credit at a price which exceeds the cash price by more than the legal rate of interest does not constitute usury, since the seller can fix one price for cash and another for credit. See, Daniel v. First Nat. Bank (5 Cir.) 227 F.2d 353; In re Bibbey (D. Minn.) 9 F.2d 944.[1] Minnesota cases cited in Annotation, 14 A.L.R. (3d) 1065, 1079, as following the above rule are Dunn v. Midland Loan Finance Corp. supra; Midland Loan Finance Co. v. Lorentz, 209 Minn. 278, 296 N.W. 911; Seebold v. Eustermann, 216 Minn. 566, 13 N.W.2d 739, 152 A.L.R. 585; Van Asperen v. Darling Olds, Inc., 254 Minn. 62, 93 N.W.2d 690. It may thus be said, applying the foregoing rule, that a seller may set two alternative prices for a commodity, a "cash price" and a "time price" with payments of the latter to be made over a period of time, and the difference in amount between the two prices is not to be considered "interest" for the purposes of the usury laws. See, United States v. Commercial Credit Corp. (5 Cir.) 242 F.2d 57. The reason most frequently given for the conclusion that an advance in price for a credit sale over the price demanded for a cash sale does not constitute usury is that in the situation postulated there is no loan or forbearance of money. In re Bibbey, supra. 4. Dunn v. Midland Loan Finance Corp., 206 Minn. 550, 289 N.W. 411, 412, laid down the following rules: As was pointed out in the Dunn case, the type of transaction involved in the case at bar is not to be confused with that where the parties definitely agree upon a binding sale price, payable in whole or in part by deferred payments, for the reason that such a contract creates a debt for the unpaid purchase price, or part thereof, and the granting of time to pay is a forbearance to collect such existing debt, which it is conceded everywhere is subject to the usury law. Clearly, as in Dunn, decision in the case at bar is predicated on the absence of a contract binding the seller to sell at the so-called cash price. As stated in the Dunn *673 case, the conditional sales contract involved in the case at bar was a legitimate subject of commerce and could be bought and sold as freely as other property. The sale of an existing chose in action at a discount is not a loan and hence is not subject to the usury law. We have applied the rule established in the Dunn case in Midland Loan Finance Co. v. Lorentz, supra; Seebold v. Eustermann, supra; Van Asperen v. Darling Olds, Inc., supra; and in the recent case of Walter E. Heller & Co. v. Warner, 282 Minn. 171, 163 N.W.2d 573, 574, where this court held: 5. We think it clear from the record herein that plaintiffs have utterly failed to establish a cause of action. A sale was made pursuant to a price differential. There was no loan, nor forbearance, nor unlawful conduct on the part of defendant seller which would bring it within the usury statute. There has been no charge of fraud or misrepresentation by plaintiffs against the defendants. The decision of the trial court must be affirmed. Affirmed. [1] Annotation, 14 A.L.R. (3d) 1065, 1077, note 16, contains the following statement: "It may be noted that the circumstance that the differential between the cash price and the credit price exceeds the amount of maximum lawful interest on a loan in the amount of the cash price for the period of credit extended is not always expressly spelled out in the cases. Since most of the rulings proceed on the theory that a sale is neither a `loan' or a `forbearance,' and usury cannot exist in the absence of both a loan and a forbearance, the element that more than lawful interest is involved in the time-price differential is obviously immaterial."