Opinion ID: 1111913
Heading Depth: 1
Heading Rank: 7

Heading: Was Coast Financial Services, Inc. entitled to a directed verdict?

Text: Appellant Coast Financial Services, Inc. contends it is a wholly separate business corporation from Johnny Beck's Sales & Service and therefore should not have been subject to suit for any wrongdoing on the part of Johnny Beck's Sales & Service. The finance contract between Coast Financial Services and the Hesters contains the following provision in bold print: NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. The quoted provision is required by 16 Code of Federal Regulations § 433.2 (1986) to prevent a practice known as body dragging. The practice arises when a merchant, desiring to circumvent the restrictions upon the holder in due course doctrine, arranges for a consumer purchase to be financed by a cooperating financing agency. The resulting financial transaction has the appearance of a direct cash loan, payment of which can be enforced by the loan company without reference to the underlying transaction. In such a transaction, the defrauded consumer would have no remedy against the lender. The import of 16 C.F.R. § 433.2 (1986) is to prevent direct-loan financing from foreclosing a consumer's equities in credit sales. Coast Financial Services also contends that 16 C.F.R. § 433.2 (1986) should not apply in the present case because the chapter of the U.S.Code under which it was promulgated, Chapter 41 Consumer Credit Protection, exempts transactions primarily for business or commercial purposes. See, 15 U.S.C. § 1603 (1982). The testimony at trial proved that Mr. Hester was a sheetrock hanger and that he bought the truck to transport himself and his tools, but not sheetrock, to job locations. The testimony also showed that the purchased truck was the primary transportation for both Mr. and Mrs. Hester and it was used for personal and family purposes. In addition, the Hesters were not in the business of transporting goods in the truck for payment. Numerous federal courts of appeal have held that a transaction should be viewed as a whole in determining whether it was entered for business or commercial purposes. Tower v. Home Construction Co., 625 F.2d 1161, 1166 (5th Cir.1980); Gallegos v. Stokes, 593 F.2d 372, 375 (10th Cir.1979). Viewing the Hester transaction as a whole, this Court holds that the transaction here was not entered for primarily business or commercial purposes as contemplated by the exceptions found in 15 U.S.C. § 1603 (1982). Therefore, Coast Financial Services, Inc. was subject to the same claims as Johnny Beck's Sales & Service not exceeding the amount paid by the Hesters under their contract with Coast Financial Services.