Opinion ID: 1838702
Heading Depth: 1
Heading Rank: 2

Heading: Is there forbearance?

Text: The trial court determined the Agreement was in fact a forbearance. It concluded that when a sale is completed, there results a debt created to pay money, and that the vendor and purchaser then assume the relation of debtor and creditor, citing Trempealeau County v. State [2] for the proposition that money due upon a contract is included in the legal term debt, concluding: ... In substance, it would seem to mean nothing more as between a debtor and creditor, than an agreement by the creditor not to attempt collection of the debt for an agreed length of time. It then went on to note that although the Agreement here involved does not expressly provide for such forbearance on the part of defendant, it is clearly implied, and that a promise to forbear may be implied, [3] as is stated by sec. 138.05 (1), Stats. Respondent vigorously contends, however, that the Agreement in no way constitutes a forbearance within the meaning of the term as used in sec. 138.05 (1), Stats. In support of its position it cites the definition found in Black's Law Dictionary (4th ed.): `Within usury law, [forbearance] signifies contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due and payable'. [Emphasis by respondent.]... The trial court quoted Black's definition ... but omitted the words we have emphasized in the above quotation. Respondent then contends that the trial court erred in applying the term forbearance to its agreement. Respondent argues that to constitute forbearance, an agreement must extend the maturity date of a debt in existence at the time the extension agreement is entered into. Respondent contends that there is no debt payable at the time of purchase but under the Agreement the decision to charge the purchase creates the debt that is payable under the credit terms of the plan agreement. There simply is no forbearance because of the absence of a prior debt. This argument is without substance. Clearly the trial court is correct when it concludes that the purchase of goods creates an obligation to pay for them. Respondent cannot dispute this. Further, upon the failure to pay for the goods received at the time of purchase, a debt is created and a relationship of debtor-creditor created. Then can the mere fact that prior to the purchase the parties agreed to a financing plan change this basic legal relationship? [4] Here, the prior agreement as to the terms of financing really has no effect on the actual forbearance. In the Agreement the parties merely agree to forbear; the actual forbearance occurs after the purchase when the purchaser does not pay within thirty days. Another theory, as the trial court seemed to indicate, is that the creation of the debt (purchase), and the effective agreement to forbear from immediate collection are coterminous. As described, the customer selects his purchase and then is asked Is this cash or charge? When the customer says Charge, the Agreement goes into effect. In substance, the customer is making a new contract with respondent every time he makes a new purchase, and the signing of each sales slip seems to indicate this. The customer at each purchase agrees to apply the terms of the Agreement to that particular transaction. And this occurs contemporaneously with the receipt of the goods, as in any sales transaction. To attempt to decide which occurs first is to engage in a chicken-or-the-egg discussion, although it is clear that until delivery there is no obligation to pay. To sustain respondent's contention that the method of handling all the details changes the effect of the transaction is merely to sustain form over substance. As the Nebraska court stated in Lloyd v. Gutgsell , [5] in discussing a conditional sales contract for a mobile home: ... When we look through the form, can we come to any other conclusion but the one that the difference between the price and what the buyer finally pays is the cost of carrying the balance of the cash price? To put it another way, the charge is for the forbearance to collect the full cash price, or for the use of money. It is clear that if the Agreement stated (as do some credit card contracts) in effect, This debt becomes due and payable in thirty days from the date of purchase [6] and then provided for additional charges for payment after thirty days, respondent's argument would have no merit, since the Agreement would then state that a debt was due and payable, and the charge would be for an extension of an existing debt, and definitely within respondent's interpretation of the term forbearance. But, the Penney Agreement does not so provide. Does this failure to include this statement make the Penney Agreement any different in effect from other such credit transactions? No. In substance they are the same. The Agreement does provide: 2. I will, within one month after each monthly billing date, make an installment payment in accordance with your then current payment schedule.... Thus, a purchaser at Penney's is in the same position no matter what the specific contract provides: If he pays within thirty days, or within one month after each monthly billing date, he pays no additional charge. If he does not, he pays an additional charge at the rate of one and one-half percent on the unpaid balance then due. In substance, there is no difference. [7] In cases of alleged usury, this court will look through the form of the agreement to the substance. [8] Similarly with the distinction between bank charge cards and department store charge cards. It seems universally accepted that the bank can charge no more than one percent per month on the unpaid balance. Yet what is the practical distinction between the two? On oral argument respondent dismissed this question by stating the one (bank) was a loan of money to make a purchase, the other was an extending of credit on a credit purchase. This begs the question, the question of whether there is involved here a true credit sale or a charge for a forbearance. The assumption that the Agreement constitutes a true credit sale or time-price sale as it has come to be defined in the law, is incorrect. Sec. 138.05 (1), Stats., also indicates it is the substance of the transaction, not the form, which controls since the statute contains such terms as directly or indirectly, contract for.... Clearly then, if there is in substance a forbearance, the form of forbearing will not prevent the application of the statute. Respondent also contends that the term forbearance has a particular meaning in the law (restraining from collecting an existing debt) and therefore sec. 990.01 (1), Stats., requires that the court give the term that particular meaning in construing sec. 138.05 (1). In the first place, it has already been shown that the Agreement contemplates a refraining from collecting an existing debt. Second, and more important, however, applying respondent's theory (discussed below) that when the Wisconsin legislature adopted the New York statute it also adopted the construction placed upon it by the New York courts, [9] with special emphasis by respondent on Dry Dock Bank v. American Life Ins. & Trust Co ., [10] it can be argued that the Dry Dock decision made it quite clear that the term forbearance can apply to sales of personal property. In Dry Dock the court did state (as respondent notes): The terms `interest' and `forbearance' can not be predicated of any other than a loan of money, actual or presumed. (Emphasis supplied.) [11] But the court also stated: ... Upon the sale of property on time, the purchase money becomes a debt which is forborne for the period limited by the credit. Accordingly where usury is disguised under a sale of merchandise, the property in the goods passes to the vendee, but the excess of price over the just value, is considered as a premium for the forbearance of the debt, founded on a presumed loan of so much of the purchase money as is equivalent to the cash value of the commodity sold. (Emphasis added.) [12] In effect, the court is stating it will look behind the form of the transaction to the substance, and if it is substantially usurious, the court will apply the language of the statute substantially as well. Subsequent New York cases have not altered the basic propositions set out in Dry Dock. Even Mandelino v. Fribourg [13] does not dispute these propositions. That case dealt with a seven percent purchase money mortgage, which was held not to be usurious. [14] Subsequent New York cases have explained Dry Dock, but not in respondent's favor. The New York Court of Appeals, in London v. Toney, [15] discussed the Dry Dock interpretation of the usury statute. ... In Dry Dock ... the court discerned a covert loan of money disguised as an exchange of securities. The only question was whether the transaction constituted a loan of money. The discussion in the opinion extended over a wide range, the general effect of which is that the statutory use of the word `loan' means, of course, a loan of money and not a loan of goods or credit. [16] It further stated: ... No statute and no decision by this court have been called to our attention by which forbearance of money must, in order to constitute usury, be preceded by an actual loan. The contrary is true. [17] Exactly. There need be no actual loan, only a forbearance of money under conditions where, in the words of Dry Dock, a loan will be presumed. The view that the New York usury statute can apply to sales of property is considered also in Universal Credit Co., Inc., v. Lowell , [18] involving the sale of an automobile on a conditional sales contract and a time-price differential in excess of the rate allowed under the statute. The plaintiff argued that the usury statute did not apply to the sale of personal property on credit. The court then reviewed the various New York cases, [19] and concluded: Unquestionably the law has been for more than one hundred years, and now is, as announced by the Court of Appeals in the London case, that the usury statute is not confined to those instances arising from actual loans of money, but is equally applicable to the forbearance of a money debt, otherwise created. The original debt in the London case grew out of the sale of land. It was the forbearance of this debt which the court held usurious. If the forbearance of a debt created out of a sale of land may be usurious, just why may not the forbearance of a like debt growing out of the sale of personal property be usurious? Is there any difference in the principle involved? Both are based on the forbearance of money. In the latter proof may be more difficult. But since when did difficulty of proof condone a wrong? If taking more than the legal rate of interest for the forbearance is established, the penalty follows. And this, whether the debt arose out of the sale of a farm or an automobile. [20] It is clear then that the interpretation of the New York usury statutes by the New York courts is not as respondent contends it is, and even if this court accepts respondent's implied theory that it is bound by New York court interpretations subsequent to the adoption of the New York usury statute by the Wisconsin legislature in 1851, as well as by such decisions prior thereto, there is no reason to hold that the Wisconsin usury statute does not apply to sales of real or personal property.