Court Opinion

ID: 9630794
Source: CourtListenerOpinion
Date Created: 2023-08-22 10:20:42.813646+00
Date Added: 2024-06-11T18:07:43.669261
License: Public Domain

COMPTON, Justice,
with whom RABINOWITZ, Justice, joins, dissenting in part.
I conclude that the transactions at issue were disguised loans subject to the interest rate limitation of the Alaska Small Loans Act. Since the monetary return to Berger exceeded that limitation, the loan may not be enforced. AS 06.20.310. Thus, I dissent from Section 11(B)(3) of the opinion.
The court concludes that the transactions were not disguised loans because the “sellers did not have an unconditional repayment expectation, as distinct from knowledge that repayment might be forced upon them as a secondary remedy.” A fair reading of the record, however, reveals that the sellers did have an unconditional repayment expectation.1 By signing the Purchase Agreement the sellers knew that there was no condition under which the money represented by the permanent fund dividend would not be paid to Berger. Furthermore, the sellers knew that they were ultimately responsible for this payment.
While the court minimizes the importance of the repayment guarantees, I consider them crucial to resolving the salefioan question. An appropriate analogy, given the sui generis nature of permanent fund dividends, is to the sale of accounts receivable at a discount. Parties holding accounts receivable often sell them at less than their face value to obtain immediate cash in hand. If the seller of the accounts is “absolutely released from the obligations imposed by the instrument upon its discount and subsequent transfer,” Western Auto Supply Co. v. Vick, 303 N.C. 30, 277 S.E.2d 360, 369 (1981), aff'd on rehearing, 304 N.C. 191, 283 S.E.2d 101 (1981), then the transfer is considered a true sale not subject to usury laws. See Milana v. Credit Discount Co., 27 Cal.2d 335, 163 P.2d 869, 871 (1945) (“Contractors are free to buy and sell their property, and this may include promissory notes and other instruments, at a price agreed upon, and when the bona fides of the parties is established the percentage of profit has no relation to the usury law”).
Conversely, if the seller of the accounts remains ultimately responsible for repayment, by means of an endorsement or guarantee, then such transfers are considered loans subject to usury laws, regardless of how the parties describe the transaction. See, e.g., Western Auto Supply, 277 S.E.2d at 368 (“[I]f the purchaser of a note requires the endorsement of the seller as a guaranty of payment ... the transaction is, in effect, a loan.”); Dorothy v. Commonwealth Commercial Co., 278 Ill. 629, 116 N.E. 143 (1917) (a purported sale of discounted accounts receivable was actually a pledge of those accounts for a loan of money, due to the fact that the seller guaranteed payment of the accounts); Mercantile Trust Co. v. Kastor, 273 Ill. 332, 112 N.E. 988, 991 (1916) (“Calling the transaction a sale of accounts does not alter the fact that the transaction is merely an advancement of money, to be repaid by the borrower with a rate of interest greater than that allowed by law.”); Brierley v. Commercial Credit Co., 43 F.2d 724, 727 (E.D.Pa.1929) (“[The seller] got money from the credit company and was bound to see that money in the same amount was returned to the credit company when the accounts came due. What it paid for the accommodation of getting the money from the credit company, instead of having to wait to collect it from its customers, was really interest, though it was *590called by another name.”); Milana v. Credit Discount Co., 163 P.2d at 872 (“The significant fact is that if the defendants had really purchased the accounts and had taken absolute title there would be no occasion for the provision or practice relating to guarantees of payment within specified periods-”).
The distinction these cases draw between sales and loans, a distinction which focuses on the alleged seller’s continuing obligations to the buyer, offers a more meaningful method of rooting out disguised loans than the rule established by the court today. I would apply this authority to the present case. By requiring permanent fund dividend “sellers” to guarantee repayment unconditionally, the Purchase Agreement “create[d] a debit and credit relationship which [was] not terminated until replacement of the sum borrowed with agreed interest.” Id. at 871. In other words, the Purchase Agreement created a loan. I would so hold.

. The “Purchase Agreement” provided,
In the event that the Seller's Alaska Permanent Fund Dividend or cash equivalent thereof is not transferred to the Buyer by January 1, 1990, due to the Seller’s failure to qualify for tin Alaska Permanent Fund Dividend, non-delivery of the Alaska Permanent Fund Dividend to the Buyer, or a claim to the Seller's Alaska Permanent Fund Dividend paramount to the Buyer's then the Seller shall be in material breach of this agreement.
This clause was followed by a confession of judgment.