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Saul v. Midlantic National Bank/South

Decided: April 10, 1990.

DANIEL J. SAUL, PLAINTIFF-APPELLANT,
v.
MIDLANTIC NATIONAL BANK/SOUTH, DEFENDANT-RESPONDENT



On appeal from the Superior Court of New Jersey, Law Division, Cape May County.

Deighan and Villanueva. The opinion of the court was delivered by Villanueva, J.s.c., Temporarily Assigned.

VILLANUEVA

Plaintiff appeals from the denial of his motion for summary judgment which sought forfeiture of alleged usurious interest and the granting of defendant bank's motion for partial summary judgment wherein the court ruled that the New Jersey Supreme Court had unequivocally held that a retail installment sales contract is not subject to the Usury Act, N.J.S.A. 31:1-1.

Plaintiff contends that the interest the defendant charged on his $15,000 loan to purchase an automobile was usurious because

he ultimately paid, as a result of his prepayments, more than 16% per annum permitted by the Usury Act, N.J.S.A. 31:1-1(a), which he contends is the governing statute.

The defendant contends that (1) the plaintiff agreed to pay interest on the actuarial basis which is a proper method of calculation, specifically authorized for retail transactions of $10,000 or less, N.J.S.A. 17:16C-1 et seq.; (2) there is no statute*fn1 regulating interest rates of retail installment sales of automobiles where loans exceed $10,000; (3) an interest rate higher than that specified in the Usury Act, N.J.S.A. 31:1-1 et seq., is specifically authorized by Supreme Court decisions; (4) since the loan was not usurious when made, the plaintiff cannot make it so by his voluntary prepayments; and (5) in any event, the state Usury Act, N.J.S.A. 31:1-1, is preempted by federal legislation, 12 U.S.C.A. ยง 85, which permits a national bank to charge higher rates under the "most favored lender" doctrine.

On August 28, 1984, plaintiff, a New Jersey attorney, executed a written order form for the purchase of a Model 190 Mercedes Benz automobile from Cherry Hill Motors, Inc. ("Cherry Hill Motors"). That form was merely plaintiff's order which was not signed by the dealer. The handwritten notes on the form indicate that financing for the purchase would be obtained through Heritage Bank, N.A. ("Heritage") based on a 48-month payment schedule.

On September 5, 1984, plaintiff accepted delivery of the automobile and entered into an installment sales contract with Cherry Hill Motors. Although plaintiff originally claimed that he obtained a "loan" directly from Heritage for the purchase of the automobile (which claim he has abandoned), the contract that he signed states that it is an "installment sale contract" between plaintiff and Cherry Hill Motors.

The total amount financed under plaintiff's contract was $15,000, representing the cash price of the purchased vehicle, $25,343.54, plus the motor vehicle fee, $77, less plaintiff's cash downpayment of $10,420.54. Pursuant to the terms of the contract, plaintiff agreed to repay the outstanding cash balance of the purchase price plus a finance charge based on an annual percentage rate of 14.5% over four years, resulting in a total finance charge of $4,854.24. The total payments were to be $19,854.24.

The contract permitted the plaintiff to prepay the full amount owed at any time.*fn2 In the event of such prepayment, the contract expressly provided that plaintiff would receive credit on any unearned finance charge "according to a commonly used calculation known as the actuarial method as if all payments were made when due."

Pursuant to the terms of the agreement, the contract was immediately assigned by Cherry Hill Motors to Heritage, and all payments were to be made directly to Heritage. Heritage was subsequently acquired by Midlantic,*fn3 which succeeded to Heritage's rights and obligations under the contract. Over the next three years, plaintiff made a total of 38 payments under the contract, 16 of which exceeded the required minimum monthly payment.

The "Truth in Lending" portion of the contract disclosed that plaintiff's total payments would be $19,854.24. With plaintiff's last payment, Midlantic in fact received $19,854.24 -- the exact amount disclosed in the Truth in Lending statement. Plaintiff was informed in the Truth in Lending statement that he would

be required to pay a total finance charge of $4,854.24 -- the exact amount of finance charges he actually paid.

Notwithstanding the express terms of the contract, plaintiff claimed that his payments should have been credited by Midlantic on a simple interest basis, and that under this method his debt was paid in full as of August 3, 1987. Midlantic, however, applied plaintiff's payments in accordance with the actuarial method provided in plaintiff's contract.*fn4 Plaintiff also claimed that the contract he signed was either an installment sale or installment loan contract, which are subject to the Usury Act.

Plaintiff filed suit against Midlantic essentially claiming that Midlantic improperly calculated his account and, as a result, collected finance charges in excess of the lawful rate permitted under the Usury Act, N.J.S.A. 31:1-1, and in violation of other state lending statutes. Plaintiff sought a declaration that the debt was paid in full,*fn5 the return of the document of title to his car, a refund of all payments made after July, 1987, or, in the alternative, the return of all finance charges imposed under the contract, as well as various statutory penalties and punitive damages.

Plaintiff moved for summary judgment upon the grounds that (1) the documents from the transaction show that it was cash sale and a loan, not an installment sale, and, since the loan was not governed by any other particular statute, it was subject to N.J.S.A. 31:1-1; and (2) even if the transaction were an "installment sale", it was not exempt from N.J.S.A. 31:1-1 in light of reinterpretations of such transactions by the Supreme Court after Steffenauer v. Mytelka & Rose, Inc., 87 N.J. Super. 506, 210 A.2d 88 (Chan.Div.1965), aff'd 46 N.J. 299, 216 A.2d 585 (1966), in Girard Acceptance Corp. v. Wallace, 76 N.J. 434,

388 A.2d 582 (1978), and since the Legislature amended this statute in 1981.

Midlantic then cross-moved for summary judgment, arguing that, as a matter of law, (1) installment sales contracts in general are not subject to the general usury statute; (2) even if the transaction were to be construed as a two-party installment loan between plaintiff and Midlantic (as alleged by plaintiff), rather than as a three-party installment sale transaction between plaintiff, Midlantic and Cherry Hill Motors (as alleged by Midlantic and as eventually found by the trial court), installment loans made by banks are exempted from the general usury statute; and (3) in any event, Midlantic's finance charges to plaintiff were not usurious. The judge denied both the motion and cross-motion on the ground that there was a factual dispute as to the characterization of the transaction.

Thereafter, plaintiff moved for reconsideration of the denial of his motion for summary judgment. On reconsideration, the judge again denied plaintiff's motion for summary judgment but granted partial summary judgment to Midlantic, ruling that the New Jersey Supreme Court has held that an installment sales contract is not subject to the Usury Act, N.J.S.A. 31:1-1. Steffenauer v. Mytelka & Rose, Inc., supra.

The case proceeded to trial on the factual issues of (1) whether the transaction was an "installment sale" or, as plaintiff contended, a cash sale and a loan; and (2) whether Midlantic's accounting for plaintiff's partial prepayments was in accordance with the terms of the installment sale contract. The Court determined that the transaction was an "installment sale" and that the accounting was in accordance with the terms of the contract, and entered a judgment in favor of Midlantic. Those factual determinations have not been appealed. Since the summary judgment decision had already established that if the transaction were really an "installment sale" it would not be subject to N.J.S.A. 31:1-1, that issue was not addressed at the trial.

The New Jersey Bankers Association was granted leave by this court to file an amicus curiae brief.

Plaintiff states that his appeal is limited to the following narrow legal issues:

(1) is an installment sale which is not subject to N.J.S.A. 17:16C-1 et seq. subject to ...


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