Cite as: Capitol Discount Corp v. Rivera, CV-6114-12, NYLJ 1202590031804, at *1 (Civ., KI, Decided February 25, 2013)

Judge Noach Dear

Decided: February 25, 2013

DECISION AND ORDER

 

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This case is part of a very unfortunate trend in this Court's docket. Generally speaking, the fact pattern tends to be as follows: A person goes into a store and contemplates making a purchase for an amount of money that is beyond his or her means. The store offers to set him or her up with financing and induces the purchaser to enter into the deal. Any attempt to back out of the deal either before the goods are delivered or immediately thereafter is rebuffed by the store as the store now claims that all sales are final. The financing company pays the store and, when inevitably the poor quality, shoddily constructed furniture, appliances, or whatnot, begin to break, the buyer calls the store — unhelpful since they were already paid — and the financing company which argues that it is merely a lender and has no obligations as to the merchandise. These conversations, unfortunately, seem to happen long before the credit payments are complete and the purchaser often defaults. The financing company sues the buyer and the Court is faced with a quandary. On one hand, the financing company did pay the store for the goods and the buyer got some use of the same. On the other hand, the purchaser is getting charged interest at a high rate for goods that were never worth the purchase price and, often, has no recourse against the store which, even if it is still in business, rarely is impleaded in the case.

In the instant case, this Court adjourned the case previously and ordered Plaintiff to bring

 

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a witness from the store to trial. This did not occur, according to counsel, because the store owner was at a trade show. Thus, the only testimony from a witness with actual knowledge of many of the underlying facts was from Defendant and, to the extent that such testimony was uncontradicted and in line with the exhibits, this Court will not indulge in speculation as to what the store witness might have said had he appeared.

I. Findings of Fact

A. How Capital Discount Claims to Operate

Plaintiff Capitol Discount does business with furniture stores throughout the New York metropolitan area, providing blank credit applications like Plaintiff's Exhibit 3 to the stores. When a customer fills out an application, the store transmits the information to Plaintiff for consideration (Transcript, at 23:9-15). The contents of the form, logically, are either written by the customer or by the store using information from the customer (Id., at 24:17-22). A decision is then made by Capitol Discount as to whether credit will be extended (Id., at 23:23-24:1). If so, a contract like Plaintiff's Exhibit 1 is written up setting forth payment terms (See Id., at 26:25-27:19). According to Plaintiff, a call is made to the buyer to confirm that the furniture was received in acceptable condition (Id., at 27:19-28:3). Any subsequent complaints about the merchandise are referred to the stores since they are in the furniture business and Plaintiff is in the business of making loans (Id., at 29:15-22).

Per Plaintiff's witness, to the best of his knowledge that is what occurred in this case.

B. Defendant's Uncontradicted Story

In August of 2007, Anna Rivera, then working for New York City Housing, went to Universal Furniture looking to purchase furniture for her living room (Transcript, at 7:7-8; 12:5-

 

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9). According to her version of events, she expressed potential interest in certain couches and was told that they would do a credit check and, if approved, they would call her (Id., at 5:20-25). Under the impression that she was applying for a credit check, she signed a document entitled "Security Agreement — Retail Installment Contract" [Plaintiff's Exhibit 1](Transcript, at 11:10-18). At that point the various blanks on the form — the store's information, her information, the articles purchased, the prices, and payment terms — were not yet filled in (Id., at 11:5-9) and she did not read the document before signing it (Id, at 11:19-12:1). Plaintiff's Vice President (and part-owner), Adam Greenberg, suggested that the rest was filled out by the store since Plaintiff received a completed contract from the store (Id., at 13:14-23). That is a logical supposition, but speculation nonetheless in the absence of any representative from the store. Contemporaneously, Defendant also signed a Credit Application [Plaintiff's Exhibit 3] (Transcript, at 17:25-18:3), according to her, filling out only the section seeking her references (Id., at 18:13-19:4). The top portion of that document clearly was filled out in a different handwriting, Plaintiff's counsel admitting that portion could easily have been filled out by the store (Id., at 20:2-6).

Thereafter, Defendant got a call that the furniture was going to be delivered (Id., at 6:1-2). Even following delivery, no one told Defendant how much the furniture cost nor the payment terms1 (Id., at 6:2-5). It was one week afterward that she received a filled-in copy of Plaintiff's Exhibit 1 in the mail (Id., 6:7-9) reflecting a base cost of $3500, $3300 of which were financed at 24.9 percent, and a total outstanding balance of $4463.10 to be paid in 30 monthly installments of $148.77 (Plaintiff's Exhibit 1). Once she saw the amount that they intended to charge her,

 

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Defendant called the store and told them to take back the furniture since, now that they provided a price, she thought that the furniture was too expensive (Transcript, at 9:3-23; 21:10-19). The store refused to comply with her request telling her that all sales are final2 (Id., at 8:13-14). Having made only one payment to Plaintiff (Id., at 28:9-13) and a $200 down payment to the store (Id., at 10:3-9), Defendant defaulted.

Per the Court's records, Plaintiff filed suit against Defendant in February 2008. Defendant had a lawyer from her job get involved and, in 2010, the case was discontinued (Transcript, at 7:7-11 and Defendant's Exhibit 1). In 2012, Plaintiff again sued Defendant alleging breach of a promissory instrument and seeking $3292.01 plus interest. Defendant, now retired, answered without the assistance of counsel. Following several adjournments, a trial was held before this Court on January 29, 2013 and decision was reserved.

II. Decision

This Court has effectively been put in a position of deciding whether to enforce a contract against a party who claims to have signed the agreement prior to the terms of the contract being filled in and without knowledge of what she was signing. Even were an enforceable contract deemed to exist, Defendant has raised sufficient defenses to escape liability on Plaintiff's breach of contract claim.

A. Contract is invalid/unenforceable

Before assessing whether there was a properly executed, enforceable contract, the Court

 

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needs to determine who ostensibly entered into an agreement. Plaintiff's Exhibit 1 is not clear on this point. It is apparent that it is Plaintiff's form, saying "Capitol Discount" and their address at the top. However, within the document, it appears to be a transaction between the "seller" — the store — and the "buyer" — Defendant. There is also a section stating that "[t]his contract may be assigned to Capitol Discount Corporation…" On the back of the Exhibit, there is a pre-printed assignment of the contract to Plaintiff, so it appears that the agreement is always and of necessity assigned to Capitol Discount. Thus, there appears to in effect be an agreement between three parties — the store agrees to provide the furniture to the buyer, Plaintiff agrees to pay the store some unstated amount of money (likely, the "amount financed"), and the buyer agrees to pay Capitol Discount the "total sale price" ("amount financed" plus "finance charges").

"To establish the existence of an enforceable agreement, there must be an offer, acceptance of the offer, consideration, mutual assent, and an intent to be bound" (Civil Service Employees Ass'n, Inc. v. Baldwin Union Free School, 84 A.D.3d 1232, 1233-1234 [2d Dept 2011] [internal quotation marks and citations omitted]; See also 22 N.Y. Jur 2d, Contracts §9). "Mutual assent evincing the intention of the parties to form a contract is essential and [a]n agreement to agree, which leaves material terms of a proposed contract for future negotiation, is unenforceable" (Miranco Contracting, Inc. v. Perel, 29 A.D.3d 873, 816 N.Y.S.2d 516, 517 [2d Dept 2006] [internal quotation marks and citations omitted]). In this case, Defendant's uncontradicted testimony makes it clear that, when she was in the store, there was no offer to sell the furniture or at a minimum no price was given, she did not accept an offer to sell the furniture, she did not assent to the terms of the contract, and she did not intend to be bound. It is undisputed that she received consideration — the furniture. Nonetheless, no contract was formed in the absence of most of the elements for forming a contract. By accepting the furniture,

 

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Defendant still did not enter into a contract to pay. Material terms, most notably the price, were still not agreed upon and, when she learned what they were thereafter, Defendant called the store and expressed her unwillingness to enter into the agreement.

This Court recognizes that Plaintiff's Exhibit 1 appears on its face to be a contract and a written agreement that is complete, clear and unambiguous on its face ordinarily should be enforced according to the plain meaning of its terms (See Archstone v. Tocci Bldg. Corp. of New Jersey, Inc., 101 AD3d 1062 [2d Dept 2012]). However, in the absence of the person who wrote in the terms and the very credible testimony of the Defendant that she did not realize that this was a contract when she signed it, that the document was incomplete at that time and materially changed thereafter, and that she had no intention of entering into a contract, this Court finds that no contract existed between the Defendant and either the store or Plaintiff.

B. Defendant's Defenses Had A Contract Been Deemed To Have Existed

As a preliminary matter, even were this Court to accept Plaintiff's argument that it is merely a financing company and not the seller of the furniture, the agreement itself states that "any holder of this consumer credit contract is subject to all claims and defenses which the debtor could asset [sic] against the seller of goods or services obtained pursuant hereto" (Plaintiff's Exhibit 1) and, thus, all defenses that could be asserted against the store are available against Capitol Discount.3

1. Unconscionability

"In general, an unconscionable contract has been defined as one which is so grossly unreasonable as to be unenforcible [sic] because of an absence of meaningful choice on the part

 

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of one of the parties together with contract terms which are unreasonably favorable to the other party" (King v. Fox, 7 N.Y.3d 181, 191 [2006]). In this Court's view, the alleged agreement in this case meets this standard and is unconscionable.

With respect to the first prong, examples of procedural unconscionability include "high pressure commercial tactics, inequality of bargaining power, deceptive practices and language in the contract, and an imbalance in the understanding and acumen of the parties" (Emigrant Mortg. Co., Inc. v. Fitzpatrick, 95 A.D.3d 1169, 1170 [2d Dept 2012][citations omitted]). Crediting Defendant's testimony in the absence of a witness from the store to rebut her account, such elements appear to be present here. Steps were taken by the store to force her into the deal — she left the store without any intention of getting the furniture, they called her and delivered the furniture without her agreeing to acquire it, they failed to give her a price repeatedly until a week after delivery, and then they refused to take back the furniture when she promptly complained. The store and financing company certainly had greater bargaining power, understanding, and acumen than someone of limited means who could not easily get credit elsewhere and who is a stranger to this sort of transaction. Further, the agreement itself is difficult to read and understand. The front contains various provisions in different areas of the paper and in different size fonts. The terms on the rear are printed in light ink and are virtually unreadable. Thus, the procedural unconscionability prong is certainly met here.

The substantive unconscionability requirement, that is unconscionable terms within the contract, is also met. "Examples of unreasonably favorable contractual provisions are virtually limitless but include inflated prices, unfair termination clauses, unfair limitations on consequential damages and improper disclaimers of warranty" (Emigrant Mortg. Co., 95 A.D.3d

 

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at 1170 [citations omitted]). As Defendant herself noted, to pay $3500 for a couch and loveseat, especially for furniture of a quality that lasted barely two years, is ridiculous. Further, there is a clause limiting liability on behalf of the seller to the amount paid by the buyer. This too is unreasonably favorable to one party. Thus, the substantive prong is also met and the alleged agreement is unconscionable.

2. Usury

A transaction is usurious under civil law when it imposes an interest rate exceeding 16 percent per annum ( see General Obligations Law §5-501[1]; Banking Law §14-a [1] ) and is criminally usurious when it imposes an interest rate exceeding 25 percent per annum ( see Penal Law §§190.40, 190.42). Any loan taken for "any greater sum, or greater value…than is prescribed in section 5-501, shall be void" and the debtor is relieved from paying both principal and interest unless the lender is a savings bank, a savings and loan association or a federal savings and loan association wherein only the interest is forfeited (General Obligations Law §5-511 [1] ).

The interest rate written into Plaintiff's Exhibit 1 is 24.9 percent per annum. Obviously, this is in excess of the 16 percent threshold for civil usury and just below the 25 percent required for criminal usury. However, "[u]sury laws apply only to loans or forbearances" and "[i]f the transaction is not a loan, there can be no usury, however unconscionable the contract may be" (Seidel v. 18 East 17th Street Owners, Inc., 79 N.Y.2d 735, 744 [1993][citations omitted]). Plaintiff appears to have styled the agreement as a "retail installment contract" and, thus, a sale of goods on credit rather than a loan. Were that to be the case, the transaction would be governed by the Retail Installment Sales Act (Personal Property Law §401 et seq) and the interest rate would be whatever was agreed to by the parties (Id., §404[1]).

This Court disagrees with such a characterization. The purpose of a retail installment

 

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agreement is for the seller to allow the buyer to distribute the amount owed, making payments over time, and, in exchange, there is an additional charge to offset the delay in receiving funds (See Zachary v. R. H. Macy & Co., Inc., 31 N.Y.2d 443, 457 fn.5 [1972] ["In the sale of goods, any amount charged the buyer over and above the ordinary cash price is not interest, but an amount calculated as a 'time price differential' designed to compensate sellers for additional risks and loss of interest which would ordinarily accrue had he received immediate payment."]). In contrast, a loan is "the furnishing of something to another party for temporary use with the agreement that it or its equivalent will be returned" (Merriam-Webster's Dictionary of Law [1996]). It follows that a retail installment agreement is between a seller and a buyer, whereas a loan is between the party providing the item to be returned, here money, and the recipient of the funds. While retail installment contracts are transferable (Personal Property Law §411), that presumes that the original transaction between the buyer and seller is a real payment agreement between those parties and not merely a vehicle for a third-party financing company to avoid the usury laws. Where, as here, the "purchaser" of the agreement is the one to perform a credit check on the potential buyer and determine whether to allow the purchase to go forward and the contract is by its own terms automatically assigned to them, the transaction in properly characterized as a loan from the financing company to the buyer (accompanying the agreement of the financing company to pay the seller for the furniture that will be delivered to the buyer by the seller). Accordingly, such an agreement is subject to the usury laws and, in this case, Defendant's obligation to pay even the principal would be voided. (See, similarly, Ford Motor Credit Co. LLC v. Black, 27 Misc.3d 1211(A), 2010 N.Y. Slip Op. 50680(U) [Civ Ct, Richmond County 2010] [rejecting vehicle retail installment contract as a sham geared to get around usury statutes]).

 

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C. Unjust enrichment

Defendant freely admits that she had the furniture for approximately two and a half years before it broke (Transcript, at 8:9-10; 20:25-21:3). Though Plaintiff did not assert a claim for unjust enrichment in its complaint, likely based on the belief that a contract governed the transaction, equity requires an analysis as to whether the Defendant should be required to pay some amount of money to Plaintiff as compensation for the use of the furniture. The matter is complicated by Defendant's allegations that she never wanted to keep the furniture and that the store acted inappropriately throughout the transaction. Further, the "Dealer's Assignment" section of Plaintiff's Exhibit 1 makes it clear that Capitol Discount believes that it has recourse to collect against the store and, thus, has other means to avoid being harmed were this Court to fail to award any damages in its favor and against Defendant. Therefore, in light of the $363.45 that Defendant already appears to have paid and the respective conduct of the parties, this Court believes that the most equitable solution would be for the Plaintiff and store to keep the money already paid and for the Defendant to pay nothing further.

Based on the above, it is hereby

ORDERED that judgment be entered in favor of Defendant and against Plaintiff; and it is further

ORDERED that Plaintiff's complaint is hereby DISMISSED with prejudice on the merits.

The foregoing constitutes the Decision and Order of the Court.

1. Plaintiff's proposed Exhibit 2 appears to be an invoice from the store. In the absence of a witness from the store to lay a foundation for the document and in the wake of Defendant's allegations that the contents of the document are not what she signed and that someone wrote in the information about the merchandise and prices afterwards outside of her presence, this Court did not admit the Plaintiff's Exhibit 2 into evidence (See Transcript, at 15:22-16:20) and it cannot be used to impute knowledge of the costs prior to receipt of the furniture.

2. Pursuant to Plaintiff's Exhibit 1, "you agree that title and ownership of the merchandise sold under this contract shall remain in the seller or its assignee until all the amounts due under this contract have been paid in full." Based on this, it would seem that the store or finance company would still own the property absent payment from the buyer and the sale was clearly not "final." Further, upon Defendant's unwillingness to pay and stated desire to return the furniture, logic dictates that acceptance of the merchandise back would have been a more appropriate solution than filing suit.

3. Based on this, Capitol Discount has a responsibility to address all problems with the merchandise it finances. In the not uncommon circumstance of poor quality, broken, or damaged furniture, Plaintiff has a responsibility to directly resolve the issues and not merely refer the buyer to the store, often already out of business.