                            No.     91-388

          IN THE SUPREME COURT OF THE STATE OF MONTANA
                                   1992



CESSNA FINANCE CORPORATION,
               Plaintiff and Respondent,
    v.
ROBERT E. CHAMBERS; JOHN S. PARKER,
               Defendants and Appellants.



APPEAL FROM:   District Court of the Eighth Judicial District,
               In and for the County of Cascade,
               The Honorable Thomas M. McKittrick, Judge presiding.


COUNSEL OF RECORD:
          For Appellant:
               Robert J. Emmons, Emmons      &   Sullivan,
               Great Falls, Montana
          For Respondent:
               G. Curtis Drake, Keller, Reynolds, Drake,
               Sternhagen   &   Johnson, Helena, Montana



                                Submitted on Briefs:    January 16, 1992
                                             Decided:   March 31, 1992
Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.
     On September 16, 1982, Cessna Finance Corporation filed a
complaint against Robert E. Chambers and John S. Parker in the
Eighth ~udicial District Court in Cascade County.                 In this
complaint, Cessna sought a deficiency judgment following the sale
of an airplane it had repossessed from Chambers and Parker. Cessna
obtained a default judgment against Parker, but Chambers contested
the action.    On May 21, 1991, the District Court entered Findings
of Fact, Conclusions of Law, and a Judgment in which it found
Chambers liable for the deficiency. The court denied a subsequent
motion by     Chambers to amend the         Findings, Conclusions, and
Judgment.    Chambers appeals.      We affirm.
     The issues are:
     1.     Did the District Court err when it concluded that the
contract authorized a late-payment penalty          in the amount of
12 percent of the outstanding balance?

     2.     Did the District Court err when it found that Cessnars
denomination of late-payment penalties as "finance charges" did not
violate the Montana Retail Installment Sales Act?
     On August 10, 1978, Chambers and Parker bought a Cessna 206
airplane from Skymart Aviation in Great Falls. They financed this
purchase by entering into an installment contract with Skymart,
which     subsequently   assigned    the   contract to   Cessna   Finance
Corporation, an entity that assists buyers in financing purchases
of airplanes manufactured by the Cessna Aircraft Company.           After
the downpayment, $62,250         remained to be paid          in six annual
installments.    The agreement between Cessna, Chambers, and Parker
called for an "annual percentage rate" of 12 percent.
     Before long, a dispute arose between Chambers and Parker
regarding the use of the airplane.          They agreed that Parker would
assume the sole obligation to make payments in exchange for sole
use of the airplane.       Cessna, however, did not release chambers
from his liability on the purchase contract. Parker actually made
the 1979 and 1980 payments, but defaulted on the 1981 payment.
Neither Parker nor Chambers made any payments on the airplane
after 1980.
     Cessna then accelerated the remaining balance, repossessed the
airplane, and sold it to a third party.                At the time Cessna
repossessed the airplane, $53,060.59 remained outstanding on the
purchase contract itself. To this amount, Cessna added $152.88 for
storage,   $44.00    for       storage    insurance,    and    $2,452.12    in
repossession expenses.      The sale yielded $35,501.00, which left a
deficiency of $20,208.60.
     Cessna     obtained   a    default    judgment    against   Parker    and
proceeded against Chambers alone for the deficiency.                Chambers
raised the affirmative defenses of failure to pursue a guarantor
and failure to mitigate damages.           The court, sitting without a
jury, conducted a trial of the matter on January 3,                    1990.

Subsequently, the court issued its Findings of Fact, Conclusions of
Law, and Judgment in which it found Chambers liable for the
deficiency and rejected his affirmative defenses.
     On June 7, 1991, Chambers moved to amend the Findings,
Conclusions, and Judgment.     Chambers argued that the purchase
contract violated the Montana Retail Installment Sales Act by
denominating late-payment penalties as "finance charges" rather
than "interest."    The court denied this motion on July 10, 1991.
Chambers appeals.


     Did the District Court err when it concluded that the contract
authorized a late-payment penalty in the amount of 12 percent of
the outstanding balance?
     The relevant contract provisions read as follows:
     *6.   CREDIT SERVICE CHARGE, FINANCE
           CHARGE, TIME PRICE DIFFERENTIAL          $28.594.80

           ANNUAL PERCENTAGE RATE   12.   %
           ....
          Buyer and Seller further agree that (i) should Buyer
     make any payment after its due date the FINANCE CHARGE
     (CREDIT SERVICE CHARGE, TIME PRICE DIFFERENTIAL) will be
     increased proportionately since the FINANCE CHARGE
     (CREDIT SERVICE CHARGE, TIME PRICE DIFFERENTIAL) is
     computed on a daily basis  ....

     DEFAULT CHARGES--Seller has the option to declare the
     unpaid balance of the PRINCIPAL (UNPAID BALANCE, BASE
     TIME PRICE) to be immediately due if Buyer defaults in
     making payments according to the above PAYMENT SCHEDULE
     or otherwise defaults.  ...   If any payment is not made
     by the due date the unpaid PRINCIPAL (UNPAID BALANCE
     BASE, TIME PRICE) shall continue to accrue FINANCE CHARGE
     (CREDIT SERVICE CHARGE, TIME PRICE DIFFERENTIAL) at the
     above ANNUAL PERCENTAGE RATE.


          *The amounts shown above in Item 6 (FINANCE CHARGE,
     CREDIT SERVICE CHARGE, TIME PRICE DIFFERENTIAL)  ...  are
     estimates as authorized by Regulation Z 5226.6(f)
     computed on the assumption that all installment payments
     will be made on the scheduled dates. As the FINANCE
     CHARGE (CREDIT SERVICE CHARGE, TIME PRICE DIFFERENTIAL)
     . . .  is computed on a daily basis, if Buyer fails to
     make any installment payment on or before the due date,
     Buyer will be obligated to pay additional amounts by
     reason of the FINANCE CHARGE (CREDIT SERVICE CHARGE, TIME
     PRICE DIFFERENTIAL)  ....
     Chambers argues that Cessna cannot collect interest on the
judgment because the contract provisions quoted above do not use
the word   "interest."    He asserts that "finance chargesn are
calculated differently than "interest" and that, therefore, when he
agreed to pay a "finance charge" he did not necessarily agree to
pay "interest."   We reject this argument because we conclude that
Chambers did in fact agree to a late-payment penalty expressed as
a percentage of the outstanding principal.
     The contract's discussion of the "finance chargew refers to
Regulation Z, which was promulgated by the Federal Reserve Board
under the authority of the Federal Truth in Lending Act, 15 U.S.C.
5 1601-1667(e).    It is clear that the Truth in Lending Act and
Regulation Z do not control or preempt state law in regard to this
$62,250 transaction because they do not apply to transactions that
exceed $25,000.   15 U.S.C. 5 1603; 12 C.F.R. S 226.3(b).   However,
in light of the contract's reference to Regulation Z in its
discussion of the "finance charge,'I we turn to that regulation for
assistance in defining terms.
     A "finance charge" is the expression of the cost of the credit
as a dollar amount.    It includes, but is not limited to, interest.
15 U.S.C. 5 1604; 12 C.F.R. 5 226.4(a).
     An "annual percentage rate" is "a measure of the cost of
credit, expressed as a yearly rate, that relates the amount and
timing of value received by the consumer to the amount and timing
of payments made."    12 C.F.R. 5 226.22(a) (1).
     The contract addresses the problem       of late payments by
providing that in the event of default the "finance charge"
continues to accrue at the "annual percentage rate."          It is
significant that the contract refers to the "annual percentage
rate" in this manner.    Under Regulation Z, an "annual percentage
rate" is merely a rough decimal approximation of the "finance
charge."    The Truth in Lending Act requires the creditor to
disclose this rough estimate in addition to the "finance charge,"
12 C.F.R.   5 226.18, in order to assist buyers in making fully
informed decisions, see 15 U.S.C. 5 16Ol(a) ; 12 C.F.R. 5 226.1 (b).
     The contract, however, provides that in the event of a
default, the "finance chargetfwill continue to accrue at the
"annual percentage rate.     When Chambers signed the contract, he
agreed to a fixed late-payment penalty of 12 percent on the
outstanding balance.     This is the provision the District Court
relied   upon    when   it    found   that   Chambers     had   agreed    to   a
late-payment penalty at the annual rate of 12 percent.
     We hold that the District Court did not err when it concluded
that the contract authorized a late-payment penalty in the amount
of 12 percent of the outstanding balance.
                                      II
      Did the District Court err when it found that Cessna's
denomination of late-payment penalties as "finance charges" did not
violate the Montana Retail Installment Sales Act?
      Chambers cites     §   31-1-235, MCA, in support of his argument
that Cessna's denomination of late-payment penalties as "finance
charges" violated the Montana Retail Installment Sales Act (MRISA)             .
That statute provides that:
      The holder may collect a delinquency charge on each
      installment in default for a period of not less than 10
      days in an amount not in excess of 5% of each installment
      or $5, whichever is less, or in lieu thereof, interest
      after maturitv on each such installment not exceedina the
      hishest lawful contract rate. [Emphasis added.]
Chambers contends that 3 31-1-235, MCA, does not authorize lenders
to denominate late-payment penalties as "finance charges" and that
Cessna violated the MRISA by doing so.
      Cessna, on the other hand, argues that Chambers is attempting
to construe the MRISA too strictly and that substance should
prevail over form.      In support of this argument, Cessna cites Bright

v. Ball Memorial Hospital Association, Inc. (7th Cir . 1980), 616 F. 2d 328 . The
plaintiffs in that case were former patients who sued the hospital
for failure to make certain disclosures required by the Truth in
Lending Act.    In order to determine whether the Act applied, the
Seventh Circuit had to decide whether charges denominated in the
hospital's bills as "finance chargesn were really finance charges
or whether they were actually late-payment penalties.                This
distinction was critical, because the Act's definition of "finance
charge" specifically excludes late-payment penalties.         Brigizt, 616

F.2d at 336 (quoting 12 C.F.R.   5 226.4(c))
     The plaintiffs in Bright argued that the hospital had assessed

"finance   chargesu because     it   had   expressly   denominated    its
late-payment   penalties   as   "finance charges"      in   its   billing
statements.    Essentially they argued, just as Chambers argues in
this case, that "finance charge" means "finance charge."
     The Seventh Circuit held substance to prevail over form.
Specifically, the court said:
     Finally, appellants argue that the Hospital's use of the
     label "finance chargeu on its printed materials indicates
     that the charges are, in fact, "finance charges" under
     the Act.    While we agree with appellants that this
     terminology is relevant to our determination, see FRB
     Unofficial Staff Interpretation No. 1172, supra, it is by
     no means determinative.       See FRB unofficial staff
     Interpretation No. 414, supra. In this regard, we agree
     with the district court that "the substance of the
     billing system controls, not its labels." We conclude,
     therefore, that the monthly charges assessed against
     Bright's and Barber's accounts were bona fide "late
     payment" charges under Regulation 2,          12 C.F.R.
     5 226.4(c).
Bright, 616 F.2d at 338.
    We agree with the Seventh Circuit's analysis of the problem.
Chambers agreed to a late-payment penalty of 12 percent on the
outstanding principal.         His attempt to limit Cessna to the
terminology contained in   §   31-1-235, MCA, is an unduly restrictive
attempt to exalt form over substance.
    We hold that the District Court did not err in treating this
late-payment structure as equivalent to a simple rate of interest.
    Af firmed.




We concur:
                                         March 31, 1992

                                  CERTIFICATE OF SERVICE

I hereby certify that the following order was sent by United States mail, prepaid, to the following
named:


Robert J. Emmons
Emmons & Sullivan
608 Strain Bldg.
Great Falls, MT 59401

G . Curtis Drake
Keller, Reynolds, Drake, Sternhagen & Johnson
38 S. Last Chance Gulch
Helena, MT 59601

                                                     ED SMITH
                                                     CLERK OF THE SUPREME COURT
                                                     STATE OF MONTANA
