Daniel v. First National Bank of Birmingham

• Decision Date: 17 January 1956
• Docket Number: No. 15583.,15583.
• Parties: W. E. DANIEL and E. A. DILLARD, Appellants, v. The FIRST NATIONAL BANK OF BIRMINGHAM, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

228 F.2d 803 (1956)

W. E. DANIEL and E. A. DILLARD, Appellants, v. The FIRST NATIONAL BANK OF BIRMINGHAM, Appellee.

No. 15583.

United States Court of Appeals Fifth Circuit.

January 17, 1956.

Clifford J. Durr, W. Ervin James, Montgomery, Ala., for appellants.

Lucien D. Gardner, Jr., Birmingham, Ala., for appellee.

Before RIVES, JONES and BROWN, Circuit Judges.

RIVES, Circuit Judge.

At appellee's request, we make clear that it was the district court's findings of ultimate fact¹ which we thought subject to review under the authorities collected in Galena Oaks Corp. v. Scofield, 5 Cir., 218 F.2d 217, 219, free from the restraint of the "clearly erroneous" rule. Appellee argues with much force that those findings resulted from inferences drawn by the district court as to the intention of the parties, and not from any "process of legal reasoning". We do not agree, though the separation is difficult, and if we are mistaken in that respect, nevertheless, the evidentiary facts being without dispute, this Court is in substantially as good position as was the district court to draw inferences and conclusions therefrom. See authorities cited in Benton v. Commissioner of Internal Revenue, 5 Cir., 197 F.2d 745, 753. In any event, on the entire evidence we are "left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746.

Upon original consideration, we said that,

"The evidence leaves us in no doubt that there was never any bona fide `time price\' in any one of the three contracts, but that the real transaction was a sale at a cash price accompanied by a loan or extension of credit to which the Bank was privy throughout."

In so stating, we did not intend what appellee thinks, viz.: to "collapse the transaction as if it were one initial, sole, and direct transaction between the purchaser and the bank", though that result might have been reached in the Dillard case. We consider the conditional sales contracts between the sellers and the purchasers of the motor vehicles and the assignments to the Bank as separate but connected transactions, which were not traced out in detail because it seemed too clear that the Bank could not claim to be an innocent purchaser for value of the notes and contracts for either of two reasons: (1) The usurious charges were made in accordance with its instructions,² and it had actual notice thereof. See Associates Inv. Co. v. Baker, Tex. Civ.App., 221 S.W.2d 363. (2) The Bank's admitted violation of the law in purchasing the paper at a usurious discount placed it on inquiry as to whether the transaction between seller and purchaser of the vehicle also contained usury. See 8 Am.Jur., Bills and Notes, § 384; 10 C.J.S., Bills and Notes, §§ 303, 327. The taint of usury entering into the indebtedness persisted after the usurious transfer to the Bank, and the usurious interest was in fact paid by the appellants directly to the Bank.

The appellee Bank insists that the evidence does not sustain our findings, and the amicus curiae requests that we clarify our opinion as regards its impact upon installment paper discounting generally. We can, of course, decide only the cases before us on their own facts, though we recognize that these are test cases important to the parties, but probably more important as precedents, applicable to many other transactions which may vary in non-essential details. Accordingly, we repeat some of the indicia which influence us to hold that these sales were at a cash price combined with a loan or extension of credit as distinguished from a bona fide time price: (1) a standard product, a motor vehicle, having a known and definite market price advertised and quoted only as a cash price and not separately as a cash price and a time price; (2) the only price mentioned, except in the final papers, being a cash price and no time price being actually agreed on; (3) the erroneous quoting to the purchaser of interest at 5% within the legal rate; (4) the so-called time price being calculated on the cash price by adding thereto insurance, recording fees and interest or discount; (5) the clear separation from the beginning of the purchase price intended to go to the seller of the vehicle from the interest or discount intended to go to the Bank. The fact that the seller could have changed its mind and kept the papers itself, or could have assigned them to some other financial institution, seems to us to make little or no difference, except to substitute a different lender of credit. Nor is the furnishing of forms and instructions a sine qua non, but simply one of the circumstances going to show the intention of the parties.

From the way the so-called time price was calculated, it is clear that a part of the increase over the cash price was intended to provide for insurance and recording fees. The remaining difference could not be intended to provide against those extraordinary risks which were insured at the expense of the purchaser. Some of the risk of collection is compensated for by varying the rate of interest within legal limits to cover such risk. Under the evidence in these cases, it seems to us that the part of the addition to the cash price in excess of the insurance charges and recording fees could be meant for nothing except compensation for the use or detention of the amount for which credit is extended, and is thus within the classic definition of interest.³

The appellee Bank asks that we...