PR Mallory & Co. v. Grigsby-Grunow Co.

• Citation: 72 F.2d 471
• Decision Date: 01 October 1934
• Docket Number: No. 5170.,5170.
• Parties: P. R. MALLORY & CO., Inc., v. GRIGSBY-GRUNOW CO. MANUFACTURERS' FINANCE CO. v. McKEY.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

72 F.2d 471 (1934)

P. R. MALLORY & CO., Inc., v. GRIGSBY-GRUNOW CO.^*

MANUFACTURERS' FINANCE CO. v. McKEY.

No. 5170.

Circuit Court of Appeals, Seventh Circuit.

June 19, 1934.

Rehearing Denied October 1, 1934.

Edward Rothbart and Norman M. Peterson, both of Chicago, Ill., for appellant.

Thomas L. Marshall and Le Roi J. Williams, both of Chicago, Ill., for appellee.

Before ALSCHULER, SPARKS, and FITZHENRY, Circuit Judges.

SPARKS, Circuit Judge.

This appeal arises out of a controversy between the receivers of the Grigsby-Grunow Company, an Illinois corporation organized for the purpose of manufacturing certain merchandise, and appellant, a Finance Company incorporated in Delaware, as to the balance due from the receivers under a certain contract entered into between the two parties.

On October 5, 1933, the Grigsby-Grunow Company, hereafter referred to as the Company, entered into the contract in question, with appellant, according to the terms of which the latter agreed to purchase from the former such accounts receivable and trade acceptances as were acceptable to it. These "accounts" evidenced sales and deliveries of personal property usually dealt in by the Company. The rate of interest agreed upon was 10%, not upon the balance of cash advance remaining from time to time, but upon the aggregate amount of accounts assigned to appellant as security for the advances. The contract also provided that the appellant should furnish certain so-called services to the Company, described by appellant as follows: "Upon request, to furnish by mail to the company its credit information in hand about the customers of the company; have its auditors give to the company the report of each examination provided for in the contract, with full information and advice as to the most desirable method of keeping the books, records and accounts of the company; pay for all accounting, postage and credit investigation of accounts purchased or offered for purchase under the contract and upon request give financial and business advice; obtain and have on hand at all times sufficient funds to make prompt remittance to the company for all acceptable accounts within the limits agreed upon in the contract; supply all forms needed for the assignment of accounts; place its credit department and collection department at the disposal of the company and permit the company to submit any of its sales contracts with its customers to the general counsel of appellant for advice and opinion as to the form and legality thereof."

It was stipulated by the parties that the rate of compensation or interest fixed by the contract aggregated a minimum of 20% per annum, and that prior to the appointment of the receivers it was the custom of the parties for the Company to assign and deliver to appellant the schedules of accounts whereupon appellant would check the credit risk and, if satisfied with the accounts, transmit its check for 50% of the face value of the accounts to the Company. Then as the latter received payment from its customers it transmitted each payment in its original form to appellant, who thereupon endorsed and deposited the remittances and sent the Company the balance of the face value of the accounts not already advanced, less any deductions.

Since the appointment of the receivers, November 24, 1933, no further accounts receivable have been assigned to appellant, nor has any of the money collected on the accounts previously assigned been paid over except under order of the court, in accordance with which the entire amount advanced by appellant to the Company together with interest at the minimum contract rate of 20% up to November 24, has been repaid by the receivers.

On November 29, 1933, appellant filed an intervening petition in the receivership proceedings asking that title to the accounts be declared in it, with the right to hold them until the receivers paid the unpaid balance plus service charges, attorneys' fees, costs and expenses in accordance with the contract provisions. The compensation claimed was $4,394.48 from November 24 to December 29, which amount was $1,296.26 more than the 20% charged up to November 24. In addition, attorneys' fees of $7,800 were claimed, the amount being computed on the amount of accounts outstanding in the hands of appellant rather than on the amount due. The following testimony of a member of the Bar was introduced with reference to the reasonableness of the fee claimed: "From the facts given to me and basing it on the amount involved, being $261,000, I would say that 3% of that, $7800 would be reasonable attorneys' fees on a 15 day basis."

Appellant refused to follow its practice of returning to the Company whatever accounts it held over twice the amount due from the Company on the unpaid balances, and insisted upon following the strict letter of the contract which did in effect permit the retention of the entire amount of accounts receivable, and the collection of interest upon them at the contract rate of 10% until the entire loan was paid off. As to this point it was stipulated that the contract provided that compensation or interest should be 83½% of 1/30 of 1% of the net face amount of accounts for each day from date of purchase by appellant until paid to it, and that this amounted to a rate of 10% per annum upon the net face amount of accounts, as distinguished from cash invested for each day until the advances were realized. The effect of this would be to entitle appellant to interest at an average of over 28% from the date of receivership proceedings, and of 250% during...