MERCHANTS'& MANUFACTURERS'SECURITIES CO. v. Johnson

• Decision Date: 05 March 1934
• Docket Number: No. 9772.,9772.
• Citation: 69 F.2d 940
• Parties: MERCHANTS' & MANUFACTURERS' SECURITIES CO. v. JOHNSON.
• Court: U.S. Court of Appeals — Eighth Circuit

69 F.2d 940 (1934)

MERCHANTS' & MANUFACTURERS' SECURITIES CO. v. JOHNSON.^*

No. 9772.

Circuit Court of Appeals, Eighth Circuit.

March 5, 1934.

Edward Rothbart, of Chicago, Ill. (Samuel A. Dew, of Kansas City, Mo., on the brief), for appellant.

R. R. Brewster, of Kansas City, Mo., for appellee.

Before GARDNER and WOODROUGH, Circuit Judges, and MARTINEAU, District Judge.

GARDNER, Circuit Judge.

By an order of the District Court for the Western District of Missouri, entered December 21, 1931, Nelson E. Johnson was appointed receiver of the Atlantic, Pacific & Gulf Oil Company and the Pennsylvania Petroleum Company, and by leave of court appellant, a Delaware corporation, intervened in the receivership proceedings, claiming certain amounts due it from the two corporations by reason of its purchase of certain accounts from them on which collections had been made by the receiver; it being alleged that the moneys so collected were trust funds in the hands of the receiver. The amount of the indebtedness was not contested, but it was claimed that, under the usury laws of Missouri, the claims were usurious, and that the appellant, being a foreign corporation which had not complied with the foreign corporation laws of the state of Missouri, could not maintain an action thereon.

The lower court by its decree allowed appellant's claims as general ones against the receiver, less a small counterclaim in favor of the receiver, but denied it the right to enforce the assignments, and held that the contracts constituting appellant's claims were usurious. From the decree entered, the intervener has appealed.

In the lower court two issues were presented: (1) Were the contracts of appellant, on which its claim was based, usurious; and (2) was appellant transacting business in Missouri without having complied with the foreign corporation law of that state?

Appellant alleged and proved three separate contracts as the basis of its claims. Two of these, dated respectively January 26 and September 9, 1931, were executed by appellant and the Atlantic, Pacific & Gulf Oil Company, and the third, dated December 9, 1930, was executed by appellant and the Pennsylvania Petroleum Company. The contracts are substantially identical in their terms. They recite a desire on the part of the party of the first part to obtain the advantages of the services offered by appellant, and a desire to sell appellant accounts receivable, notes, leases, mortgages, acceptances, contracts, and choses in action, and, by these contracts, appellant in form agreed during the continuance of the contracts to purchase of the Atlantic, Pacific & Gulf Oil Company and of the Pennsylvania Petroleum Company respectively, and said companies agreed to sell to appellant certain accounts receivable, notes, leases, mortgages, acceptances, contracts, and choses in action therein designated as accounts, the appellant paying the full face value thereof, of which a part (75 per cent. in one, and 70 per cent. in the other two contracts) should be paid in cash at the time of the acceptance of such assignments, the balance upon receipt of full payment of the obligation. Appellant permitted the other party to the contract to collect open accounts which had been assigned; it being granted the right to check its customers' books and records at least every thirty days or oftener.

Appellant, by these contracts, agreed to perform services as follows: (1) To place its collection department at the disposal of the other party, and upon request endeavor to collect direct from debtors any accounts purchased; (2) have one of its auditors every sixty days or less call at the place of business of the other party to examine, audit, and check its books, records, and accounts; (3) have the auditor give full instructions as to the best method of keeping books, records, and accounts; (4) pay all salary of the auditor and all expenses of traveling, auditing, accounting, and postage, unless incurred by a breach of warranty in respect to the assigned obligations; (5) place its credit department at the disposal of the other party, and pay for all credit investigations of obligations purchased or offered for purchase, and upon request give credit and financial advice; (6) permit the other party to submit any of its contracts to counsel for appellant for advice and opinion as to the form and legality thereof; (7) obtain and have on hand at all times sufficient funds to purchase of the other party all obligations acceptable to appellant; (8) supply all forms and stationery proper for the sale and assignment of obligations.

The agreement contained provision that all acts, agreements, certificates, assignments, transfers, and transactions under it, and all rights of the parties thereto, "shall be governed as to validity, enforcement, interpretation, construction, effect, and in all other respects by the laws and decisions of the State of Illinois."

Appellant's principal office and place of business was in Chicago, Ill., and it was licensed to do business in that state. The Atlantic, Pacific & Gulf Oil Company, a Delaware corporation, had its principal place of business at Kansas City, Mo., as did its subsidiary, the Pennsylvania Petroleum Company, a Missouri corporation. Each of the contracts here involved recites that it was entered into at Chicago, Ill., and in each instance was signed by officers of the Oil Company and the Petroleum Company at Kansas City, Mo., and was then sent to appellant at Chicago, where it was approved and executed by the officers of appellant, who retained one duplicate original and sent the other to the other party to the contract.

From time to time, assignments of accounts receivable were made to appellant. These were in writing, executed at Kansas City, Mo., and sent to appellant at Chicago, Ill., for approval. When so approved, remittances, pursuant to the contract, were made by appellant from Chicago. As collections of the accounts were made by the assignors, remittances were made to appellant in Chicago, and a report of collections was sent to appellant daily.

During the term of these contracts, and prior to the appointment of a receiver, auditors of appellant came to Kansas City, Mo., and examined the books of the two companies. In November, 1931, at the request of appellant, a Mr. Shriver was placed in the office of the companies at Kansas City to supervise the collection of money and the handling of the accounts. He remained on this work about a month; his salary being paid by the companies. Appellant kept a deposit in a Kansas City bank, had some fifteen or twenty other customers in Missouri at and prior to the time of entering into these contracts, and had solicitors and auditors on the road who checked customers' assigned accounts from time to time, and made suggestions as to the keeping of such accounts.

By statute of Illinois in effect during the time of all the transactions here involved, it was provided that, "with respect to money loaned to or in any manner due and owing from a corporation, the parties may stipulate or agree upon any rate of interest whatsoever, and take and pay the same." Smith-Hurd Rev. St. Ill. 1929, c. 74, § 4, Cahill's Illinois Statutes, 1929 Ed., c. 74, § 4, pp. 1594-1595. It is also provided by statute in Illinois that a corporation may "borrow money at such rate of interest as the corporation may determine without regard to or restrictions under any usury law" of that state, and may "mortgage or pledge its property, both real and personal, to secure the payment thereof." Smith-Hurd Rev. St. Ill. 1929, c. 32, § 6, Cahill's Illinois Statutes, 1929 Edition, c. 32, par. 6, p. 670.

In Missouri, parties may agree in writing for the payment of interest not exceeding 8 per cent. per annum. Section 2840, R. S. Mo. 1929 (Mo. St. Ann. § 2840, p. 4627). In case of a lien upon personal property pledged or mortgaged to secure indebtedness, the receipt or exaction of usurious interest makes the mortgage or pledge invalid. Section 2844, R. S. Mo. 1929 (Mo. St. Ann. § 2844, p. 4633).

The accounts receivable which were the subject-matter of these contracts bore no interest, but the contracts provided for a charge of 1/27 of 1 per cent. per day of the face value of the accounts, which is designated as a service charge. If this charge be considered as interest, it exceeded the 8 per cent. per annum maximum interest charge allowed by the law of Missouri. If, however, the contracts are to be governed by the law of Illinois, they are not subject to the charge of usury, even if we accept the view of the lower court that these contracts were for the loaning of money and pledging of security. Both parties seem to have adopted this construction of the contracts, but, in the view we take, we think it is immaterial whether they were contracts for the loan of money and the pledge of accounts receivable to secure such loan, or contracts for the purchase of accounts receivable; and we shall therefore accept the construction placed upon these contracts by the lower court and acquiesced in by both parties, expressing no opinion as to the correctness of that view.

Illinois was the principal place of business of appellant. So far as disclosed by the record, no officer or agent of appellant with executive authority has ever resided in or had an office in Missouri, nor attended to its business in Missouri. The contracts expressly declared that the law of Illinois should control. Wharton, in his Conflict of Laws, § 510, in discussing the rule with reference to a stipulation of this character, says: "Assuming that their real, bona fide intention was to fix the situs of the contract at a certain place which has a natural and vital connection with the transaction, the fact that they were actuated in so doing by an intention to obtain a higher rate of interest than is allowable by the situs of some of the other elements of the transaction does not prevent the...