Bernhardt v. Atlantic Fin. Corp.

• Decision Date: 25 March 1942
• Citation: Bernhardt v. Atlantic Fin. Corp., 311 Mass. 183, 40 N.E.2d 713 (Mass. 1942)
• Parties: BERNHARDT v. ATLANTIC FINANCE CORPORATION.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

311 Mass. 183

40 N.E.2d 713

BERNHARDT

v.ATLANTIC FINANCE CORPORATION.

Supreme Judicial Court of Massachusetts, Suffolk.

March 25, 1942.

Bill in equity by Leonard Bernhardt against the Atlantic Finance Corporation to set aside a note and a conditional sale agreement attached thereto.From a decree for plaintiff, defendant appeals.

Affirmed.Appeal from Superior Court, Suffolk County; Jesse W. Morton, Judge.

Before FIELD, C. J., and DONAHUE, QUA, DOLAN, and RONAN, JJ.

Henry N. Silk, of Boston, for plaintiffs.

S. T. Lakson, of Boston, for defendant.

M. M. Goldman, of Boston, and H. Robinson, of Springfield, and M. Brown, of Boston, amici curiae.

DOLAN, Justice.

This is a bill in equity in which the plaintiff seeks to have a negotiable promissory note and a conditional sale agreement attached thereto declared void because of alleged violation of the provisions of G.L.(Ter.Ed.)c. 140, §§ 86-114, relating to small loans.The judge made a report of material facts found by him, and entered a decree declaring the instruments in question void and directing the defendant to deliver them to the plaintiff.The defendant's appeal from this decree brings the case before us.

Since the evidence is reported in full questions of fact as well as of law are brought before this court, whose duty it is to examine the evidence and to decide the case upon its judgment as to the facts, giving due weight to the findings of the trial judge, which will not be reversed unless plainly wrong.Kevorkian v. Moors, 299 Mass. 163, 166, 12 N.E.2d 111;Culhane v. Foley, 305 Mass. 542, 543, 26 N.E.2d 331.The recital of the judge in his report of material facts that the facts therein set forth are all the material facts upon which his order for decree was based does not affect this rule.It is still for us to decide the case upon our judgment as to the facts, giving due weight not only to those actually found by the judge but also to all other facts disclosed by the evidence, which we find ourselves.Atlantic National Bank of Boston v. Hupp Motor Car Corp., 298 Mass. 200, 202, 10 N.E.2d 131.The present case is not one where a report such as that under discussion is made by the judge but the evidence is not reported, and where accordingly there is no room for implication of further findings and the decree must stand or fall upon the facts found in the report.SeeSidlow v. Gosselin, 310 Mass. 395, 38 N.E.2d 665, and cases cited.

Material facts disclosed by the evidence, including those recited in the judge's report of material facts, may be summarized as follows: The defendant is engaged in the business of ‘financing and loaning moneys.’It is not licensed to conduct the business of making small loans.It had engaged in other transactions similar to the one involved in the present case, where as here the amount paid by it for notes and accompanying conditional sales agreements was less in each case than $300.

For some time prior to July 29, 1940, the plaintiff was negotiating with the Zanditon Auto Sales, Inc., hereinafter referred to as the dealer, relative to the purchase of a secondhand automobile at a price of $345.He was unable to pay this sum in cash.As a result of a conversation with the dealer, he went to the office of the defendant two or three days before July 29 and talked with its president and treasurer, one Epstein.The plaintiff told Epstein that he was supposed to meet Zanditon, the president of the dealer, there and said: ‘I am the fellow who was buying a car from Zanditon and Zanditon wanted you to purchasethe paper and you refused to.’Epstein replied: ‘That is right, the down payment [$55] is not sufficient for us to purchase the paper.’Zanditon came in and after some conversation Epstein said: ‘If the down payment was larger I would purchase the paper for $225.’Zanditon then asked Bernhardt if he could raise the money and the latter said that he thought it could be arranged.Epstein then said that if a down payment was made by the plaintiff of $120 he would purchase the paper.On or about July 29, 1940, the plaintiff purchased the vehicle from the dealer for $345, making a down payment of $120 partly in cash, and partly by note, payable to the dealer, leaving a balance due of $225.In payment of this balance the plaintiff executed a note payable to bearer for $283.20.This note was attached to a conditional sale agreement, which was also entered into on the same date between the dealer and the plaintiff, which set forth a ‘Total Cash Selling Price’ of $345 and a finance charge of $58.20.The note was expressed to be payable in twelve monthly installments of $23.60 each.On the same day the dealer indorsed the note in blank and executed an assignment of the contract and delivered the instruments to the defendant.The form of assignment was printed on the back of the agreement to which the note was attached.The from upon which these instruments were executed had been furnished by the defendant to the dealer.The defendant bought the ‘paper,’ that is, the note and agreement, for $225, which it paid to the dealer by check dated July 29, 1940.The discount of $58.20, which is to be treated as interest (Cuneo v. Bornstein, 269 Mass. 232, 236, 168 N.E. 810;Noteman v. Welch, D.C., 26 F.Sup. 437, 440) exceeded by far the twelve per cent permitted to be charged by persons who engage in the business of making loans of $300 or less without having obtained a license to carry on such business from the commissioner of banks as provided in G.L.(Ter.Ed.)c. 140, § 96, as amended bySt.1934, c. 179, § 2, so far as here pertinent.See also§ 90, as amended by§ 1 of said c. 179.The plaintiff made four of the monthly payments provided for in the note and agreement.Two of these payments were tendered later than the due dates and in connection with these payments the defendant required the plaintiff to pay two ‘reinstatement charges' of $1.50 each.In his report of material facts the judge ruled in effect that the transaction was void and that it was not exempt under St.1941, c. 158, from the provisions of G.L.(Ter.Ed.)c. 140 §§ 96-114, in the amended form in which they appeared when the transaction involved was entered into.

We first consider whether the transaction was void under the governing statutes in effect at the time of its consummation.We are of opinion that the proper conclusions from the facts hereinbefore recited are that the defendant bought the note and agreement in question for less than $300; that it had entered into other transactions of a similar character; that it thus engaged in the business of making small loans; that the amount exacted in the present case for interest and other expenses exceeded in the aggregate more than twelve per cent per annum, and that the defendant was not licensed to engage in the business of making small loans as required by G.L.(Ter.Ed.)c. 140, § 95, as amended bySt.1934, c. 179, § 2.It follows as matter of law that the note is void under the provisions of § 103.Modern Finance Co. v. Holz, 307 Mass. 281, 29 N.E.2d 922, and cases cited.The word ‘void’ as employed in s 103 is used in its strict technical sense.Cuneo v. Bornstein, 269 Mass. 232, 236, 237, 168 N.E. 810.The present case is not distinguishable from the Modern Finance Company case except that in the latter case the action was that of the indorsee-lender against the dealer-indorser, and that there the automobile had been repossessed by the plaintiff and sold under the conditional sale agreement and the only question involved was the validity of the note.We think that the facts that in the present case the suit is that of the maker against the defendant which bought the note, and that the automobile has not been repossessed by the defendant, do not take the case out of the principles laid down in the Modern Finance Company case, at least so far as the note is concerned, and that under these principles the note is void under the statutes in effect at the time of its execution and purchase by the defendant.

We consider the further question whether in the circumstances of the case hereinbefore set forth, the conditional sale agreement is also void, as decreed by the judge.If the requisite facts are shown, illegality, such as usury, is sufficient ground to justify application of the equitable remedy of cancellation of the contract.Pomeroy, Eq.Jur.(5th ed.) §§ 403 (pages 139, 140), 930, 957, 1377; Chafee, Cases on EquitableRemedies, 347, and cases cited.Under the provisions of the conditional sale agreement in the present case title to the vehicle was retained to secure the payment of the balance of any indebtedness thereon.The note and agreement were executed simultaneously.The details of the entire transaction, under which the defendant was to and did advance the balance of the money required for the purchase of the vehicle on unlawful terms as to interest, were not only known and agreed to in advance by the defendant but were dictated by it.The whole transaction was tainted with illegality, since under the statute the note, payment of which was secured by the conditional sale agreement, was void as before stated.Where public policy is considered as advanced by allowing either of two participants, or at least the more excusable of the two, to sue for relief against the transaction, then relief is given to him.Pomeroy, Eq.Jur.(5th ed.) § 403;Bredin's Appeal, 92 Pa. 241, 37 Am.Rep. 677.From considerations of public policy the plaintiff is not regarded as standing in pari delicto.Pomeroy, Eq.Jur.(5th ed.) § 937.

In Burnes v. New Mineral Fertilizer Co., 218 Mass. 300, 105 N.E. 1074, the defendant contended that, where a negotiable security is deposited as collateral security for a loan made in violation of the small loans act, not only is the deposit of the security void, but the security itself by force of that act becomes a nullity so that if it is afterwards separated from the void loan and...