Brierley v. Commercial Credit Co.

• Decision Date: 09 December 1929
• Docket Number: No. 13362.,13362.
• Parties: BRIERLEY et al. v. COMMERCIAL CREDIT CO.
• Court: U.S. District Court — Western District of Pennsylvania

43 F.2d 724 (1929)

BRIERLEY et al. v. COMMERCIAL CREDIT CO.

No. 13362.

District Court, E. D. Pennsylvania.

December 9, 1929.

Frank A. Harrigan, of Philadelphia, Pa., for plaintiff.

Thomas Stokes, of Philadelphia, Pa., Duane R. Dills, of New York City, Pepper, Bodine, Stokes & Schoch, of Philadelphia, Pa., and Dills & Towsley, of New York City, for defendant.

KIRKPATRICK, District Judge.

Sur Pleadings and Proofs.

This is an action at law brought by the receivers in equity of William H. Lorimer's Sons Company (which will be referred to as Lorimer), plaintiffs, against the Commercial Credit Company (which will be referred to as the credit company), defendant, to recover the sum of $54,328.51, alleged to be usurious interest paid by Lorimer to the defendant in the course of business during the period from December 30, 1919, to August 18, 1927. The case tried to the court without a jury.

Findings of fact.

1. Lorimer is a Pennsylvania corporation, and was during the years 1919-1927 engaged in the business of dyeing and mercerizing cotton yarns at Philadelphia, Pa. The defendant is a Delaware corporation with its principal office at Baltimore, Md.

2. The contract under which Lorimer paid to the defendant the sums of money which the receivers now seek to recover (which will be referred to as the covering contract) was signed by Lorimer at Philadelphia on December 23, 1919, and then transmitted by mail to Baltimore. After some delay it was accepted and signed by the credit company at Baltimore on December 30, 1919, and a duplicate of the original accepted copy was mailed by the credit company from Baltimore to Lorimer at Philadelphia. I find as a fact that the place of making the contract was Baltimore, Md.

3. The terms of the covering contract may be summarized as follows: (1) The credit company agreed to "buy" from Lorimer from time to time such accounts receivable belonging to Lorimer as might be acceptable to it, and to pay 77 per cent. of the gross face value of each account offered upon its acceptance, and the balance (less certain charges) upon payment to it in full of the accounts. (2) Although each account, together with all rights in connection with it, was to be assigned absolutely to the credit company at the time of its offer and acceptance, Lorimer, in order to avoid impairing its standing with its customers, was given the right to receive at its office, remittances by debtors on the accounts, or, in other words, so far as the customer debtors was concerned, Lorimer would collect the accounts; no notice being given to them of their assignment. However, checks, drafts, notes, acceptances, and other evidence of payment received by Lorimer were to be indorsed and transmitted directly to the credit company, and Lorimer agreed that the credit company's auditors should have full access to its books, expenses of such examination to be paid by it. (3) Lorimer "warranted" that every debtor whose account might be offered would be solvent and generally that each account would be unincumbered, promptly paid when due, and collectible without loss or litigation. (4) The credit company agreed to perform certain services for Lorimer. These consisted of collecting, upon request, accounts direct from debtors; advising Lorimer as to the best method of keeping books, records, and accounts; placing its credit department at Lorimer's disposal and giving credit and financial advice upon request; and also furnishing the opinion of its legal department upon the form and legality of Lorimer's sales contracts. In addition to these services, the credit company agreed to accept at par subject to payment all remittances on accounts forwarded to it by Lorimer and to obtain forms proper for the assignment of the accounts. (5) The contract provided that for these services and also the inspection and audit of Lorimer's accounts (which latter it may be noted was not directly for Lorimer's benefit, but rather a condition upon which its right to collect direct from debtors depended) the credit company was to receive compensation fixed at 1/30 of 1 per cent. of the gross value of accounts accepted by it, for each day from the date of acceptance until paid, plus $5 per thousand on the first $100,000 of such accounts. (6) Finally the parties agreed that the contract and all rights thereunder should be governed as to validity, enforcement, interpretation, construction, effect, and in all other respects by the laws of the state of Delaware.

4. I find as a fact that, with the exception of the periodical examination and audit of Lorimer's accounts, none of the services referred to were rendered by the credit company, that none were requested by Lorimer at any time, and that it was not contemplated by either party at the time the contract was entered into that such services would be required or rendered.

5. A detailed account of the manner in which the covering contract was performed appears in the stipulation of facts agreed to by the parties, and I find the facts to be as stipulated. The following general summary may be made: From day to day during the life of the agreement, Lorimer mailed, from Philadelphia to the credit company at Baltimore, schedules of accounts duly assigned, and the latter, having checked the credit risk of the debtor customers, would immediately mail its check for 77 per cent. of the face value of the accounts to Lorimer. When Lorimer received payments from its customers, it mailed each payment in its original form to the credit company, except when notes were received, in which case Lorimer sent its own check for the amount, together with the note, the note being thereafter returned to Lorimer as its property and collected by it. The credit company would indorse and deposit the checks thus received, and as soon as they had received the cash for the same, would remit to Lorimer the balance of the face value of the account not already advanced, or 23 per cent. Defendant's counsel in his brief states that from this remittance of 23 per cent. there was deducted in each case the credit company's charges. Apparently this is not disputed by counsel for the plaintiff, and, although it does not appear from the control sheets or portions of the credit company's accounts which were placed in evidence, I find it to be the fact, subject to correction on further proof or explanation, if it be material. At present it seems to be unimportant in just what manner the credit company collected its charges.

6. The money received by Lorimer was used in Pennsylvania. Lorimer performed in Pennsylvania its several obligations as to the manner of repayment, i. e., mailed bills to its customers, received their checks in payment, indorsed the same, and mailed them to the credit company at Baltimore. Where Lorimer's customers did not pay in cash but gave notes, Lorimer mailed the note with its check at Philadelphia, received the note back again at Philadelphia, and proceeded to collect it where payable. The mailing of the checks for advances to Lorimer and the depositing in the bank of the customers' checks received by the credit company in payment of the account took place in Maryland.

7. The total amount of charges received or retained by the credit company under the provisions of the covering contract, from December 30, 1919, to August 16, 1927, on accounts assigned to it by Lorimer amounted to $80,645.35. If the transactions under the contract be considered loans to Lorimer by the credit company, then this amount is $54,328.31 in excess of interest at 6 per cent. on the balances due from Lorimer to the credit company.

8. On April 13, 1927, there were outstanding accounts receivable, previously assigned by Lorimer to the credit company, and unpaid by the debtor customers or by Lorimer, amounting in the aggregate to $20,890.25. All other accounts receivable assigned by Lorimer under the covering contract had been paid either by debtor customers or by Lorimer before that date. No accounts receivable were assigned by Lorimer to the credit company after March 10, 1927.

9. The plaintiffs, Brierley and Fleming, were appointed receivers of William H. Lorimer Sons Company by the United States District Court for the Eastern District of Pennsylvania March 18, 1927, and subsequent to their appointment made demand from the credit company for the amount of $54,328.51, which amount they alleged to be money collected as usury. The demand was refused. This suit was brought October 15, 1927.

Discussion.

The plaintiff's position is that the transactions between Lorimer and the credit company under the covering contract were loans, that the rate of interest charged was usurious and unlawful, and that the interest paid may be recovered back.

The first question is as to the nature of the covering contract. The defendant contends that it is a sale and purchase of accounts. Certainly it is such in form. The plaintiff, however, says that the real nature of the transaction is a loan or loans of money secured by the assignment of accounts as collateral. The case of Root v. Republic Acceptance Corp., 279 Pa. 55, 123 A. 650, shows how far courts will go in totally disregarding the form of a transaction when it clearly appears that the parties intended something else. The defendant endeavors to distinguish the case of Commercial Security Co. v. Holcombe (C. C. A.) 262 F. 657, in which a somewhat similar transaction was held to be a loan, on the ground that in that case the borrower had the right to reacquire the paper (corresponding to the accounts in the instant case) by paying the amount called for with interest. I think, however, that the obligation to return or the right to reacquire the thing transferred or assigned is not nearly so essential an element where the subject-matter is a chose in action or a mere right to receive money as...