Bundy v. Commercial Credit Co.

• Decision Date: 25 March 1931
• Docket Number: 468.
• Parties: BUNDY v. COMMERCIAL CREDIT CO.
• Court: North Carolina Supreme Court

157 S.E. 860

200 N.C. 511

BUNDY v. COMMERCIAL CREDIT CO.

No. 468.

Supreme Court of North Carolina

March 25, 1931

Appeal from Superior Court, Mecklenburg County; Stack, Judge.

Action by C. W. Bundy, receiver of Triplett Lumber Company, against the Commercial Credit Company. From the judgment, both parties appeal.

New trial.

See also, 198 N.C. 339, 151 S.E. 626.

The Triplett Lumber Company was a North Carolina corporation with its office and place of business in Charlotte, and engaged in the wholesale lumber business. In the due course of its business it purchased lumber from various millowners and had the same shipped directly to its customers. The company paid millowners for the lumber and upon shipment charged the customers with the purchase price. Apparently the lumber company was doing a large and profitable business, and hence it was compelled to have a large amount of money available to carry on its extensive operations. On September 2, 1926, the lumber company made an agreement with the defendant Commercial Credit Company.

This agreement is usually referred to as a "covering agreement" and provided, in substance, that the lumber company would sell and the credit company purchase all such open accounts, notes, drafts, acceptances, leases, mortgages and choses in action belonging to the lumber company or accepted by it in due course of trade. The credit company agreed to purchase such evidences of indebtedness "as may be acceptable" and to pay therefor 100 per cent. of the face value thereof less certain charges. The purchase price of such accounts was to be paid as follows: (a) 77 per cent. of net face value upon acceptance by the credit company; (b) the remaining 23 per cent. to be paid in cash to the lumber company when such evidences of indebtedness were actually paid by the customers or purchasers of the lumber from the lumber company. The agreement further provided that the defendant should perform certain services which are not deemed material to this controversy. The compensation provided for the credit company by the terms of the agreement was 1/30 of 1 per cent. of the net face value of accounts for each day, etc. It was also provided that the lumber company should send all original checks, drafts, notes, and other evidences of payments received by it from its customers to the office of the defendant in Baltimore, Md. The following clauses appear in the agreement: (1) All acts, agreements, certificates, assignments, transfers, and transactions hereunder, and all rights of the parties hereto, shall be governed as to validity, enforcement, interpretation, construction, effect, and in all other respects by the laws and decisions of the state of Delaware. (2) This agreement shall not become effective until accepted by its duly authorized officers of second party (defendant credit company) at Baltimore, Md.

The record shows that the agreement "was accepted in Baltimore, Md., by Commercial Credit Company, this the 3rd day of September, 1926."

There were various other documents introduced in evidence disclosing the method of business transacted by the parties. When the lumber company sent notes, acceptances, etc., to the credit company, the credit company would issue a creck in accordance with the terms of the agreement drawn upon its bank account in Baltimore, Md., and these checks would be forwarded by mail to the lumber company at Charlotte and used in the due course of business.

In the course of time the lumber company became insolvent, and thereafter, on March 12, 1929, the plaintiff Bundy was made permanent receiver of the Triplett Lumber Company. The receiver undertook to collect accounts due the lumber company, and found that many of these accounts were claimed by the defendant Commercial Credit Company, and that said defendant had notified the debtors not to pay the receiver. Thereupon the receiver instituted this action against the defendant to assert in the receivership proceedings any right, title, or interest it had to said claims. The defendant filed a claim with the receiver for the sum of $12,051.40. When the complaint seeking an injunction was filed and the receivership made permanent, the defendant filed an answer setting up the contract between it and the lumber company and asserting that it was the owner of and entitled to the proceeds of certain accounts. The plaintiff filed an amended complaint, and alleged that said contract was usurious, in that it resulted in an interest rate of approximately 15 per cent. It was further alleged that the signing of the contract in Baltimore, Md., was a scheme and device to evade and set at naught the usury laws of North Carolina. Whereupon, the plaintiff demanded judgment against the defendant for $19,830.78. The defendant filed a reply to the amended complaint, alleging (a) that the the transaction contemplated by the contract was a purchase and not a loan; (b) that the express terms of the agreement provided that it should be governed by the laws of Delaware which were specifically pleaded; (c) that the law of Maryland, where the contract was actually executed, governed the dealings between the parties. The Maryland law was also specifically pleaded. A reply was filed to the amended answer and a replication to the reply and various other pleadings filed setting forth the various aspects of the cause of action of plaintiff and the various defenses interposed by the defendant.

The cause came on for trial upon the following issues:

1. "Is the plaintiff the owner of the accounts referred to in the complaint, as alleged in the complaint?"

2. "Did the defendant knowingly take, receive, reserve or charge the Triplett Lumber Company a greater rate of interest than six per cent per annum, as alleged in the amendment to the complaint?"

3. "Were the contract and dealings between the Triplett Lumber Company and the defendant governed and controlled by the laws of North Carolina?"

4. "What amount of penalty, if any, is the plaintiff entitled to recover of the defendant for usurious interest paid?"

5. "What amount is the plaintiff indebted to the defendant?"

The jury answered the first issue "Yes," the second issue "Yes," the third issue "Yes," the fourth issue "$11,000.00," and the fifth issue"F$12,051.40.'D' Judgment was entered to the effect that the defendant was entitled to prove an unsecured claim in the sum of $1,051.41.

From judgment so rendered, both parties appealed.

John M. Robinson and Hunter M. Jones, both of Charlotte, for plaintiff.

Duane R. Dills, of New York City, J. Laurence Jones, and J. L. Delaney, both of Charlotte, and Jack J. Levinson, of New York City, for defendant.

BROGDEN J.

The paramount questions of law to which all others are subsidiary may be stated as follows:

1. Was the agreement a Maryland or a North Carolina contract?

2. What are the rights of the parties thereunder?

The evidence bearing upon the execution of the contract is rather uncertain and indefinite. It appears that the defendant maintained a branch office in Charlotte, N. C., and that Mr. Murphy was in charge thereof. Mr. Triplett, president of the insolvent lumber company, testified with reference to the negotiations leading up to the execution of the contract as follows: "We conducted negotiations looking towards the making of the contract with the Commercial Credit Company with Mr. Murphy. He came into our office quite often prior to the contract looking for business. We made a contract with Mr. Murphy; of course, he did not sign the contract. We conducted negotiations for the contract with Mr. Murphy in Charlotte, North Carolina. *** I was in my office in Charlotte, North Carolina, when I signed that contract on behalf of Triplett Lumber Company. *** Those signatures were witnessed by Mr. Murphy in our office." The foregoing is substantially all of the evidence offered in behalf of plaintiff touching the actual execution of the agreement.

The defendant offered the following testimony of the assistant secretary. "I first saw this contract in Baltimore. It came through the mail to my desk. I signed it. F. M. Nicodemus, treasurer of the company at that time, also signed it on the 3rd day of September, 1926. It was signed in duplicate. After signing it the duplicate was forwarded by me to the Triplett Lumber Company; also copy of the contract for our files and the original copy was made a part of my permanent records in the Baltimore office. I spoke of forwarding, I mean mailed it."

"By the great weight of authority it is held that, in a case like the present one, every presumption is against an intention to violate the law, so that, where notes are executed in one state and payable in another, the parties will be presumed to have contracted with reference to the law of the place where the transaction would be valid rather than in view of the law by which it would be illegal, provided, however, that there is no evidence of bad faith or of an intention to evade the usury law of the latter state. Therefore, when a contract is usurious by the law of the state wherein it was made, but not according to that of the state wherein it is to be performed the parties will be presumed to have contracted with reference to the law of the latter state, and the contract will be upheld, subject to the conditions of good faith just set forth." Zimmerman v. Brown, 30 Idaho, 640, 166 P. 924, 925. Moreover, it is a generally accepted principle that "the test of the place of a contract is as to the place at which the last act was done by either of the parties essential to a meeting of minds. Until this act was done there was no contract, and upon its being done at a given place, the contract became existent at the place where the act was done. Until then...