CIT Corporation v. United States

• Decision Date: 29 June 1945
• Docket Number: No. 10626.,10626.
• Citation: 150 F.2d 85
• Parties: C. I. T. CORPORATION et al. v. UNITED STATES.
• Court: U.S. Court of Appeals — Ninth Circuit

150 F.2d 85 (1945)

C. I. T. CORPORATION et al. v. UNITED STATES.

No. 10626.

Circuit Court of Appeals, Ninth Circuit.

May 28, 1945.

Rehearing Denied June 29, 1945.

COPYRIGHT MATERIAL OMITTED

Bonsted & Nichoson, of Yakima, Wash., R. E. Lowe, of Spokane, Wash., H. F. Birnbaum, of Los Angeles, Cal., and Cravath, Swaine & Moore, of New York City (Wm. Dwight Whitney, and John F. Dowd, both of New York City, of counsel), for appellant C. I. T. Corporation.

Joseph C. Cheney, Elwood Hutcheson, and John Gavin, all of Yakima, Wash., for appellant Thomas.

Edward M. Connelly, U. S. Atty., and Harvey Erickson and Frank Freeman, Asst. U. S. Attys., all of Spokane, Wash. (Charles Burdell, Sp. Asst. to Atty. Gen., of counsel), for appellee.

Before DENMAN, HEALY and BONE, Circuit Judges.

DENMAN, Circuit Judge.

This is an appeal from a judgment and sentence for conspiracy under 18 U.S.C. §§ 83, 88, 18 U.S.C.A. §§ 83, 88, to violate § 1731 of 12 U.S.C., 12 U.S.C.A. § 1731, of the National Housing Act, 52 Stat. 24, 25. The pertinent portions of the Act so charged to have been conspired to violate are "(a) Whoever * * * for the purpose of influencing in any way the action of said Administration under this chapter, (makes, passes, utters, or publishes, or causes to be made, passed, uttered, or published any statement, knowing the same to be false, * * *) or willfully overvalues any security, asset, or income, shall be punished * * *." (Emphasis supplied.)

The Federal Housing Administration promulgated and published in the Code of Federal Regulations the forms of documents to guide the Administration in the acceptance of loans for the insurance provided in 12 U.S.C.A. § 1703, 12 U.S.C.A. § 1703. Pertinent portions of the Regulations are

"§ 501.6 Credits. (a) The insured institution shall obtain a signed and dated credit statement-application from the borrower, on a form approved by the Administrator. The credit statement-application must, in the judgment of the insured institution, clearly show the borrower to be solvent, with reasonable ability to pay the obligation and in other respects a reasonable credit risk.

"(b) A separate credit statement-application is required in connection with each loan made or note purchased.

"(c) An insured institution acting in good faith may rely upon the statement of the borrower who signs the credit statement-application * * *." (Emphasis supplied.) Code of Federal Regulations, 1939 Supp., Title 24, pp. 1408, 1409.

It is apparent that the crime of conspiracy charged is committed when, as an overt act pursuant to the conspiracy, a credit statement-application, in the form prescribed by the regulations, but "knowingly" falsified and thus not in the "good faith" of the regulations, is made for the "purpose" of passing it on to the Administration.

The parties here charged with the conspiracy are the C. I. T. Corporation, hereinafter called the money lender, seeking to expand its interest income with loans at interest exceeding 9% to borrowers with limited or doubtful credit, seeking long-term 3-year installment loans not to exceed $2,500 each; and certain dealers and their agents, seeking profit in the sale of household implements and materials for household improvements to the borrowers and to be paid for with the borrowed money.

The motivation for the charged crime of conspiracy to make and pass on falsified credit statement-applications stating the credit standing of the borrowers for the purpose of obtaining the government insurance provided in the National Housing Act is apparent. The prospective expansion of loans at the high rate of interest, in an over-supplied money market, to be procured by the falsified credit statement-applications, would yield a large profit to the money lender with the protection of the lender by the government insurance of all the unpaid principal and interest of each loan up to 10% of the total of such loans. The dealer would make his profit on the expanded sales for the money loaned on documents which the dealer, with the connivance of the money lender, falsified by untruthful statements in the credit application form of regulation 501.6.

The money lender's appeal.

The money lender had a contract with the Federal Housing Administration which insured the repayment of loans and advances of credit made in accordance with the terms and conditions set up by the Administrator under the Act. To procure its Federal Housing insurance of its loans in an expanded loan drive in Yakima, Washington, and adjacent territory, the money lender made one Lou Wilkins, its manager for that area, its representative to exercise its "good faith" obligation to the Administrator in the procuring from borrowers their credit statement-applications. These applications were required by regulation 501.6, supra, to show "the borrower to be solvent, with reasonable ability to pay the obligation and in other respects a reasonable credit risk."

As to be expected, and as provided for in the regulations,¹ such a loan drive would be by co-operation of the money lender's manager and the dealers in household implements and supplies. Manager Wilkins co-operated with such dealers, among others, P. A. Thomas and J. Q. A. Price, officers of a furniture store in Yakima, doing business under the name of Thomas & Price. It was part of their business to sell furnaces and hot water heaters, these items being eligible equipment for property improvement loans under the Act. Herm G. Link was sales manager for Thomas & Price.

Manager Wilkins was pressed by other officers of the money lender in what are called "pep talks" in the vernacular of lending and vending and by a criticism that he was too severe in his credit ratings. His drive for loans was successful. Thomas & Price increased from approximately five to twenty-six their solicitors for credit statement-applications from prospective borrowers and purchasers of their goods with the borrowed money.

The money lender supplied the dealer's solicitors with the blank forms of credit statement-applications. Each applicant disclosed the intent to secure the FHA insurance. Each began with the words "The following information, including the reverse side hereof and made a part hereof, is furnished for the purpose of inducing you to grant credit under the terms of Title I of the National Housing Act." These were taken to prospective customers and borrowers to be filled out. The solicitors were told that they were not to concern themselves with the value of the customer's credit.

There is abundant evidence that Manager Wilkins and Sales Manager Link "knowingly" "caused to be made" the credit statement-applications for the Administrator in the following manner in some twelve transactions. Under Wilkins' and Link's instructions the solicitors procured the signatures of the borrowers on the application forms, leaving blank spaces for the borrowers' credit statements. The solicitors wrote down these statements on separate pieces of paper, telling the borrowers that the applications' credit statements would be filled in later.

The solicitors turned over the signed unfilled applications and the sheets with the credit statements to Link. He with Wilkins studied the statements and in some of the transactions thought them not sufficient to satisfy the requirements of regulation 501.6 — the regulation for the guidance of the Administrator for the insurance of the loans. Link, with Wilkins' knowledge, then proceeded to substitute in the blank spaces of the signed application forms more favorable, but false facts, as to the credit status of the borrowers. Link turned over to Wilkins the borrowers' notes and the falsified applications, which were accepted as if they were truthful by the money lender's manager — that is by it in bad, not good faith.

As we construe 12 U.S.C. § 1731, 12 U.S. C.A. § 1731, and regulation 501.6, the crime of conspiracy knowingly to make false applications "for the purpose of influencing * * * the action of said Federal Housing Administration" in insuring the loans sought by the applications was committed at this acceptance of the application by the money lender. In the language of the statute it then "makes" a "statement, knowing the same to be false" for the purpose of procuring the insurance from the Administrator.

The money lender's brief admits that it delegated to Manager Wilkins not only the corporate function of procuring the applications but also of purchasing the borrowers' notes to be insured by the Administration. This was done in each of the twelve transactions.

A second overt act, with the same bad faith, was performed by the money lender's manager when he passed the falsified applications on to go through other corporate officers on their way to secure the FHA insurance referred to in the statements.

It appears that no other officer or agent had the corporate function of determining the truth or falsity of the credit statement-application. That good faith function of the corporation required by regulation 501.6 was delegated entirely to Manager Wilkins. Other officers at the regional office in San Francisco, California, had the function of determining whether the loan should be further passed on to the Administrator. In a ratio of one in twenty applications, they made an investigation of another statement required by the regulations relative to the completion of the delivery of the articles to be brought with the borrowed money, a matter later considered, infra, in the Thomas appeal. In the instant twelve false applications, they were passed on to the Administrator, who accepted them for insurance. Subsequently some of these borrowers defaulted and the money lender collected its insurance from the FHA.

In all these transactions there is no evidence that Wilkins made any personal profit out of his corporate managerial function. The jury properly could infer that he had no other purpose than to obtain more secured loans...