Commercial Credit Co. v. Tarwater

• Decision Date: 28 October 1926
• Docket Number: 6 Div. 741
• Parties: COMMERCIAL CREDIT CO. v. TARWATER.
• Court: Alabama Supreme Court

110 So. 39

215 Ala. 123

COMMERCIAL CREDIT CO. v. TARWATER.

6 Div. 741

Supreme Court of Alabama

October 28, 1926

Appeal from Circuit Court, Walker County; R.L. Blanton, Judge.

Action on a promissory note by the Commercial Credit Company against E.W. Tarwater. From a judgment for defendant, plaintiff appeals. Transfer from Court of Appeals under Code 1923, § 7326. Reversed and rendered.

London Yancey & Brower and Whit Windham, all of Birmingham, for appellant.

Curtis Pennington & Pou, of Jasper, for appellee.

GARDNER J.

Appellee E.W. Tarwater, contracted to buy from the City Garage & Sales Company of Jasper, Ala., a Chevrolet touring car, the factory list price of which was $495 and the cash delivered price $600. He executed his negotiable note for $436 (representing balance due after cash payment of $218), payable in monthly installments over a period of one year, and in connection therewith a conditional sale agreement. In this latter agreement, the price of the car at the factory, and the cash delivered price as above noted, are set out in the following manner:

"List price, f.o.b. factory, $495, selling price includ. frt. and war tax $600, with extra equipment, if any, plus service charge including interest, insurance and handling charges, bringing total cost to buyer to six hundred fifty four dollars ($654.00). The buyer has this day paid to the seller two hundred eighteen dollars ($218), and the buyer agrees to pay to the seller or order four hundred thirty six dollars ($436) balance in installments as follows:" etc.

The note and contract, bearing date May 14, 1924, were duly assigned without recourse by the payee to appellant, Commercial Credit Company of New Orleans, La., for value and before maturity, being purchased at a discount of $54--the Commercial Credit Company paying therefor the sum of $382 by honoring draft of the City Garage & Sales Company in that amount drawn on said credit company at New Orleans.

Tarwater being in default, the Commercial Credit Company brought this suit to recover the amount due on said note, whereupon it developed that Tarwater, on account of fraudulent representations as to the car, rescinded the purchase and declined to take the same or make the cash payment as agreed. As against the original payee it appears the defendant had a perfect defense to the action, but as to this plaintiff it is not pretended that it had any notice of any such defensive matter.

There are numerous pleas, replications, and rejoinders interposed, but, as we view the case, there is only one question of prime importance, and that is whether or not the transaction is one tainted with usury so as to preclude the plaintiff from protection as a bona fide purchaser of commercial paper for value and before maturity. Hart v. Adler, 109 Ala. 467, 19 So. 894. A detailed consideration therefore of the several assignments of error will be pretermitted, and attention directed to this single question.

The mere fact that plaintiff purchased the note at a discount beyond the legal rate of interest does not constitute the transaction an usurious one.

"It is well settled with us, 'that commercial paper *** may be bought and sold on the market like any other chattel, at its real or supposed value, and that the transfer of such paper at a discount beyond the legal rate of interest is not usurious, although the holder may indorse it, unless the transaction was a mere device to evade the statute against usury.' " King v. People's Bank, 127 Ala. 266, 28 So. 658.

This is the generally accepted rule. 27 R.C.L. 215; 39 Cyc. 931, 932.

There is here no question of a loan or advancement by plaintiff to the City Garage & Sales Company (Commonwealth Commercial Co. Case, 278 Ill. 629, 116 N.E. 143, L.R.A.1917E, p. 1110), but a straight purchase or discount of the commercial paper with an assignment thereof without recourse. Such a transaction is not affected by the provisions of section 8568 of the Code of 1923. Woodall v. People's Nat. Bank, 153 Ala. 576, 45 So. 194; Hudson v. Repton State Bank, 16 Ala.App. 101, 75 So. 695.

We must look therefore to the original transaction in the contract to purchase. It is insisted on the part of appellee that the sum of $54 added to the cash delivered price of the car constitutes the transaction an usurious one; that the plaintiff was not only aware of this fact, but aided therein by furnishing the blank form as well as the schedule of prices. This is the theory evidently adopted by the trial court. On the other hand, appellant insists that the added sum represented the credit price of the car as distinguished from its cash price, and that the sale was valid and free from any taint of usury.

It is very well established that usury can only attach to a loan of money or to the forbearance of a debt. Davidson v. Davis, 59 Fla. 476, 52 So. 139, 28 L.R.A. (N.S.) 102, 20 Ann.Cas. 1130; Miller v. Graham, 196 Ala. 230, 72 So. 87; Wildsmith v. Tracy, 80 Ala. 258; Woolsey v. Jones, 84 Ala. 88, 4 So. 190; Lewis v. Hickman, 200 Ala. 672, 77 So. 46; 39 Cyc. 925.

If in fact the sum of $654 represented the credit price of the car, as distinguished from its cash delivered price of $600, the transaction is not usurious, as the parties had a perfect right to agree upon such a purchase though the advanced price should be in excess of the legal rate of interest upon the cash price. This principle is well recognized by the authorities. It is stated in the text to 27 R.C.L. 214, in the following language:

"On principle and authority, the owner of property, whether real or personal, has a perfect right to name the price on which he is willing to sell, and to refuse to accede to any other. He may offer to sell at a designated price for cash or at a much higher price on credit, and a credit sale will not constitute usury however great the difference between the two prices, unless the buying and selling was a mere pretense."

And, in 39 Cyc. 927, the following:

"A vendor may well fix upon his property one price for cash and another for credit, and the mere fact that the credit price exceeds the cash price by a greater percentage than is permitted by the usury laws is a matter of concern to the parties but not to the courts, barring evidence of bad faith. If the parties have acted in good faith such a transaction is not a loan and is not usurious."

The case of Davidson v. Davis, 59 Fla. 476, 52 So. 139, 28 L.R.A. (N.S.) 102, 20 Ann.Cas. 1130, is to like effect, and many authorities are cited in the note thereto in support of such general rule.

This principle was given recognition by this court in Dykes v. Bottoms, 101 Ala. 390, 13 So. 582, involving the sale of real estate. There, the purchaser had first contracted for a cash price, and placed in possession, but was unable to consummate the sale. A credit price was then agreed upon, which was 15 per cent. more than the originally agreed cash price. The court said:

"This was not usury. Respondent owed no debt for the forbearance of which 15

per cent. additional was charged, and the debt thus contracted was not a loan of money. There was a sale of land, the vendor willing to sell for so much at a cash valuation, or for so much on a credit, placing the difference between the

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