Conner Air Lines, Inc. v. Aviation Credit Corporation

• Decision Date: 12 August 1960
• Docket Number: No. 18071.,18071.
• Citation: 280 F.2d 895
• Parties: CONNER AIR LINES, INC. and F. A. Conner, Appellants, v. AVIATION CREDIT CORPORATION, L. B. Smith Aircraft Corporation and L. B. Smith, Appellees. AVIATION CREDIT CORPORATION, Appellant, v. CONNER AIR LINES, INC., F. A. Conner and Joseph G. Moretti, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

280 F.2d 895 (1960)

CONNER AIR LINES, INC. and F. A. Conner, Appellants, v. AVIATION CREDIT CORPORATION, L. B. Smith Aircraft Corporation and L. B. Smith, Appellees.

AVIATION CREDIT CORPORATION, Appellant, v. CONNER AIR LINES, INC., F. A. Conner and Joseph G. Moretti, Appellees.

No. 18071.

United States Court of Appeals Fifth Circuit.

June 30, 1960.

Rehearing Denied August 12, 1960.

COPYRIGHT MATERIAL OMITTED

Robert V. Smith, Washington, D. C., Laurence A. Schroeder, Miami, Fla., Robert P. Smith, Washington, D. C., John H. Wahl, Jr., Miami, Fla., for Aviation Credit Corp., L. B. Smith Aircraft Corp. and L. B. Smith; Smith, Ristig & Smith, Washington, D. C., Walton, Lantaff, Schroeder, Atkins, Carson & Wahl, Miami, Fla., of counsel.

Don G. Nicholson, Miami, Fla., for Conner Air Lines, Inc. and F. A. Conner.

Before CAMERON, JONES and BROWN, Circuit Judges.

JONES, Circuit Judge.

Conner Air Lines owned a DC-6 aircraft which had been outfitted for and used as a cargo carrier. Conner Air Lines, herein called Conner, desired to convert the plane into a passenger carrier. It negotiated with a number of firms for specified interior work and among the proposals was one from L. B. Smith Aircraft Corporation, herein called Smith Aircraft. Other work, in addition to that included in the initial proposal, was necessary, and 100 seats had to be purchased. Conner was without funds to cover the costs of making the conversion of the aircraft from the one type of use to the other. F. A. Conner, the president and dominant personality of Conner Air Lines, discussed his problem with L. B. Smith who, in addition to being the president of Smith Aircraft, was president of Aviation Credit Corporation, herein called Aviation Credit. Smith was the guiding genius of both of these corporations. As a result of these discussions a contract was made between Conner and Aviation Credit by which the latter undertook to advance some working capital funds to Conner, to discharge a substantial amount of Conner's existing indebtedness, and to pay for rehabilitation work on the aircraft in an amount up to, but not exceeding, $150,000. It was agreed that Conner would give Aviation Credit a bill of sale for the aircraft, and Aviation Credit would make a conditional sale contract by which Conner would reacquire title to the aircraft upon payment of $505,140.92, in accordance with the terms of a promissory note in that amount given to Aviation Credit by Conner and payable in installments over a thirty-two month period. The amount of the note was the aggregate of Aviation Credit's commitments with interest included at 11.58% computed on reducing balances. It was expressed in the agreement that Conner would be credited with any sums not advanced or expended by Aviation Credit to or for Conner. The bill of sale, conditional sale contract and promissory note were executed and delivered on November 23, 1956. F. A. Conner individually guaranteed the payment of the note.

At or about the time of the financing arrangement made with Aviation Credit by Conner, the latter entered into a contract with Smith Aircraft for specified work to be done at the agreed price of $150,000. Before February 23, 1957, the date when the first installment payable by Conner to Aviation Credit became due, a supplemental arrangement was worked out under which Smith Aircraft would do additional work on the Conner plane for stated sums. Conner agreed to increase the amount which it had previously agreed to pay for portions of the work which Smith Aircraft had undertaken to do by its original contract. It was claimed by Smith Aircraft that this additional amount was an adjustment made to offset charges incurred by it caused by failures and delays in performance by Conner of its contract promises. Conner asserted that the additional amount was a financing bonus. Aviation Credit agreed to finance the revised deal between Conner and Smith Aircraft and to extend the first four installments. A supplemental agreement was executed and an additional note was given and interest at the rate of 11.58% was included in the amount.

Conner defaulted in its payments to Smith Aircraft. The United States attached the aircraft for the lien of taxes claimed to be owing by Conner. Smith Aircraft was required to make disbursements for insurance, maintenance costs and to prevent the repossession of radio equipment installed on the aircraft. Aviation Credit gave notice of an intention to repossess the aircraft under the terms of its so-called conditional sale contract and brought suit for a declaration that it was the owner of the aircraft and that Conner had no interest therein. While the suit was pending Smith Aircraft, by amendment, prayed for foreclosure in the event the conditional sale contract should be held to be a mortgage. Conner and F. A. Conner individually asserted that the agreements had been procured through the fraud of Smith Aircraft and Aviation Credit and that usury had been exacted. A mortgage lien was asserted by F. A. Conner, and another by Joseph G. Moretti. The United States asserted its claims for taxes. Testimony was taken over a period of six days.

The district court held that the bill of sale, the conditional sale contract, and the supplemental instruments constituted a mortgage under the provisions of a Florida statute.¹ It was found that, although Smith Aircraft and Aviation Credit were separate legal entities with different managing officers, they were both under the control and domination of L. B. Smith who, in all material matters, acted for these corporations in the transactions with Conner. The control and relationship was such, as found the district court, that all information on the part of one was information on the part of the other. Of the amounts included in the renegotiated and supplemental agreement, the court found that $33,310.18 was a bonus, and that the bonus added to the interest computed at the 11.58% rate and included in the notes resulted in a charge exceeding the permissive 15% rate and hence constituted usury under the Florida law. The court found that Aviation Credit had advanced $459,083.58, exclusive of the bonus payment. It was found that Aviation Credit had advanced $9,703.99 for the preservation, maintenance and protection of the res. The court held Aviation Credit was entitled to recover this amount with interest at the statutory rate of 6%. It was concluded by the court that Aviation Credit was entitled to recover for the sums actually advanced, without interest or bonus, and less twice the sum of said bonus. It was held that Aviation Credit should be awarded an attorney's fee of $15,000, with the court expressing the opinion that "this charge is reduced from the normal because of the overcharge demands." The court's findings and conclusions were followed by a decree of foreclosure and sale.

Aviation Credit has appealed. It asserts that the bonus, so called, was not a financing bonus but a renegotiation of a contract between Smith Aircraft and Conner under which Smith Aircraft would otherwise have sustained a loss. It contends that the two corporations, related though they were through the domination of L. B. Smith, were nevertheless separate, and a sum contracted for as a profit by one should not be credited to the other as a usurious exaction. Aviation Credit contends that, assuming there was usury, the court misapplied the Florida usury statute in the imposition of the penalty. Finally, it is said the appellant was entitled to, but was not allowed, a reasonable attorney's fee. Conner and F. A. Conner individually, take an appeal and assert that the amount of the penalty for usury as found and imposed by the court was less than the Florida statutory provision requires.

A Florida statute² passed in 1925 prohibited corporations from interposing the defense of usury. This provision was repealed³ in 1953, and the defense of usury then became available to corporations as well as to individuals. Sodi, Inc. v. Salitan, Fla., 68 So.2d 882.

The transaction which was found by the district court to make a usurious transaction was the inclusion of the item of $33,310.18 in the supplementary agreement. The appellant urges that this sum, which Conner agreed to pay, was a profit to Smith Aircraft for work done and to be done by it, and that even though the profit be unreasonable it does not follow that it should be treated as usury so far as Aviation Credit is concerned. Authorities are cited showing it to be the law of Florida that the difference between a cash price offered and a credit price agreed upon is not to be regarded as interest so as to invoke the application of the law against usury. Dillon v. J. W. Walter Co., Fla.App., 98 So.2d 391. But here our problem is not that simple. When the supplemental agreement was made Smith Aircraft had performed a part of the work it had undertaken to do and it was obligated to perform the rest. There was to be a forbearance by Aviation Credit of the then maturing installments of Conner's indebtedness. Other financing was undertaken. Smith Aircraft and Aviation Credit were both represented by L. B. Smith and there is no doubt but that he was authorized to speak for both. The district court found that the $33,310.18 was to be paid as a financing bonus. We cannot say that the facts do not admit of this inference or that the finding is erroneous.

Where there is an intent on the part of a lender to make a loan or to extend a...