General Motors Accept. Corp. v. Mid-West Chevrolet Co.

• Court: U.S. Court of Appeals — Tenth Circuit
• Writing for the Court: PHILLIPS and McDERMOTT, Circuit
• Citation: General Motors Accept. Corp. v. Mid-West Chevrolet Co., 66 F.2d 1 (10th Cir. 1933)
• Decision Date: 22 June 1933
• Docket Number: No. 807.,807.
• Parties: GENERAL MOTORS ACCEPTANCE CORPORATION v. MID-WEST CHEVROLET CO.

66 F.2d 1 (1933)

GENERAL MOTORS ACCEPTANCE CORPORATION v. MID-WEST CHEVROLET CO.

No. 807.

Circuit Court of Appeals, Tenth Circuit.

June 22, 1933.

Bruce McClelland, Jr., of Oklahoma City, Okl., and Anthony J. Russo, of New York City (Preston C. West and A. A. Davidson, both of Tulsa, Okl., and Pierce, McClelland, Kneeland & Bailey, of Oklahoma City, Okl., on the brief), for appellant.

C. B. Stuart and Philip N. Landa, both of Tulsa, Okl. (E. J. Doerner and Hal Crouch, both of Tulsa, Okl., and Merrill S. Bernard, of Sand Springs, Okl., on the brief), for appellee.

Villard Martin, of Tulsa, Okl., amicus curiæ.

Before PHILLIPS and McDERMOTT, Circuit Judges.

McDERMOTT, Circuit Judge.

The appellee recovered a judgment on the verdict of a jury for $377,718.00, in an action bottomed on the Oklahoma Usury Statute which provides that: "The taking, receiving, reserving or charging a greater rate of interest than is provided by the preceding section shall be deemed a forfeiture of twice the amount of interest which the note, bill or other evidence of debt carries with it, or which has been agreed to be paid thereon. In case a greater rate of interest has been paid, the person by whom it has been paid, or his legal representatives, may recover from the person, firm or corporation taking or receiving the same in an action in the nature of an action of debt twice the amount of the entire interest paid." O. S. 1931, § 9519.

The principal error assigned is that the trial court erred in refusing defendant's request to direct a verdict for that there was no substantial evidence of usury in the transactions complained of.

The petition alleges that in May, 1928, the parties entered into an oral contract by which the defendant agreed to loan to the plaintiff up to $500,000 a year during the ensuing four years, and the plaintiff agreed to deposit with the defendant, as collateral security, conditional sales contracts which the plaintiff might acquire from customers to whom it sold cars on time; that such contracts should be endorsed by the plaintiff unconditionally and with recourse, and that the plaintiff's liability thereon should be absolute; that the defendant furnished plaintiff the forms of the conditional sales contracts and notes to be used by the plaintiff in its dealings with the public, and the defendant prescribed the terms and rates of such contracts. That as further security for said loan, the plaintiff agreed to assign any funds that might be due it from the General Motors Corporation or any of its subsidiaries. That while from the face of the papers executed it appears that a sale of such contracts was accomplished, the words used were mere shams and devices to cover loans of money at usurious rates of interest, and that from all of the acts and conduct of the parties, it appears that the relationship was that of debtor and creditor, and not of seller and buyer. It is alleged that the defendant did not notify the makers of said conditional sales contracts of the assignments from the plaintiff to the defendant; that the liability of the plaintiff upon its assignment was absolute and unconditional; that the absolute responsibility of collecting the amounts due from the makers at all times rested upon the plaintiff. It is alleged that during the four years in question the defendant acquired from the plaintiff contracts covering the conditional sale of about 4,000 automobiles, and that the difference between the face of said contracts and the amounts paid by the defendant to the plaintiff was the sum of $188,859.00; the prayer is to recover twice that sum.

In its answer, the defendant denied that any oral agreement was entered into, and denied that the conditional sales contracts were assigned to it as collateral security; on the contrary, it alleged that it purchased outright said conditional sales contracts for a valuable consideration, all in accordance with a printed plan under which the defendant conducted its business. That under such plan, the liability of the plaintiff under its guaranty was not absolute, but contingent; that the defendant did notify the makers of said conditional sales contracts of their assignment, and did undertake and make collections thereof from the makers.

It may be well, at the outset, to resolve the dispute between the parties as to the nature of the action. The defendant asserts that the action is grounded upon the oral agreement which is alleged to have been made in 1928 between one Thompson, an officer of the plaintiff, and one Rhinehart, the manager of the defendant's branch at Oklahoma City. The defendant objected to the testimony as to this oral agreement upon the ground that there was no proof that a manager of one of the many branches of the defendant had any authority to alter or vary the terms of the written plan by which the defendant agreed to purchase paper from automobile dealers throughout the United States; and particularly that he had no authority to agree that the corporation would lend to the plaintiff, for a period of years, amounts up to $500,000 a year. The defendant further complains that the trial court, although requested so to do, refused to instruct the jury that unless such authority was found to exist, there could be no recovery. If the existence of the oral contract testified to by Thompson, and vigorously denied by Rhinehart, is indispensable to plaintiff's case, the contentions of defendant are unanswerable. Rhinehart was the manager of but one of the many branch offices maintained by defendant in its operations throughout the United States; the defendant had formulated a plan, in minute detail, for the acquisition of conditional sales contracts owned by dealers in products of the General Motors Corporation; in pursuance of that plan, it established branch offices, with managers who were authorized to carry out the plan in a particular territory. There is no evidence whatever of the authority of the manager of the branch at Oklahoma City to depart from the plan he was employed to execute, and to engage in the business of lending the funds of the defendant. The law does not clothe a branch manager with such far-reaching authority. The point is not of vital importance, however, for if the oral contract does underlie plaintiff's case, and if it were proven by competent evidence, the question then must be answered as to whether or not any loans were made under that oral agreement; and that inquiry immediately plunges us into the real question in the case, and that is, whether or not the transactions which actually took place were sales of the contracts, as they purport to be, or whether the contracts in fact were pledged as collateral to secure a loan made in pursuance to the oral agreement alleged. To put it another way: If the transactions carried on during the years were in fact loans tainted with usury, the plaintiff may recover irrespective of any antecedent agreement to exact usury. On the other hand, if the transactions were what they purport to be, sales of contracts, then they were not pledged as collateral in pursuance of the alleged agreement, and the plaintiff may not recover in this action because of an agreement which was not carried out. In probing into the pivotal question of whether the transactions as carried out were sales of the contracts with a contingent guaranty, or loans secured by collateral, conversations between authorized representatives of the parties are admissible, as are other relevant circumstances.

The issue in this case is not what the parties agreed to do or not to do; the issue is whether the defendant exacted a greater rate of interest than that permitted by the Oklahoma statute. That issue in turn, breaks up into two questions: (a) Were the transactions in fact loans of money by the defendant to the plaintiff, with the contracts pledged as collateral, or were they bona fide sales of paper? (b) If the transactions were in fact loans and not sales, was a greater rate of interest exacted than permitted by the Oklahoma statute?

The governing principles of law are not difficult nor seriously in dispute. While the usury statute is in derogation of common law, the Oklahoma Legislature has enacted that the statutes of Oklahoma in derogation of the common law "are to be liberally construed with a view to effect their objects and to promote justice." C. O. S. 1921, § 3563. The decisions of the Oklahoma Supreme Court are in accord. Citizens' State Bank of Ft. Gibson v. Strahan et al., 63 Okl. 288, 165 P. 189; Dies v. Bank of Commerce of Sapulpa, 100 Okl. 205, 229 P. 474. The burden of proving usury is upon him who alleges it, and it must be established by clear and satisfactory evidence. Houghton v. Burden, 228 U. S. 161, 172, 33 S. Ct. 491, 57 L. Ed. 780; First National Bank v. Phares, 70 Okl. 255, 174 P. 519, 21 A. L. R. 793. The Oklahoma Supreme Court has held that: "In determining whether or not a contract, lawful upon its face, is usurious, and when two constructions of the transaction are possible, one for and the other against usury, the one against usury will always be adopted." Foreman v. Needles, 78 Okl. 105, 188 P. 1087, 1089.

Whether a transaction is tainted with usury is a question of fact, but like all other questions of fact, it is a question of law whether the proof discloses substantial evidence thereof. In determining the fact of usury, courts are not bound by the form which the transaction took; on the contrary, it is not only the right but the duty of the court to probe behind the written contracts, and to examine all facts and circumstances which shed any light upon the true nature of the transaction. Those who exact usury are generally familiar with the usury laws; they are astute in devising schemes for the purpose of concealing their exactions. Courts should be as astute in revealing the truth of the transaction.¹

Before there can be usury, there must be a loan. Nichols v. Fearson, 7...