In re Fishel, Nessler & Co.

• Decision Date: 01 December 1911
• Citation: 192 F. 412
• Parties: In re FISHEL, NESSLER & CO.
• Court: U.S. District Court — Southern District of New York

192 F. 412

In re FISHEL, NESSLER & CO.

United States District Court, S.D. New York.

December 1, 1911

Mr Stroock and Chas. Levy, for trustee.

Mr Kresel, for National Discount Co.

Mr Wolf, for Traders' Commercial Co. and Bloomingdale Bros.

HOUGH District Judge (after stating the facts as above).

The principal question submitted must depend for solution on the law of New York as declared in its statutes and interpreted by its highest courts. It is often said that usury consists in exacting a higher rate of interest than that authorized by law. The expression is colloquial, and does not pretend to exactness, yet the idea that usury is allied to interest (eo nomine) has appeared in argument, and befogged the matter.

Section 373 of the general business law (Consol. Laws 1909, c. 20) declares that:

'All * * * contracts or securities * * * all deposits of goods or other things * * * whereupon or whereby there shall be reserved or taken, or secured or agreed to be reserved or taken any greater sum * * * or value, for the loan * * * of any money (than six per cent. per annum) shall be void.'

Language could not be broader or more plain; and, under it, courts are bound to inquire whether by any device, however circuitous, or under any name, however fair in sound, a borrower is surrendering and a lender exacting more for the use of money than an equivalent of the legal rate of interest, whether paid in money or otherwise.

Considering the attitude of most states and countries on this subject, the New York act seems archaic, but that can make no difference in the duty of courts. Since, however, in order to reveal usury, it may be necessary by oral evidence to prove the falsity of paper contracts fair and legal on their face, experience has shown that the statute contains a temptation to rascally borrowers to avoid payment of just debts by offering usury as a defense. On this knowledge of human weakness are founded certain rules of decision-- judge made, but long since established beyond cavil.

Thus the burden is on him who alleges usury to prove it by clear and satisfactory evidence-- the offense is largely one of intent-- and the unlawful usance must be given and retained in pursuance of an agreement, mutual and existing at the inception of the transaction. Rosenstein v. Fox, 150 N.Y. 354, 44 N.E. 1027, and cases cited.

It also happens not infrequently that the lender does more than merely hire out his money, and for such additional service he is entitled to be paid, if the service be actual, and whatever objection there may be to his rate of charge, it cannot be based upon the usury statute, unless the whole transaction is plainly but a cover for unlawful lending. Re Wilde's Sons (D.C.) 133 F. 562, and cases cited.

But if, when all the evidence and explanations have been considered, it clearly appears that all the lender did or expected to do was to loan, and all the borrower got or expected to get, was money, then any word or phrase, any collateral or cotemporaneous agreement by virtue of which more than the amount of the lawful rate flows into the pockets of the lender, must and should be swept aside, and the intended and agreed upon usury denounced. See especially Heidenheimer v. Mayer, 42 N.Y.Super.Ct. 506,affirmed 74 N.Y. 607.

The facts of this case are not difficult, indeed in one sense of that word, they are not disputed; i.e., it is not denied that certain papers were exchanged, and many words spoken, as a result of which a course of business began some months before bankruptcy and continued down to that calamity. The contest rages, not over facts in the sense just illustrated, but over the inferences of intent to be drawn from admitted actions.

The master's finding is that he cannot draw the inference of intent necessary to establish the conclusion of usury because the trustee has not sustained the burden of proof. This really means that the admitted facts do not warrant the inference and conclusion above stated; and produces for the court a question rather of law than fact, a question, indeed, of 'secondary law' as to the sufficiency of evidence conclusive on the facts, using that word in its simple meaning of things seen and heard, spoken, or written.

In July, 1910, the bankrupts were in and wished to borrow on open and unmatured accounts. They sought information from the discount company, and received a letter containing the following:

'We make advances upon outstanding accounts equal to 75% of the net face value of the invoices, the other 25% being returned to you when payments are made to us.

'Our commission charge is 5% on the gross amount of business assigned, and we charge interest on all loans made at the rate of 6% per annum upon daily balances. That is to say, we charge interest at the rate of 6% per annum on all moneys loaned and we credit your account with interest at the rate of 6% per annum upon all moneys received by us.'

On August 8th they signed a printed form agreement, by which they were to actually assign and transfer accounts to the discount company, and receive a stipulated percentage of their face by way of loan. The agreement was to cover all future transactions, and all accounts assigned were to be security for all loans. A regular scheme of future business was set forth in this document. It contained especially the following sections vital to the...