James Bradford Company v. United Leather Company

• Decision Date: 14 September 1914
• Citation: 95 A. 308,11 Del.Ch. 46
• Court: Court of Chancery of Delaware
• Parties: JAMES BRADFORD COMPANY, v. UNITED LEATHER COMPANY

95 A. 308

11 Del.Ch. 46

JAMES BRADFORD COMPANY, v. UNITED LEATHER COMPANY

Court of Chancery of Delaware, New Castle

September 14, 1914

STATEMENT OF THE CASE. Receivers having been appointed for the United Leather Company on the ground of its insolvency it was found that certain book accounts representing sales made by the company of leather had been assigned by it as collateral security for notes made or indorsed by it and held by the Security Trust and Safe Deposit Company. In order to facilitate the collection of these accounts an amicable order was made allowing the trust company to continue to collect them and hold them subject to the order of the Chancellor. Later the receivers filed a petition to obtain payment to them of the amounts so collected, to be administered in the course of the receivership.

By its answer to the petition the trust company alleged, among other things, that on or about November, A. D. 1912, it made an agreement with David L. Levy, president of and representing the said United Leather Company, to loan the said company then and from time to time thereafter, money on its promissory note or notes payable on demand, with an assignment by it of accounts for money due from other persons and corporations for leather sold, to the amount of eighty per centum of the face value of said accounts, as collateral security and a pledge for the payment of said note or notes. The said United Leather Company proposed and agreed to pay to the trust company the sum of $ 125 per month, which amount it was agreed was to provide clerical services in keeping the record of said accounts so assigned, the payments made thereon from day to day, auditing the same with the books of the United Leather Company, and the collection of the money due on said accounts.

The United Leather Company further agreed to make good any of said accounts so assigned and unpaid at maturity by the payment thereof in cash, or by the substitution of other accounts in lieu thereof, the trust company agreeing to account to said United Leather Company for any amounts received by it in payment of any of said accounts in excess of the amount loaned thereon, reserving the right to apply said amounts to the payment of any note or notes held by it and secured by any account which was unpaid at maturity.

At the hearing of the petition oral testimony of witnesses was heard. It further was shown that at the time the agreement was made the trust company held notes of the Leather Company that between December 8, 1913, and August 14, 1914, a period of about eight months, 26 notes were taken by the trust company, some of them being renewals, and 405 accounts aggregating about $ 93,000 were assigned as collateral; that the moneys due on the accounts were in the first instance paid to the Leather Company and by it paid to the trust company as received; that to protect itself it was necessary for the trust company to keep a record of the assigned accounts, the payments made thereon, the goods returned by the purchasers, involving disputes as to the amounts payable by the debtors by reason of mistakes as to the quantity and quality of goods shipped, and other questions between the Leather Company and its customers, and also requiring the examination of the books of the company relating to the accounts; that this service required the attention of an officer of the trust company, in addition to his other duties, for about two hours every day, and every two or three weeks an examination of the books of the Leather Company, but that no extra clerk was employed, or any particular expense incurred by the trust company for the work so done. It further appeared that the arrangement was made at the request of the president of the Leather Company, and was voluntary and without pressure, and there was no testimony showing directly any intention to avoid the statute as to usury, other than the making of the agreement above mentioned, if that be sufficient. It also appeared that as the number of accounts diminished the amount of compensation taken by the lender was lessened substantially, though it had a right to a fixed sum per month independent of the number of accounts so handled.

Prayer of the petition denied.

Richard S. Rodney, for the petitioners.

Benjamin Nields, for Security Trust and Safe Deposit Co.

OPINION

THE CHANCELLOR

The questions of law raised in the proceeding and discussed are two: (1) Whether the agreement was usurious under the statute in existence prior to March 8, 1915, being sections 1 and 2 of chapter 77 of the Revised Code of 1915, viz., sections 2621 and 2622; and (2) if it was so usurious, whether the repeal of the above sections of the statute by the Act approved March 8, 1915, being chapter 213 of volume 28, page 631, Laws of Delaware rendered the agreement enforceable.

It is the right and duty of a receiver, or other fiduciary, to raise the question as to the validity of the agreement, for he acts for all who have interests against the borrowing company, and is, therefore, in a different position in this court, in this proceeding, from a borrower who seeks the aid of a court of equity against the lender on the ground of usury (27 Am. & Eng. Encyc. of Law [1st Ed.] 954, note 8; Id. 955, note 1; 39 Cyc. 1066); and the principles stated in Ennis v. Ginn, 5 Del.Ch. 180, do not apply.

In view of the conclusions as to the first question it is not necessary to consider the other one. The statute in force at the time of the transactions in question is as follows:

"The legal rate of interest is six per centum per annum; and if any person shall directly, or indirectly, take for the loan, or use of money, more than six dollars, for the loan, or use, of one hundred dollars, for one year, and in that proportion, he shall forfeit and pay, to anyone who will sue for the sum, a sum equal to the money lent, one-half for the use of the person so suing, and the other half for the use of the County where suit is brought."

Although this question has not been decided in this State, the statute which for many years has been in force here has been frequently construed. It has frequently been said that no ingenuity will be allowed to avoid the statute, and that the taking directly, or indirectly, of a higher rate of interest than six per cent. per annum is usury. In Newport Nat. Bank v. Tweed, 9 Del. 225, 4 Houst. 225, 231, the court said:

"In no case where there is a lending of money in which the person lending it, either directly or indirectly, takes or contracts for the loan or use of it at a higher rate of interest than six per cent. per annum, can the wit of man devise a plan to cover and conceal it, that the Court would not unkennel and expose the usury of it, and enforce the statute against it."

Frequently it has been held here that the usurious contract is void, and...