Seeman v. Philadelphia Warehouse Co
| Decision Date | 16 May 1927 |
| Docket Number | No. 198,198 |
| Citation | 47 S.Ct. 626,71 L.Ed. 1123,274 U.S. 403 |
| Parties | SEEMAN et al. v. PHILADELPHIA WAREHOUSE CO |
| Court | U.S. Supreme Court |
Mr. Samuel F. Frank, of New York City, for petitioners.
Mr. Owen J. Roberts, of Philadelphia, Pa., for respondent.
Respondent brought suit in the District Court for Southern New York to recover for the conversion of a quantity of canned salmon pledged to it as security for a loan. The pledgor, who had fraudulently regained possession, sold the salmon to petitioners. The defense set up was that the transaction between respondent and the pledgor was usurious, and therefore void under the law of New York, where the pledgor conducted its business, and where petitioners contend the pledge agreement was made.
The trial court charged the jury that the New York law was applicable. The jury returned a verdict for petitioners. The judgment on the verdict was reversed by the Circuit Court of Appeals for the Second Circuit. Philadelphia Warehouse Co. v. Seeman, 7 F.(2d) 999. This court granted certiorari. 269 U. S. 543, 46 S. Ct. 26, 70 L. Ed. 403.
Respondent is a Pennsylvania corporation, having its only office or place of business in Philadelphia. It has an established credit, and for many years has engaged in a business which is carried on according to the routine followed in the present case, which, respondent contends, results in loans of credit, and not of money. To applicants in need of funds it delivers its promissory note, payable to its own order and then indorsed. The applicant in exchange gives the required security-here ware- house receipts for the salmon-and a pledge agreement by which he undertakes to pay the amount of the note at maturity to respondent at its office in Philadelphia, and agrees that the collateral pledged shall be security for all obligations present and prospective. At the same time the applicant pays to respondent a 'commission' for its 'services' and for the 'advance of its credit,' computed at the rate of 3 per cent. per annum on the face of the note. He is then free to discount the note and to use the proceeds. In practice, as in the present case, respondent usually, with the consent of the borrower, delivers the note to its own note broker in Philadelphia, receives from him the proceeds of the note, less discount and brokerage, and pays or forwards the amount so received to the borrower. At maturity he must pay the face value of the note to respondent, or, as was the case here, renew the note by paying a new commission and the amount of the discount on the matured note. On each transaction the applicant thus pays, in addition to the amount of the proceeds of the note, the commission and the discount. Respondent, after taking up its note, retains the commission alone as the net compensation for its part in the transaction. In addition, the applicant may, as was the case here, pay the fees of the note broker and the fee or compensation of a loan broker, acting as intermediary in securing the accommodation by respondent, a total amount far exceeding 6 per cent., the legal rate of interest in New York. The commission and discount paid here varied from 8 1/2 to 10 1/2 per cent. per annum of the face amount of the notes, taking no account of fees paid to brokers.
In Pennsylvania, the exaction of interest on loans of money in excess of 6 per cent., the lawful rate, does not invalidate the entire transaction, but excess interest may be recovered by the borrower. Penn. Stat. 1920, §§ 12491, 12492; Montague v. McDowell, 99 Pa. 265, 269; Stay- ton v. Riddle, 114 Pa. 464, 469, 7 A. 72; Marr v. Marr, 110 Pa. 60, 20 A. 592. The business carried on by respondent as described, was considered and upheld by the Supreme Court of Pennsylvania as not usurious in Righter, Cowgill & Co. v. Philadelphia Warehouse Co., 99 Pa. 289.
To avoid the application of the Pennsylvania law to the present transaction and others for which the salmon was held as security, and to bring them within the prohibition of the New York law, petitioners at the trial relied on evidence that preliminary negotiations were had in New York City between the pledgor and the agent of respondent from which it might be inferred that the agreement was in fact made there, although the formal documents were dated at Philadelphia and respondent actually executed its note and delivered it to the note broker there. Petitioners also relied on the special circumstances of the case, particularly the fact that respondent itself procured the proceeds of the note in Philadelphia and forwarded them to the borrower in New York, as ground for the inference by the jury that the real transaction was the loan of money thinly disguised as a loan or sale of credit. As the total amount paid to respondent included both the discount and the commission, aggregating more than the legal rate of interest, it is insisted that these charges, if for a loan of money, were usurious, even though respondent retained only the commission after satisfying the demands of the discounting banks.
The court below held that there was no evidence that the transaction was other than that of its form, a loan of credit; that the agreement between the lender and the borrower was completed only when the respondent delivered its note to the broker in Philadelphia, and that the agreement must therefore be regarded as a Pennsylvania contract, valid under the law of that state; and that in any case, as Philadelphia, by the express terms of the contract, was made the place of payment by the borrower, the legality of the transaction must be determined by the law of Pennsylvania, and not of New York.
But, in the view we take, we think it immaterial whether the contract was entered into in New York of Pennsylvania, and it may be assumed for the purposes of our decision that the jury might have found that in fact the parties stipulated for a loan of money rather than of credit.1 Respondent, a Pennsylvania corporation having its place of business in Philadelphia, could legitimately lend funds outside the state, and stipulate for repayment in Pennsylvania in accordance with its laws,...
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