State ex rel. Freebourn v. Merchants' Credit Service, Inc.

• Decision Date: 12 February 1937
• Docket Number: 7527.
• Citation: 66 P.2d 337,104 Mont. 76
• Parties: STATE ex rel. FREEBOURN, Atty. Gen., v. MERCHANTS' CREDIT SERVICE, Inc., et al.
• Court: Montana Supreme Court

66 P.2d 337

104 Mont. 76

STATE ex rel. FREEBOURN, Atty. Gen., v. MERCHANTS' CREDIT SERVICE, Inc., et al.

No. 7527.

Supreme Court of Montana

February 12, 1937

Rehearing Denied March 30, 1937.

Original proceeding by the State of Montana, on the relation of Harrison J. Freebourn, Attorney General of the State of Montana, against the Merchants' Credit Service Incorporated, and Palmer Johnson to have them adjudged in contempt of court for practicing law without a license.

Defendants found guilty of contempt.

ANGSTMAN J., dissenting.

Harrison J. Freebourn, Atty. Gen., H. C. Hall, Sp. Atty. Gen., John W Bonner, of Helena, for the Montana Bar Association, and Edward C. Alexander, of Great Falls, for relator.

John McKenzie, R. M. Armour, L. J. Molumby, Charles Davidson, and C. T. Busha, Jr., all of Great Falls, amici curiae.

Toomey & McFarland and John W. Chapman, all of Helena, for respondents.

George E. Hurd, of Great Falls, for the Associated Bureaus of the States of Colorado, Wyoming, and New Mexico, amicus curiae.

ANDERSON Justice.

This is an original proceeding brought to have the defendants adjudged in contempt of court for practicing law without a license. Many lawyers throughout the state, as well as collecting agencies, have been permitted to appear as amici curiae. After issues were framed by the pleadings the court appointed Hon. A. F. Lamey, a practice attorney of Havre, as referee to take testimony. The testimony was taken at a hearing held in Great Falls and has been certified to this court. The important facts are these:

The Merchants' Credit Service, Inc., is a Montana corporation with its principal office in Great Falls. Its business is that of carrying on a collection business. The defendant Palmer Johnson is its general manager. It solicits, from merchants and others, the assignment of debts for collection. Creditors are advised that the corporation has in its employ attorneys at law who are retained to represent it wherever necessary. It uses letterheads representing that it can garnishee wages and attach property. Some creditors assign claims by using what is called a "claim sheet" furnished by defendants. This claim sheet is in the following form:

"Merchants' Credit Service, Inc., Great Falls, Montana.

Gentlemen: The accounts listed on this sheet are hereby assigned to you for collection in accordance with your regular schedule of rates and terms. The undersigned guarantees them to be just, correct and unpaid, and will furnish you with a fully itemized statement of any of these accounts upon request. None of these accounts are at present listed with other collectors or with attorneys. You will be notified promptly of any payments made directly to us by any of these debtors and your regular terms will apply to such payments. If it is necessary, you are authorized to forward any of these accounts to other collectors or to attorneys, and it is expressly understood that we will not hold you responsible for the efficiency, honesty or defalcation of such forwardee. Should you deem it necessary to file suit on any of these accounts, this assignment makes you the party in interest in whose name suit is to be filed; if an attorney is necessary he is to be selected, engaged and compensated by you, and in all ways the handling and settlement of the suit is left to your choice, judgment and discretion.

Date: _______ 19__.

Signed ___________

By ___________"

(On the sheet appear five columns, headed as follows:)

"Name.

Last Known Address.

Amount.

Last Date of Purchase or Service.

Remarks: Give any information you can regarding debtor's employment, etc. that will help us. If all or any part of the debt is covered by a note or other instrument, that instrument should be enclosed with this sheet. If the account is disputed, letters from the debtor will help. If his address is not known, give us the name and address of relatives, etc."

Other creditors use their own method of assignment, while still others do so orally, but with the understanding that the claim sheet covers the terms and conditions of the verbal assignment.

Defendant corporation pays nothing for the assignments at the time they are made, but, in the event of collection, transmits a certain percentage thereof to the assignor, retaining the balance for its fee for effecting collection. When it receives an account or demand for collection, an agent of the corporation calls upon the debtor at his home, writes him a letter, or telephones to him and endeavors to collect without suit, but often it resorts to the courts for collection. If suit is in the district court, the corporation appears by duly licensed attorneys retained by it. If suit is in the justice court, the defendant Johnson or some other employee of the corporation prepares the complaint, summons, affidavit for attachment, writ of attachment and execution, and appears for the corporation unless an answer is filed or there is opposition to the suit. When suit is on a promissory note calling for the payment of attorneys' fees in case of suit a demand is made therefor, whether an attorney is employed or not. In most cases the defendant corporation advances the costs of suit, but in some cases, where recovery is doubtful, the assignor advances 50 per cent. thereof. Justice court judgments are in many cases abstracted and filed with the clerk of the district court and execution thereon is issued by the clerk of the district court. When collection is effected by suit or otherwise, the defendant corporation deducts its agreed commission and transmits the balance to the assignor.

The first question for determination is whether this court has jurisdiction to punish for contempt, if the acts complained of constitute unlawful practice of law. This court is by statute given the exclusive power to confer upon any persons the right to practice law (sections 8936 et seq., Rev. Codes), and to deprive them of that right. Section 8961, Id. If any person shall engage in the practice of law without being authorized so to do, even though that practice is not done directly in this court, it has the right to punish for contempt. Compare In re Bailey, 50 Mont. 365, 146 P. 1101, Ann.Cas.1917B, 1198; In re White, 54 Mont. 476, 171 P. 759; In re Phillips, 64 Mont. 492, 210 P. 89; State v. Barlow (Neb.) 268 N.W. 95.

The question of primary importance in this case is whether the so-called assignments of claims to the defendant corporation are sufficient, so that the corporation may be said to be the real party in interest within the meaning of section 9067 of our Codes. The defendants contend that by reason of these assignments the defendant corporation becomes the real party in interest, and, therefore, when it files suit in its own name on these claims it is entitled to conduct its own litigation. The contention of the plaintiff is to the contrary, namely, that these assignments are so in form only, and that they are insufficient to make the corporation the real party in interest.

Section 9067, Revised Codes, provides: "Every action must be prosecuted in the name of the real party in interest, except that an executor or administrator, a trustee of an express trust, or a person expressly authorized by statute may sue without joining with him the person for whose benefit the action is prosecuted. A person with whom, or in whose name, a contract is made for the benefit of another, is a trustee of an express trust, within the meaning of this section."

Ever since the adoption of the original New York Code of 1848, the provisions of the above section have been a fundamental requirement of Code pleading. Prior to the adoption of the Code, if the assignee of a claim sued at law, he was turned out of court; and if the assignor sued in equity, he was turned out also. As a result of the adoption of this section, such diversity of judicial opinion exists as to the true meaning of this section. Many courts have held that the assignee who acquires the mere legal title to a claim for the purpose of collection, without any consideration other than an agreement to proceed with diligence to endeavor to collect and pay the proceeds of the collection, either in whole or in part, to the assignor creates in the assignee the status of a real party in interest who may bring the action on the claim. We shall at a later point in this opinion review and discuss some of these decisions. Other courts consider such transfers as being merely simulated, and hold that, though where, as here, no consideration being paid and the assignor being entitled to a substantial part of the proceeds of the claim assigned, the assignment does not operate to make the assignee the real party in interest within the meaning of the above section of our Codes, as is illustrated by the following decisions: Gaffney v. Tammany, 72 Conn. 701, 46 A. 156; Muller v. Witte, 78 Conn. 495, 62 A. 756; Olmstead v. Scutt, 55 Conn. 125, 10 A. 519; Waterman v. Merrow, 94 Me. 237, 47 A. 157; Coombs v. Harford, 99 Me. 426, 59 A. 529; Abrams v. Cureton, 74 N.C. 523; Martin & Garrett v. Mask, 158 N.C. 436, 74 S.E. 343, 41 L.R.A. (N.S.) 641; Brown v. Ginn, Trustee, 66 Ohio St. 316, 64 N.E. 123; Cf. People v. Securities Discount Corporation, 361 Ill. 551, 198 N.E. 681; State v. James Sanford Agency, 167 Tenn. 339, 69 S.W.2d 895.

It will be noted, in giving consideration to section 9067, that certain exceptions are enumerated within the section itself namely, executors and administrators, a trustee of an express trust, and persons authorized by statute. It would appear that if the Legislature had intended that a real party in interest was one who held only the legal title of a claim, no reason can well be suggested for mentioning these exceptions. No one...