Le Sueur v. Manufacturers' Finance Co.

• Decision Date: 05 December 1922
• Docket Number: 3666.
• Parties: LE SUEUR et al. v. MANUFACTURERS' FINANCE CO. [1]
• Court: U.S. Court of Appeals — Sixth Circuit

285 F. 490

LE SUEUR et al. v. MANUFACTURERS' FINANCE CO. ^[1]

No. 3666.

United States Court of Appeals, Sixth Circuit.

December 5, 1922

[Copyrighted Material Omitted]

James S. Pilcher, of Nashville, Tenn., for appellants.

John J Vertrees, of Nashville, Tenn. (Frank, Emory & Beeuwkes, of Baltimore, Md., and William O. Vertrees, of Nashville, Tenn on the brief), for appellee.

Before KNAPPEN, DENISON, and DONAHUE, Circuit Judges.

KNAPPEN Circuit Judge.

This is an appeal from a decree in favor of the appellee, as plaintiff, under a bill in equity for an accounting and recovery with respect to the financial dealings hereinafter narrated.

Plaintiff is a Delaware corporation, having its principal place of business at Baltimore, Md., with power, among others, to acquire and deal in accounts receivable and choses in action and to loan money. The Montgomery-Moore Manufacturing Company is a Tennessee corporation, lately manufacturing and selling harness and other like goods at Nashville, Tenn. On July 26, 1912, the Finance Company and the Manufacturing Company contracted in writing in terms for the purchase by the Finance Company from the Manufacturing Company of accounts receivable, notes, contracts, and choses in action, belonging to the Manufacturing Company and acceptable to the Finance Company (all characterized as 'accounts'), at specified discounts from the face value of the accounts, dependent upon the time within which the accounts should be paid, 80 per cent. (less an agreed percentage charge) being paid in advance, the Manufacturing Company agreeing upon demand to buy back from the Finance Company all accounts which should be defaulted and to pay the Finance Company the face value thereof-- all subject to adjustments provided for by the contract. The Manufacturing Company and its president were authorized, as agents of the Finance Company, to collect the accounts at the expense of and at the office of the Manufacturing Company, the parties so authorized agreeing to transmit to the Finance Company, at its office in Baltimore, on the day of their receipt all checks, drafts, etc., received in payment of or on account of the assigned accounts. Pursuant to this contract, the Manufacturing Company from time to time transmitted to the Finance Company, at Baltimore, written lists and assignments of large numbers of the Manufacturing Company's accounts, aggregating many thousands of dollars ^[1a] and acknowledging receipt from the Finance Company of the same for collection solely as agents for the latter, and agreeing to buy at face value all of such accounts which should become in default.

On June 25, 1914, while the agreement in question was still in force and operation, the Manufacturing Company became financially involved, and by action of its stockholders a committee was appointed to take charge of and liquidate its business and affairs, and on the 30th day of July following an agreement was made between the liquidating committee (which had already made a considerable number of collections and remittances), the Manufacturing Company, and the Finance Company by which the committee and the Manufacturing Company agreed to forward by mail to the Finance Company, on the day of receipt, all original remittances and collections on claims and accounts theretofore assigned by the Manufacturing Company to the Finance Company, with authority to the latter to apply the same in accordance with the terms of the original contract of July 26, 1912, but without prejudice to the rights of the Manufacturing Company and its committee 'with respect to the matter of usury, or any other matters under' that contract, and the transactions had thereunder-- the Finance Company agreeing to execute and deliver a bond in the sum of $15,000 to secure the Manufacturing Company and its assigns for all moneys which might be payable to it from the Finance Company on account of remittances and collections forwarded to it, after July 1, 1914, in case the original contract should be held usurious. The committee thereupon continued to make collections, and, until November 14, 1914, remitted as provided in the agreement of July 30, 1914, the committee's remittances after July 1, 1914, aggregating $16,349.14. After November 14, 1914, the committee continued to make collections, but made no further remittances, on account of its claim that the contract was usurious and void, as well as a defense that plaintiff was 'doing business' in Tennessee. Thereupon, on May 22, 1915, the Finance Company filed its bill of complaint, asking decree against the liquidating committee for the delivering up of all the accounts not collected, and in default thereof for the 'amount' thereof, as well as for appropriate relief with respect to the moneys collected and retained by the liquidating committee.

The defendants, by answer, asserted that the contract was in reality but an agreement for the loan of money (upon the security of the assigned accounts) at usurious rates of interest, and that the contract and proceedings had thereunder were therefore void; that the transactions amounted to a doing of business by plaintiff in Tennessee without filing a copy of its charter in the office of the secretary of state; that for the reasons stated plaintiff had no standing in court, and that defendants were so entitled to a decree against plaintiff requiring the latter to return to the liquidating committee all of the moneys so paid to plaintiff since July 1, 1914, as well as a certain note held by plaintiff. Upon hearing had upon pleadings and proofs, the District Court, on October 3, 1918, filed its opinion holding that the contract of July 26, 1912, was entered into at Baltimore and was a Maryland contract, and so to be construed in accordance with the laws of that state; that the subsequent assignments to the Finance Company of the merchandise accounts of the Manufacturing Company are likewise governed by the laws of Maryland; that the agreement of July 26, 1912, was a contract for loans by the Finance Company to the Manufacturing Company at usurious rates of interest, to be secured by assignments of the accounts; that under the laws of Maryland the agreement in question was absolutely void, and that plaintiff was thus entitled to no relief, but that the liquidating committee was entitled to recover from the Finance Company to the extent that the remittances already made constituted the payment of usurious interest, subject to certain limitations stated in the opinion; that the execution of the contracts in Maryland, although intended to be partly performed in Tennessee, did not of itself constitute a doing business in Tennessee. The court found it unnecessary to determine whether the collection through the Manufacturing Company of assigned accounts was interstate commerce, being of opinion that such accounts were collected, whether by the Manufacturing Company or the liquidating committee, as agents of the Finance Company, and that the defendants were therefore estopped, when sued by their principal, from relying upon the latter's noncompliance with the foreign corporations statutes as a defense to such action. A decree was accordingly entered adjudging the plaintiff not entitled to any recovery under its bill, but entitling the liquidating committee to recover the usurious interest as before stated. Reference was made to a special master to take and state an account.

After the expiration of the term at which this decree was entered, but before action was had on the special master's report or final decree entered in reference to the counterclaim, the trial judge requested and heard arguments of counsel on the question whether in view of a decision by the Court of Appeals of Maryland, subsequent to the decree of October 29, 1918, error had not been made in holding the loans and assignments of accounts in security therefor entirely null and void, and whether on that ground the former decree should not be vacated and corrected on the court's own motion. The court thereupon held that under the recent construction given by the Maryland court the loans in question were not void, but that the only effect of usury was to void the excessive interest over the legal rate; that its former decree of October 29, 1918, was not a final decree, but was merely interlocutory, still remaining under the control of the court and subject to its revision; and that the decree theretofore entered was erroneous both in entirely denying plaintiff's claim and in awarding counterclaim to defendants. A decree was accordingly entered setting aside the former decree, and ordering reference to a special master to state an account as to the sums due plaintiff. The master found plaintiff entitled to recover $19,856.67, plus interest thereon at 6 per cent. per annum amounting to $11,737.36, and rejecting defendant's contention that plaintiff should be charged with the expenses incurred in collecting the assigned accounts; also charging defendants with the premium of $150 on the bond given by plaintiff under the contract of July 30, 1914. Final decree was entered for the amount found by the master.

1. Whether or not, previous to the adoption of equity rule No 30 (201 F. v, 118 C.C.A. v), the decree would have been final, in the sense that the court had no power to set it aside after the term at which it was entered, we think that under the rule referred to the trial court had jurisdiction to reconsider the case and set aside the decree, if deemed erroneous. General equity rule No. 30 requires the setting up by answer of any counterclaim arising out of the transaction which is the subject-matter of the suit. This requirement was evidently designed to save the courts the necessity of two trials over what to all intents...