Tennessee Finance Co. v. Thompson

• Decision Date: 07 February 1922
• Docket Number: 3621.
• Citation: 278 F. 597
• Parties: TENNESSEE FINANCE CO. v. THOMPSON. In re MOSELEY.
• Court: U.S. Court of Appeals — Sixth Circuit

278 F. 597

TENNESSEE FINANCE CO. v. THOMPSON.

In re MOSELEY.

No. 3621.

United States Court of Appeals, Sixth Circuit.

February 7, 1922

R. C Boyce, of Nashville, Tenn., for appellant.

Bass &amp Sims and Byrd Douglas, both of Nashville, Tenn., for appellee.

Before KNAPPEN, DENISON, and DONAHUE, Circuit Judges.

KNAPPEN Circuit Judge.

At the time of bankruptcy the Nashville Terminals owed the bankrupt a sum of money as wages earned by the bankrupt as its employee. The bankrupt had assigned specific portions of this indebtedness to each of three companies, styling themselves respectively, as a 'finance company,' a 'brokerage company,' and a 'trading company.' The indebtedness from the Terminals Company was scheduled among the bankrupt's assets. The three companies named were scheduled as unsecured creditors. The trustee obtained from the Terminals Company the wages in question, with notice of the assignments, and three days after the adjudication filed his petition, stating in general terms the situation referred to, and that the three companies claimed title under written instruments purporting on their face to be unconditional sales or assignments of wages or salary, but that all were 'mere devices to evade the usury statutes,' and the so-called sales 'mere shams and frauds, intended only to cover up the loan of moneys at usurious rates of interest'-- both principal and interest being thus forfeited to the borrower under the laws of Tennessee. Such forfeiture, in case of interest charged in excess of 6 per cent. per annum, is created by section 3522a21 of Shannon's Tennessee Code of 1917.

The Tennessee Finance Company answered, denying that its transaction was a loan or device to evade the usury statutes and asserting it a good-faith purchase of such wages to the extent of $22, for a cash consideration of $20, paid the bankrupt therefor. ^[1] After hearing upon pleadings, oral proof, and arguments of counsel, the referee found that the assignment of wages in question was 'merely a colorable scheme for the purpose of loaning money at a usurious rate of interest,' and so declared the funds in question subject to the payment of the common creditors of the bankrupt. In his certificate on review the referee summarized the evidence as to the method of business 'usually followed by these brokerage companies' substantially thus

One wishing to obtain money made application in writing on a printed form, which purported to be an application to sell his wages to such company; the applicant, on another printed form, consented to assign to such company a stipulated amount of his earned wages, and instructed his employer to pay to such company the amount set out in the assignment. It was specifically stated, throughout the papers in question, that the 'transaction was not a loan, but a conditional sale of the bankrupt's wages, to the extent set out in said assignment or transaction. ' The companies charged $1 for the use of $10, and $2 where the wages amounted to $20, and a similar ratio for sums above that amount. The Terminals Company paid off twice a month. The almost invariable practice was for the bankrupt to draw the money and himself pay his debts to the brokerage companies. Since January 29, 1921, the Tennessee Finance Company filed notice of assignment with the employing company, but not before that date. Should the bankrupt refuse or fail to pay his debt after drawing his pay, the Terminal Company was notified not to pay him his next pay check, and the same would be tied up until the controversy was settled. It was a common custom for the bankrupt to make a new contract at the time of paying his then existing debt.

The District Judge held the controlling question to be one of fact, viz. whether the assignments of wages were in fact absolute sales as purported on their face, or whether they were loans, and the assignment a device to cover up loans at usurious interest rates. The court held the referee's conclusion to accord with the greater weight of the evidence, and so affirmed the referee's order.

The case presents a controversy arising in bankruptcy, and is properly before us on appeal. National Discount Co. v. Evans (C.C.A. 6) 272 F. 570, 573. The question of jurisdiction to determine the controversy arising under adverse claims was specifically waived below.

In our opinion the conclusion that the transaction was usurious, and that the form of sale was adopted merely to evade the usury laws, should be sustained. The section we have cited is a part of the so-called 'Loan Shark Act,' being chapter 31a of the Tennessee Code of 1917. It is the settled construction of this statute, that the courts will look through the forms adopted, and will ascertain from the evidence generally the real nature of the transaction, whether one of good-faith sale or of loan at usurious interest, and that this question is purely one of fact. McWhite v. State, 143 Tenn. 222, 225, et seq., 226 S.W. 542; ^[2] Nashville Terminals v. Tennessee Finance Co., decided by the Tennessee Court of Civil Appeals, November 27, 1920 (not reported); Id., decision by the Supreme Court of Tennessee, January 29, 1921 (not reported).

If the finding of facts below is to be accepted, the order made was correct. McWhite v. State, supra, is directly in point. We find nothing conflicting with this proposition in either of the Tennessee decisions cited in which a contrary conclusion was reached on the facts, ^[3] nor in the previous case of Spicer v. King, 136 Tenn. 413, 189 S.W. 865, referred to in the McWhite Case, supra, 143 Tenn.at pages 225, 226, 226 S.W. 542. Our conclusion is also supported generally by Home Bond Co. v. McChesney, 239 U.S. 568, 36 Sup.Ct. 170, 60 L.Ed. 444, and National Discount Co. v. Evans, supra, 272 Fed.at pages 573, 574, each of which cases involved usury statutes of states other than Tennessee.

We accept the finding of facts made below. It is the settled rule in this court that a finding by...