Ury v. Jewelers Acceptance Corp.

• Decision Date: 30 April 1964
• Citation: 227 Cal.App.2d 11,38 Cal.Rptr. 376
• Court: California Court of Appeals Court of Appeals
• Parties: Walter URY, individually and as the sole general partner of Woulf & Ury Jewelers, a limited partnership, Woulf & Ury, Inc., a corporation, Plaintiffs and Appellants, v. JEWELERS ACCEPTANCE CORPORATION, a corporation, SFC Acceptance Corporation, a corporation, et al., Defendants and Respondents. Civ. 21103.

Page 376

38 Cal.Rptr. 376

227 Cal.App.2d 11

Walter URY, individually and as the sole general partner of Woulf & Ury Jewelers, a limited partnership, Woulf & Ury, Inc., a corporation, Plaintiffs and Appellants, v. JEWELERS ACCEPTANCE CORPORATION, a corporation, SFC Acceptance Corporation, a corporation, et al., Defendants and Respondents.

Civ. 21103.

District Court of Appeal, First District, Division 3, California.

April 30, 1964.

Rehearing Denied May 29, 1964.

Hearing Denied June 24, 1964.

Dinkelspiel & Dinkelspiel, Norman Coliver, John F. Taylor, Alvin T. Levitt, Lenard G. Weiss, San Francisco, for appellants.

Richards, Watson & Hemmerling, Clifford A. Hemmerling, Howard B. Miller, Los Angeles, Douglas R. Page, Martinez, for respondents.

DEVINE, Justice.

Parties and Nature of Action

Appellants are Walter Ury, individually and as sole general partner of Woulf & Ury Jewelers, and Woulf & Ury, Inc., a corporation, residents of the State of California; respondents are Jewelers Acceptance Corporation and SFC Acceptance Corporation, residents of the State of New York, and two representatives of the companies. Appellants, plaintiffs, seek declaratory relief, rescission or reformation of a contract, and penalties, all on the ground that the contract is usurious. Respondents have counterclaimed for an amount alleged to be due on the contract.

Facts

Mr. Ury was in the retail jewelry and appliance business in Pittsburg, California, at all times relevant; and respondent Jewelers Acceptance Corporation, referred to herein as JAC, was in the business of lending to retailers. ¹ It had but six or seven clients, or borrowers, in California. In 1952 or 1953, an officer of JAC called on Ury, explained that the company made loans on accounts receivable, told him the rate of interest, and either at that or at a later time told him that JAC required that its customers incorporate in order to assure continuity of the business and of the loan in case of death or divorce. Ury applied for credit, but his application was rejected for lack of volume of business.

Correspondence went on between the two parties. During the visit of a JAC representative, a proposed agreement was shown to Ury, and Ury observed that it provided that the agreement was to be construed according to the laws of New York. A second application was rejected. Ury went to New York and discussed his earlier application. On his return to California, he received a letter stating that his application had been approved and that contracts would be prepared when a certificate of incorporation was sent. Ury engaged an attorney, formed the corporation, bought all of its stock, bought out the limited partner, and caused the assets of the partnership, including accounts receivable, to be transferred to the corporation.

The main contract is denominated 'Revolving Fund Agreement.' It was prepared by JAC, but is in the form of a proposal made by appellant corporation to be accepted by JAC, as it was, in New York. It commences with reference to borrowing in New York. It ends with the provision that 'This agreement and said Notes shall be construed pursuant to the Laws of the State of New York.' Payments were to be monthly, 1/18th of 1% per day of the average daily balance during the preceding month. This resulted in an interest rate of 20.3% per annum. As stated below, the California Constitution forbids interest at a rate in excess of 10%, except for certain exempt lenders. In New York the permitted rate is 6%, but in that state the defense of usury is not available to a corporation which is a borrower.

The retail jeweler sold merchandise at a markup of at least 100% and made an additional charge on credit sales, the net amount of which is not clear. Appellant would forward contracts with his customers to JAC, which would deposit up to 50% in a New York bank in appellant's name, as appellant would sign promissory notes to JAC. Payments by appellant's customers were deposited in an account in JAC's name in a Pittsburg bank. The system went on for about four years. Then appellant withheld payments on the ground that it had made usurious payments.

Findings of Fact, Conclusions of Law and Judgment

The trial judge found that the agreement was made in New York, that the notes were valid in the state and the customer's conditional sales contracts were assigned to JAC in New York; that New York had substantial contacts with the agreement and the notes, and that the laws of that state were selected by appellant in good faith and not as a device to evade the usury laws of California. He found that JAC did not make the agreement with the intent of evading the usury laws. He found, or concluded, that: 'Under the laws of New York a proposed lender may require a proposed non-corporate borrower to incorporate as a condition of the loan and such corporation may not thereafter assert the defense of usury if the loan is actually made to the corporation so formed, provided the parties deal with each other with the usury laws before their eyes, either actually or constructively, and provided the corporate entity is not used as a cloak or cover for illegality.'

The judge gave conclusions of law that the laws of New York govern the validity, enforceability and interpretation of the agreement and of the notes; that the agreement and notes are valid and enforceable in that state, and that the New York law which prevents a corporation from pleading usury is a substantive, not a procedural, rule of law; that the contracts do not violate any public policy of California; that 'California does not have such significant relationships with the transaction that its governmental interest required application of its own usury laws rather than the significantly different usury laws of New York'; and that 'Plaintiffs are conclusively presumed to have known the laws of New York and California.'

Judgment was given respondent for principal and interest, and attorneys' fees ($6,000 was the amount of fees), in amount $40,807.68, plus interest from date of calculation to judgment.

Decision in Respect of Conflict of Laws

There is substantial evidence to sustain the trial court's finding that the contract was made in New York. It was in that state that the last act necessary to the contract, the acceptance, was performed, and this is regarded the place of marking the contract. (Michelin Tire & Rubber Co. v. Coleman & Bentel Co., 179 Cal. 598, 604, 17, P. 507.) It is true that JAC arranged it this way, rather than sending an offer to be accepted by appellant in California, but appellant was a business man, dealing largely in credit transactions, and he had counsel available. Under generally accepted principles of conflict of laws applicable when the first Restatement was written in 1934, establishing of the lex loci contractus would have been sufficient. (Restatement, Conflict of Laws, § 332(e).) Undoubtedly, the place of making of the contract is of less significance now than it was then. (Leflar, Conflict of Laws, 1960 Annual Survey of American Law, pp. 24, 41.) It is, however, a factor to be considered with others, and at the least to the extent that it negatives whatever contrary effect there might be if the contract were made in the state of the forum. The place of making is not a mere 'mailbox' happening in this case, but a deliberate selection.

More important than the lex loci celebration is in determining the applicable law is the lex loci solution is, the law of the place of principal performance. In appellant's brief, a list is given of activities done in California (signing of the separate notes and assignments, making of reports to be sent to New York, collecting on the conditional sales contracts of the buyers of jewelry, submitting books to audit by JAC accountants), but the counterpart of all or most of these was in New York. Essentially, the transaction was one of lending money and repaying it. The money was made available to appellant in New York, by deposit to its bank account there, and it was repaid in New York. (Interest was always repaid there, by check, and principal was paid there after the first 18 months. In the first 18 months, deposits were made by appellant in JAC's account in Pittsburg, California, and duplicate deposit slips were mailed to JAC in New York.) The place of payment is to be regarded as the place of performance of a lending agreement. (Kraemer v. Coward, 2 Cal.App.2d 506, 38 P.2d 458.) The validity of a lending bargain has generally been held to be governed by the Law of the place of performance. (6A Corbin on Contracts, § 1509, pp. 703-704; Seeman v. Philadelphia Warehouse Co., 274 U.S. 403, 407, 47 S.Ct. 626, 71 L.Ed. 1123; Santoro v. Osman, 149 Conn. 9, 174 A.2d 800.)

Weight is added to the above by the fact that the court found that respondent did not do business in California and had no office here. (Merchants' & Manufacturers' Securities Co. v. Johnson, 8 Cir., 69 F.2d 940.)

Another significant element is the agreement of the parties as to the law that is to apply. (Seeman v. Philadelphia Warehouse Co., supra, 274 U.S. p. 408, 47 S.Ct. 626, 71 L.Ed. 1123.) It is stated that the contract is to be construed pursuant to the laws of New York, and respondent need not rely on the presumption that Ury read this, because Ury admits that he did. Appellant argues that this provision means only that in case of ambiguity, the contract would be interpreted according to New York law, and that it does not refer to the governing or enforcing of the contract.

The quoted portion is not nearly so broad as those in other cases which have made it plain that the parties have chosen that the law of a certain state shall prevail in all matters concerning the contract, such as: 'all transactions hereunder shall be governed and construed by the laws of the State of New York' (Consolidated Jewelers, Inc. v. Standard Financial Corp., 6 Cir., 325 F.2d 31, 33); or 'All questions...