Sur Pleadings and Proofs.
This is an action at law brought by the receivers in equity of William H. Larimer’s Sons Company (which will be referred to as Lorimer), plaintiffs, against the Commercial Credit Company (which will be referred to as the credit company), defendant, to recover the .sum of $54,328.51, alleged to be usurious interest paid by Lorimer to the defendant in the course of business during the period from December 30, 1919, to August 18,1927. The case tried to the court without a jury.
Findings of fact.
1. Lorimer is a Pennsylvania corporation, and was during the years 1919-1927 engaged in the business of dyeing and mercerizing cotton yams at Philadelphia, Pa. The defendant is a Delaware corporation with its principal office at Baltimore, Md.
2. The contract under which Lorimer paid to the defendant the sums of money which the receivers now seek to recover (which will be referred to as the covering contract) was signed by Lorimer at Philadelphia on December 23,1919, and then transmitted'by mail to Baltimore. After some delay it was accepted and signed by the credit company at Baltimore on December 30,1919, and a duplicate of the original accepted eopy was mailed by the credit company from Baltimore to Lorimer at Philadelphia. I find as a fact that the place of making the contract was Baltimore, Md.
3. The terms of the covering contract may be summarized as follows: (1) The credit company agreed to “buy” from Lori-■mer from timе to time such accounts receivable belonging to Lorimer as might be acceptable to it, and to pay 77 per cent, of the gross face value of each account offered upon its acceptance, and the balance (less certain charges) upon payment to it in full of the accounts. (2) Although each account, together with all rights in connection with it, was to be assigned absolutely to the credit company at thе time of its offer and acceptance, Lorimer, in order to avoid impairing *726 its standing -with its customers, was given the right to receive at its office, remittances by debtors on the accounts, or, in other words, so far as the customer debtors was concerned, Lorimer would collect the accounts; no notice being given to them of their assignment. However, checks, drafts, notes, acceptances, and other evidence of payment received by Lorimer were to be indorsed and transmitted directly to the credit company, and Lorimer agreed that the credit company’s auditors should have full access to its books, expenses of such examination to be paid by it. (3) Lorimer “warranted” that every debtor whose account might be offered would be solvent and ' generally that each account would be unincumbered, promptly paid when due, and collectible without loss or litigation. (4) The crеdit company agreed to perform certain services for Lorimer. Thesé consisted of collecting, upon request, accounts direct from debtors; advising Lorimer as to the best method ■ of keeping books, records, and accounts; placing its credit department at Lorimer’s disposal and giving credit and financial advice upon request; and also furnishing the opinion of its legal department upon the form and legality of Lorimer’s sales contraсts. In addition to these services, the credit company agreed to accept at par subject to payment all remittances on accounts forwarded to it by Lorimer and to obtain forms proper for the assignment of the accounts. (5) The contract provided that for these services and also the inspection and audit of Lorimer’s accounts (which latter it may be noted was not directly for Lorimer’s benefit, but rather a condition upоn which its right to collect direct’from debtors depended) the credit company was to receive compensation fixed at Yao of 1 per cent, of the gross value of accounts accepted by it, for each day from the date of acceptance until paid, plus $5 per thousand on the first $100,-000 of such accounts. (6) Finally the parties agreed that the contract and all rights thereunder should be governed as to .validity, enforcement, interрretation, construction, effect, and in all other respects by the laws of the state of Delaware.
4. I find as a fact that, with the exception of the periodical examination and audit of-Lorimer’s accounts, none of the services referred to were rendered by the credit company, that none were requested by Lorimer at any time, and that it was not contemplated by either party at the time the contract was entered into thаt such services would be required or rendered.
5. A detailed account of the manner in which the covering contract was performed appears in the stipulation of facts agreed to by the parties, and I find the facts to be as stipulated. The following general summary may be made: From day to day during the life of the agreement, Lorimer mailed, from Philadelphia to the credit company at Baltimore, schedules of accounts duly assigned, and the latter, having cheeked the credit risk of the debtor customers, would immediately mail its check for 77 per cent, of the face value of the accounts to Lorimer. When Lorimer received payments from its customers, it mailed each payment in its original form to the credit company, except when notes were received, in which ease Lorimer sent its own check for the amount, together with the note, the note being thereafter returned to Lorimer as its property and collected by it. The credit company would indorse and deposit the checks thus received, and as soon as they had received the cash for the same, would remit to Lorimer the balance of the face value of the account not already advanced, or 23 per cent. Defendant’s counsel in his brief states that from this remittance of 23 per cent, there was deducted in each case the credit сompany’s charges. Apparently this is not disputed by counsel for the plaintiff, and, although it does not appear from the control sheets of portions of the credit company’s accounts which were placed in evidence, I find it to be the ■ fact, subject to correction on further proof or explanation, if it be material. At present it seems to be unimportant in just what manner the credit company collected its charges.
6. The money received by Lorimer was used in Pennsylvania. Lorimer performed in Pennsylvania its several obligations as to the manner of repayment, i. e., mailed bills to its customers, received their cheeks in payment, indorsed the same, and mailed them to the credit company at Baltimore. Where Lorimer’s customers did not pay in cash but gave notes, Lorimer mailed the note with its cheek at Philadelphia, received the note back again at Philadelphia, and proceeded to collect it where payable. The mailing of the cheeks for. advances to Lorimer and .the depositing in the bank of the customers’ checks received by the credit company in payment of the account took place in Maryland.
7. The total amount of charges received *727 or retained by tbe credit company under the provisions of the covering contract, from December 30, 1919, to August 16, 1927, on accounts assigned to it by Lorimer amounted to $80,645.35. If the transactions under the contract be considered loans to Lorimer by the credit company, then this amount is $54,-328.31 in excess of interest at 6 per cent, on the balances due from Lorimer to the credit company.
8. On April 13, 1927, there were outstanding accounts receivable, previously assigned by Lorimer to the credit company, and unpaid by the debtor customers or by Lori-mer, amounting in the aggregate to $20,890.-25. All other accounts receivable assigned by Lorimer under the covering contract had been paid either by debtor customers or by Lori-mer before that date. No accounts receivable were assigned by Lorimer to the credit company after March 10, 1927.
9. The plaintiffs, Brierley and Fleming, were appointed receivers of William H. Lori-mer Sons Company by the United States District Court for the Eastern District of Pennsylvania March 18, 1927, and subsequent to their- appointment made demand from the credit company for the amount of $54,328.51, which amount .they alleged to be money collected as usury. The demand was refused. This suit was brought October 15,1927.
Discussion.
The plaintiff’s position is that the transactions between Lorimer and the credit company under the covering contract were loans, that the rate of interest charged was usurious and unlawful, and that the interest paid may be recovered back.
The first question is as to the nature of the covering contract. The defendant contends that it is a sаle and purchase of accounts. Certainly it is such in form. The plaintiff, however, says that the real nature of the transaction is a loan or loans of money secured by the assignment of accounts as collateral. The case of Root v. Republic Acceptance Corp., 279 Pa. .55,
Whether or not the payments of interest alleged to be usurious may be recovered depends upon the state law covering the transaction. The next question therefore is: What law governs? The parties stipulated for the laws of Delaware, but that stipulation is ineffective because that place has no normal relation to the transaction. Seeman v. Philadelphia Warehouse Co.,
This leaves the contract as though no stipulation had been made, and in that situation the general rule is that the law of the place of performance, not the place of making the contract, controls. 12 Corpus Juris, 450; Scudder v. Union National Bank,
In the instant case the contract was unquestionably ’ executed in Maryland. The place of its performance is not so clear. In the case of a note, bond, or similar obligation evidencing an ordinary loan of money, the only thing left .ordinarily by way of performance is the repayment of the money, and of course the place where the money is to be.paid will be the place of performаnce of the contract. This contract, however, does not quite fall in the class of an ordinary loan. It will be noted that it does not evidence a direct advance of money contemporaneous with the making of the contract, but that it is' a contract to loan money from time to time in the future upon the condition precedent that the security offered upon each .occasion shall be “satisfactory to the lender. Not only wаs no money loaned at the time, but there was no positive obligation to loan any money. If Lorimer had been unable to offer the credit company anything but worthless and unacceptable accounts, none would have been loaned. In addition, while whatever was to be loaned under the contract was to be repaid in Maryland, many important obligations of the parties under the contract were to be performed in Pennsylvania.
Howеver, it seems to be unnecessary to decide which state was technically the place of performance of this contract. It is not seriously controverted that the stipulations of the parties as to interest would be lawful under the law of Maryland, and I so hold. This being the case, in a contract made in Maryland, to be performed partly in Maryland and partly in Pennsylvania, the parties eertainly had the legal right to contract for a rate of interest which was lawful in Maryland. Even if the .performance of the contract was to have taken place wholly in Pennsylvania, I think that it would have been competent to contract for interest according to the law of Maryland, the contract having been made there. Thus, in Cromwell v. County of Sac,
What has been said makes it unnecessary for the purpose of this decision to determine whether, if this had been a Pennsylvania contract, it would have been lawful or unlawful under the Pennsylvania usury laws. If the highest rate which this corporation could have lawfully contracted fоr in Pennsylvania is 6 per cent., then, under the rule of the cases cited, the law of Maryland is to be applied, under i which the usury laws are not in force as to corporations, and any rate of interest may be contracted for by them.
The effect of the decisions cited is to make it immaterial whether the contract was to be performed in Maryland or in Pennsylvania and I therefore do not decide that question. However, in order that my views upon all рhases of the question may appear of record in the event of an appeal, it may be well to examine the question upon the assumption that the law of Pennsylvania governs.
The Act Pa. of May 28, 1858, P. L. 622 § 1 (41 PS § 3), fixes the lawful rate of interest in Pennsylvania at 6 per cent. Section 2 of that act (41 PS § 4) provides that when,a higher rate shall have been contracted for, “the borrower or debtor shall not be required to pay to the creditor the excess over the legal rate, and it shall be lawful for such borrower or debtor, at his option,, to retain and deduct such excess from the amount of any such debt; and in all cases where any borrower or debtor shall heretofore or hereafter have voluntarily paid the whole debt or sum loaned, together with interest exceeding the lawful rate, no action to recover back any such excess shall be sustained in any court of this commonwealth, unless the same shall have been commenced within six months from and after the time of such payment.” The Act Pa. of April 27, 1927, P. L. 404 (41 PS § 2), provides “that no corporation shall hereafter plead or set up usury, or the taking of more than six per cent, interest, as a defense to any action brought against it to recover damages
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on, or enforce payment of, or other remedy on, any mortgage, bond, note, or other obligation, executed orjiassumed by said corрoration: Provided, That this act shall not apply to any action which is now pending.” The plaintiffs contend that the act of 1858 gives the borrower two remedies: First, the right to withhold payment of the excess interest or to defend pro tanto in a suit to recover; second, where he shall have paid the full debt and usurious interest, the right to institute suit to recover it within six months.- The act of 1927, the plaintiffs say, takes away from corporations only the right to defend, leaving them with the right to institute suit for the recovery of usurious interest where they have voluntarily paid it. It must he admitted.that only a very liberal interpretation of the terms of the act of 1927 can avoid the force of this argument. However, the palpably unreasonable and anomalous situation which would arise under a literal interpretation of the act constrains me to hold that it should .be given the broad construction. No sensible reason can be suggested why corporatiоns should be permitted to recover back usurious interest which they have voluntarily paid and, at the same time, in cases where they have refused to pay it, he compelled to pay such interest in a suit by the lender to recover it. This view has been taken by other courts in a number of instances where similar statutes were involved. See Curtis v. Leavitt,
The plaintiff, however, raises the question of thе constitutionality of the act of 1927, and contends that it is invalid under the equal protection clause of the Fourteenth Amendment. The act effects a classification distinguishing corporations from individuals. The equal protection clause requires “that the classification be not arbitrary, but based on a real and substantial difference, having a reasonable relation to the subject of the particular legislation.” Power Mfg. Co. v. Saunders,
Upon this phase of the question there is still to be considered the effect of the Act Pa. of May 8, 1929, No. 512 P. L. 1647 (41 PS § 2). This act re-enacts the Act of April 27, 1927, P. L. 404, with'the added proviso that “this act shall not apply to * ■* * any suit or action instituted subsequent to the effective date of the act of April twenty-seventh, one thousand nine hundred and twenty-seven, upon any mortgage, bond, note or other obligation executed or assumed by said corporation prior to the effective date of the said act of April twenty-seventh, one thousand nine hundred and twenty-seven.”
The proviso of the Act of May 8, 1929 clearly applies to the instant suit. It was instituted on October 15, 1927, upon a contract made December 30, 1919. Even if the loans under the covering contract be treated as separate contraéis, most of them were made prior to the effective date of the act of April 27, 1927. But, in its application to the instant suit, I think that the aet of 1929 violates the due process clause of the Fourteenth Amendment of the Constitution. On May 8,1929, the credit company had received from Lorimer payments of money as interest
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upon its loans amounting to approximately 18 per сent. This money had been paid under a contract which, both at the time of making and at the time of payment, was perfectly legal and valid in tie state of Pennsylvania because Lorimer was a corporation and could contract for and pay interest at any rate it saw fit. If the act of 1929 were operative upon this contract, its effect would be to give Lorimer the right to recover a portion of these payments amounting to $54,-328.51. While retrospective legislation is not Unconstitutional as such, it may be so when it operates to deprive parties of property or vested rights. Koshkonong v. Burton,
Judgment may be entered for the defendant.