263 F. 20 | 5th Cir. | 1920
This was an- action by the defendant in error, Commercial Credit Company, a Delaware corporation (herein referred to as the Credit Company), against the plaintiff in error, the Sponge Exchange Bank, a Florida banking corporation (herein referred to as the Bank), as the indorser of 13 promissory notes made to and indorsed by the United Divers’ Supply Company (herein referred to as the Supply Company). The Bank pleaded, first, payment; and, second, a plea to the effect that it was never the owner of the notes sued on, and that its president indorsed them in its name solely
The notes sued on were acquired by the Credit Company in the cpurse of dealings which commenced in pursuance of the terms of the following letter of its vice president:
“April 5, 1916.
“Mr. A. M. Lowe, President, The Sponge Exchange Bank, Tarpon Springs, Pla. — Dear Sir: Mr. Macrenaris and Mr. Welge called upon us with reference to advancing on the accounts of the United Divers’ Supply Oo., representing advances for supplies, etc., made to the owners of various boats engaged in the sponge business. These accounts are of a character somewhat out of our regular line and some of our committee are disinclined to handle them for several reasons. It has been suggested that if we will furnish the money required to carry the accounts from the time the supplies are furnished until the catch is sold the transactions can be handled through your bank in a way to insure us against loss. We have expressed our willingness to advance the money under the following arrangement:
“The United Divers’ Supply Co. to take notes from the various vessel owners for the amounts of their respective accounts, indorse the same, after which you will advance thereon 77 per cent., and in turn indorse them - to us for a similar advance. Our charge will be on the face of the accounts at the same rate provided in our contract with the Sponge Divers’ Association, namely, one-thirtieth of 1 per cent, a day on the face of the invoices, plus one-half of 1 per cent, on the amount of accounts assigned us: Provided, however, that this one-half of 1 per cent, will be refunded if said volume reaches $100,000 within a period of 12 months. Your own charge would be a matter for adjustment between you and the United Divers’ Supply Co.
“It would be agreeable to us, should you prefer such an arrangement, that the amount of funds required be deposited by us in your bank, a surety bond to be given us guaranteeing deposits, you then to use the funds in making the required advances to the United Divers’ Supply Oo. upon the same basis of compensation as outlined above. If there is any other method that you prefer, which would afford us similar protection, we would be glad to receive your suggestion.
“Awaiting your further advices, we remain,
“Yours very truly, Wm. H. Grimes, Vice President.”
After the Credit Company had so acquired several notes given to the Supply Company and indorsed by it and the Bank, the latter not giving a surety bond under the option stated in a paragraph of the letter, the following written agreement was entered into:
“This agreement, entered -into this 8th day of May, 1916, by and between the Sponge Exchange Bank of Tarpon Springs, Florida, party of the first part, and Commercial Credit Company, a Delaware corporation, its successors or assigns, designated as second party, witnesseth:
“That whereas, first party, in' order to obtain funds necessary to assist the United Divers’ Supply Company of Tarpon Springs, Florida, in conducting its operations, desires to sell to second party notes given to the United Divers’ Supply Company by its various customers and indorsed to said first party by said United Divers’ Supply Company:
“Now, therefore, in consideration of the premises, the parties hereby agree as follows: ,
“Second party will from time to time, during the continuance of this agreement, buy such notes belonging to first party as may be acceptable to*23 second party, and will pay therefor one hundred per cent. (100%) of the face of said notes, of which 77%i shall be paid in cash upon acceptance thereof by second party, and the remaining 23%, less any deductions and plus any overpayments by the debtors, and less charges hereinafter mentioned to be paid to said; first party immediately upon payment of any such note to second party; Provided that no payments of any such remainder shall be made so long as any note purchased hereunder is due and unpaid.
“The total compensation to be paid by first party, it is agreed shall be one-thirtieth of 1 per cent, of the face of said notes for each day from date of purchase by and until paid to second party, plus $5 per .$1,000 only on the first $100,000 of notes purchased within any 12 successive months’ period. Said $5 per 81,000 will he refunded to first party as soon as $100,000 or more of notes have been purchased hereunder within any 12 successive months’ period.
“In witness whereof, first party has caused those presents to be executed this 8th day of May, 1916.
“[¡Signed] Sponge Exch. Bank, [Seal]
“By A. M. Lowe, President [Seal]
“Attest: E. W. Plnholster, Cashier.
“Accepted by Commercial Credit Company this 17th day of May, 1916.
“By Win. II. Grimes, Vice President [Seal]
“By S. G. Eosson, Secy.-Treas.”
The following resolution was adopted by the board of directors of the Bank at a regular meeting on May 2, 1916, a copy of which was sent by the Bank to the Credit Company:
“The president presented a proposition from the United Divers Supply Co. as follows: The United Divers’ Supply Co. are to take notes from the captains or owners of tile vessels for money and provisions advanced them. The United Divers’ Supply Co. to indorse said notes to the Spongo Exchange Bank, for an advance of 77 per cent, of their face value, up to the amount not to exceed 830,000.00, and the bank to indorse them to the Commercial Credit Co. of Baltimore, who will reimburse them. The $30,-000.00 to be used by the United Divers’ Supply Co. to pay all loans now outstanding and to discount bills. Said advances made by this bank to be covered by marine insurance. Every vessel is to settle its note at the end of the current trip, and the United Divers’ Supply Co. is to make up any and all shortages that may arise from a poor trip.
“Moved by G. E. Noblit and seconded by Waiter TopiiiS, that if the United •Divers’ Supply Co. signs an agreement covering all of these points and others that may be added before the final closing of the agreement, that the proposition be accepted. Motion carried.”
The following written agreement was entered into between the Bank and the Supply Company on May 10, 1916, and duly signed:
“For the purpose of raising money for conducting their business, the United Divers’ Supply Co. agrees to take notes for provisions and cash furnished the sponge boats which they operate, said notes to be signed by the actual owner of the vessel, if possible; if not by the owner, by the captain in charge of the vessel. Attached to each note shall be a bill of the merchandise and cash furnished the vessel, and insurance policy covering such merchandise and cash advance.
“It is further agreed that, when these boats come in and sell their catch, these notes shall be the first thing paid, regardless of any other account against the vessel. Should a vessel fail to bring in sufficient sponge on the trip to pay their notes, the United Divers’ Supply Go. agrees to make up the shortage. It is understood and agreed, that these notes must be paid each trip before any further advances will bo made.
“In consideration of these notes and agreement, and 1 per cent, commission per annum on sum used the Sponge Exchange Bank agrees to take these notes, which shall bear the indorsement of the United Divers’ Supply*24 Co., and indorse them to the Commercial Credit Co. of Baltimore, who will advance 77 per cent, of the face of the note. The Sponge Exchange Bank, however, will not indorse for a sum greater than $30,000.00 advance, and it must be understood that the Sponge Exchange Bank will not under any consideration make any further loans to the United Divers’ Supply Co. above this indorsement, unless it is sufficiently covered by satisfactory collateral.
“It is also agreed that, upon obtaining this $30,000.00, the United Divers’ Supply Co. will pay oft all its obligations to the Sponge Exchange Bank, and all other obligations so far as it is possible to do so.”
There was in evidence a written instrument, dated June 10, 1916, which was duly signed, and purported to be a contract between the Credit Company and the Supply Company and several individuals, who signed as guarantors of the latter Company. That instrument provided for the acquisition by the Credit Company from the Supply Company of .such accounts receivable, notes, leases, mortgages, contracts, and choses in action as may be acceptable to the former, and for paying therefor in the same way as was provided for in the contract of May 8, 1916, between the Bank and the Credit Company. That instrument contained a provision authorizing the Supply Company to receive payments on paper acquired by the Bank under it. There was testimony having some tendency to prove that none of the notes sued on were acquired by the Credit Company under the last-mentioned instrument.
The result of transactions in pursuance of the proposition would be the creation of interest-bearing debts separate and different in amounts from these evidenced by the notes indorsed and transferred. As a matter of law it would follow that the collection by the Credit Company of the amount called for by a note so acquired would not
The succeeding transactions in pursuance of the continuing arrangement were of ihe same nature as the first one. The result of each of them was that the Credit Company acquired a note or notes, indorsed by the payee and the Bank, as security for the repayment of amounts advanced on those and other notes and interest or compensation for the use of such amounts. The above set out instruments are to be considered together as parts of one transaction. Under the arrangement made, the Supply Company was enabled, by obtaining the Bank’s indorsement of notes- which the latter never really became the owner of, to get advancements from the Credit Company; the Bank being promptly reimbursed by the Credit Company for the quite temporary outlays made, or credits allowed, for the purpose of creating obligations in which it had no substantial beneficial interest, its real relation to the transaction being that of an accommodation indorser of notes made to the Supply Company and continued to be owned by the latter. Evidently it was not contemplated that the Bank was to receive anything by way of interest. Us small fixed charge was not measured by the time elapsing between the date of its payment to the Supply Company and the date of its reimbursement by the Credit Company. The amount of the charge indicates that it was intended to
So far as the Bank was concerned the effect of the transactions was substantially the same as it would have been if the Bank, acting on the Credit Company’s promise of prompt reimbursement, had cashed, or given the Supply Company credit for the amounts of, drafts drawn on the Credit Company by the Supply Company and -indorsed by the Bank for 77 per cent, of the amount of accompanying notes representing debts to the Supply Company. The stipulated compensation for the use of the sums advanced amounted to substantially more than the interest allowed to be charged by the Florida law. In so far as any of the instruments evidencing the agreement of the parties use words fit for a contract of purchase they were mere shams and devices to cover loans of money at usurious rates of interest. Home Bond Co. v. McChesney, 239 U. S. 568, 36 Sup. Ct. 170, 60 L. Ed. 444; Commercial Security Co. v. Holcombe, 262 Fed. 657, -C. C. A. -, U. S. Circuit Court of Appeals, Fifth Circuit, present term.
The Bank’s relation to the transactions was that of an indorser of notes which never really became, and were never intended to be, assets in which it was beneficially interested. The advances it made were not for itself, hut for the Credit Company, which was to make immediate reimbursement and get all interest to accrue. The obvious purpose and necessary effect of having the notes in question pass through the Bank in the manner provided for were to make it liable on them, without it really acquiring any beneficial interest, but solely for the benefit of the Credit Company and the Supply Company. What the Bank did amounted to lending its credit to paper on which it could realize nothing. This is not permitted by the law under which the Bank exists. The conclusion is that the indorsements sued on were accommodation ones, and are not enforceable in favor of the Credit Company, which the uncontroverted evidence shows acquired the notes with knowledge of the Bank’s real relation to them.
It follows that the court erred in overruling the Bank’s motion that a verdict in its favor he directed. Because of that error the judgment is reversed.