Petition for Writ of Certiorari — American Acceptance Corp. v. Schoenthaler

Supreme Court brief1968

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LIBRARY = ) ee FILED

SUPREME COURT. = = ===, |. Ma 16 agg

= 7 om . DAVIS, CLERK

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, ‘1967 2 :

vo A444

AMMRICAN ACCEPTANCE CORPORATION,

a Delaware corporation, .

Petitioner,

vs. :

EDWARD P. SCHOENTHALER and AGNES A:

_ SCHOENTHALER, husband and wife, and

WILLIS H. YEAMANS,

PETITION FOR A WRIT OF CERTIORARI TO THE

____UNITED STATES COURT OF APPEALS - ~~~

FOR THE FIFTH CIRCUIT

WILLIAM GRESHAM WarD

1240 duPont Building

. Miami, Florida 33131

RicHarp AARON KANNER

1150 N. W. 14th Street

Miami, Florida 33136

Attorneys for Petitioner, Ameri-

can Acceptance Corporation |

* E. L. Manpswnitt, Inc., 926 Cherry Street, Kansas City, Mo. 64106, HArrison 1-8080

£o 8 Area ome ea re sas

aa 2 pa i _— ee ee,

—

(A)

(B)

(C)

(D)

(E)

(F)

(G)

(H)

INDEX |

OPINIONS BELOW -. faite st 2

JURISDICTION : . . 3

QUESTIONS PRESENTED ... | mon”

First Question. : 3-11 ~

Second Question ok arse! 11-14

‘Third Question _...14-16

CONSTITUTIONAL PROVISIONS AND STAT-

_ UTES seininetasalll

CONCISE STATEMENT OF FACTS . 18-27

‘(Not applicable) 7

BASIS FOR FEDERAL JURISDICTION i eee

_ COURT OF FIRST INSTANCE. ‘2

REASONS RELIED UPON FOR ALLOWANCE

OF WRIT. - 28-40

The decision of USCA 5 in this case is in con-

‘flict with opinion of this Court in Hogg v.

Ruffner (see S.C., 1 Black 115-121), -66 U. S.

Supreme Court Reports, .17 Law Ed. 38, and

opinion of USCA 7, me re Cones, 207 7. 2d -

516 | : 28-29

Reference to comprehensive note in 71 Harvard

Law Review, beginning at page 1143 Ce)

as to conflicts 29-33.

Analysis of law of Florida under Home Credit

Company v. Brown, 148 So. 257, a 1962 deci-:

sion, and arz'ysis of other Florida cases - ...34-35

Analysis of later case ef Connecticut Mutual

Life Insurance Company v. Fisher, 165 So.

: 2d 182, cer. den: S.Ct.Fla. 1965, 171 So. 392 .. . 35

Analysis of Conner Air Lines, Inc. v. Aviation —

Credit Corporation, (CCA 5, 1960) 280 F.

2d 895, under which decision there would be .

no usury in the construction therein made of

Bri se 3. ee:

| Florida usury statutes, which case was re-

ceded from under present decision of USCA

5, the.review of which is herein sought . one 36-37

CERTIFICATE OF SERVICE tn 40

| INDEX TO APPENDIX

APPENDIX A—Opinion of U. S.. District Court, South- |

ern District of Florida, filed December 2, 1965'.......A1-A10

APPENDIX B—Order denying motion for new trial,

filed December 23, 1966 ... Al1-Al2

APPENDIX C—Opinion and Judgment of USCA 5,

dated January 29, 1968 “ ..---A13-A38

APPENDIX D—Order denying petition for rehearing |

_ ° and rehearing in banc, dated March 27, 1968. ................ A39

APPENDIX E—Florida Statutes, Chapters 687.03,

687.04 and 687.07 .......: A40-A41

_APPENDIX F—Opinion of DCAF 2, Jan. Term 1968

_ (not yet reported) ..................... A42-A44

Table of Authorities ;

CASES

B & D, Inc. of Miami v. E-Z Asseptance Corporation

(D.C.A.F, 3, 1966), 186.So. 2d 29 ‘35 -

_. Benson v. First Trust & Savings Bank, 134 So. 493 —11, 12, 13

.- Brown v. Home Credit Co., 137 So. 2d 887 : _ 34, 36

Connecticut Mutual Life Insurance Company v. Fisher,

165. So. 2d 182, cert. den. 171 So. 2d 392 35, 36

Conner Air Lines, Inc. v. Aviation Credit Corporation -

(C.C.A. 5, 1960), 280 F. 2d 895 12, 13, 36.

Daniel v. First National Bank of Birmingham, (C. C.A. |

. 5), 227 F. 2d 353, 228 F. 2d 803 : 7

Davidson, et al. v. Davis, 52 So. 139 .......... 34

Dillon v. J. W. Walter Co. (Fla. App.), 98 So. 2d 391... 37

Meeps 600 AGI, RPL GAD AG ROR IALE

INDEX ae a

Hogg v. Ruffecr (see S.C., 1 Black 115-121), 66 US.

Supreme Court Reports, 17 Law Ed. 38 .. :.F, 8, 9, 10, 28, 29 -

Home: Credit Company v. Brown, 148 So. 2d ail ..13, 14, 34

Mitchell v. Doggett, 1 Fla. 356 : ) a

In re Oakes, 267 F. 2d 516 . 8, 9, . 10, 11, 28, 29-

Perry v. Beckerman (S. Ct.Fla. 1957), 97 So.-2d 860 .. “ae . 33

Shorr v. Skafte, 90 So. 2d 604 : hcshieinl 12, 13

Yaffee v. International Company, Inc., 80 So. 2d 910°... 33

| Willie Marvin Lord v. Ernest O. Hodge, Sr., santacsetinee

(see APP. F) .... nosso 36°

Caumeeninenes PROVISIONS

United States Constitution, Article I, Section 10, Para-

graph 1 ee

Fifth Amendment to Constitution of the United States - a

Eighth Amendment to Constitution of the ‘United States 17

Fourteenth Amendment to Constitution of the United :

States, Section 1 | 17

; | STATUTES ° :

Florida Statute, Chapter 687.07, F.S.A. , fie ae

Florida Statutes, Chapters 687.03, 687. 04 and 687.07

(see App. E) . .. 18

ARTICLES e

71 Harvard Law Review, page 1143 (1958) 29-33

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~ SUPREME CORT OF THE UTED STATS

OCTOBER TERM, WR .

pecan paras

AMERICAN ACCEPTAN CE CORPORATION,

a Delaware corporation,

( Petitioner, .

| ) vs.

EDWARD P. SCHOENTHALER and ‘AGNES A

SCHOENTHALER, husband and wife, and -

WILLIS H. YEAMANS,

Respondents.

PETITION FOR A’ WRIT OF CERTIORARI TO THE |

UNITED STATES COURT OF APPEALS

. FOR THE FIFTH CIRCUIT

; To THE HonorasLe Eagt WARREN, Gane Jueince or cid

_ SUPREME COURT OF THE UNrTeD STATES, AND THE ASSOCI-:

axe Jonna or cas Surmmen Couar or sn User

STATES —

The petitioner, AMERICAN ACCEPTANCE CORPORA-

TION, a Delaware corporation, having its principal place

"of business in Philadelphia, Pennsylvania, prays that a

writ of certiorari issue to review the judgment of the United

‘States Court of Appeals for the Fifth Circuit, entered by Be

re Court on the 29th day of January, 1968. A petition =

for rehearing, combining a motion for reference to and

‘consideration by the Appellate Court in c, was timely

iled, and a brief in support of the petition for rehearing |

and reference to the Court in banc was filed simultaneously

therewith. The petition and motion for rehearing in banc

was.denied by an order of said caus entered on March: »

27, 1968. ,

(A) - OPINIONS BELOW

The opinion of the United States District Court for the’

_ Southern District of Florida’ was filed December 2, 1965,

and is shown in the printed Transcript of the Record, Vol.

-’ JIT, beginning at page 1080. A.copy of the opinion is at-.

_ tached hereto as Appendix “A”. A petition for rehearing

from that opinion of the United States District Judge was

timely filed (Tr. Vol. ITI, p. 1092). | ‘An order of the Dis- |

' trict Court denying the motion for new trial was filed De- |

cember 23, 1965 (Tr. Vol. III, p. 1120). A copy of said

order is attached hereto as Appendix «i

The opinion, judgment and mandate on appeal, dated

‘- January 29, 1968, is shown at page 1157 of the supple-

mental certified record, and a copy thereof is attached

hereto as Appendix “C”. The petition for rehearing, com-—

‘bined with a motion for reference to and consideration by

the Court in banc, is a part of the supplemental . certified

record beginning at-page 1188, and the supporting brief is

shown at page 1211. The order of March 27, 1968, denying

the petition for rehearing and for ‘rehearing in banc is

shown inthe supplemental’ certified record at page 1282,

and a copy thereof is attached hereto as Appendix “D”.

iain hat Si parte | ’ . * SSS eee TAT I Ie re OT RNR sree

(B) JURISDICTION

_ ‘(1) The judgment of the United States Court of Ap

peals for the Fifth Circuit-was made and entered on the

29th day of January, 1968 and recorded on the same date,

and a copy ‘thereof as above referred to is attached to this _

petition as Appendix “C”, - e

(2) The petition for rehearing was timely filed: and

said petition for rehearing was denied on March 27, 1968, .

and a copy thereof is attached hereto as Appendix “D”, -

(3) This petition is timely filed under Title 28, U.S‘C.,

Section 2101(c). Jurisdiction conferred on : this Court to

review the judgment or decree in question by writ of

-certiorari is conferred under the provisions of Title 28,

U.S.C., Section 1254(1), as a certiorari from the final judg- .

ment or decree by the United States Court of Appeals for

the Fifth Circuit. eae | :

This case involves the construction of a Florida Statute,

Chapter 687.07, F.S.A., commonly referred to as the criminal

and forfeiture usury statute of Florida, which is as follows:

“687.07 Forfeiture and penalty in case of exces-

_ Sive interest or charges—Any person, or the agent,

officer or other representative of. any person, lending ~

money in this state who shall willfully and knowingly

charge or accept any sum of money greater than the

sum of money loaned, and an additional sium of money

equal to twenty-five per cent per annum upon the \

principal sum loaned, by any contract, contrivance or

device whatever, directly or indirectly, by way of

commissions, discount, exchange, interest, pretended

sale of any article, assignment of salary or wages, in-

spection fees or other fees or otherwise, or for forbear-

ing to. enforce thé collection of such moras or other-

wise, shall forfeit the entire sum, both the principal

and interest, to the party charged such tsurious in-

terest, and shall be deemed guilty of a misdemeanor,

and on conviction, be fined not more than’ one hun-

~ dred dollars, or be imprisoned in the — jail not

more than ninety days.”

The Maxwell Company, a Florida corporation, having its

principal place of business in Miami, Dade County, Florida,

was in the business of selling hotel, motel and commercial

building furnishings and equipment on a commercial or.

wholesale basis and did a large business throughout the

State of Florida. Edward P. Schoenthaler had under con-

struction a motel at Naples, Florida, and he required com-

‘* plete furnishings and fixtures for the motel and: for res-

taurant equipment in said motel. The terms of his first

mortgage financing, then of record in the spring: of 1964,

required that the first mortgagee have a first mortgage not

only on the buildings, but apa the complete mening

and fixtures.

Schoenthaler. sina. -Maxwell for a bid on the fur-

nishings and fixtures and discussions were had with ref-

erence to the complete furnishings for the project. The

estimation of the minimum cash sale price was $180,000.00,

and the time sale differential for a 60-month payment,

without interest, was $238,546.00. Schoenthaler could not

. give or enter into a retention title contract, because under

the. first mortgage of record the first mortgagee was en-

titled to a prior lien. He could not give a second mortgage.

because Willis H. Yeamans, the original owner of the land,

held a second purchase money mortgage subordinated to

the first mortgage in. the amount of approximately

$120,000.00. " Schoenthaler had other minor obligations for

expenses in the overall completion of the motel project.

Schoenthaler requested the aid and assistance of Max-

well to see if secondary additional financing could be ar-

| 5 |

ranged in the amount of $170,000.00. This was not in the

line of business of. Maxwell, but the Maxwell Company

did agree that they would arrange financing for these col-

lateral and secondary purposes to the extent of

_- $170,000.00: That ° was to be on a straight simple interest

.of 10%, payable in installments. Schoenthaler elected to

buy the furniture on the deferred payment plan and to bor- -

row -$170,000.00 in cash. This arrangement was consum-

; ‘mated, the furniture was delivered and installed, the

$170,000.00 was made available either in cash or to the

credit of Schoenthaler, and Schoenthaler arranged for

$100,000.00 of the $170,000.00 loan to be-paid to Willis H.

Yeamans for the release of his purchase money second

mortgage. Schoenthaler used the balance of the

$170,000.00 for additional supplies, furnishings and equip-

ment not covered in the original time sale, plus the use

' Of additional operating capital. The only money receiyed

from Schoenthaler out of the $170,000.00 cash advance was

for some extra equipment for the restaurants in the amount

of approximately $38,112.18. :

A second mortgage on the land, buildings and total fur-

. nishings was then given to Maxwell securing the two trans-

actions, one the note for $238,546.00, not bearing any in-

terest, and a note for $170,000.00, representing the cash

loan which carried simple interest at 10%, without any

prior discount. The mortgage secured the lien of the fur-

niture sale and the lien of the cash advance. Under the

then existing law of Florida each of these transactions, con-

sidered separately, did not and could not have violated the

criminal usury statute above set forth. The timeggale. of

furniture was valid under all of the Florida decisions and

was not affected by the usury statute. The loan of

$170,000.00 in cash for a iil ‘simple interest did not violate

any Florida statute.

At the time. of closing the petitioner, American Accept-

ance Corporation, a Delaware corporation, having its prin-

cipal place of business in Philadelphia, Pennsylvania, and

which corporation was not authorized to do business as

such in Floridd and was not doing business in Florida,

agreed to lend The Maxwell Company certain sums of

money and to take an assignment of the mortgage and the

two separate notes as collateral security on a price or con-

tract between American Acceptance and the Florida cor- .

poration, The Maxwell Company, which was not violative

of any of the Florida statutes. There was no privity be-

- tween American Acceptance, which: was doing business

solely with Maxwell, and the mortgagors, Schoenthaler and

wife.’ At the time of the transaction between Maxwell

and American Acceptance there were no statutes and no

Court opinions of Florida which rendered the transactions

between American Acceptance and Maxwell subject to

any violations of the usury statute. At the same time there

were no Court decisions or statutes of Florida-which ren-

. dered the transaction between Maxwell and the Schoen-

thalers subject to any usury violations of Florida on either

one of the two transactions.

The United States District J uidge, Fer District of

Florida, as well as the United States Court of Appeals for ©

the Fifth Circuit, recognized those basic principles of law.

| However, the lower Court, as affirmed by the United

-* §tates Court of Appeals for the Fifth Circuit, conceived or

created a new relationship, without any statutory author-

ity, because of the association under one mortgage of the

two separate considerations, and held they had the right

to combine the two separate transactions into one transac-

tion as a loan transaction, disregarding the separateness

. of the time sale price of the furniture transaction.and treat- -_

_ ing the entire transaction as a single loan. The Court ap-

plied the time sale price differential as coming Within the

” a 5 " ES

2 |

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usury aaetiiaes concluded that there was in this combi-

nation interest exacted under the contracts in excess of

25%, which was a criminal act requiring forfeiture under

Chapter 687.07, F.S.A.

Under the basic decision by this Cont in _— v. Ruff-

ner (see S.C., 1 Black 115-121), 66 U: S. Supreme’ Court

Reports, 17 Law Ed. 38, in analyzing an Indiana statute

. of similar import, this Court held that a time sale differ-

ential price for the sale of the property, both real and per-

_ sonal, could not be held. to be included as being under the

provisions of a usury statute where the usury statute con-

trolled only where there was'a loan for a sum of money

in one) instance, or some transaction which involved ‘an ex-

_ tension of time in the enforcement: of a loan of a sum of | .

_ Money. ; :

Since that time. the United States Court of pears for

the Fifth Circuit, in the case of Daniel v. First National

Bank of Birmingham (C.C.A. 5), 227 F. 2d 353, and on

= reconsideration 228 F. 2d 803, construed the federal: statute

on usury, Title 12, Sections 85 and 86, in such a way that

it concluded that a Court, even in the absence of a statu-

tory provision, could apply the federal usury statute to

sales contracts. on automobile transactions where at or

about the time the sales contract was entered into the

‘commercial paper: was transferred to a third party, such

as the bank in that particular case. This constitutes a

usurpation of constitutional rights by a Court in creating

a new contract between the parties by implication, and a

merger of the transaction between the purchaser and. the

seller and the subsequent assignment of the purchaser’s

commercial paper to a third party into one transaction.

That is the same doctrine which the United States District .

Court adopted in this case and which was affirmed by the

‘United States Court of Appeals for the Fifth Circuit, with-

out any statutory authority in Florida other than their pur-

ported construction of Chapter 687.07.

The United States Court of Appeals for the Seventh

Circuit, in the case of In Re Oakes, 267 F.2d 516, which

involved certain commercial paper growing out of the pur-

chase of a precut house, construed the Illinois law by hold-

ing that the transaction simply evidenced the time price

differential for the sale of property, and that the Courts .

could not assume the responsibility, without statutory au-

_ thority from the statutes of Illinois, to-treat ‘that trans-

action as a "loan for the purpose of determining whether the

differential on the time sale price was under the usury

law of Illinois.

The Indiana statute construed by this Court i ‘in the Hose

v. Ruffner case, supra, and the Illinois statute are identical

in substance with the Florida statute, with the possible

-excéption that fhe Florida statute, Chapter 687.07, which

has been invoked in this case, is much clearer in its word-

ing, which is as follows:

“Any person, or the agent, officer. or other repre-

sentative of any person, lending money in this state

who shall willfully and knowingly charge or accept

any sum of money greater than the sum of money .

loaned, and an additional sum of money equal to twenty-

five per cent per annum upon the principal sum.

loaned, by any contract, contrivance or device what-

ever, directly or indirectly, by way, of commissions, dis-

_count, exchange, interest, pretended sale of any article,

* * * shall forfeit the entire sum, both the principal

and interest, to the party charged such usurious in-

terest, and shall be deemed guilty of a misdemeanor.”

_ In the Seventh Circuit decision (In Re Oakes, 267 F. 2d

516, 519, text p. 519), the Court -quoted with approval from

prior decisions of the Supreme Court of Illinois, and

pointed out that at the time the transaction in that case

"was entered into on July 28, 1956, the parties under the

then existing Illinois law could make such bargain or con-

‘tract for sale of property as they desired, and it made no —

difference whether the time price differential on ‘this sale —

of property exceeded the usual rate permitted for ‘a loan

of money.- The Court quoted with approval this statement:

““Discounts,-at a rate greater than legal interest,

___for-payment before the credit expires, are constantly -

_ allowed in commercial transactions with no. thought of

usury.’ ” | : : -

It is significant to note in that decision rendered in 1959,

"that it was disclosed that the State of Ilinois on January

did not have the power without statutory. amendment to

the Illinois law to hold that under the established com-

-Mercial practice pertaining to time differential sales of

personal property the usury statutes of Illinois were vio- A

lated, and said: “we believe it should be done by the

legislative process rather than by judicial decree.” :

Thus there is a dead conflict between the construction

of “sales agairist loans” by this Court in the Hogg v. Ruff-

‘ner decision, supra, and the Illinois case of In Re Oakes,

supra, and the construction placed upon the same subject

matter by the United States Court of Appeals for the Fifth -

Circuit in this case. _

The question is Squarely presented as to whether the

action of the United States Court of Appeals for the Fifth

Circuit in placing a new construction, or in fact making

a new contract, between the partiés, is violative of the .

, United States Constitution, Article I, Section 10, denying

’ the parties the right to contract, and whether that usage

or conclusion by the United States. Court of ‘Appeals for

the Fifth Circuit does not actually violate the constitutional

rights-of this petitioner, by the denial of equal protection

of thé law and the taking of property without due process.

If the doctrine of this Court in the Hogg v. Ruffner

‘ease and the doctrine of the United States Court of Ap-

peals for the Seventh Circuit in the case of In Re Oakes

is correct, then the only way this new doctrine could be

applicable would be if the legislature of Flofida had prior.

to the commencement date of this transaction on. April

_29, 1964, passed additional statutory prohibitions on time

sales pertaining to personal property. Admittedly that

was not done. Even if the Florida legislature had there-

after amended the law so as to include time sale differ-

entials as a part of the usury statute, that statute could

certainly have no retroactive or ex post facto effect.

In the case at bar, when this transaction was consum-

mated in the spring and early summer of 1964, the con-.

' tracts between Maxwell, as the seller of the furniture,

and ‘the Schoenthalers, as the purchasers, were clearly

not covered by any usury laws of Florida.: There were no

decisions.of the Florida Courts which had ever construed

_a legitimate or valid sales contract with a time price dif-

ferential as being controlled by the usury laws. There

were no statutes or Court decided cases in Florida which

would have been notice or knowledge to the petitioner,

American Acceptance Corporation, that there was any

_ purported violation of. any of the laws of Florida, either

statutory or Court decisions. Since it was doing business

in interstate commerce it should not and could not con-

_ stitutionally be charged with knowledge that the federal

Courts, to-wit: . the United States District Court, Southern

~ District of Florida, or the United States Court of Appeals

‘for the Fifth Circuit, could adopt’ a new theory late in

11 ae

1965 and apply that retroactively or ex post facto to its

_ transaction consummated in the early part of 1964 and

create forfeiture and criminal penalties, thus giving an ef-

fect to a subsequent Court interpretation by the District .

- Cour€’having an ex post facto effect that @uld not have

possibly been inflicted if the legislature of Florida had

amended the law in 1965 in that respect. ll

In the. opinion of the In Re Oakes decision, the United

States Court of Appeals for the Seventh Circuit, as con- ©

_ tained in note “1”, page 519 of 267 F. 2d said:

“For interesting discussions with reference’ to pro-

. posals that courts judicially declare that finance

‘charges come under the prohibitions of usury statutes,

we have been referred to the note ‘Judicial and

_ Legislative Treatment of “Usurious” Credit Sales’, 71.

-Harv. L. Rev. 1143 (1958), and a case note on the ap-

‘plication of usury statutes to credit sales in 57 Mich.

L. Rev. 298 (1958).” |

The second point, which is subsidiary to the main ques- —

tion above raised, is. the fact that the Supreme Court of

Florida had for many years, beginning with the case of

Mitchell v. Doggett, 1 Fla. 356, as well as the case of Benson

v. First Trust & Savings Bank, 134 So. 493, consistently

construed the wording of Chapter 687.07 to mean that the.

. Florida statute was only susceptible of one construction,

_ because it specifically referred only to a loan of money in

which the lender shall wilfully and knowingly charge or

accept any sum of money greater than the sum of money |

loaned, and an additional sum of money equal to 25% upon.

_ the:principal sum loaned.

It has been pointed out in the cases above mentioned,

particularly in the Benson case, that the use of the words

“charge and accept'a sum of money” in a penalty or

criminal statute are derogatory of the common law doc-

trine, and could not be construed to hold that a mere con-

tract to pay, which was never paid, could be the basis of

a violation of that statute.

The United States Court of Appeals for the Fifth Cir-

‘ cuit; in the ease of Conner Air Lines, Inc. v: Aviation

Credit Corporation (5 Cir. 1960), 280 F.2d 895, clearly

reestablished that construction of the Florida statute. In

the opinion involved in this case, ‘the United States Court

of Appeals for the Fifth Circuit departed from the existing

law, and in a note on page 25 of its opinion said:

“We are mindful of our decision in Connor Air Lines,

Inc. v. Aviation Credit Corporation, 5 Cir. 1960, 280

F.2d 859, cert. den. 364 U. S. 911, wherein the op-

posite construction was placed on the Florida usury

_ statutes. However, the more recent Florida decisions

just discussed place a different interpretation on these

_ statutes. Erie — us to follow the Florida de-

cisions. ”

After the Benson decision in 1931 the law of Florida

was consistent with the holding in that case; that is to

say, that a mere contract to pay excessive interest is not

covered in the forfeiture and criminal statute, and that -

there must be an actual charge or acceptance of a sum of

money at that time. ,

In 1956 the. Supreme Court of Florida, in the case of.

Shorr v. Skafte, 90 So. 2d 604, by a division opinion of four

Justices, held that where a lender took a note for

$6,000.00, payable on or before six months; and only

loaned $5,000.00, that in a subsequent suit where the holder

of the note sought to recover the $6,000.00,‘plus interest

thereon, this was a contrivance or device and that since the

interest rate was in excess of 40% and the holder of the note

made demand, it amounted to a taking or acceptance under

, the construction of Chapter 687.07. Nowhere in the opinion

INNA ee eT NT ETL ITN TT IEE TIE EI I ITO IT senate Sena ee: -

13 poser

J ‘ ,

--is there any discussion of a difference of the provisions in —

Chapter 687.07, which is a forfeiture or criminal usury

statute, and Chapters .687.03 and 687.04, which provide for

simple forfeiture of interest and other penalties.

In the Shorr v. Skafte case the Supreme Court did not

even mention the Benson decision and apparently did not

_ purport to overrule the Benson. doctrine, but simply applied

the forfeiture rule ‘without ever analyzing the statute.-

That case was never coristrued to mean that | Chapter -

687.07 could. be violated by a mere contract to pay interest. -

in the future. ‘There had to be an actual charge or ac-

ceptance, namely, a payment of something by the bor- .

rower and an acceptance by the lender, before the for-~. ~~

feiture and criminal statute was applicable.

The United States Court of Appeals for ‘the Fifth Cir-

cuit, in the case of Conner Air Lines, Inc: v. Aviation: :

. Credit ‘Corporation, supra, clearly made that distinction

. in 1960 even in the construction of Chapter 687. 04. The

holding in that case would be applicable to the same

charge or acceptance features of Chapter 687.07.

‘In the present opinion the United States Court of Ap-

peals for the Fifth Circuit now abandons its construction

of the Florida law in the Conner Air Lines case, and holds

that it was required to do so because the Supreme Court

of Florida in a later decision in 1962, Home Credit Com-

pany v. Brown, 148 So, 2d 257, had changed and departed

from the long line of decisions, including the Benson case

and subsequent detisions. The petitioner has contended

in its petition for rehearing in the Appellate Court and

in the supporting brief (Cert. Supp. R:, pp. 1188 and 1211)

that such a conclusion is not justified. .The petitioner has

contended that the doctrine of the: Benson case and sub-

sequent cases is still the law of Florida,. and that. the con-

‘struction placed’ on the Florida Statutes in the Conner Air

Lines case was and still is the oie construction of the |

‘ law of Florida. There is not one reference in’ the Home

Credit opinion that makes a bona fide and fair sale of per-

* sonal property on a time sale differential subject to the

usury laws of Florida, and in particular Chapter 687.07.

This will be covered later in our argument under Sub-

division (H) of this petition.

‘The third question presented, which is aa to

the main question above raised, is shown in paragraph

5, On page 28, of the opinion of. the United States Court

of Appeals for the Fifth Circuit. The contention was made

in the lower Court decree that in looking behind the whole

transaction, the consideration was $180,000.00 in the ad-~

mitted cash price. of the personal property sold and

°$170,000.00 in the cash advanced, of & total of $350,000.00. .

The lower Court .had associated or consolidated the two

_ Separate transactions and cast the furniture deal into a

loan ‘with the $170,000.00 cash loan;. $100, 000.00 of the

cash loan was credited to Schoenthaler, together with the

additional . $70, 000.00; and: Schoenthaler in effect trans-

ferred that money to Willis H. Yeamans in satisfaction

. of ‘the Yeamans purchase money second mortgage. Yea-

- mans had’ entered into a guaranty contract between Max-

well, Schoenthaler and Yeamans where Yeamans would

guarantee the first payments to Maxwell and in effect

’ subordinate his right to the physical possession of the

‘ $100,000.00 until Schoenthaler had made certain stated

. payments on the mortgage. Yeamans had agreed that this

$100,000.00 under the guaranty agreement would be placed

on deposit with American Acceptance Corporation, for-

which American Acceptance agreed to pay 4% interest on

the deposit. Maxwell actually funded to Schoenthaler, the

mortgagor and purchaser of the fugniture, the entire

$350,000.00. Schoenthaler then transferred to Yeamans

$100,000-00,. and as an outside transaction Yeamans then

15 oe Paice

pledged that $100,000.00, which was his own money, as

collateral to secure the first few payments. |

The lower Court concluded that this circular payment

and treatment of the $100,000.00 between Maxwell and

Schoenthaler only constituted a net funding of $70,000.00

of the $170,000.00 cash loan. The lower Court then ap-

" plied the usury rate; treating the entire transaction as a

simple loan and not two transactions, and said that the -

interest of 10% contracted for on the $170,000.00 loan, added.

to the time sale differential price, or the. difference be-

tween the $180, 000.00 cash ‘price and $238,540.00, which —

was the time sale price, . constituted a charge or accept-

ancez,of more. than 25%, but was based onl on ‘the

$250,000.00 computation. On the oné hand,-: ye the

parties, -including the lower Court, held that the title to

the $100,000.00 actually passed to Willis H. Yeamans,

which would be a consummation of ‘the entire loan of

cash or property advanced of $350,000.00.

There was no contention by American Acceptance,’ or

by anyone in the:case, that the $100,000.00 was not funded

to Schoenthaler and then in turn paid to Willis H.

. Yeamans, thus calling for a satisfaction of his second

mortgage. As the acktiowledged owner of the $100,000.00,

Yeant. then repledged that—not to Maxwell, but ‘to

Ame can Acceptance Corporation, which had taken or had -

a | to take an assignment of this commercial paper —

as collateral.in the transaction with | Maxwell, the aler ,

of the furniture.

If the $100:000.00 passed to and belonged to. Yeamans,

the only way he could have received that money was from

_' Schoenthaler, and the only way Schoenthaler received that

money was from Maxwell. Therefore, the lower Court °

used: the basis of $250,000.00 for a computation of usury, .

but ignored the other $100,000.00 in the computation of

usury and ‘ordered that American Acceptance not only for- ‘

feit its claim to the $250,000.00 under the usury statute

‘of Florida, but simultaneously ordered the specific per-

formance of the alleged loan agreement, requiring ‘the

payment of that $100,000.00 to Willis H. Yeamans.

The question presented is that under ‘the usury statute

of Florida, Chapter 687.07, the sole and only penalty is.

the forfeit of the entire sum loaned, both principal ‘and

' interest. If all other: factors in the case are eliminated

from consideration by this Court, then only $250,000.00,

and any interest accruing thereon, ‘could be forfeited.

The answer to that problem is contained in the very last -

paragraph, on ‘page 30, of the opinion of the Appellate

~Court, wherein it was said: |

“It was obviously the conclusion of the District

Court that the $100,000 was part. of ‘the principal

amount of the loan, although the loan was never

funded with that amount so as to make interest com-

putations allowable thereon. The fact that the loan

~ ‘was never funded with the $100,000 does not mean

that that amount would not be forfeitable under

687.07. ‘The $100,000 had to be either principal or

_ interest. Whichever ig was, it is forfeitable if the en-

tire transaction is found to be. criminally usurious. ”

No authority was quoted in the opinion of the lower

Court or in the opinion of the Appellate Court, and there was.

no reference to a statutory provision of Florida to sustain

not only the forfeiture of the funded. part of the loan, but

authorizing now the payment to Willis H. Yeamans, which

would have completed the funding of the entire loan. If

this funds the $350,000.00 portion, then there is no usury.

If this Court finds that on the first question presented

the time differential on the sale of personal property is

'. not within or covered by the Florida usury statute, then it

would not be necessary to pass on the second and third

questions as there would be no possible usury involved in

the case in such an instance

(D) CONSTITUTIONAL >PROVISIONS, TREATIES, _—

__ STATUTES, ORDINANCES OR REGULATIONS

‘The portions of the United ‘States Constitution relied

upon are as follows: reed Sent

Article I, Section 10, Paragraph 1, as follows: ;

“No State shall enter into any treaty, alliance, or con-

federation; grant letters of marque and reprisal; coin

_ money; emit bills. of credit; make anything but gold

_ and silver coin a tender in payment of debts; pass any

bill of attainder, ex post facto law, or law impairing

the obligation of contracts, or grant any title of nobil-

ity.” ; ¢ .

That portion of the Fifth Amendment to the Constitu-

tion of the United States, as follows:

“nor shall any person be subject fer the same offence

to be twice put in jeopardy of life or limb; nor shall

be @mpelled in any criminal case to be a witness

_ against himself; nor be deprived of life, liberty, or

property, without due process of law; nor shall private

property be taken for public use, without just com-

.. pensation.” | 4 .

Amendment VIII to the Constitution of the United —

States, ds follows: 4 | poe

“Excessive bail shall not be required, nor excessive ,

9" . fines imposed, nor cruel and unusual punishments in-

; fli cted.” =, ce | red

Amendment XIV to the Constitution of the United States,

Section 1, as follows: == . es | 7

“All persons born or naturalized in the United

States, and subject to the jurisdiction thereof, are citi-.

‘zens of the United States and of the State wherein

they reside. No State shall make or enforce any law

NETL NOE A PT TEI OT NCTE I

, ;

- which shall abridge the privileges or immunities of

citizens of the United States; nor shall any State de- ae

prive any person of ‘life, liberty, or property, without |

due process of law; nor deny to any person within its

. jurisdiction the equal protection of the laws,”

Florida Statute, Chapter 687.07, which has been copied |

in full in Subdivision (C), Questions Presented. All of

the pertinent provisions of the-Florida usury statute which

cover Chapters 687.03, 687.04 and 687.07 are attached here-

to as Appendix “E”.

(E) CONCISE STATEMENT OF FACTS

‘ We submit an analysis of the facts upon which this liti-

gation was presented and determined by the United States

District Court, Southern District of Florida, because we

do not feel that said Court in its opinion, beginning on

page 1080 of the Record (App. A), gave proper considera- -

ation to all of the Record, which consisted, as set forth

in the Court’s own opinion, of the pretrial stipulations, ex- - -

hibits, pleadings - -and depositions. There were no live wit- |

' nesses or personal testimony presented for the Court’s con- ‘ j

‘sideration, so that this Court has before it the exact rec-

- ord, exhibits, depositions and pretrial stipulations that were

presented to the lower Court. ae

‘Referring now to the opinion of the lower Court, —

- ming in the Record on page 1081 (App. A), there are cer-

tain conclusions which that Court reached and we think

‘the preliminaries. to those conclusions which the Court~ .

reached should be pointed out to this Court. In substance,

prior to April 28,°1964, Willis H. Yeamans owned certain

‘property in the City of Naples, on the west coast of

Florida, and he had conveyed that property to Edward P.

‘Schoenthaler. and ‘Agnes A. Schoenthaler, and.in consider-

| ation therefor the Schoenthalers resenened and delivered to

| 19

Willis H. Yeamans_a purchase money mortgage in the ap-

proximate amount of $119,500.00, securing a note in that

amount which bore interest. The record does not. disclose

whether the Schoenthalers paid any cash consideration.

This whole transaction, if not actually a joint venture, was

the result of a very close | relationship between Yeamans

on the one hand as the owner of the property and the —

Schoenthalers on the other hand as the developers, because

more or less simultaneously therewith Yeamans subordi-

nated: the lien of his purchase money mortgage to a con-

struction money mortgage given in favor of the First Na-

tional Bank of Miami, Florida, in the amount of approxi- -.

mately $1,350,000.00, and accompanied ° with that mort-

gage was a takeout of the mortgage agreement with the

‘Trustees of the Central States, Southeast and Southwest

Area Pension Fund. The peculiarity in the agreement was-

that the moneys to be advanced by the First National Bank ©

of Miami were for.the sole purpose of constructing a motel

which was to be built in accordance with certain plans .

and specifications to. be filed with Real Estate Research

Corporation, the real estate appraiser for Central. States,

- Southeast and Southwest Area Pension Fund. The com-

_mitment for the takeout of the construction money mort-

gage was conditioned upon the completion of the building

_ and the installation of complete furnishings. These were —

requiréd to be free and clear of lien so that at the time

the Pension Fund could be called upon by the bank to

take over the mortgage the building would have to be com-

pleted and furnishings installed, free and clear. The mort-

gage held by the First National Bank was to be assigned

to the Pension Fund on a permanent financing first mort-

gage basis and was to encumber on a first lien basis not

only land and buildings, but also all of the personal prop-

erty which would constitute the furnishings and effects sal

thereof. —

. 20

It became apparent.prior to April 28, 1964, that there —

was not enough money either in the possession of the.

Schoenthalers or coming out of the construction money to

~.even- complete -the-specifications..and_ requirements of the

first mortgage, and it was at that stage of the proceedings .

that Schoenthaler for the first time negotiated with The’

Maxwell Company of Miami, Florida, a large commercial

furniture company which specialized in furnishing motels

and hotels, as distinguished from a retail furniture com-

pany. The type and quantity of furniture Schoenthaler

wanted to purchase from Maxwell included practically all

of the furniture, fixtures and equipment required for com-

plete compliance with the requirements ofthe first mort- .

gage, with the exception of kitchen equipment which

Schoenthaler had already purchased, but had not paid for,

_. from an outside source. The amount of the furniture nego-

tiated with Maxwell had a cash price of $180,000.00, and

these individual items are shown in detail in the Record

‘in Volume III, pages 892 through 958, which shows the

actual signed orders, whereas in Volume I of the Record,

pages 33 through 52, the invoices of Maxwell were set

forth. ; ;

- The lower Court merely ientioned some of this back-

ground in the opinion (Tr. 1081 and 1082, App. A), but

the details as we have set forth herein were not mentioned

by the lower Court in specific application to its findings.

The said Court did find (Tr. 1082, App. A) that Schoen-

thaler had two distinct motives in dealing with the Max-

well Company, one for the purchase of the furniture and

“the obtaining of an absolute bill of sale therefor, which he

was required to have, and the other for the cash. out of

- which he could arrange for the satisfaction of the second

| mortgage held by Yeamans and to provide himself with

cash to operate the motel.

,The negotiations which had started prior to April, 1964,

‘between Schoenthidler and Maxwell, culminated in a writ-

ten agreement (Tr. 114), known as the commitment letter,

which is the controlling factor in the determination of this

_case and is the agreement which is briefly mentioned by —

the District Court in its opinion on page 1082 of the Rec-

ord (App. A). :

This agreement was in the nature of a letter proposal

signed by Maxwell, the Schoenthalers and Yeamans, where-

in the parties agreed that Maxwell, would sell furniture

at the cash price of $180,000.00, or if purchased by Schoen-

thaler, on a deferred payment plan at the price of

$238,000.00, payable without interest in equal monthly in-

stallments. In addition, Maxwell agreed to lend Schoen-

-thaler $170,000.00 cash, which was to be evidenced by a

promissory note:bearing 10% interest. Both notes would

be_secured by Schoenthaler executing a second mortgage ~

on the land, buildings and furniture, and guaranty agree-

ments and endorsements from two parties who, in addition

to Schoenthaler, were benefiting by the‘sale of the furni- ~

ture and the lending of the money on the terms stated.

The first guaranty of $150,000.00, as evidenced by their

endorsement on the notes, was given by Congress Inter-

national Inns, Inc., under which name the motel was to be

operated. The second guaranty was to be a personal guar-

anty of Yeamans, who was interested in the transaction ~

to the extent of getting his purchase money mortgage satis-

fied. The agreement further provided that Schoenthaler .

fully comply with the original commitment letter of Oc-

‘tober 11, 1962, by Central States, Southeast and Southwest

Areas Pension Fund to Edward P. Schoenthaler (Tr. 118- -

119). .This original commitment had been accepted, and

under that commitment Schoenthaler had bound himself -

to carry out the full details, and Yeamans had become

bound by that commitment because he subordinated his |

_22

purchase money mortgage as a condition to that commit-

ment. This Court will note that between October 11, 1962

until April 28, 1964, some eighteen months had passed, at

which time efforts were being made by Schoenthaler to

complete the buildings, and by that time Yeamans was in-

_ volved and so was Congress International Inns, Inc. -

The other facts are set forth in detail in the letter pro-

- / posal (Tr. 119). This actual commitment from Maxwell

_ had first been approved by Dr. Willis H. Yeamans on

April 23, 1964, at Fort Lauderdale, Florida, and was then

actually signed by Maxwell and the Schoenthalers on April

28, 1964, at Miami, Florida, and accepted by Congress Inter-

national Inns, Inc. on the 30th day of April, 1964. “Yea-

mans had been an integral party in the final negotiations

which led up to the four-party commitmeht and agree-

ment. This Court will note, as reflected in the Record at

page 33, that immediately upon the execution of the four-

party agreement Schoenthaler gave a: series of orders to

. Maxwell beginnirig April 30, 1964, which was the final

date when Congress International Inns, Inc. accepted the

} four-party agreement, The petitioner, American Accept-

©" ance Corporation, was not a party to this four-party agree-

ment and it was not until the 26th day of May, 1964, or

twenty-six days later and after orders had been placed

and deliveries made, when American Acceptance Corpo-

ration, a financial institution, came into consideration on

the guaranty agreement.. There is no dispute as far as

_ American Acceptance is concerned that it had prior thereto .

been approached: by Maxwell for financing to Maxwell in

connection with the transaction Maxwell had entered into —

with Schoenthaler and that American Acceptance was ad-

vised as.to the form of the notes that would be executed

by the Schoenthalers and the general basis of the financ-

ing and sécurity arrahgements. It knew about the commit-

ment agreement of April 28, 1964, entered into between

‘23

Maxwell and Schoenthaler, but it did not have-any digect

or indirect participation or negotiation with any other party

than Maxwell: At the time this agreement of April 28,

1964, was entered into no specific institution had been one

nated as the escrow: agent. 7

The terms and conditions of the commitment letter -

were consummated with the delivery of the furniture to

Schoenthaler, the endorsemeht of the notes by Congress »

International Inns, Inc. and the execution by Schoenthaler

of the guaranty escrow agreement (Tr. 122). The guar-

anty escrow. agreement provided that the money which j

Yeamans: was required to post with an escrow agent as "

security for his guaranty was to come out of the proceeds

of Maxwell’s $170,000.00 loan to Schoenthaler, from which

loan Schoenthaler had to satisfy the Yeamans mortgage.

By the terms of this guaranty escrow agreement both .

- \Schoenthaler and Yeamans assigned this. $100,000.00. to

the escrow agent yet to be named. 3 Ales,

_ In the agreement of May 26, 1964 (Tr. 125), it had been

provided that this $100,000.00 escrow would be placed with

- a financial institution, but it was not upon any request or

demand of American’ Acceptance that it had td be the

escrow agent. American Acceptance Corporation, as

shown by the undisputed testimony in the deposition of

John M. Lowe, vice president of Maxwell. Company, and

~ in particular as reflected on page 722 of the Record, had

. entered into an agreement with Maxwell to lend it the sum

of $350,000.00, and that as security for that loan the col-

lateral ‘assignment of the Schoenthaler notes and mort- -

gages, endorsed by Maxwell with full ‘recourse and as

further evidence of the debt, received a promissory note °

executed by ell in the amount of $350, 000.00. This

note was based upon a fixed fee contract which had been

in force and effect between Maxwell and American Ac-

ceptance on many other prior transactions wherein Max-

well paid American Acceptance approximately 5% add-on

interest (Tr.. 390). Mr. Lowe, comptroller for Maxwell,

_ testified in his deposition (Tr. 723) that the standard rate

which Maxwell charged as a time differential price used

on furniture sales was’ at an approximate rate which was

called “6% add-on”, He pointed out that this was the usual

practice even though each transaction with their pur-

chasers was separately negotiated, and he stated that the «

6% add-on on the furniture sale so far as Schoenthaler

was concerned was the approximate standard, and so far

_as he knew that was what had been charged.

_ On page 724 of the Record, in Mr.. Lowe’s ineattinn he

said that on some smaller transactions the computation .

on furniture sales ran as high as 644% add-on, and he

explained the transaction further by stating that when the ©

time charges received from the purchaser were received

and paid where the paper had been assigned to American

Acceptance, then there was an accounting between Max-

well and American Acceptance and if the amount received

_ from the customer on the time sale charges exceeded the

basic 5% add-on interest charged to Maxwell, then Ameri-

can Acceptance rebated to Maxwell, or if those amounts

* did not exceed or were in fact less than 5% add-on Max-

well repaid the difference to American Acceptance. Mr.

Lowe established without any. contradiction in the Record

' (p. 725) that this: was the whole basis for the handling

' of this assigned financing with American Acceptance and

that in no event under his computations could Ameri- ,

. can Acceptance by contract or otherwise receive’ more

than this amount of $350,000.00, plus the 5% add-on com-

putations. Mr. Lowe also established (Tr. 726) that it

was Maxwell’s practice to cooperate and work with Ameri-

can Acceptance in the event of any cotaults, and that in

many instances where there were defaults Maxwell would

then repurchase or have a. retransfer of the particular |

account back in the name of the Maxwell Company. ae

In the testimony in the deposition of Mr. Toby Carroll,

attorney for Dr. Yeamans and also for the Schoenthalers

(Tr. 570), Mr. Carroll stated that’on or about the 26th

day of May, 1964 he had some discussions with'Mr. Aaron

Kanner, the attorney ‘for Maxwell Company, and had dis-

cussed the actual party who would hold the $100,000.00 be-

longing to Dr. Yeamans as the escrow agent (referred to

‘in some parts of the agreement as a bank and other parts

as a financial institution) and that he had agreed with

Mr. Kanner that American Acceptance “would be okay” .

- (Tr. 573), and he testified that he would then send a wire

to Mr. Kanner. to that effect. He had mentioned prior

thereto (Tr. 572) that he thought the commercial bank,

rate would be 344% and that he and Mr. Kanner, Sr. had

discussed whether they could get 4% if the money was

- .escrowed with American Acceptance. Nothing had been

- definitely settled until Maxwell, through J. M. Lowe, vice —

_ president, had directed a letter to American Acceptance

- Corporation, Six Penn Center Plaza, Philadelphia, Pa., .

Attention: Mr. Elmer Rosenberry, dated June’ 3, 1964

- (Tr. 361), in which Mr. Lowe advised Mr. Rosenberry that

a Mr. Logan of American Acceptance had verbally agreed

that if American Acceptance was to be the escrow agent

they would accept it and pay 4%. In this same letter it

is shown that the guaranty escrow agreement was for .

the first time sent to —— Acceptance for its ap-.

. proval.

On’ June 5, 1964 (Tr. Vol. I, p. 364) the president of

American Acceptance Corporation wrote the following

letter: . :

“Mr. John.M,Lowe ~*

The Maxwell Company, Inc. :

7321 N.E:2nd Avenue — -

‘Miami, Florida 33138 — ae

| Wédare returning herewith the ori of the

Guaranty Escrow Agreement which is to used in

- connection with the Schoenthaler transaction.

ity We understand that if the $100, 000 is lodged with

‘ “ws, we are to pay Dr. Yeamans interest at the rate

of baat per annum on this sum, payable quarterly.

See NN me ; Very truly yours,

, President.”

‘We have mentioned: these portions of the Record because

in the opinion of the District Judge (Tr. 1083, App. A)

the Court laid. great’ stress upon the assumption that

“. American Acceptance had initially instigated this: whole

“transaction, The District Judge implied that this was a

: ‘wilful and deliberate scheme whereby American. Accept-

“ ance ‘would not ever lend more than $250,000.00, but would

_ charge interest on $350,000.00. The money resulting from

the Yeamans eserow of $100,000.00 security was never a

- request or a ‘demand from American Acceptance Corpora-

tion. It was a collateral matter entered into after the

commitments had been completed and the transactions

consummated by the recording of the mortgages on May -

26, 1964. We say this confusion in the Record was brought

_. about’ solely because the District Court found that some-

- thing that was entirely an aftermath related back and

infused the entire transaction with the intent to commit

é wilful’and criminal usury. The District Court said in its

opinion (Tr. 1087, App. A): :

P .

“This is a different situation, indeed, dun: tadthe

plaintiff paid $100,000 to Yeamahs and he had then

deposited it with a stranger as escrow agent or had

the plaintiff itself earmarked and segregated the

funds. But it did neither and never did er with

the fund

Nei ieit ath nile 0h bc ae

Court, reflected at page 1086 of the Record (App. A), it

treated, the total funding of this loan by Maxwell to

Schoenthaler at $250,000.00, and then by the application

_of certain mathematical computations the District Court

found that based upon $250,000.00, and treating the entire

transaction as one loan and not a separate sale and a

separate loan, there was usury above the rate of 25%.

| We point out as a part of the history of this case, par-

ticularly with reference to pages 1086 and 1087 of the

Record, that insofar as the Schoenthalers are concerned

the District Court found that there was only $250,000.00

actually funded, but that in the next paragraph so far as

Yeamans is concerned the District Court treated the fund-

ing of the- loan at, $350,000.00 and directed that the —

$100,000.00 be then paid from ee escrow to. Yeamans.

(G) BASIS. FOR FEDERAL JURISDICTION IN A.

| COURT OF FIRST INSTANCE |

This suit was initially filed in the United States Dis-

trict Court, Southern District of Florida, as a diversity

_ action uhder Title 28, Section 1332, because the petitioner,

“American Acceptance Corporation, was a Delaware cor-

poration, having its principal place of business in Phil-

adelphia, Pennsylvania, and all of the defendants were

citizens of the State’ of Florida, and the property sought

to be foreclosed was within-the jurisdiction of the United

States District Court, Southern District of Florida. © ;

tenet teen ela am edt nee eee Ree ee <om oomerewens are mentee

. (B+) REASONS RELIED UPON FOR ALLOWANCE

. Under Subdivisics (c), Questions Presented, three

. distinct reasons were assigned why this Court should

grant the writ. All three reasons grow out of the inter-

pretation of Chapter 687.07 of the Florida usury statute,

commonly referred to as the criminal and forfeiture usury

rae, ? ; :

The first: question presented is on -the basis that this

Court in the case of Hogg v. Ruffner, (see S.C.,1 Black 115-

121), 66 U. S. Supreme Court Reports, 17 Law Ed. 38, con- |

strued a similar statute of the State of Indiana to cover

‘ only loans for money and interest charged thereon, or in-

terest or charges made. for forbearance to sue or collect up-

- on loans of money, and this Court specifically held that

statutes of that class and wording could not be extended

to time differentials on the sale of property. .

The petitioner has shown that the United States Court _

‘of Appeals for the Seventh Circuit, in the case of In Re.

Oakes, 267 F. 2d 516,‘construed a similar transaction under

a similar statute of the State of Ilinois so that it did not

- apply to support a usury claim on a bona fide contract for

the sale and installation of a pre-cut house. In this case

that Court concluded by saying that before such a broad —

interpretation of the usury statutes would apply to the

time sales and time ptice differentials, it was a matter for

the legislature of Illinois to amend its laws. and “was not

for the Courts to rewrite the usury laws or rewrite the:

contracts between the parties so as to bring about a con-

clusion clearly not covered in the then existing statutes.

‘The petitioner then set forth that the United States Court

of Appeals for the Fifth Circuit, in construing a similar

provision ‘in the. federal usury statutes applicable to na-

— . . , , 7 : ®

™

tional — had without’ any statutory modification held

that the Court had the right to implement the statute and

to construe for equitable purposes a new contract between

the parties over and beyond the written agreements, and

to construe that the Court had the inherent power to set.

aside these commercial transactions and to construe a time

sale differential price on the sale of tractors as a violation

of the usury statutes. ‘This decision is in conflict with the

prior’ decision of. this Court in the Hogg v. Ruffner case;-~

supra, and is in direct conflict with the holding of the

United States Court of Appeals for the Seventh Circuit in

the case of In Re Oakes, supra. ,

-The petitioner contends ‘that _the present decision ie

which certiorari is now sought is in direct conflict with

the prior opinion of this Court, as aforesaid, in the opinion

of the said United States @ourt of Appeais for the Seventh

Circuit, in that it has even gone beyond the rulings in the

previous casesand held that a contract for the sale of per-

sonal property on a time price differential, even though it

was a valid and bona fide sale, is drawn into and becomes

_ merged into a loan for money, and that even though the

_ loan for money was not usurious and even though! ‘the time’

sale differential was not usurious; the fact that the trans-

actions occurred between the same parties they would be

considered as one loan and the time sale differential would

be considered as usury applicable to the cash consideration.

Tn the opinion .in In Re Oakes, 267 F. 28 516,’ the

United States Court of Appeals for the Seventh Circuit

' Made particular reference to a comprehensive note in 71

| Harvard Law Review, page 1143, and we refer to a few

_ excerpts from this article: While prepared and published

_ in 1958,-the subject matter of the article, the factual back-

ground and the various laws applicable are most timely.

- The Congress of the United States has been holding public

- hearings and studying the financing and credit industry

as a whole, with the view of. preparing or passing reme-

-dial legislation on the -interstate use of various financing

contracts and time sale differentials between:a cash: sale _

price and a time differential. price. There .are very few

states where any statutory enactments have been com-

pleted, and apparently there is no federal legislation at the

present time. The authors of this article ‘say a page .

st be

“The problem whether statutes prohibiting usury

apply to conditional-sales transactions is of obvious

importance in the present period of extensive credit

buying,‘ A few states have statutes. which expressly

_ forbid excessive interest’ charges in credit transactions.

Most states, however, have statutes which prohibit

only in general terms the charging of higher than a

. Stated rate ‘of interest for ‘loan or forbearance: of

‘money.’ In addition to state legislation, ‘a similarly

“~ general. federal statute prohibits usury on the part

_ Of national banks. Whether the framers of these

' statutes intended them to apply to installment-pur-

chase transactions is unclear. The statutes normally

contain no reference to conditional sales and similar

installment devices, nor is the matter discussed in any

_ available legislative material. Moreover, most laws

against usury antedate the cs boom in credit

buying.

* Until recent years most American courts have con-

sistently held that these statutes “do not apply to con-

ditional-sales contracts. The traditional view is that .

. Sale-and-purchase arrangements cannot be assimilated

to loans and that only loans'are coveted by the usury

statutes. Most jurisdictions adhering to the majority.

rule add the qualification that there must be: a bona

fide intent to buy something; the parties will not be

allowed to conceal a usurious loan in the form of a

conditional sale. In the last few. years a number of

—

courts have had occasion to re-examine the traditional

approach and for the first time have found violations _

of the usury laws in connection with bona fide condi- -

tional sales. Minnesota led the way in 1944, followed

in 1954 by Arkansas, which prospectively overruled a

* _ long line of prior claims. Three more states have

. adopted this view, and a fourth appears to be waver-

_ing. In the leading case of Daniel v. First National

Bank, the Court of Appeals for the Fifth Circuit con-

strued the federal usury provision as applying to a con-

‘ditional-sale contract discounted by ‘a national bank.

This Note will examine the central problem presented

by these cases: whether existing usury statutes, de-

signed to protect borrowers, should be construed to

apply to consumer-credit transactions.” . i

Later in this note (p. 1145) the authors say:

“Those courts which havé found violations of usury

laws in ‘consumer-credit transactions have generally

qualified the scope of their decisions by adopting the

doctrine of ‘bona fide time price.’ ”

c - The authors make this further comment (on page 1148:

' “A court convinced that usury legislation should

‘have been applied to conditional sales initially must

__ still face the question whether it is wise to overrule

' “ "-the traditional view now. Since the time the courts

first excluded conditional sales from ‘the scope of the

. usury laws, credit selling and the financing of deal-

ers through the purchase of conditional-sales notes. by

financing institutions have become a basic feature of

the national economy, particularly in connection

with the sale of automobiles. In 1956, 63 per cent

of all new automobiles and 58 per cent of all used

cars sold were sold for credit. In April, 1957, of the

31,532,000,000 ‘dollars in consumer-installment-credit

paper outstanding, 14,659,000,000 dollars was automo-

bile paper, of which the vast majority represented con- |

ditional-sales contracts. .Of the total installment cred-

‘ it ‘outstanding, 27,493,000,000 dollars was held by

financial institutions as compared to only! 4,039,000,000°

. dollars held by retail credit outlets. The commercial

banks -alone held 11,960,000,000 “dollars in install-

_ ment paper, including 3,713 000 000 dollars in purchased

auto paper and 2,313,000,000 dollars in direct auto paper.

To the extent that this business has developed in re-

-liance on the traditional judicial view, the argument that

a court should be reluctant to change its established

- position when the statute is at best ambiguous is strong

indeed. Unless the impact of a reversal is made prospec-

tive only, the result could be disastrous. It seems to be ~

generally assumed that most discounting of conditional-

sales contracts by financial institutions is carried on

at usurious rates. If, under the Fifth Circuit’s test

in Daniel, this fact is enough to put a bank on: notice

of usury in the original-contract, tremendous numbers

of completed transactions would be called into doubt.”

We continue to quote from the note at the bottom of

\ page 1148: 3

-“The ‘ina silence of the legistatdiries in. the face of

judicial decisions excluding -the purchase-transaction

field from the:scope of usury legislation may also be of

some significance. Despite judicial decisions in two-

thirds of the states over a period of many years hold-

ing usury laws inapplicable, no state legislature has

ever specifically subjected installment sales to its

_ general usury law.”

There is no Florida statute jeieahin, and the line

of decisions mentioned by the United States District Court .

in the first opinion in this case conceded that there are

_ Miany cases in Florida holding that time price sales con-

tracts are not covered by the usury law of Florida. The

lower Court conceded that there was no usury involved.

‘in the loan of $170,000.00, separate and apart from the

sale of the. furniture, becayse that was a simple interest .

at 10% on outstanding principal balances. However, the

lower Court held that where the two matters, one the sale

of the furniture and the other a separate supplemental

Joan, occurred at or about the same time, a new contract

or a: new..conception is created through the merger or

re ee ee Fe ee

action, a loan. .

Wes cli inkle Tega babidaaed 4s Wine Cua nie thnk oer

research resulted in the discovery of any cases supporting

this doctrine which was affirmed by the United States

Court of Appeals for the Fifth Circuit. While the trans-

action here involved was a. usual and customary trans- _

action in interstate financing and was simply a repetition

of thousands of similar types of transactions as reflected —

in the statistics in the Harvard Law Review article, yet _

the petitioner herein has been wate with a loss or

penalty of some $400,000.00.

The Supreme Court:of Florida in the case of Yaffee v.

International Company, Inc., 80 So. 2d 910, a 1955 decision,

said this in headnote 6: pe.

“Usury statutes do not have the effect of invalidating

contracts for interest at a rate higher than statutory

maximum, but only accord to the obligor the personal

privilege of setting up or waiving affirmative defenses

of usury in respect to such contracts.”

This is taken directly from the opinion in paragraph “6”,

on page 912. In this case it appears that prior .to the.

effective date of Chapter 28170, Laws of Florida 1953, a

corporation, as mortgagor or borrower, was not permitted

to interpose the defense of usury in any action in any

Court in Florida. By the law of 1953 that prohibition was

‘ removed. -The issue was raised by the borrower, a corpo- _

ration, which had ‘consummated the loan prior to the —

change of the law, and the Supreme Court of Florida was

which had held that? the usury plea’ could be asserted by a

corporate mortgagor on a transaction consummated before

the law was changed. The Supreme Court of Florida re-

versed that decision, and stated (see paragraph 5, p. 912):

“This being. the nature of corporation contracts made

under such a statute, it is plain that however an _abro-

gation of the statute is sought to be. accomplished,

whether by repeal or by an affirmative enactment, the

effect of applying the provisions of the statute retro-

spectively would be to apply usury penalties to corpo-

rate obligations which, when made, were subject only

to rules of common law under which interest rates were

not limited; and hence such application would be in

violation: of constitutional provisions which forbid the

trict” of laws pene the ee of con-

The case of Home Credit Company v. Brown, 148 So. 2d

257, a 1962, decision by the Supreme Court of Florida, was ~

first passed upon by the District Court of Appeal of Florida,

Second District, in Brown v. Home Credit Co., 137 So. 2d

887. This case in the District Court of Appeal involved

the question of whether two notes providing for a 10-year __

installment payment without interest, if accelerated at the

early stage of the transaction (and in. this case within four.

months after they were executed), and where the assignee

of the notes filed a suit for the full amount of the notes,

plus interest, could by acceleration with the full demand

construed to be usurious. There was no time’sale price

erential of personal property involved. There was no

bona fide sale of any eee property or of. any real prop-

erty involved. i

Neither the ‘eiuten i in the District ¢ Court of ‘Appeal of

_ Florida, Second District, or the opinion in the Supreme

Court of Florida in the subsequent decision, 148 So. 2d

257, purport to recede from the long line of decisions in

Florida, beginning with Davidson, et al. -v. Davis, 52 So.

139; Perry v. Beckerman (S. Ct. Fla. 1957), 97 So. 2d 860;

B & D, Inc. of Miami v. E-Z Acceptance Corporation

. (D.CA-F. 3, 1966), 186 So. 2d 29; and Connecticut Mutual

Life ‘Insurance Company v. Fisher, 165 So. 2d 182, cert. —

den. S. Ct. Fla. 1965, 171.So. 2d 392. In this latter case

_ . the District Court of Appeal of Florida thoroughly re-

viewed all of the background decisions in Florida, and that

Court said (see text; second column, p. 185, 165 So. 2d

182): ee ,

“* * * We are, however, impressed by this record

which shows a long‘time loan on businesslike and cus-

terms, and the absence of proof of the existence

of a corrupt intent to take more than. the legal rate .

~of| interest. for the use of the money loaned. The

chancellor appears to have given undeserved signifi-

cance to the actuarial computation submitted by the:

' plaintiffs in support of their motion for summary final

‘ decrée, which computation projected the total of the

- interest that would be payable on the principal and on

_ deferred interest if the specified installments of prin-

cipal and ‘interest were not paid as contracted for and

. Should be allowed to become and remain in default. -

* * * ‘Usury is largely a matter of intent and is not

fully determined by the fact of whether the lender ac-"

tually gets more than the law permits, but whether

_ there was a purpose in his mind to get more than , _

_ legal interest for the use of his money.’ Therefore,

such actuarial computation was without directional

foree to point out usury in the transattion, in the ab-

sence of a showing that it was a scheme or device

entered into with corrupt intent to charge more for the

_ loan than the rate of interest allowed by law.” yi

On this phase the Court concluded (text p. 186, first

column): ; : inate

““* * * If a loan when complied with as agreed upon

will not involve an unlawful rate, of interest “the legal

consequences of such an arrangement must be tested

by the results contemplated by the parties on the as- :

sumption that both lender and borrower will fully

carry out their agreement rather than the special re-

‘sults which may follow, but are not necessarily certain .

to ensue, when the borrower breaches a covenant.’ ‘das

The District Court of Appeal of Florida, Second District,

which issued the first opinion in the case of Brown v. Home

Credit. Co., 137 So. 2d. 887, has just recently on April 24,

1968, issued an opinion, not yet officially ‘reported, Willie

Marvin Lord, et al. v. Ernest O. Hodge; Sr., a copy of which

- is attached hereto as‘Appendix “F”. This opinion involved

the construction ofthe Florida usury laws and correctly

found that under the law of Florida there are four elements |

which essential before the Florida usury penalty. stat-

utes mnt (1) a loan, express or implied; (2) an un-

derstanding between the parties that the money loaned is .

to be returned; (3) payment or agreement to pay a greater

rate of interest than is allowed by law; and (4) a corrupt

intent to tekemore than the legal rate. )

The Court’ found that the first three elements were

present, but it could not assume that those first three ele-

mefits being present would supply the inference of the

fourth requirement, namely, that there ‘must be a corrupt

“intent to take more than the legal rate and that require-

ment could only be substantiated by plain and clear evi-

dence. The doctrine of that case fully supports the in-

‘terpretation ‘placed upon the Florida law of usury by the

District Court of Appeal of Florida, Third District, in-the

- Connecticut Mutual Life Insurance case, supra.

Referring again: to the case of Conner -Air Lines, Inc.

v. Aviation ‘Credit Corporation, 280 F. 2d 895 (U.S.C.A..5,

1960), which case has been receded from or reversed by

this last opinion of the United States Court of Appeals,

Fifth Circuit, in the case at bar, in that opinion the Court

Se 899): MG

- “* * * Authorities are cited showing it to be the law

of Florida that the difference between a cash price

‘offered and a credit price agreed upon is not to be re-

garded as interest so as to invoke the application of

,the law against usury. : Dillon v. J. W. Walter Co., |

Fla. App., 98 So. 2d: 391.” ane:

That law of Florida has never been changed, and the _

opposite conclusion could not be constitutionally or judi-

cially applied in the case at bar, unless the United States

District Court, Southern District of Florida, and the United

States Court of Appeals, Fifth Circuit, in the opinion sought

to be reviewed had ‘actually made a finding of fact based

upon competent evidence that this sale of furniture and

fixtures by Maxwell to Schoenthaler was only a pretended

or fictitious sale. There was no evidence and ‘no finding

‘by either the trial Court or the Appellate Court, because

such a finding would have been contrary to the undisputed

documentary evidence as reflected by the letter of July

9, 1964, from Edward P. .Schoenthaler and Agnes A.’

Schoenthaler, his wife, to The Maxwell Company, Inc.,

_ which is set forth in Volume I of the printed record, at

page 188, and which is as follows: ie 3

ae: ele » “July 9, 1964

The Maxwell Company, Inc. TA

P.O: Box 38-278

Miami, Florida’

Gentlemen: sy

Your company heretofore, under date of April 28,.

1964, delivered to the undersigned a commitment let-

ter wherein you agreed to sell to us certain furni-

ture, fixtures and equipment for a deferred purchase

price of $238,484.14, and to also loan to us the sim of

$170,000.00 in cash. fn connection with this commit-

ment and as security for the indebtedness which we

owe to you of $408,484.14, we have delivered to you

two promissory notes, one for $238,484.14, which said

note bears interest after maturity at ‘the rate of ten

cnanaeiidt ik semen tid ieetentnenerad . comet

- ae rate ean: ” "

, .

(10%) per cent. per annum, and the din note for

$170,000.00, which note bears interest from date. at

the rate of ten (10%). per cent per annum, payable

monthly. As security that the. aforesaid notes will be

paid aceording to the tenor thereof, we have delivered

“to you our mortgage encumbering the land and prop-

erty at premises generally known and identified .as

* ‘Old Cove’; Naples, Florida, and also known as Tahitian ~

Cove ‘Congress . Inn, Naples, Florida, and our chattel

mortgage: encumbering the furniture, fixtures and

equipment: installed at ‘the said premises aforesaid.

The land: mortgage has been recorded in the Public

Records of Collier County, Florida, in Official Records —

Book 168, at Page 497 thereof. The chattel mortgage, =

at our request, has not been recorded to date.

We acknowledge receipt ‘fron you today of Bill -

Sale covering said personal property referred to in the

: commitment and which said Bill:of Sale also covers

additional personal property in excess of the amount

referred to in said commitment, and we also acknowl-

‘edge receipt from you today of the sum of $37,112.18,

which has been delivered to us in the form of a check

- dated the 29th day of June, 1964.

We acknowledge that the commitment has been dis-

charged by you in the following manner:

(a) ‘By Bill of Sale to furniture to the amount of”

$238,484.14 purchase price, based on purchase price

peing paid in sixty (60) equal money instalments.

commencing August 1, 1964, :

(b) By Bill of Sale to additional purchase of fur-

niture not included in Item (a), for which we are pay-

ing cash, this item being a charge against the $170,-

000.00 cash loan, this purchase totaling $32,887.82.

~ (ec) check this date received in the amount of

$38,112.18.

(d) $100,000.00, which has ‘been ““Adpestted’ with

Acceptance Corporation, oe Yea-—

American

man’ s escaiad ib cna

ba ais : LES SOP ONG

We acknowledge that you have fully complied with ~

each and every item as required to be done by you-

under the terms of your commitment to‘us; that, with

_ the exception of that, furniture ‘to which reference will.

be hereafter made in this letter, you have fully de-

‘livered to us ajl items of personal property purchased

by us from you; that such personal property has been:

installed at the Tahitian Cove Congress Inn at Naples,

Florida, and.is now at said premises, this said: location ;

being the same: premises as described in the. real es-

‘tate_mortgage which we gave to you; that, in all re-

spects; you have ‘fully discharged all of the require-

ments of the commitment to us, including the installa-

tion and delivery of personal property to our motel

. Within the time limits required in the commitment. |

.We acknowledge that certain of the said personal prop-

a erty was not delivered by June 1, 1964, but at a sub-

sequent date thereto, and we specificallydo- hereby

release you from. any right, claim, demand, ‘or liability

to us by reason thereof. We acknowledge that we

_ have no ‘right, claim, demand or offset against the

payment of the sums of money required to be paid by |

us under the terms of the notes and mortgages here-

inabove referred to. .

We acknowledge that the indebtedness evidenced

by the promissory notes and secured by the land mort-

gage and chattel mortgage aforesaid is a valid, out-

standing indebtedness due and payable by us to you

| or your assignee, and that we have no offset, counter-

claim or defense to the payment of the same whatso-

ever, and that our indebtedness, as evidenced by said

promissory notes and mortgages, is absolute in every

‘In ‘reference to. furniture which has not been de-

livered, the same consists of furniture for the lobby of

the motel and chairs for the bar in thé Cove restau-

rant. We understand ‘these items are on order and

will be delivered to us as soon as received by you.

" There is also some miscellaneous small items which —

_ you will deliver as soon as received. We acknowledge

that the non-delivery to this date is not occasioned

through any fault of yours and we acknowledge that

we have rio claim against you because of ‘the non-de-

livery of the same to date. We-also recognize that it’

may be one month before complete delivery has been

effectuated.

Very wale yours,

Epwarp P. ScHOENTHALER

and

ay ; Acnes A. ScHOENTHALER, ;

~ Respectfully —

<*#

1240 duPont Building

| Miami, Florida 33131

RICHARD Kinow KANNER

1150 N. W. 14th Street

Miami, Florida 33136

- Attorneys for Petitioner, Ameri-

p can Acceptance Corporation

_ CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a copy of the tes Peti-

tion for a Writ of Certiorari to the United States Court of

Appeals for the Fifth Circuit was mailed on the ............

day of May, 1968, to Thomas A. Horkan, 236 Security Trust

Building, Miami, Florida, attorney for Edward P. Schoen-

thaler and Agnes A. Schoenthaler, husband and wife, and —

Morgan, Carratt & O’Connor, 605 Kennan Building, Fort

* Lauderdale, Florida, attorneys for Willis H. Yeamans,

ae" ) Wriu1aM GresHam WARD .,

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.