Petition for Writ of Certiorari — Conner Air Lines, Inc. v. Aviation Credit Corp. (No. 452)

THE SUPREME COURT OF THE

UNITED STATES |

WOTORER TERM, bone

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re PETITION POR LV VWEPED OP CRE PlOrP VRE bo cPHI

S UNITED STATES COURT OF APPE SES PoR TH

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2 .

CITATION TO OPINIONS BELOW

The’ opinion and judgment of the United States Dis-

trict Court in and for the Southern District of Florida is

unreported. The opinion of the Court-of Appeals is not

‘yet reported. The text of the opinion is attached hereto

as Appendix A. .

STATEMENT OF GROUNDS ON WHICH”

JURISDICTION OF THIS COURT IS INVOKED

(i) The date of the judgment sought to be reviewed

_ is June 30, 1960.

(ii) The date of the order denying petitions for

rehearing is August 12, 1960. No petition for extension

of time to petition for certiorari has been applied for or

granted.

(iii) The statutory provision believed to confer on

this Court jurisdiction to review the judgment in question

by writ of certiorari is 28 U.S.C. $1254(1).

‘THE QUESTION PRESENTED FOR REVIEW

WHERE A LENDER IN A FLORIDA TRANS-

ACTION HAS BEEN FOUND -GUILTY OF

CIVIL USURY, AND SPECIFIC AMOUNTS

OF INTEREST AND BONUS HAVE BEEN

FOUND TO HAVE BEEN INCLUDED IN THE

FACE PRINCIPAL SUM OF NEGOTIABLE

NOTES TAKEN BY THE LENDER FROM

THE BORROWER, DOES FLORIDA LAW RE-

QUIRE THE FEDERAL COURT TO DEDUCT

cemietineeneer

2

~~

7

FROM THE. ACTUAL PRINCIPAL SUM IN-

VOLVED AN AMOUNT EQUAL TO DOUBLE

THE INTEREST AND BONUS SO FOUND TO

HAVE BEEN RESERVED OR EXACTED?

Both the District Court and the Court of Appeals

found respondents guilty of civil usury. The District Court .

deducted an amount equal to double the bonus but vefused

to deduct an: amount equal to double the interest. The

Court of Appeals refused to deduct any amount from the

actual principal sum and restored respondents’ judgment

to the full principal sum. m

THE STATUTES IN VOLVED

The: statutes involved are Florida Statutes 1955;

$687.03 and $687.04, _ reading as follows:

687.03 Unlawful rates of interest defined;

proviso. — It shall be usury and unlawful for any

person, or fur any agent, officer or other repre-

sentative of any person, to reserve, charge or

take for any loan, or for any advance of money,

or for forbearance to enforce the collection of

any sum of money, except upon an obligation of

a corporation, a rate of interest greater than ten

per cent per annum, either directly or indirectly

by way of commission for advanees, discounts. :

exchange, of by any contract, contrivance or

device aoe Whereby the debtor is required

or obligated to pay a sum of money greater than

the actual principal sum received, together with

interest at the rate of ten per cent; and such

transaction with a cvrporation shall, whereby the

4

corporation pays interest, be usury and uulawful!

if for a rate of interest greater than fifteen per

cent per annum. The provisions of this section

shall not apply to sales of bonds in excess of one

hundred dollars and mortgages securing the

same, or money loaned on bonds.

687.04 Penalty for usury; not to apply ‘to

‘transferee of.negotiable paper unless usury ap-

pears on face. & Any person, or any agent, offi-

cer or other representative .of any person, will-

fully violating the provisions of-Sec. 687.03 shall

forfeit the entire interest so charged, or con-

tracted to be charged or reserved, and only the

actual principal sum of such usurious contract

ean be enforced in any court in this state, either

at law or in equity; and when said usurious in-

terest is taken or reserved; or has been paid, then.

and in that event the person, who has taken or re-

served, or has been paid, either directly or in-

directly, such ysurious interest, shall forfeit to

the party from whom such usurious interest has

been reserved, taken or exacted in any. way,

double the amount of interest so reserved, taken

or exacted; provided, however, that this:shall not

apply to a bona fide endorsee or transferee of ne-

gotiable paper purchased before maturity, unless

the usurious character should appear upon its

face, or that the said endorsee or transferee

shall have had actual notice, of the same be-

fore the purchase cf such paper, but in such

event double the amount of such usurious in-

terest may be recovered after payment, by ac-

tion against the party originally exacting the

> . a

.

ov

same, in any court: of competent jurisdiction in

this state, together with an attorney's fee, as

provided in Sec. 687. 06.

STATEMENT OF THE CASE’

The respondent Aviation (Credit Corporation, a Del-

aware corporation, filed suit to quiet title, seeking a

declaration that it was the full legal and equitable owner

“of a Douglas DC-6 aircraft and its equipment. One of

the defendants was the United States of America, three

individual defendants were citizens and residents of the

State of Florida, and the defendant Conner Air Lines,

Ine., was a Florida corporation. Jurisdiction of the United

States District Court was based on diversity of citizenship

and joinder of the United States of America as a defend-

ant, and on the amount involved, to wit, $600,254.67 plus

interest. No question exists as to the jurisdiction of the

District Court.

‘Conner Air Lines, Inc. and F. A. Conner counter-

claimed against plaintiff and cross-claimed against re-

- spondents _ L. B. Smith Aireraft Corporation, an Ohio

corporation, and L. B. Smith, a citizen and resident o:

the State of Nevada.The defense, the counterclaim and

the cross-claim were based upon a charge of usury.

Following trial before the District Court without a

jury, said Court found that interest computed at the rate

of 11.58% per annum, plus a $33,310.18 bonus for finane-

ing, had been included in the face principal sum of ne-

gotiable promissory notes aggregating $600,254.67, and

that the aforesaid bonus had been reserved by respondents .

in willful violation of the Florida usury law.

6

The actual principal sum involved was found to have

been $459,083.50, and the District Court ordered the de-

duction of $66,620.36, an amount equal:to double the bonus

for financing which had been found to have been reserved.

The United States of America and its agent Ralph

Delgado were made parties defendant by virtue of

seizure of the aircraft under asserted tax liens, were not

parties to the appeal and are not parties to this proeeed-

ing. Joseph G. Moretti is the holder of a mortgage en-

cumbering the aireraft and inferior to the mortgage lien

of respondent Aviation Credit Corporation. ®

Appeals to the United States Court of Appeals were

taken by these petitioners and by respondent Aviation

Credit Corporation, these petitioners contending that the

District Court should, have deducted the additional sum

of $169,997.62, being the amount equal to double the in-

terest exacted, to wit, $84,994.31, and Aviation Credit con-

tending that neither the interest nor the bonus should

have been doubled and deducted from the actual principal.

sum. :

The Court of Appeals affirmed the trial court's find-

ing of civil usury, but held that neither the interest nor.

the bonus had been paid by these petitioners, nor reserved,

taken or exacted by respondents, within the prohibitions

of Florida law. | |

Thé District Court’s findings of fact and conclusions 3

of law appear on pages 104 through 115 of the transcript

of record. The opinion of the Court of Appeals dated June

30, 1960, appears as Appendix A attached to this petition.

On August 31,1960, the Court of Appeals entered its oraer

staying its mandate for a period of thirty days to enable

7

these petitioners to apply for and obtain a writ of cer-

tiorari from this honorable court, the stay to continue in

force until final disposition of the case by this Court

iR. 812). — .

. ARGUMENT

Jurisdiction of this court in the premises is based

upon the fact that the United States Court of Appeals, by

the decision here sought to be reviewed, has decided an.

_ important question in a. way in conflict with applicable

. state law. U.S. Sup. Ct. Rule 19(b).

By adopting a rule contrary to that followed uni-

formly -and without a single departure in the Florida

state courts, the Court of Appeals has thrown the usury

law in Florida into a state of extreme confusion. This

conflict between ‘the’ decision of the federal court and

the decisions of the Florida courts necessarily will result

in uncertainty, confusion, doubt and multitudinous liti-

‘gation in the fields of commerce and finance in this area

of our nation. Further, it is sure tu result in races to cour’

aad forum shopping among. parties to real or Imeained |

grievances.

Every Florida case on the point here in issue holds

that the inclusion in the face principal sum of a negotiable :

note of excessive interest or bonus raises a positive re-

quirement of law that double the sum so included he de-

ducted from the actual principal sum involved.

There is no other or alternative rule in Florida law.

‘and once the Court has found, as in the instant case, that

the lender has included usurious interest or bonus in the

8

face principal sum of a negotiable note, it follows neces-

sarily, conclusively and as a matter of law that such in-

terest or bonus has been reserved and exacted.

In Wilson v. Conner ( Fla. 1932) 106 Fla. 6, 142 So. 606,

the borrower never had paid a dime to the lender, either

interest or principal. In that case a negotiable promis-

sory note was taken in the face amount of $10,000.00. Of

the $10,000.00 sum, $500.00. was found to be a bonus

. charged by the lender and $800.00 was found to repre-

sent one year’s interest at 8¢¢ per annum. The Florida

Supreme Court specifically held that the actual principai

sum received by the borrower was only $8,700.00, and

that inclusion of the 31,300.00 sum representing interest

and bonus,‘constituted an exaction and reservation by the

lender of $1,300.00, requiring deduction from the $8,700.00.

actual principal sum of ‘an amount equal to twice the

$1,300 charge, A penalty of $2,600.00 was deducted, leav-

ing a balance due of $6,100.00.

The Supreme Court of Florida in that case said:

“In the case at bar there was a negotiable

promissory note executed by the lender which

_ included in the principal sum thereof the con-

cealed amount of $1,300 usurious interest, with

nothing on the face of such note to indicate that

fact. Such note in contemplation of law consti-

- tutes an exaction of the interest included in tne

principal sum stated in the face of the note as

part of the principal. By including such interest

in the amount of the principal, the lender, in con-

templation of law, thereby took,’ reserved, and

exacted such interest as effectually as if the ac-

— ee ree

tual money itself to pay such usurious interest

had been demanded and paid in advance to the

lender.

“Therefore, not only did the lender forfeit the

right to receive under his contract any interest

on the actual amount loaned, because of his

usurious agreement, but he also incurred, in ad-

dition thereto, the forfeiture of double the

amount of the usurious interest which in contem-

nlation of law had already been reserved, paid

or exacted from the debtor at the time the note

and mortgage were signed. This means that the

lender has forfeited, in addition to all interest

which he might legitimately have otherwise col-

lected on the actual! loan of $8,700, an additional

sum of $2,600 as a penalty for the accomplished

wrong done by the exaction made:

_ “This sum of $2,600 for the forfeiture is ar- -

rived at on the principle stated by Mr. Justice

Ellis in Sullivan v. Thumm, supra, by doubiing

the usurious interest ($1,300) originally reserved.,.

paid, or exacted. Therefore the actual amount

loaned of $8,700, less all interest agreed to, less

$2,600 penalty, is the proper amount of the de-

cree that should have been entered in this case

for the mortgage debt.” (pp 608-609) (Emphasis

added) , :

In 1933, the Florida Supreme Court again spoke on

the point involved, in the case of Sherman v Myers, 108

10

Fla. 129, 146 So. 213. In that case the lender took a note

and mortgage in the face amount of $40,000.00 when in

fact the borrower received the principal sum of only

$32,000.00. The chancellor had found this disparity and had

deducted the $8,000.00 from the $40,000.00 note, ordering

the $32,000.00 balance payable. Upon appeal, the Supreme

' Court held that the lender was required to forfeit the

entire intérest charged or contracted for, and in addition

thereto must forfeit double the amount of interest which

had been reserved, taken or exacted. The court expressly

held that the inclusion in the principal of the negotiable

promissory notes of the sum of $8,000.00 constituted a

. reservation theyeof by- the lender, subjecting the lender

to a penalty of double the $8,000.00, and the court reversed

the chancellor and ordered him to deduct from the

$32,000.00 principal ‘sum a penalty of $16,000.00, being

double the $8,000.00 reserved by inclusiori in the promis-

sory notes.

The holding in Sherman v. Myers, like the holding

in Wilson v. Conner, is clear and unequivocal. In each of ;

‘the cited cases the trial court had found as a fact inclusion

of interest or bonus in the face of a negotiable note and

had forfeited that amount, but.in each case the trial court

had refused to take the next step, namely enforcement of

the statutory penalty of double the amount of the charge.

It is significant that the appellate court in each case held

the matter to be one of positive law and in each instance

reversed the ‘trial court and affirmatively ordered de-

duction of double the interest or bonus so reserved.

The factual situation in the instant case is absolutely

identical with the facts in the cited. cases, and we respect-

fully insist that the controlling law gives the court no

11

alternative but to enforce the statutory penalty of double

the interest and bonus reserved by the plaintiff.

In Ross v. Atlas Finance Corporation (Fla, 1934)

113 Fla. 793, 152 So. 410, Atlas brought suit to foreclose a

mortgage and note in the face amount of $3,500.00. The

trial court found the transaction usurious and found that

the actual principal sum received was $3,150.00, with a

$350.00 bonus having been charged and retained by inciu-

sion of that sum on the face of the note. The trial ccurt

deducted double the amount of the bonus and interest,

but made the deduction from the face amount of the note.

On appeal by the borrower it was held that the deduction

of double the amount of the bonus and interest should

have been made from the sum of $3,150.00, which was the

amount actually received by the borrower from the lender. |

The decree was ordered modified accordingly and as modi-

fied was affirmed. .

Still another case directly in point is that of Carr v.

Cole (Fla. 1935) 119 Fla. 260, 161 So. 392. In this case the

lender advanced’ $8,600 and required the borrower to

execute a note for $10,000.00 plus interest. The borrower

had paid interest in the sum of $3,100.00, 2nd the incerest

contracted for would have amounted to ¥4,000.00 to ma-

turity of the note. The trial court found the transaction

to be usurious and ordered the debt dis¢harged. The Su-

preme Court affirmed the chancellor, finding that the lorn

Was tainted by civil usury and holding that both the excess

sum of $1,400.00 included in the note and the interest ac-

tually paid should be doubled, and forfeited to the bor-

rower. When doubled, the $1,490.00 and the $3,100.00, to-

taling $9,000.00 was deducted from the actual principal

sum involved of $8,600.00 and a balance of ‘$400.00 re-

12-

mained due to the borrower from the lender. The trial

court, however, did not allow an affirmative judgment

against the lender but merely declared the principal and

interest forfeited and.the debt discharged. This decree of

the chancellor was affirmed by the Supreme Court after

thorough review. :

The last case squarely on this point which we discuss

in this petition is Ayvas v. Green (Fla. 1952) 57 So. 2d 30.

There are other cases also holding in accord with those

- cited in this petition, but we have attempted to avoid

stacking citations.

In Ayvas v. Green, a bonus of $547.50 was included

in the face principal amount of 4 note and the note. also

carried interest on its face at 6%. The special master who

took the testimony found the transaction tainted by civil

usury. The chancellor rejected the master’s finding and

entered a decree enforcing the note and mortgage in-

volved. No payments, either of principa! or interest, had

been made by the borrower. :

On the borrower's appeal, the court held, that the trial

court erred in failing to find civil usury; that by reserving

_a hidden bonus in addition to the apparent interest called

for in the note, the lender had reserved, charged or taken

interest in excess of the legal rate.

In the words of the court:

“We hold, then, that the obligation here sought

to be foreclosed was civilly usurious at its incep-

tion and that the lender must forfeit dovvle the

amount of interest ‘reserved, charged, or taken,’

13 *

in accordance with the provisions of Section

687.04. Since in this case no iriterest payments

were made by the appellants, the forfeiture will

apply only to the ‘bonus’ reserved, to wit, $547.50

($2700 minus $2152.50), which, when double the

amount thereof is deducted from the amount ac- ,

tually loaned, will leave a balance due the lender,

on the particular obligation here sought to be

foreclosed, of $1,057.50.” (p. 34)

It is significant to note that in each of the cited

Florida cases, the appellate court has ordered this double:

deduction to be mada as a positive requirement of taw.

The United States Court of Appeal in the instant case

recognizes that if the bonus was taken or resérved by

Aviation. Credit Corporation the deduction of double the

sum of the bonus was required. The court’s failure to rec-

ognize that the interest and bonus were reserved and

exacted at the time the notes were signed flies in the

face of every reported Florida case, and must be cor-

rected if this extremely important area of law is to remain

clear in Florida commerce and finance.

The widespread public impact of any departuré from

earlier holdings as to usury has been recognized and cited

by the Florida Supreme Court in Nelson v. Scarritt Motors

(Fla. 1950) 48 So. 2d. 168, In that case the Florida court *

passed upon another aspect of usury and said:

“In view of these holdings and the fact that

thousands of such contracts are now outstanding

on the strength of them it is our view that the

judgment appealed from must be and is hereby

affirmed... .” perk

14

*

Already the federal courts are overburdened with

work in this region. The decision of the Court of Appeals

in this case is certain to increase that burden unneces-

sarily, with usurers wherever possible scampering to the

_ federal jurisdiction in the hope of becoming beneficiaries

of this most substantial deviation from thé established

law of the State of Florida.

This honorable court can and’should avoid this un-

happy development by granting its writ of certiorari in

‘this cause and by bringing the federal decisions into har- -

mony with state law as required under the Erie Railroad

doctrine.

~ Respectfully submitted,

HENRY M. SINCLAIR

1601 Alfred I. du Pont

Building

Miami 32, Florida

Attorney for we L

5 Da, fe Anmclawrn

DON G. NICHOLSON

221 Security Trust Building

Miami 32, Florida

Of Counsel

I do certify that copies of the foregoing Petition for

a Writ of Certivrari to the United States Court of Ap-:

peals for the’ Fifth Circuit have been fufnished by mail to

Smith, Ristig and Smith, to _Knuck and Anderson, and to

Walten, Lantaff, Schroeder, Atkins, Carson and W ahl,

this a= day of Septe , 1960. ty

poet

APPENDIX A

IN THE |

UNITED STATES COURT OF APPEALS

’ FOR THE FIFTH CIRCUIT

No. 18071

CONNER AIR LINES, INC..& F. A. CONNER,

Appellants,

. versus

AVIATION CREDIT CORPORATION, L. B. SMITH

AIRCRAFT CORPORATION & L. B. SMITH,

Bs Appellees, |

AVIATION CREDIT CORPORATION,

. ’ Appellant,

cakice? versus

CONNER AIR LINES, INC, F. A. CONNER &

“JOSEPH G. MORETTI,

Appellees.

Appeals from the United ‘States District Court for the

Southern District of Florida.

(June 30, 1960.) |

Before CAMERON, JONES and BROWN, Circuit Judges

JONES, -Circuit Judge: Conner Air Lines owned a

App. 2

as a cargo carrier. Conner Air Lines, herein called

Conner, desired to convert the plane into a passenger

carrier. It. negotiated with a number of firms for speci-

fied interior work and among the proposals was one from

L. B: Smith Aircraft Corporation, herein called Smith

Aircraft.’ Other work, in addition to that included in the

initial proposal, was necessary and 100.seats had to be

purchased. Conner was without funds to cover the costs

of making the conversion of the aircraft from ‘the one

type of use to the other. F. A. Conner, the president and

dominant personality of Conner Air Lines, discussed his

problem with L. B. Smith, who, in addition to being the

president of Smith Aircraft, was president of Aviation

Credit Corporation, herein called Aviation Credit. Smith

was the guiding genius of both of these corporations. As

a result of these discussions a contract was made between

Conner and Aviation Credit by which the latter undertook

to advance seme working capital funds to Conner, to dis-

‘charge a substantial amount of Conner’s existing indebted-

ness, and to pay for rehabilitation work on the aircraft

in an amount up-to, but not exceeding, $150,000. It was

agreed that Conner would give Aviation Credit a bill of

sale for the aircraft, and Aviation Credit would make a

conditional sale contract by which Conner would reac-

quire title to the alwcraft upon payment of $505,140.92.

in accordance with the terms of a promissory note in that

amount given to Aviation Credit by Conner and payable

in installments over a thirty-two month period. The

amount of the note was the aggregate of Aviation Credit’s

commitments with interest included at. 11.58%. computed

@pp. 3

Conner Air Lines, et al. v. Avi. Cr. Corp. et a. 3

on reducing balances. It was expressed in the ssistiaaiieas

that Conner would be credited with any sums not ad-

‘vanced or expended by Aviation Credit to or for Conner.

The bill of sale, conditional sale contract and promissory

note were executed and delivered on November 23, 1956.

F, A. Conner individually guaranteed the payment of the

note. ‘tie

At or about the time of the financing arrangement made

with Aviation Credit by Conner, the latter entered into

a contract with Smith Aircraft for specified work to be

done at the agreed price of $150,000. Before February 23,

1957, the date when the first installment. payable by Con-

ner to Aviation Credit became due, a supplemental ar-

rangement was worked out under which Smith Aircraft

would do additional work on the Conner plane for stated

sums. Conner agreed to increase the amount which it had

previonsly agreed to pay for portions of the work which

Smith Aircraft had undertaken to do by its original con-

tract. It was claimed by Smith Aircraft that this addi-

tional amount was an adjustment ‘made to offset charges

incurred by it caused by failures and delays in perform-

ance by Conner of its contract promises. Conner asserted

that the additional amount was a financing bonus. Avia-

tion Credit agreed to finance the revised deal between

Conner and Smith Aircraft and to. extend the first four

installments. A supplemental agreement was executed

and an additional note was given and interest at the rate

of 11.58°¢ was included in the amount. .

Conner defaulted in its payments to Smith Aircraft.

The United States attached the aircraft for the lien

App. 4

4 Conner Air Lines, et al. v. Avi. Cr. Corp., et al.

of taxes claimed to be owing by Conner. Smith Aircraft

was required to make disbursements for insurance, main-

tenance costs and to prevent the repossession of radio

- equipment installed on the aircraft. Aviation Credit gave

notice of an intention to repossess the aircraft under the

terms of its so-called eonditional-sale contract and brought -

suit for a declaration that it was the owner of the aircraft

and that Conner had no interest: therein. While the suit

Was pending Smith Aircraft, by amendment, prayed for

foreclosure in the event the ‘conditional sale contract

should be held to be a mortgage. Conner and F. A. Con-

ner individually asserted that the agreements had been

procured through the fraud of Smith Aircraft and Avia-

tion Credit and that usury had been exacted. A mortgage

lien was asserted by. F. A. Conner, and another by Joseph

G. Moretti. The United States asserted its claims for

taxes. Testimony was taken over a period of six days.

The district court held that the bill of sale, the con-

ditional sale contract, and the spplemental instruments

constituted a mortgage under the provisions of a Florida

statute.' It was found that, although Smith Aircraft and

! All conveyances. obligations conditioned or defeasible, bills of sale

or other instruments of writing conveying or selling property, either

real or personal, for the purpose or with the intention of securing the

payment of money, whether such instrument be from the debtor-to the

creditor or from the debtor to some third person in trust for the credi-

tor,.shall be deemed and held mortgages, and shall be subject to the

same rules of foreclosure and to the same regulations, restraints and

forms as are prescribed in relation to mortgages.

Provided however, that no such conveyance shall be deemed or

held to be a mortgage, as against a bona fide purchaser or mortgagee

dl menee without notice, holding under the grantee. Fla Stat. Ann $

.01 i

App.5

Conner Air Lines, et al. v, Avi. Cr. Corp., etal. 5

Aviation Credit were separate legal entities with different

managing officers, they were both under the control and

domination of L. B. Smith who, in all material matters,

acted for these corporations in the transactions with Con-

ner, The control and relationship was such, as found the

district court, that all information on the part of one was

information on the part of the other. Of the amounts

included in the renegotiated and aupplemental agreement,

the court found that $33,310.18 was a bonus, and that

the bonus added to the interest computed at the 11.58%

rate and included in the notes resulted in a charge ex-

ceeding the permissive 15% rate and. hence constituted

usury under the Florida law. The court found that Avia-

tion Credit had 2dvanced $459,083.58, exclusive of the —

bonus payment. It was found that Aviation Credit had

advanced $9,703.99 for the preservation, maintenance and

protection of the res. The court held Aviation Credit was

entitled to recover this amount with interest at the statu-

tory rate of 6%. It was concluded by the court that Ayia-

tion Credit was entitled to recover for the sums actually

advanced, without interest or bonus, and less twice the

sum of said bonus. It was held that Aviation Credit

should be awarded an attorney’s fee of $15,000, with the

court expressing-the opinion that “this charge is reduced

from the normal because of the overcharge demands.” .

The court’s findings and conclusions were followed by a

decree of foreclosure and sale.

Aviation Credit has appealed. It asserts that the bonus,

called, was not a financing bonus but a renegotiation

7 |

-App. 6

6 Conner Air Lines, et al. v. Avi. Cr. Corp., et al.

-of a contract between Smith Aircraft and Conner under

which Smith Aircraft would otheswise have sustained 4

‘loss. It contends that the two corporations, related though

they were through the domination of L. B. Smith, were

nevertheless separate, and a sum contracted for as a profit

by one should not be credited to the other as a usurious

exaction. Aviation Credit contends that, assuming there

was usury, the court misapplied the Florida usury statute

in the imposition of the penalty. Finally, it is said the

appellant was entitled to, but was not allowed, a reason-

able attorney’s fee. Conner and F. A. Conner individually,

take an appeal and assert that the amount of the penalty

for usury as found and imposed by the court was less

than the Florida statutory ss requires.

A Florida statute? passed in 1925 prohibited corpora:

tions from interposing the defense of usury. This. provi-

sion was repealed’ in 1953, and the defense of usury then

became available to corporations as well as to individuals.

Sodi, Inc. v. Salitan, Fla. 68 So. 2d 882. \

The transaction which was found by the district court

to make a usurious transaction was the inclusion of the

item of $33,310.18 in the supplementary agreement. The

‘appellant urges that this sum, which Conner agreed to

pay, was a profit to Smith Aircraft for work done and to

be done by-it, and that even though the profit be unrea-

sonable it does not follow that it should be treated as usury

so far as Aviation Credit is concerned. Authorities are

2 Laws of Fla. Acts of 1925, Ch. 10096.

‘ Laws of .Fla. Acts of 1953, Ch. 28170

4

App. 7

Conner Air Lines, et al. v. Avi. Cr. Corp., et al. 7

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 regarded as interest so as to invoke the

application of the law against usury. Dillon v. J. W. Wal-

ter Co., Fla. 98 So. 2d 391. But here our problem is not

that simple. When the supplemental agreement was made

Smith Aircraft had performed a part of the work it had

undertaken to do and it was obligated to perform the rest.

There was to bea forbearance by Aviation Credit of the

then maturing installments of, Conner’s indebtedness.

Other financing was undertaken. Smith Aircraft and

Aviation Credit were both represented by L. B. Smith

and there is no doubt but that he was authorized to speak:

for both. The district court found that the $33,310.18 .

was to be paid as a financing bonus. We cannot say that

the facts do not admit of this inference or that the finding

is erroneous. °

Where there is an intent on the part of a lender to make

‘a loan or to extend a maturity for a greater profit than

is permitted by law, the transaction is tainted with usury

even though it is cast in a form which was designed to

give it a cloak of apnarent legality. Courts do not permit

the use of design or device to evade the purpose of the

usury laws. Griffinome Kelly, Fla. 92 So. 2d 515: Beatham

*. Carr, 122 Fla. 736; 166 So. 456. The amount of a bonus

‘ exacted in connection with financing will be regarded as

interest in determining whether the usury law has been

violated, and this is true whether the bonus inures to the

benefit of the lender, the avent of the lender, or to the

benefit of another. Speier v. Monnah Park Block Co., Fla.

84 So. 2d 697: Stoutamire v. North Florida Loan Associa-

6

: App. 8

4 ‘Conner Air Lines, et al. v. Avi. Cr. Corp., et al.

tion, 152 Fla. 321, 11 So. 24570; Richter Jewelry Co. t

Schweinert, 125 Fla. 199, 169 So. 750; Hopkins v. Otto.

-118 Fla. 865, 160 So. 203. The fact that Smith Aircraft

and Aviation Credit are separate corporate entities doe

not prevent the financing bonus from being treated as ;

usurious exaction in view of the relationship, throug

L. B, Smith, of the two companies.

In computing the amount which Smith Aviation is er:

titled to recover, the district court took the amount of th

advances made pursuant to the agreement, excluding th

bonus, added the amounts paid out for preservation, main:

tenance and protection with interest on this latter amoun:

The aggregate of these items was $469,266.52. The distric

court, in its findings and conclusions, some times referre’

to the $33.310.18 item as a bonus and at other times 3

an overcharge. In the decree the court directed that twic

the amount of the $33,310.18 item be deducted. This de

duction is asserted by the appellants to be unauthorized b:

the law of Florida.

Two-sections of the Florida st: atutes require our com

sideration. These: are:

“Unlawful rates of interest defined; proviso.-

It shall be usury and unlawful for any person.

or for any agent, officer or other represent:tive

or any person, to reserve, charge or take for any

lozn, or for any advance of «money, or for for-

bearance to enforce the colléction of any sum of

money, except upon an obligation of a corpora-

tion, a rate of interest greater than ten per cent

App. })

"A.

Conner Air Lines, et al. v. Avi. Cr. Corp., et al.

per annum, either directly or indirectly, by way

of commission for advances, discounts, exchange,

or by any contract, contrivance or device what-

ever, whereby the debtor is required or obli-

gated tu pay a sum of money greater than the

actual principal sum received, together with in-

terest at the rate of ten per cent; and such trans-

actions with a corporation shall, whereby the

corporation pays interest, be usury and unlaw-

ful if for a rate of interest greater than fifteen

per cent per annum.: The provisions of this sec-

tion shal! not apply to sales of bonds in excess of

one hundred dollars .and mortgages securing the

same, or Muney loaned on bonds.” Fla. Stat. Ann.

$ 687.03. |

“Penalty for usury; not to apply to transferee

of negotiable paper unless usury appears on

face.- Any person, or any agent, officer or other °

representative of, any person, willfully violating

the provisions of £687.03 shall forfeit the entire

interest. so charged, or contracted to be charged

or reserved, and only the- actual principal sum

of such usurious contract can be enforced in. any

court in this state, either at law or in equity; and

when said usurious interest is taken or reserved,

or has been paid, then and in that event the per-

son, who has taken or reserved, or has been paid,

either directly or indirectly, such ysurious inter-

est, shall forfeit to the party from whom such

usurious interest has been reserved, ‘taken or

exacted in any way, double the amount of in-

“App. 10

10 Conner Air Lines, et al. v. Avi. Cr. Corp., et al.

terest so reserved, taken or exacted: provided,

however, that this shall not apply to a bona fide

endorsee or transferee of negotiable paper pur-

chased before maturity, unless the usurious char-

acter should appear upori its face, or that the

said endorsee or transferee shall have had actual

notice of the same before the purchase of such

paper, but in such event double the amount of

such usurious interest may be recovered after

payment, by action against the party originally

. exacting the same, in any court of competent

jurisdiction in this state, together with an. attor-

ney’s fee, as provided in Sec. 687.06.” Fla. otat.

Ann. § 687.04.

If it is ‘correct to say that the $33,310.18 was taker

or reserved, or has been paid by Conner, then the imposi-

tion by the court of double the amount of the usurious

bonus’ from the true principal was proper. If there was no

any payment, or any taking or reserving of usurious in-

terest, then the full amount of the principal, without

interest, may be recovered. Wilson rv. Conner, 106 Fla. 6

142 So. 606; Ross v: Atlas Finance Corporation, 113 Fila

793,.152 So. 410; MeGillick v. Chapman, 134 Fla. 220, 184

So. 26. Where other instruments are executed contem

poraneously with a inortgage and as a part of the sam

transaction, the mortgage may be modified by the other

instruments, and all documents are to be read together ir

order to determine and give effect to the intention of th? }

parties. 59 C.J.S. 208, Mortgages, § 156; Jackson rv. Par-

Ker, 153 Fla. 622, 15 So. 2d 451; Brumick v. Morris, 131

Fla. 46, 178 So. 564; Morrow v. Commonwealth Life Ir

App. 11

Conner .Air Lines, et al. v. Avi. Cr. Corp., et al. 11

surance Co., 118 Fla. 371, 159 So. 525. The effect of the

transactions between Conner, Smith Aircraft and Aviation

Credit, was to have conversion and rehabilitation werk

done by Smith Aircraft on the DC-6 plane of Conner and

to provide that payments for this work and other pay-

ments and advances for other purposes of Conner should

thereafter be@made by Aviation Credit and be secured by

a lien on the Conner aircraft. These arrangements re-

sulted in a mortgage to secure future advances. Such

security “transactions are recognized and enforced in

Florida* It may be parenthetically noted that there i-

no question now present in this case as to lien priorities.

Cf. I'nited States v. American National eBank, Sth Cir.

1958. 255 F. 2d 504. cert. den.,358 U.S. 835, 79S. Ct. 58,

3 L. Ed. 2d 72, reh. den. 359 U.S. 1006, 79 S. Ct. 1135,

3 L. Ed. 2d 1034. The advances by Aviation Credit were

made over a period of about fourteen months.

r

The provision for the forfeiture of double the amount

of the interest exists only if the usurious interest has been

paid or has been taken or reserved. Certainly Conner

did not pay the so-called bonus to Aviation Credit. Was

it. otherwise paid, taken or reserved? It was not, unless

it-can be said that a paying, taking or reserving resulted

from the transfer of the amount of the bonus from Avia-

tion Credit to Smith Aircraft. The undertaking of Con-

ner to pay Aviation Credit the $33,310.18 constituted

usury, but only because of the relationship between the

two Smith corporations. By reason of that same relation-—

‘ Fla. Stat. Ann § 69704

‘App. 12

"132 Conner Air Lines, et al. v. Avt. Cr. Corp., et al.

ship we are precluded from saying that the transfer is one

of them to the other is the paying, taking or reserving of

the usurious bonus. Because of the relationship, it follows

that the situation is no different than if Conner had

agreed to pay, but did not pay, the sum to Aviation Credit

as additional interest’ or as a financing bonus. The inter-

: jection of the related company, Smith Aircraft, into the

‘arrangement does not change the effect of what was done

in so far as concerns the payment by Conner, or the tak:

ing or reserving by Smith Aircraft, of the bonus. Hence

we reach the conclusion that it was error to determine.

as the district court determirfed, that the bonus of $33-

310.18 was paid or taken or reserved.

Smith Aviation appeals from that portion of the nog

decree fixing the amount of attorneys’ fees awarded !

it. In its finding the district court said. “It is the at

opinion that a reasonable attorneys’ fee .to be-awarded %o-

the plaintiff and as against the defendant in this css

should be the sum of $15,000.00, this charge is reduc ed

from the normal because of the overcharge demends.” F

is apparent that the court’s phrase “overcharge demands”

has reference to the usurious financing bonus of $2°

310.18. The statute relating to usury fixes the forfeiture:

for usury. Where a mortgagee is entitled to foreclose an¢

the mortgage provides for attorneys’ fees, the presence

of usury will not prevent the recovery of a reasonable

attorneys’ fee. Purvis v. Frink, 57 Flas 519, 49 Se. 1023

Shinver v. Southern Home Building & Loan Associatios

1) Fla. 547, 35 So. 67. While equitable considerations mas

be a factor in the determination of a reasonable attorneys

fee, there should not be ,a-reduction from what . would

App, 13

Conner Air Lines, et e- v. Avi Cr. Corp., et al. 13

otherwise be eae seen of ntie for which a

specific statutory penalty has been provided und imposed.

The amount of a reasonable attorneys’ fee to be awarded

to Smith Aviation should be reconsidered in the light of

What we have here said and decided.

By its appeal, Conner urges that the court should have

tuken the face of the notes, deducted the amount found

to be the true principal and treated the difference as

usurious’ interest reserved by Smith Aircraft. This con-

tention is pretty well disposed of, we think, by what we

have heretofore said. It has already been resolved that

the transaction was one creating a,mortgage to secure’

future advances. The agreement between Conner and

Aviation Credit expressly provided that the stated prin-

cipal sum should be credited by any sums included therein |

which were not advanced by Aviation Credit or expended

by it on behalf of Conner. We think the contentions made

by the appeal of Conner are without merit.

The conclusions here reached are that Aviation Credit

is entitled to recover the ‘principal of its advances to or

for Conner pursuant to their agreement which the dis-

trict court has found to be $459,083.58, the amount paid

for the preservation, maintenance and protection of the

aircraft with interest on such payments, a reasonable at-

torneys’ fee to be determined without diminution because

of the usurious aspects of the transactions, and appro-

priate costs, including costs on this appeal. To carry ‘out

&

App. 14

14 Conner Air Lines, et al. v. Avi. Cr. Corp., et al.

——

the conclusions here reached the judgment of the district

court is reversed and the cause is remanded.

REVERSED AND REMANDED

' App. 15

APPENDIX B

SUDGMENT.

Extract from the Minutes of June 30, 1960.

’ CONNER AIR LINES, INC. & F. A. CONNER, *

versus ;

AVIATION CREDIT CORPORATION, L. B. SMITH

AIRCRAFT CORPORATION & L. B. SMITH.

No. 18071.

AVIATION CREDIT CORPORATION,

versus -

“CONNER AIR LINES, INC., F. A. CONNER &

JOSEPH G. MORETTI.

This cause came on to be heard on the anaeiet of the.

record from the United States District Court for the

Southern District of Florida,‘and was argued by counsel;

ON CONSIDERATION WHERFOF, It is now here

vtdered and adjudged by this Court that the judgment of

the said District Court in this cause be, and the same is

‘ hereby, reversed; and that this cause be, and it is hereby.

remanded to the said District Court for further proceed- -

ings in order to carry out the conclusions reached jn the

opinion of this Court; ; :

_ . It is further ordered and adjudged that the appellants.

Conner Air Lines, Inc., and F. A. Conner, be condemned,

in solido, to pay the costs of this cause in this Court for

which execution may be issued out of the said District

Court. ~ x

App. 16

APPENDIX C

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

—

2 No. 18,071

CONNER AIR LINES, INC. & F. A. CONNER,

Appellants,

versus — °

AVIATION CREDIT CORPORATION, L. B. SMITH

AIRCRAFT CORPORATION & L. B. SMITH.

—

' AVIATION CREDIT CORPORATION,

Appellant,

versus

CONNER AIR LINES, INC., F. AI CONNER. & .

JOSEPH G. MORETTI, ;

; nae

Appeals from the United States District Court for he

Southern District of Florida.

—August 12, 1960—

ON PETITIONS FOR’ REHEARING

Before CAM ERON, JONES and BROWN, Circuit Judges |

PER CURIAM: | |

iT IS ORDERED That the Petitions for Rehearing

in the above entitled and numbered cause be, and the}

are hereby DENIED.

a

cd