Opinion ID: 256509
Heading Depth: 1
Heading Rank: 1

Heading: Barnes Hospital Transaction.

Text: 8 This transaction involves an indebtedness of Reed to Pellerin evidenced by a note for $12,631.00 and apparently secured by a conditional sales contract on two pieces of laundry equipment. The note in question was negotiated by Pellerin to a finance company but has since been reacquired from that company by Pellerin. On the original note of $12,631.00 Pellerin claims that there is a balance due of $6,436.00, which he seeks to collect in this action. In the trial below Reed successfully urged the defense of usury. Under the Arkansas law a lender who contracts for usurious rates forfeits the amount of his loan and the interest thereon. Arkansas Constitution, Art. 19, Sec. 13; Arkansas Stat.Ann. Sec. 68-611 (1947). The principal question presented below and raised again in this court is whether or not the note in question was given in connection with a loan or a sale of equipment. The trial court found the transaction to be a loan. In reviewing this finding, it is necessary to consider the facts surrounding the execution of the note in question. 9 Reed's laundry in Hot Springs, Arkansas, was destroyed by fire in September, 1956. Following this loss Reed was making various efforts towards re-establishing his laundry business there. Sometime around December, 1956, he learned that the Barnes Hospital at St. Louis, Missouri, had installed new laundry facilities and was attempting to sell its used equipment. Reed went to St. Louis to examine the equipment and agreed to purchase an ironer and an extractor for a total price of $3,250.00. He made a $200.00 deposit on the equipment at the time and arranged with the hospital to store the equipment there until the balance was paid. In March, 1957, Reed sent the hospital an additional $800.00, leaving a balance due of $2,250.00. At this point he sought Pellerin's help in financing the balance remaining to be paid. This resulted in Reed's executing the note which the trial court found to be usurious. There is a sharp conflict in the testimony of Reed and Pellerin as to the precise nature of the transaction which resulted in the execution of that note. 10 Pellerin testified that when Reed approached him for help in financing the purchase of the equipment in question Reed told him that the cost of the equipment involved was $10,500.00, that he had made a $1,000.00 down payment, and that he wanted Pellerin's help in financing the balance. He testified that he told Reed that because this was the type of equipment that he sold in the normal course of his business he could not finance it without making his customary operating profit of thirty per cent. Pellerin maintains that he arranged for Reed to purchase the equipment in question from the Barnes Hospital in Pellerin's behalf, acting as Pellerin's agent, so that the latter could then resell the same to Reed at his customary thirty per cent markup plus interest and finance charges. Pellerin maintains that the $9,500.00 which he advanced to Reed in connection with this transaction was not a loan evidenced by the note in question but rather the money with which Reed was to purchase the equipment in Pellerin's behalf. Under Pellerin's theory, the note was given as the purchase price for Pellerin's resale of the equipment to Reed. Pellerin testified that the amount of the note in question was computed on the basis of an $8,500.00 cost to him for the equipment, plus a thirty per cent profit of $2,550.00, plus $5.58 legal expenses and $1,575.42 carrying charges. He based his $8,500.00 cost figure on a price of $10,500.00 from the hospital, less the $1,000.00 down payment which Reed had made, less another $1,000.00 which Pellerin threw off for not having to pay a salesman's commission on the sale to Reed. 11 Reed's testimony presents an altogether different version of the circumstances surrounding his execution of the note in question. He testified that he made known to Pellerin from the very beginning the fact that the price of the two pieces of equipment at the Barnes Hospital was only $3,250.00 and not, as Pellerin contends, $10,500.00. He testified that he told Pellerin that he was buying the equipment in question, that he wanted financing for its acquisition, and that he wanted to borrow as much against the equipment as he could so that he could have extra cash to use as operating capital in his proposed new laundry business. It is Reed's contention that he was negotiating for a loan from Pellerin to be secured by the Barnes Hospital equipment, and that in connection with this Pellerin sent him the $12,631.00 note to be signed by him so that Pellerin could attempt to sell it to a finance company. At the same time a conditional sales contract (from Pellerin to Reed) was executed on the two pieces of equipment still located at the Barnes Hospital. Reed claimed in his testimony that he did not know at the time he sent this note to Pellerin just how much cash he would actually realize, as this was somewhat dependent upon how much Pellerin would be able to get from negotiating the note. Reed indicated that he expected to receive substantially more than he did for the note and never understood that Pellerin was to retain such a substantial amount of the proceeds received from the finance company. 12 To substantiate his theory of a sale, Pellerin relies in part upon an invoice which he sent to Reed, dated May 22, 1957, covering the ironer and extractor in question. The invoice in question shows the total price of the equipment to be $14,631.00 (including interest and carrying charges) and shows a down payment of $2,000.00. A credit memorandum which accompanied the invoice identified the down payment as a $2,000.00 allowance for a junk trade-in. Both parties concede that there never was any junk trade-in involved nor was it contemplated that there would be. The exact reason for this purely paper transaction is not made clear although Reed contends that the fictional down payment was designed to aid in the negotiation of the note to a finance company. 13 The $9,500.00 advanced to Reed by Pellerin in connection with this Barnes Hospital transaction was made by two checks, the first for $1,000.00 dated June 11, 1957, and the second for $8,500.00 dated June 15, 1957. Reed testified, however, that he actually received the $1,000.00 check before he executed the note dated May 29, 1957, which he thought was undated when he returned it to Pellerin. It appears that Reed took no immediate steps to pay the balance due the Barnes Hospital after receiving this money from Pellerin. He did nothing in this respect before May, 1958, when the hospital notified him that the building housing the equipment in question was being torn down and that he would have to remove it. At this time Reed went to St. Louis with a mechanic from his laundry with the intention of removing the ironer and extractor. While in St. Louis, Reed agreed to purchase another extractor from the hospital for $450.00. At about the same time he arranged to sell the ironer to the Vickers Laundry in Fayetteville, Arkansas. Pellerin was contacted in regard to this transaction and agreed to help finance the deal. The price of the ironer was fixed at $6,000.00, the Vickers Laundry paid $500.00 down to Reed, and Pellerin was to finance the balance. Reed testified that Pellerin agreed to give him credit on his indebtedness for the payments made to Pellerin by Vickers on the $5,500.00 balance. At the time he removed the equipment from St. Louis, Reed paid the Barnes Hospital $2,000.00. This left a balance owing of $250.00 on the original two pieces of equipment plus $450.00 for the additional extractor. The $700.00 balance owing the Barnes Hospital had not been paid at the time of the trial. 14 Reed, on his way back to Hot Springs, delivered the ironer to Vickers in Fayetteville where one of Pellerin's men helped set it up. The two extractors were taken on to Hot Springs and stored. It appears that one of these extractors was later sold and delivered to a laundry in Pensacola, Florida, in another deal financed by Pellerin. The Florida laundry refused to accept the equipment, however. 15 The trial court found that the transaction in question was a loan and not a sale. That finding is sustained by substantial evidence. Chronologically, the note in question is dated May 29, 1957, while the checks by which Pellerin advanced the $9,500.00 to Reed are dated June 11, 1957, and June 15, 1957. The invoice which was purportedly sent to Reed from Pellerin in connection with the alleged sale of the equipment to the former by the latter was dated May 22, 1957. The timing of these transactions tends to negative Pellerin's theory of a purchase and resale. Under Pellerin's theory, the $9,500.00 was advanced to Reed so that Reed could purchase the equipment on Pellerin's behalf. This allegedly was done so Pellerin could sell the equipment back to Reed at profit. Yet, the invoice which Pellerin relies upon to establish the fact that there was a sale fixes the date of such sale prior to any steps by Pellerin to purchase the equipment. Similarly, the fact that the note was executed before the checks is inconsistent with Pellerin's theory that the note was to cover a sale of equipment which he had purchased with the proceeds of the checks. The dates appearing on the note and checks are much more consistent with Reed's contention that the checks represent the proceeds of a loan obtained for the note. 16 Also corroborative of Reed's version of the transaction is a letter from Pellerin to Reed dated June 17, 1957, which is a part of the record. The letter states in part: 17 Enclosed is our check No. 46885, dated June 15th, 1957, in the amount of $8,500.00, which makes proper payment to you in connection with the item of $9,500.00 we discussed less the recent advance of $1,000.00. 18 We had a close call on this one, however, I am glad to bring it to a satisfactory conclusion for you. 19 At this time it will be necessary for you to furnish me with the Bill of Sale in connection with the Flatwork Ironer, Extractor and Hoist that you will receive from [the hospital]    and which should be marked `Paid.' 20 In testifying, Pellerin stated that he was referring in this letter to the problems incident to selling Reed's note to the finance company. With this explanation the statements quoted are certainly subject to the interpretation that the $9,500.00 referred to was Reed's share of the proceeds received upon the negotiation of his note. This, of course, is entirely inconsistent with Pellerin's theory that the note was given for the equipment and not for the cash. 21 Because Reed never paid the Barnes Hospital in full, he never received the bill of sale referred to in the above communication. Pellerin contends that the fact he requested a bill of sale is corroborative of his version of the transaction. Whatever inferences may be drawn from this request, it is nonetheless clear that at all times pertinent to the transactions in question the Barnes Hospital was the undisputed owner of the equipment involved. In its findings the trial court stated: 22 Reed contacted Pellerin in an attempt to get him to finance the Barnes transaction. Reed stated that he wanted as large a loan as possible on the equipment so as to have extra capital for his proposed new laundry in Hot Springs. 23 As has previously been mentioned, Reed testified that he told Pellerin that the cost of the Barnes Hospital equipment was $3,250.00. Although Pellerin claimed that he understood the price to be $10,500.00, the trial court had the right to believe Reed's version. Viewing this evidence, as it must be viewed, in the light most favorable to Reed, it sufficiently establishes that both parties were aware that only about one-third of the $9,500.00 advanced by Pellerin was needed for the purchase of the laundry equipment. This negatives the theory that the transaction was a sale and suggests a loan of extra capital for Reed's proposed new laundry. 24 Since we find that the trial court properly determined the transaction in question to be a loan, the finding below of usury would seem to be clearly justified under the Arkansas law. The applicable provision is found in the Arkansas Constitution, Art. 19, Sec. 13, and reads as follows: 25 All contracts for a greater rate of interest than ten percent per annum shall be void, as to principal and interest, and the General Assembly shall prohibit the same by law. (Emphasis supplied.) 26 The Arkansas General Assembly has enacted such a prohibition in Arkansas Stat.Ann. Sec. 68-611 (1947). On the basis of the thirty-six month financing involved on the note in question, Pellerin, in receiving the $12,631.00 note in exchange for $9,500.00 cash, received interest well in excess of ten per cent per annum. This is a clear violation of constitutional and statutory limitations referred to and renders the obligation void both as to principal and interest. 27 Pellerin contends, for the first time in this court, that the transaction is to be governed by the usury laws of Louisiana rather than by the Arkansas law relied upon by the trial court. Without presuming to decide the conflict of laws question on the merits, it is clear that it may not be injected into the case for the first time on appeal. This principle is well illustrated by Prudential Ins. Co. v. Carlson (10th Cir.1942), 126 F.2d 607, 611-612, a case involving a New Jersey contract tried in a Kansas federal court. The court therein stated: 28 It seems to be admitted that attorneys' fees are not recoverable under the laws of New Jersey. The court therefore erred in entering judgment for the recovery of such fees. 29 It does not follow, however, that such error requires a reversal of the case. At no stage of the proceedings was the attention of the trial court called to the New Jersey law. Neither in the pleadings, at time of trial, nor in the proceedings subsequent to the trial and before notice of appeal, was the right to recover attorneys' fees challenged by appellant. And while federal courts take judicial notice of the laws not only of the forum but also those of other states,    that means no more than that one relying upon a statute of a foreign state need not plead it. It does not follow, however, that a court actually knows or considers the law of the foreign state, and one relying upon such a law is not relieved from calling it to the attention of the court at a proper time. If this is not done, failure of the court to apply the foreign law may not be assigned as error for the first time on appeal. Great American Ins. Co. v. Glenwood Irr. Co., 8 Cir., 265 F. 594. 30 In the present case there is nothing in the record to show that the possible application of the Louisiana law was called to the trial court's attention and rejected by that court. Absent this there can be no error. 31