Appeal from a judgment, entered April 7, 1977, in the United States District Court for the Eastern District of New York, Weinstein, J., following a jury trial, dismissing its complaint because the agreements upon which suit was brought were usurious and void under New York law.
Kaufman, Chief Judge, Smith and Mulligan, Circuit Judges.
This appeal brings into question a jury finding that two so-called "equipment lease" agreements entered into between National Equipment Rental, Ltd. (NER) and H. Walter Hendrix, III, were, in actuality, usurious loan agreements void under New York State law. That determination, and the resulting dismissal of NER's complaint seeking amounts still due on those agreements, are attacked on three grounds. NER contends that Hendrix was improperly granted a jury trial in the face of a contractual clause waiving such a right; that there was insufficient evidence to support the jury's finding; and that the New York State usury laws are not intended to apply to transactions such as the ones here involved. We find these contentions without merit, and affirm.
H. Walter Hendrix, III, the proprietor of a small construction company in Lexington, South Carolina was purchasing two pieces of heavy equipment, paying $5,200 per month to the Jeff Hunt Machinery Co. towards the $103,000 purchase price of a tractor-scraper, and $2,000 per month to the Western Carolina Tractor Co. towards the $50,000 purchase price of a bulldozer. After discharging some $20,000 of each debt, Hendrix became unable to satisfy these obligations. Hendrix testified that he told Reed Hanna, a salesman for Jeff Hunt, that he wanted to obtain a loan whereby he could settle his accounts with the two dealers and reduce his monthly payments to a sum less than $7,200.
Shortly thereafter, Hanna arranged for Robert P. Kelly, a man Hendrix knew was in the financing business, to see Hendrix. As a solution to Hendrix's financial woes, Kelly urged Hendrix to sign certain printed form agreements obtained from John Shoup, NER's branch manager for the Carolina region. According to Hendrix, he questioned the designation of the agreements as "equipment leases" but was assured that was the way NER loaned its money. Hendrix further testified to his desire to consult an attorney, but was dissuaded by Kelly from doing so. With these assurances, Hendrix executed the agreements, and his wife was required by NER to provide a guarantee. For his intercession, Kelly received a commission of $2,437.34 from NER.
Upon receiving favorable credit information regarding the Hendrixes, NER (through its Vice President, Gerald Jacobs) signed the agreements, and forwarded $31,161.62 to the Western Carolina Tractor Co. and $84,442.74 to the Jeff Hunt Machinery Co. These amounts constituted the remaining balance on the two pieces of equipment. While Jacobs testified that he had no idea the sums reflected exactly the extent of Hendrix's indebtedness, Hendrix, not surprisingly, claimed that the payments were intended by both parties to be personal loans - paid directly to creditors - to cover the outstanding balance on the equipment. Shortly after the agreements were executed, NER filed financing statements to formalize its security interest under Article 9 of the U.C.C., and assigned the agreements to the First National Bank of Chicago as partial security for its own loans.
Under the agreements, Hendrix was obligated to pay $866.29 each month for 49 months for the bulldozer and $2,744.39 each month for 42 months for the tractor-scraper. The testimony regarding the manner in which these sums were arrived at is in dispute. While Jacobs claims that they reflected the purchase price of the equipment, adjusted to account for NER's overhead costs, Hendrix asserted that NER arrived at the figures simply by applying an interest rate, higher than the prime rate, to the amount of cash it advanced. The agreements further provided that Hendrix was to have an option to purchase the bulldozer and was required, at NER's option, to purchase the tractor. The permissive and mandatory options were exercisable at the expiration of the terms of each agreement for an additional lump sum payment by Hendrix of 10% of NER's cash advance. Finally, pursuant to a rider accompanying the main agreements, Hendrix was required to pay state use taxes for the machinery, bear all risk of loss, pay for repairs, and insure the equipment against loss.
These agreements reflected the character of NER's business. Simply enough, NER advances cash and collects monthly payments, securing its expenditures by obtaining a security interest in the machinery which remains in the debtor's possession. It neither inspects, appraises, repairs nor sells the equipment; indeed, without showrooms or physical plant, it is clear that its only inventory is money.
After Hendrix made four monthly payments, he defaulted. The equipment was seized and sold by NER at a private sale where it realized $76,500 of its original outlay of $115,604.36. The instant suit against Hendrix for the difference followed. In his answer to NER's complaint, Hendrix interposed both the affirmative defenses of usury and the unreasonableness of the disposition sale. After NER made an unsuccessful preliminary motion to strike Hendrix's demand for a jury trial, the matter proceeded to a first trial before Judge Weinstein and a jury in September 1976. The jury then found that the disposition sale was commercially unreasonable under Article 9 of the U.C.C. A judgment reflecting this determination was not signed or entered, however, for Judge Weinstein had already directed a second trial on the issue of usury. NER then for a second time moved without success to strike Hendrix's demand for a jury trial. The matter proceeded to trial and the jury found that the two transactions were loans. Judge Weinstein thereupon dismissed the complaint and this appeal followed.
At the outset, we note the question of the commercial reasonableness of the disposition sale is not before us, despite appellant's extended discussion of the matter. In our view, only three issues are raised: Hendrix's right to a jury trial; the sufficiency of the evidence adduced to support the jury's findings; and the intent of the New York usury laws.
NER first claims that it was reversible error for the trial court to have granted Hendrix's demand for a trial by jury, basing its contention on a provision literally buried in the eleventh paragraph of a fine print, sixteen clause agreement. Embedded there ...