Before Lumbard, Chief Judge, and Tuttle*fn* and Friendly, Circuit Judges.
National Equipment Rental, Ltd. appeals from a judgment based on a jury verdict, that its contract with Stanley was a usurious loan and thus unenforceable and not a lease of equipment.
Under the New York General Business Law, McKinney's Consol.Laws, c. 20, §§ 370-373, conceded by both parties to control this transaction, it is illegal to receive more than 6% for the loan of money, and the lender who does so is forbidden the right to collect either principal or interest. In dealing with this transaction, which was cast in the form of a lease from National to Stanley, we need not resolve the somewhat confused state of the New York law, see Moldovan v. Julius Hebenstreit, Inc., 266 App.Div. 998, 44 N.Y.S.2d 736, and Benton v. Sun Industries, Inc., 277 App.Div. 46, 97 N.Y.S.2d 736 (both decided by the 1st Department), as to the showing that must be made to permit an inquiry into whether an advance of money or transfer of property in the form of a lease agreement is truly a loan of money. This is so because the parties agreed in open court that the jury might answer a special interrogatory rather than find a general verdict as to usury. That special question, submitted with the full consent of appellant was:
"Was the agreement between the parties in truth and in fact one for a loan of money or was it one for the leasing of equipment?"*fn1
By submitting this form of verdict to the jury the plaintiff waived any issues except whether the transaction was in fact what it purported to be. Neither party objected to any part of the charge of the court which twice included a statement relating to the stipulation:
"* * * Plaintiff concedes that if in truth and in fact the parties did enter into a loan agreement, as defendant asserts, and did not enter into a lease as the plaintiff contends, then the agreement was usurious and unenforceable and defendant is entitled to win the suit. Because of that concession which the plaintiff made, it did not become necessary for either the defendant or the plaintiff to introduce in evidence facts which would show what the rate of return was.
"As I have previously stated, plaintiff has conceded that if the transaction was in truth and in fact a loan, then the rate of return was usurious and the action must be dismissed. But plaintiff denies that a loan of money was made, and asserts that the transaction was a bona fide lease of equipment. When usury is pleaded as a defense, the transaction must be judged by its real character, rather than by the form in which the parties have seen fit to cast it. The courts never let form obscure usury if in fact it exists, and devices resorted to for concealing usurious agreements are ineffective."
The transaction here resulted from a telephone call from Stanley to National. Stanley had a drug store in Hampton, S.C., in which he had some equipment between six and nine years old. He also had some new equipment purchased on cash and chattel mortgages from one Key. The time of the Key mortgage was only two years, and Stanley wanted longer time to pay out. He also wanted to buy additional equipment over a longer period. In addition he wished to get some money to do some renovating and construction work. Testimony that could be credited by the jury was that he telephoned to Rosen, president of National, and told him his problem and Rosen said he could "make me a loan, or finance my fixtures over a period of three or five years"; that Rosen said, "Stanley, this contract will be in the form of a rental or a lease basis due to the fact that it will save you income tax, it will be deductible from your income tax, which was very appealing to me." He further testified:
"I asked him what his setup was and then I asked him, I told him I had some equipment in the store that I had several years, I couldn't determine just how many years, six or eight, eight or nine years, and I had some alterations to make to the store building. And I asked him if he would lend me any money on those fixtures that I had owned, had paid for, and he said that he would. And he said that this would be as I said before, in a rental or lease form, over a period of five years at six per cent per annum, per month, and he said he was quite sure that could be arranged."
Rosen, who testified by deposition and died before trial, categorically denied any mention of a loan, stating that they spoke only in terms of National's buying the equipment and leasing it to Stanley.
It is undisputed that thereafter National paid out some $20,000 under the contract. Of this amount approximately $13,000 was paid to Key who cancelled the chattel mortgages on the equipment previously delivered to Stanley and shipped some new equipment. The balance of approximately $7,000 was paid to Stanley direct on account of old equipment which had been owned by him "six to eight, eight to nine years," which was merely listed in an inventory sent to National together with a figure apparently representing the cost to Stanley of each item some six to nine years earlier. National then prepared documents in the form of three separate leases covering the three separate categories of equipment and sent them to Stanley who executed them. Stanley submitted a financial statement showing a net worth of $200,000, and Stanley affixed plates to the equipment stating that it was leased from National. National made no inspection of the equipment and it acquired no record title to any of it, either by transfer of Key's chattel mortgage or by formal transfer of title from Stanley as to the old equipment owned by him.
The agreement called for payment of the entire $20,000, plus 6% interest added in, by monthly installments, which were heavily weighted in favor of the early years of the term. At the end of the five years Stanley had the option of continuing to rent the property at a flat 6% of the original outlay by National. There was no provision for any conveyance to Stanley.
The jury found that this arrangement amounted to a loan from National to Stanley; whereupon the court entered judgment that the defense of usury was ...