Also known as: finance companies
Written by attorneys — see sources below.
A nonbank company that deals in loans either by making them or by purchasing notes from another company that makes the loans directly to borrowers. The company may advance funds against goods or documents of title or intervene between seller and buyer to make or collect payment due under a contract for sale.
MedFlow Devices needed cash before shipping ventilators to CityCare Hospital. Apex Funding, a finance company, purchased MedFlow's time draft at a discount and undertook collection from the hospital. Apex advanced the funds in its ordinary course of handling payment instruments between seller and buyer.
Panama Finance Company held contract rights against a Haitian corporation. It assigned the rights to an attorney for one dollar solely to create diversity jurisdiction in federal court. The finance company's assignment was scrutinized for improper collusion.
In May 1959, Caribbean Mills, Inc., a Haitian corporation, entered into a contract with an individual named Kelly and the Panama and Venezuela Finance Company, a Panamanian corporation. The agreement provided that Caribbean would purchase from Panama 125 shares of corporate stock, in return for payment of $85,000 down and an additional $165,000 in 12 annual installments. No installment payments ever were made, despite requests for payment by Panama. In 1964, Panama assigned its entire interest in the 1959 contract to petitioner Kramer, an attorney in Wichita Falls, Texas. The stated consideration was $1. By a separate agreement dated the same day, Kramer promised to pay back to Panama 95% of any net recovery on the assigned cause of action, solely as a Bonus. Kramer soon thereafter brought suit against Caribbean for $165,000 in the United States District Court for the Northern District of Texas, alleging diversity of citizenship between himself and Caribbean. The District Court denied Caribbean’s motion to dismiss for want of jurisdiction. The case proceeded to trial, and a jury returned a $165,000 verdict in favor of Kramer. On appeal, the Court of Appeals for the Fifth Circuit reversed. The Supreme Court granted certiorari to review the jurisdictional question.
View casePhiladelphia National Bank proposed a merger that would combine substantial commercial lending operations. A finance company that routinely purchased installment paper from retailers challenged the merger on antitrust grounds because the combined entity would dominate local financing markets.
The United States brought this civil action in the United States District Court for the Eastern District of Pennsylvania to enjoin a proposed merger between The Philadelphia National Bank and Girard Trust Corn Exchange Bank. PNB is a national bank with assets exceeding one billion dollars that ranks as the second largest of the forty-two commercial banks headquartered in the Philadelphia metropolitan area. Girard is a state bank and member of the Federal Reserve System with assets of approximately seven hundred fifty million dollars that ranks third in the same area. Both banks maintain offices throughout the four-county Philadelphia metropolitan area consisting of the city and its three contiguous counties. In November 1960 the boards of directors of both banks approved an agreement to consolidate under the PNB charter. Under the terms Girard stockholders would surrender their shares in exchange for 1.2875 shares in the resulting bank for each Girard share while PNB stockholders would retain their certificates. The Comptroller of the Currency received reports from the other banking agencies and the Attorney General all advising that the transaction would produce substantial anticompetitive effects. On February 24, 1961, the Comptroller approved the merger. The United States filed suit the following day. At trial the government relied primarily on statistical evidence concerning market structure together with testimony from economists and bankers describing the area of free competition that remained despite extensive regulation. The defendants presented contrary evidence on market definition. They also offered testimony from bankers that the merged institution would possess greater prestige and a higher lending limit enabling it to compete more effectively with large out-of-state banks and to attract new industry to Philadelphia. After trial the District Court entered judgment for the appellees. The United States appealed directly to the Supreme Court under section 2 of the Expediting Act and probable jurisdiction was noted. Since 1950 PNB had acquired nine formerly independent banks and Girard had acquired six. These acquisitions accounted for fifty-nine percent and eighty-five percent respectively of the banks' asset growth during the period. The number of commercial banks with head offices in the four-county area had declined from one hundred eight in 1947 to forty-two at the time of suit.
View caseA finance company arranged financing for a closely held corporation's stock purchase. Directors failed to disclose material facts about the company's finances to minority shareholders. The finance company's involvement in the transaction raised questions about fiduciary obligations tied to the loan.
Doran Malone, Joseph P. Danielle, and Adrienne M. Danielle filed an individual and class action in the Court of Chancery on behalf of themselves and all persons who owned common stock of Mercury Finance Company from 1993 through the present. The named defendants were the directors of Mercury, specifically John N. Brincat, Dennis H. Chookaszian, William C. Croft, Clifford R. Johnson, Andrew McNally IV, Bruce I. McPhee, Fred G. Steingraber, and Phillip J. Wicklander, along with KPMG Peat Marwick LLP. The complaint alleged that the director defendants knowingly and intentionally caused Mercury to disseminate materially false information about the company's earnings and financial condition in SEC filings and communications to shareholders since 1994. Mercury's 1996 earnings were reported as $120.7 million but were actually only $56.7 million. Mercury's 1995 earnings were reported as $98.9 million but were actually $76.9 million. Mercury's 1994 earnings were reported as $86.5 million but were actually $83 million. Mercury's 1993 earnings were reported as $64.9 million but were actually $64.2 million. Shareholders' equity on December 31, 1996, was reported as $353 million but was actually $263 million or less. All of the inaccurate information appeared in virtually every SEC filing and communication from the directors to shareholders during the period. The complaint further alleged that as a direct result of the false disclosures the company lost all or virtually all of its value, approximately $2 billion. The suit sought damages on behalf of the named plaintiffs and the putative class. The director defendants moved to dismiss on the ground that they owed no fiduciary duty of disclosure under the circumstances alleged. KPMG moved to dismiss the aiding and abetting claim asserted against it. After briefing and oral argument, the Court of Chancery granted both motions to dismiss with prejudice pursuant to Chancery Rule 12(b)(6). The plaintiffs appealed to the Supreme Court of Delaware.
View caseA finance company extended credit to an individual who later filed for bankruptcy. The debtor sought waiver of filing fees on indigency grounds. The finance company's security interest in household goods became relevant to whether the debtor could proceed without paying the required fees.
Robert William Kras, an indigent resident of Brooklyn, New York, filed a voluntary petition in bankruptcy under Chapter VII of the Bankruptcy Act in the United States District Court for the Eastern District of New York on May 28, 1971. He tendered only one dollar toward the fifty-dollar filing fee required by 28 U.S.C. § 1930(a) and moved for leave to proceed without prepayment of the balance on grounds of indigency. Kras supported his motion with an affidavit detailing his financial circumstances, including unemployment since May 1969, reliance on public assistance totaling three hundred sixty-six dollars per month for his household, minimal assets consisting of clothing and household goods valued at fifty dollars, and liabilities exceeding six thousand dollars. Kras lived in a two-and-a-half-room apartment with his wife, two young children—one of whom suffered from cystic fibrosis and required hospital treatment—his mother, and her six-year-old daughter. His last steady employment ended when premiums he collected were stolen, and subsequent job searches failed due to unfavorable references. The household subsisted entirely on public assistance benefits that covered only rent and basic necessities, with no funds available for the filing fee even in installments. The District Court granted Kras leave to file without prepayment and later adjudged him a bankrupt on September 13, 1971, but stayed the discharge pending resolution of the constitutional challenge. The court held the fee requirement unconstitutional as applied to Kras. The United States intervened as of right under 28 U.S.C. § 2403 and took a direct appeal to the Supreme Court under 28 U.S.C. § 1252. The Supreme Court noted probable jurisdiction.
View caseA finance company is a nonbank entity that makes loans or purchases notes from originators. Banks are depository institutions subject to separate regulatory regimes. The UCC definition of financing agency expressly lists finance companies alongside banks as entities that advance funds against goods or intervene in payment collection.
Supporting sources
A finance company qualifies when it makes advances against goods or documents of title in the ordinary course or intervenes by arrangement with seller or buyer to pay or collect on drafts. Execution of agreements with both parties and actual payment or collection on the seller's draft satisfy the definition even if the arrangement originated with the buyer alone.
Supporting sources
Yes. The UCC definition expressly includes a person who merely takes the seller's draft for collection whether or not documents of title accompany the draft. Regular participation in such collection activities in the ordinary course of business satisfies the statutory test.
Supporting sources
No. Merchant status requires dealing in goods of the kind or holding oneself out as having specialized knowledge or skill about the goods. Financing activities alone do not confer merchant status even when the finance company advances funds against inventory or documents.
Supporting sources
…arranged that the claimants would consult with appellant Dr. Morris. Tunis and Loridans guaranteed bank loans at a New Orleans finance company for their claimant-clients to serve as advances against anticipated settlement of the claims. From these advances, Tunis and Loridans were repaid by Kenneth De-Mary the advances they had…