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FEINBERG v. AUTOMOBILE BANKING CORP.

January 30, 1973

Bernard FEINBERG
v.
AUTOMOBILE BANKING CORPORATION


Bechtle, District Judge.


The opinion of the court was delivered by: BECHTLE

Plaintiff, Bernard Feinberg (hereinafter "Feinberg"), a resident of Chicago, Illinois, by this action, seeks to recover an amount allegedly due him under a purported contract between himself and the defendant, Automobile Banking Corporation (hereinafter "Borrower"). Borrower was, at the time of its transaction with Feinberg, a publicly held company engaged in the consumer finance business. Although a Delaware corporation, Borrower was duly registered to do business in Pennsylvania, with its principal office located in Philadelphia. Jurisdiction is based on diversity of citizenship pursuant to 28 U.S.C. § 1332(a).

 On or about March 8, 1967, Borrower, through its president, Mr. Theodore J. Seiver, contacted its Chicago, Illinois, broker, Ashwell and Company (hereinafter "Broker"), and asked its president, Mr. Donald G. Reid, to place with a suitable lender three $100,000 junior subordinated notes of Borrower, maturing in 13, 14 and 15 years, respectively, and bearing interest at a rate of six percent (6%). Broker informed Borrower that it was not in the business of placing long-term notes but that it had some connection with people who were. Broker suggested to Borrower that it could try to contact someone operating in the area of long-term loans to act as an "intermediary" in placing this type of loan. Borrower agreed to this suggestion of Broker and authorized Broker to proceed.

 Broker contacted Feinberg, also located in the Chicago, Illinois, area, and asked if he could place these notes with a suitable lender. Feinberg agreed to try to find a lender and, thereafter, contacted the Polish Roman Catholic Union of America (hereinafter "Lender"). Lender told Feinberg that it would be willing to loan Borrower the $300,000 on long-term notes at an interest rate of six percent (6%). Feinberg informed Broker of this and added that his "finder's fee" would be an additional two percent (2%) over the length of the loan, thereby increasing the rate of interest payable by Borrower to eight percent (8%), consisting of six percent (6%) on the notes and two percent (2%) for Feinberg. Broker relayed the information to Borrower in Philadelphia, adding that its own broker's commission would, in addition to the eight percent, be a flat three percent (3%) of the face amount of the loan.

 After a Board of Directors meeting, the president of Borrower notified Broker that the Board of Directors felt that it could not justify payment of the two percent (2%) finder's fee over the fifteen-year term. The question of Feinberg's commission was then discussed between Broker and Feinberg. An alternative suggested by Feinberg, as a means to overcome the question of his commission being paid over a fifteen-year term, was that he be paid outright a lump sum. In order to do this, Feinberg suggested that one means would be to increase the principal amount of the loan from $300,000 to $350,000, leaving the interest rate at six percent (6%) over the fifteen-year term, and use the additional $50,000 as the bulk of the sum he would be entitled to as a finder's fee. Broker transmitted this suggestion to Borrower who, in turn, agreed to increase the principal loan from $300,000 to $350,000 and, out of this, pay an amount of $57,873.54 in one lump sum to Feinberg. This sum would be substantially equivalent to two percent (2%) of $300,000 payable over a fifteen-year period, reduced to present worth. *fn1" Lender also agreed to this arrangement.

 Thereafter, Borrower and Lender commenced formal negotiations concerning the loan in the increased amount of $350,000. After many weeks of what apparently were good faith efforts by the Borrower and the Lender to arrive at an extensive formal note purchase agreement, they were unable to mutually concur to certain material terms of that agreement. As a consequence, the loan transaction was finally abandoned in December, 1967, nearly ten months after Borrower's president had first contacted its Broker in Chicago seeking to borrow on the strength of its corporate notes. Neither Borrower nor Lender pursued the matter further, nor have they made a claim of any kind upon the other as a result of their involvement in the loan attempt.

 Despite the failure of Borrower and Lender to consummate the loan, Feinberg alleges that there was a contract between himself and the defendant, Borrower, and that he is entitled to be paid because he rendered the performance expected of him by Borrower. He contends that the performance on his part was simply to locate and make available to Borrower a lender "ready, willing and able" to lend. He states in this law suit that he has rendered this performance and that he is entitled to receive in payment therefor the sum of $57,873.54, being the amount the defendant promised to pay.

 A Federal Court in a diversity case must apply the rules in respect to the conflict of laws that are followed by the state in which it is sitting. Klaxon Co. v. Stentor Elevator Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941); Neville Chemical Co. v. Union Carbide Corp., 422 F.2d 1205 (3rd Cir., 1970). The conflict of laws rule used by the State of Pennsylvania is that the forum should look to the law of the state of the place with the most significant relationship to the parties in a transaction, sometimes referred to as the "center of gravity," for the law governing the contractual rights of the parties. Neville Chemical Co. v. Union Carbide Corp., supra, at p. 1211; Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A. 2d 796 (1964). Although most of the parties involved in the transaction in question are physically located in the State of Illinois, the "center of gravity" appears to the Court to be in Pennsylvania. Pennsylvania is the principal place of business of the defendant, who was to be the obligor on the ultimate loan transaction; it is the place where the contract negotiations between the Borrower and the Lender began; it is the place where the decisions of the Borrower with respect to the terms of the note purchase agreement were considered by their Board of Directors; it is the place where the last decision resulting in the break off of loan negotiations took place; it is the place from which payments to the Broker by the Borrower, payments to Feinberg, and payments to the Lender were to be made; it is the forum state chosen by plaintiff, Feinberg, a resident of Illinois. *fn2"

 The facts disclose that there were three separate, yet interdependent, agreements touching on the loan transaction. Those agreements were between Borrower and Broker, between Borrower and Feinberg, and between Borrower and Lender.

 I. AGREEMENT BETWEEN BORROWER AND BROKER

 The agreement between Borrower and Broker was basically an agency agreement. Because the Borrower's original intention to have Broker place the long-term notes with a lender could not come about, Borrower authorized the Broker to use an "intermediary" for this purpose. The Court finds that by employing an "intermediary" on behalf of the Borrower, the Broker was acting as an agent of the Borrower. Regardless of the words used by the parties, or by whatever name the transaction is described, if the facts fairly disclose that one party is acting for or representing another party, by the latter's authority, a relationship of agency exists. See, 2 W. Jaeger, Williston on Contracts (hereinafter "Williston"), § 274 (3rd Ed. 1959); 1 P.L.E. Agency, § 5 (1957).

 II. AGREEMENT BETWEEN BORROWER AND FEINBERG

 Although the request to perform came to Feinberg through the Broker, it was made on the authority of the Borrower and as a result of the agency ...


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