In this blog we bring you another story pull out of the vast files of the CMC Public Relations Department. In March of 1966 the following news item appeared in Automotive Fleet Magazine.
“Mutual Leasing Corporation of Miami, Florid received there first shipment of Checker Marathons and station wagons to be used in daily rental service. I.J. Lubin, President of Mutual, feels that there is a good market in his area for standard size sedans that can accommodate up to 8 people, thereby eliminating the use of 2 taxicabs or 2 regular sedans. Checker plans to go after a large share of the rental and leasing business in the Miami area.”
Well this sounds like a great way for Checker to expand in the retail consumer car market. At the time Checker was heavily promoting the Checker Marathon and the new more powerful GM powerplants.
Unfortunately, the entire business plan of Mutual was a fraud and the company would be bankrupt by the Summer of 1966, just five months later.
The entire fiasco can be found on JUSTIA US law web site. According to the legal website
Mutual Leasing Corporation, was organized in April, 1965, by Sidney Stern and Israel Lubin for the purpose of engaging in the commercial leasing of automobiles. In October, 1965, Mutual began a series of financing transactions with Miami National Bank. Mutual would take title to the motor vehicles in its name and would execute a promissory note and a chattel mortgage on the automobile in favor of the Bank. This same automobile would then be leased by Mutual to a lessee already waiting for delivery of a specified vehicle.
By the end of 1965, the Bank had financed the purchase of sixty-four vehicles by Mutual. The line of credit then outstanding to Mutual was approximately $250,000, which was the maximum sum the Bank could loan to any one customer under the provisions of 12 U.S.C., Section 84.
When it became apparent that the Bank could not legally loan Mutual any additional funds, Stern and Lubin with the complicity of Kenneth Harris, Vice-President and Installment Loan Manager of the Bank, devised a plan for the evasion of the ten per centum limitation of the federal statute. Under this scheme, subsequent motor vehicle transactions were to be handled in a manner purporting to show each such vehicle transaction as a separate financing agreement with a specific individual, the lessee of the vehicle. The Bank would accept a chattel mortgage and a promissory note which used the name of the lessee as the promisor and mortgagor, knowing full well that Mutual had obtained the signature of the said lessee on the chattel mortgage and promissory note by deceitfully representing these documents to be additional lease documents. The documents were actually signed in blank by the individual lessee and subsequently filled in at the Bank. Mutual arranged for registration of the title of the vehicle in the lessee’s name but obtained — again by deceitful representations — the signature of the lessee on power-of-attorney and other motor vehicle forms which would permit transfer of the titles thereafter.
From January, 1966, until April 27, 1966, the Bank financed approximately 480 vehicles under this fraudulent scheme, Mutual’s customers had no idea, that the loans and titles were in their names! In each instance, Mutual entered into lease agreements with the individual “lessees” even though the record title of each vehicle was not in Mutual but rather in the “lessee”. As between Mutual and the Bank, however, the transactions were set up in such a manner as to allow Mutual to collect the lease payments directly from the “lessees” and then remit the necessary amounts under the chattel mortgages and promissory notes in the name of the “lessees” to the Bank.
The Harris-Stern-Lubin scheme was virtually undetectable by any official of the Bank other than Harris, but the fraud was documented in the Bank’s own files — maintained during January through April, 1966, with regard to these 480 vehicle transactions — made reference to Mutual in various papers, contained insurance policies naming Mutual as an insured, and were handled by the clerical staff of the Installment Loan Department as part of the “Mutual Account”.
In March, 1966, new officers took control of the Bank, and in April of that year the Mutual account came to the attention of one Rubin Zerlin, who had just become Chairman of the Examining Committee of the Bank. Zerlin testified that the Mutual account came to his attention because of its large “loan involvement”. He further testified that the outstanding balance on the sixty-four direct loan transactions was approximately $240,000, while the outstanding balance on other obligations, involving Mutual on “contingent” liability, was approximately $660,000. This “contingent” liability was due to the financing of vehicle purchases under the illegal Harris-Stern-Lubin scheme.
Zerlin advised Stern and Lubin that he wanted a complete explanation of just what was going on. He set a conference for that purpose on April 27, 1966. At this meeting, at the Bank, all of the details of the scheme came out. Zerlin expressed shock at “the situation” and was particularly concerned about some missing titles and the value of the loans involved. Lubin assured Zerlin that all the outstanding loans were current and in good order, and that proper titles and other necessary documentation did exist.
Zerlin, of course, was not satisfied. He informed Lubin and Stern that the Bank would make no further loans to Mutual. He also stated that he was “calling their loans” because of the “situation”.
As of April 27, 1966, all the loans obtained by Mutual under the direct lending procedure were current between Mutual and the Bank, as were all the lease payments between Mutual and the lessees. Also on this date, all but two or three of the 480 vehicle transactions under the evasive and illegal scheme were current in their payment, both from the “lessee” to Mutual and from Mutual to the Bank.
On April 28, 1966, the Bank suspended any further debtor-creditor relationship between itself and Mutual and took complete control and dominion over Mutual’s checking account. From April 28, 1966, to May 17, 1966, the day that Mutual’s account was finally closed out, the Bank refused, on a selective basis, to honor numerous checks drawn on Mutual’s account. Deposits received and accepted by the Bank on April 28 raised the balance in Mutual’s account to the sum of $85,440.89. Thereafter, various additional deposits were received and accepted by the Bank until May 12. Checks not permitted to clear the account were returned with the notation “Refer to Maker”. During this period, the Bank had approved for payment from the account of Mutual Leasing checks totaling $22,034.02, while checks totaling $76,541.94 were rejected.
On May 1, 1966, the Bank demanded that Mutual assign to it the purported “lessor” rights which it held in each of the 480 vehicles that had been financed under the Harris-Stern-Lubin scheme, in order that the Bank could proceed to deal directly with the “lessees” holding the same. Lubin agreed to these demands and executed all of the 480 requested documents on that day.
The dishonoring of Mutual’s checks by the Bank after April 27, 1966, put an end to Mutual’s ability to get credit, not only with Miami National Bank but also with other banks and financial institutions with which it had been dealing. Moreover, many of the checks dishonored were those payable to automobile dealers for automobiles delivered to Mutual on open account with the expectation of immediate payment on delivery. This triggered a frantic scramble by automobile dealers, who descended upon the Mutual premises and physically took possession of any and all vehicles to which they felt they could assert any claim whatsoever. The lack of credit and the seizure of automobiles, together with the resulting notoriety in the business community, carried Mutual’s leasing operations over the brink by June, 1966.. Essentially Checker as well as other dealers/manufacturers, wanted their cars back!
The bankruptcy proceedings were commenced by an involuntary petition filed by creditors on August 22, 1966. The debtor was adjudicated a bankrupt by an order entered October 5, 1966, thus ending the fraud and Checkers entry into the Miami rental car market.