Equitable Loan Society, Inc. v. Bell

Opinion by Mr. Justice Drew, The Pawnbrokers License Act, approved April 6, 1937, P. L. 200, provides for the licensing and regulating *451 of the business of pawnbrokers, empowers the Secretary of Banking to issue and revoke licenses, to make examinations and promulgate regulations, limits the interest and charges on loans, provides for the keeping of records by pawnbrokers, and prescribes penalties for violation of the Act. Approximately two weeks prior to October 1, 1937, the effective date of the Act, this bill in equity was filed to restrain the Secretary of Banking, and certain of his subordinates, from enforcing the Act against the sixty-three named plaintiffs (appellants here); and a preliminary injunction was issued. The bill alleged the Act to be unconstitutional in many respects. The preliminary objections raised by defendants having been overruled, they answered on the merits, and a final hearing was held. After the introduction of extensive testimony and the hearing of arguments upon the requests for findings of fact and conclusions of law, the learned court below entered a decree nisi, upholding the constitutionality of the Act, dissolved the injunction, and dismissed the bill. On February 15, 1940, plaintiffs’ exceptions were overruled and the decree was made final. This appeal followed. 1 This enactment is the first attempt at state-wide regulation of the pawnbroking business in Pennsylvania. Previously by statute, the control was lodged exclusively in municipalities. 2 At the present time there are between 150 and 175 pawnbroking establishments in the State, of *452 which about 100 are located in Philadelphia. There has been considerable agitation for state supervision during the last fifteen years. The Department of Banking conducted a study of the business, especially with reference to the rates charged, reported the result of its investigation with recommendations to the legislature, and passage of the Act of 1937 followed. In challenging the constitutionality of the Act, plaintiffs are faced with the familiar principle that he who asks to have a law declared unconstitutional takes upon himself the burden of proving beyond all doubt that it is so, since all presumptions are in favor of its constitutionality, and courts are not to be astute in finding or sustaining objections thereto: Hadley’s Case, 336 Pa. 100, 104. “The legislature is the sole judge of the wisdom and expediency of a statute, as well as of the necessity for its enactment, and whether the legislation be wise, expedient or necessary is without importance *453 to the court in determining its constitutionality. In other words, the assembly has a free hand to legislate on every subject in such manner as it deems proper unless there is a constitutional prohibition clearly expressed or necessarily implied.”: Commonwealth v. Grossman, 248 Pa. 11, 15. The record is in large measure devoted to plaintiffs’ attempt to prove that the charges allowed 3 for storage, insurance, and investigation, both as prescribed by the Act, and as actually established by - the regulations of the Secretary of Banking, are so low as to be confiscatory and to deprive them of all opportunity to earn a reasonable retuim upon their capital invested in the pawnbroking business. As regards fifty-four of the plaintiffs, they did not produce anything to show the *454 effect of the new rates upon their businesses. They were content to stipulate that evidence should be presented as to but nine of the plaintiffs, and that their cases should be regarded as typical of all. Confiscation as to the other fifty-four could not possibly be shown in this way. Each individual business is a separate problem. The recurrence of such imponderables as efficiency and good will defies the attempt to make the conditions existing in a few businesses representative of those in all others. The burden of showing oppression from regulation is a heavy one (Townsend v. Yeomans, 301 U. S. 441, 451), and a person so objecting is required to demonstrate the unconstitutionality of its application as to himself alone, not as to the members of his class generally (see Pennsylvania Railroad Company v. Driscoll, 336 Pa. 310, 335). As to the nine selected plaintiffs, we have made a careful examination of the voluminous record as to the nature and scope of their businesses, and the statements and calculations showing the operations for the years 1936, 1937, and 1938, and our conclusion is the same as that of the learned court below, that plaintiffs failed to prove that the rates proposed are confiscatory. This is not surprising because the burden was extremely difficult to carry: see City of Knoxville v. Knoxville Water Company, 212 U. S. 1, 15, 18; Hegeman Farms Corp. v. Baldwin, 293 U. S. 163, 170, 171; Townsend v. Yeomans, supra, 451. But even if confiscation had been shown, it would have made no difference, because the Commonwealth under its police power can prohibit the pawnbroking business entirely. Plaintiffs cannot, therefore, successfully claim a violation of their fundamental rights because of a regulation, falling short of complete suppression, which is not arbitrary, nor discriminatory, and which bears a reasonable relation to a proper legislative purpose. Actions which are injurious to the public may be suppressed, prohibited, or regulated, and all private rights *455 must yield to the exercise of this paramount power. In Commonwealth v. Vrooman, 164 Pa. 306, 321, a case dealing with legislative regulation of the sale of fire insurance policies, Mr. Justice Williams said: “The police power of a state may be exerted for the complete or the partial control of a given business. It may prohibit it absolutely to all persons for the purpose of suppression. It may permit it to some persons and under certain restrictions in order to secure control over it and hold it within proper bounds: Stone v. Mississippi, 101 U. S. 814. The Sunday laws, the laws against gambling, against lotteries, against disorderly houses, the sale of liquors, the sale of oleomargarine, the sale of drugs, and many similar laws afford instances of the exercise of the police power for the complete suppression of a given line of employment, or for its restriction and control.” There are many instances of entirely lawful callings, which have been forbidden by the legislature, and which have futilely invoked the due process clause in resistance to a necessary and appropriate exertion of the police power. 4 What the state can prohibit entirely, it can regulate: Commonwealth v. Stofchek, 322 Pa. 513, 519; Illinois Cigarette Service Co. v. City of Chicago, 89 F. (2d) 610, 612. The principle was thus expressed by Mr. Justice Bkown : “Uncompensated obedience to a regulation enacted for the public welfare *456 or safety, under the police power of the State, is not taking property without due compensation, and any injury sustained in obeying such a regulation is but damnum absque injuria: New Orleans Gas Light Company v. Drainage Commission of New Orleans, 197 U. S. 453.”: Pennsylvania Railroad Co. v. Ewing, 241 Pa. 581, 591. Mr. Justice Waite struck the keynote common to all businesses, which have been held subject to complete prohibition or stringent regulation under the police power, when in Stone v. Mississippi, 101 U. S. 814, 821, he said: “They are not, in the legal acceptation of the term, mala in se, but, as we have just seen, may properly be made mala prohibita.” The pawnbroking business falls within this class. It is a business subject to the strictest regulation under the police power: Elsner Brothers v. Hawkins, 113 Va. 47, 49; The City of St. Joseph v. Levin, 128 Mo. 588, 594; see Commonwealth v. Danziger, 176 Mass. 290, 291; City of St. Louis v. Baskowitz, 273 Mo. 543, 565. At common law, the taking of money for the use of money was prohibited. It was only by express legislative grace that the business of pawnbroking (Foster’s Application, supra, 559), or for that matter the charging of interest by anyone (Adinolfi v. Hazlett, 242 Pa. 25, 29), was permitted in this Commonwealth. A privilege was given which the common law denied, and which the sovereign can withdraw or limit at any time. The fact that plaintiffs had paid the license tax exacted by the Act of 1907, and that they were lawfully operating under licenses granted by municipalities at the time the Act of 1937 became operative is immaterial. They did not by reason thereof acquire any vested right to continue in the business. For, as was said by Mr. Justice Holmes, in Truax v. Corrigan, 257 U. S. 312, 342, 343: “It [an established business] is a course of conduct and like other conduct is subject to substantial modification according to time and circumstances both in itself and in regard to what shall justify doing it a harm.” When Indiana pawn *457 brokers raised a similar contention, Mr. Chief Justice Shake answered them in this manner: “Provisions for licenses of the character here involved are an exercise of the police power. Such licenses are not contracts and do not create vested interests. The sovereignty may give and the sovereignty may take away. McKinney et al. v. Town of Salem, 1881, 77 Ind. 213. The fees exacted for such licenses are not taxes. There is, therefore, nothing inherently obnoxious in the requirements that persons engaging in such business shall have two licenses, one issued by the state and another by a political subdivision or public corporation.”: Medias v. City of Indianapolis, 23 NE (2d) 590, 594. It will hardly be denied that the business of pawnbroking is almost certain to become inimical to the public good if conducted without restrictions. The history of the business is not encouraging. Thousands of men and women who patronize these establishments are driven by their necessities to accept loans upon any terms offered. It is so easy to take advantage of people in these circumstances, and the temptation to do so is so great, that experience teaches that the State must protect them. There is no equality of bargaining power. For these, and other reasons, the appellate courts of sister states have been uniformly of the opinion that a state may suppress or regulate the pawnbroker: The City of St. Joseph v. Levin, supra, 594; Launder v. The City of Chicago, 111 Ill. 291, 298; Kuhn v. City of Chicago, 30 Ill. App. 203, 204; Elsner Brothers v. Hawkins, supra, 49; see The City of Grand Rapids v. Braudy, 105 Mich. 670, 676; City of St. Louis v. Baskowitz, supra, 565, 566. In Ex Parte Lichenstein, 67 Cal. 359, 361, it was said: “It is well known that persons frequenting the offices of pawnbrokers are generally the reckless and needy and improvident, who require the protection of the law. To no other class of moneylenders do the same reasons apply. Men driven by the necessities of their situation resort to the pawnbroker, and *458 pledge any and all articles in their possession in order to raise money, and they are not particular about the rate of interest charged them.” In Medias v. City of Indianapolis, supra, 594, “. . . there was much uncontroyerted evidence that thieves and receivers of stolen property frequently resort to pawnbrokers as an outlet for their ill-gotten means . . and that “. . . where the pawnbroking business is strictly regulated larceny is greatly reduced.” See also annotation thereto: 125 A. L. R. 598. In answer to plaintiffs’ assertion that pawnbroking is a legitimate enterprise, and should be treated as other businesses, we need only say that the legislature has now declared it to be unlawful and its conduct a misdemeanor unless carried on in conformity with the restrictions set forth in the Act of 1937. In this connection, Mr. Justice Henshaw, in Levinson v. Boas, 150 Cal. 185, 192, said of pawnbroking: “. . . it is to be borne in mind that we are not dealing with a harmless and legitimate business requiring no regulation, and which, if licensed at all, could be licensed only for purposes of revenue. We are dealing with a business which is, and always has been, subject to police regulation, and which is unlawful if not conducted under the provisions, restrictions, and requirements of the law.” The remaining points require less discussion. It is a mistake to say that the Pawnbrokers License Act results in a denial of the equal protection of the laws because pawnbrokers are thereby treated differently than the lenders of money covered by the Consumer Discount Company Act of April 8, 1937, P. L. 262, and the Small Loans Act of June 17,1915, P. L. 1012, as most recently amended by the Act of May 28, 1937, P. L. 989. The learned court below aptly answered: “These acts belong to a different classification and hence operate within their respective spheres.” The legislature was fully aware of the features now urged as being common to all three businesses (Legislative Journal, 1937, p. 1073), *459 but chose to impose more stringent regiilation upon pawnbroking. In view of the conditions and temptations known to exist in that business, we cannot label the classification unreasonable: see Commonwealth v. Puder, 261 Pa. 129, 137; Eaker v. Bryant, 24 Cal. App. 87, 92. “If a class is deemed to present a conspicuous example of what the legislature seeks to prevent, the Fourteenth Amendment allows it to be dealt with although otherwise and merely logically not distinguishable from others not embraced in the law.”: Central Lumber Company v. State of South Dakota, 226 U. S. 157, 160, 161. All lenders do not have to be dealt with alike; if the practice of one class makes extra precaution necessary as to them, “. . .it would be going an unwarranted length to hold that the state police power must either leave them entirely alone or else provide the same regulations, regardless of any need for them, for like loans made by all other classes of money lenders.”: In re Home Discount Co., 147 Fed. 538, 546. In Ex Parte Sohncke, 148 Cal. 262, 268, the court said: “The business of pawnbroking is one well known to the law, and constitutes of itself a distinct class of persons and things which may be properly regulated by a law applying to them alone. ...” Nor do we agree that “delegation running riot” results from the provisions empowering the Secretary of Banking to (a) grant licenses to pawnbrokers, (b) conduct investigations of pawnbrokers’ establishments at their expense, (c) allow recovery by creditors on bonds filed by pawnbrokers, or (d) fix the rates as to certain types of loans within the narrow limits prescribed by the Act. In connection with the granting of licenses, in National Automobile Corporation v. Barfod, 289 Pa. 307, 311, 312, this court stated: “. . .in cases wherein the State is exercising its sovereign functions, such as the control of public officers, withdrawal of governmental prerogatives, and the granting of licenses . . . notice and hearing are not necessary. ...” In all the above four in *460 stances of the exercise by the Secretary of Banking of the enumerated powers, a right to judicial review of his administrative acts exists. The courts are always open to the victims of arbitrary or capricious action. In Harris v. State Board of Optometrical Examiners, 287 Pa. 531, 534, Mr. Justice Kephakt said: “Where the statute provides no right of appeal to the courts from the determination of administrative tribunals on constitutional grounds, the right will be implied: Plymouth Coal Co. v. Pennsylvania, 232 U. S. 531, 547; Buffalo B. Mut. Film Corp. v. Breitinger, 250 Pa. 225, 242.” It is urged that section 8 is objectionable in setting forth no standard as a guide to the exercise of official discretion. It is therein provided: “The Secretary of Banking shall have the power to reject any application for license [a] if he is satisfied that the financial responsibility, experience, character, and general fitness of the applicant or applicants is not such as to command the confidence of the community and to warrant the conclusion that the business will be operated honestly, fairly, and within the laws of this Commonwealth, or [b] if he is not satisfied that allowing such applicant to engage in business will promote the convenience and advantage of the community in which the business of the applicant is to be conducted. . . . ” It is not difficult to find precedents to support the vesting of administrative bodies with a discretion so limited. In Commonwealth v. Puder, supra, where this court considered the constitutionality of the Small Loans Act, we expressly approved (p. 138) a delegation to the Banking Commissioner of the power to license applicants, the terms of which were defined by practically the identical language to be found in clause [a] above. As to clause [b], in Bank of Italy v. Johnson, 200 Cal. 1, the court had before it a case involving the delegation by the legislature to the Superintendent of Banking of the power to permit branch banks when “. . .he has ascertained to his satisfaction that the public convenience and advantage *461 will be promoted by the opening of the branch office.” After reviewing the authorities, the court said (p. 15) : “We therefore conclude that the discretion so lodged in the superintendent of banks in this state is a lawful delegation of authority to him.” “Confidence”, “convenience”, and “advantage”, are to our mind quite tangible attributes, but there can be no legislative definition of them that can automatically attach to or identify the individuals possessing them nor the exact situations to which they may become applicable, and necessarily some executive agency must be invoked. To heed plaintiffs’ contention and to hold the delegation improper would take from government one of its most essential instrumentalities, of which the various national and state commissions are instances: see Hall v. Geiger-Jones Company, 242 U. S. 539, 553; Noble v. English, 183 Iowa 893; State ex rel. The Port Royal Mining Company v. Hagood, 30 S. C. 519, 525. In conclusion, there is nothing in the suggestion that the title of the Act is defective under Article III, section 3, of our Constitution. Its language is clear and specific, and invites the attention of anyone interested to examine the body of the Act to find the precise details of the regulation of pawnbrokers. “We have repeatedly held that the title need only indicate the subject matter of the act and that it need not be a synopsis of it nor index all the subdivisions thereof, nor any matters that may be fairly related to it.”: Hadley’s Case, supra, 106. Decree affirmed; appellants to pay costs. Supplemental Opinion by Mr. Chief Justice Schaffeb: I am of the opinion that the pawnbroking business is a lawful one and that it cannot be prohibited under our Constitution. Being a lawful business its prohibition would be an unconstitutional deprivation of property. Particularly would this be so as to those now engaged in the business. *462 I agree that it can be regulated, but the regulation as to charges must be reasonable and not confiscatory; the test whether the regulation is confiscatory, as I see it, is not whether some one individual cannot earn a reasonable return upon his invested capital and for his individual efforts, but whether no one can. I think this should be tested in each individual case, in the instances of existing businesses, and as to those opening in the future, by the answer to the query whether the business can be carried on by any one at a reasonable profit under the charges fixed. I believe that the licensing feature of the act, giving the Secretary of Banking power to reject any application upon the sole ground that in his opinion the granting of the license will not promote the convenience and advantage of the community in which the business is to be conducted, would be unconstitutional as a delegation of arbitrary power by the legislature to an individual over lawful enterprises, without the fixing of standards by the legislature for the exercise of the licensor’s discretion, unless there was a guarantee of judicial review which as I understand the majority opinion sanctions. Footnotes [1] The interest of each of the sixty-three appellants is separate and distinct; therefore the joint appeal to this court is improper: Schuetz’s Est., 315 Pa. 105. However, in view of the importance to the public of the questions to be decided, we shall treat the appeal as though it were properly before us. [2] As to Philadelphia: see Act of March 8, 1823, P. L. 62; Act of February 24, 1859, P. L. 74. The business is specifically regulated by the Ordinance of January 19, 1856, as supplemented February 16,1856; as amended by the Ordinance of June 22,1908; as further amended by the Ordinance of March 17, 1919. By reason thereof, a pawnbroker is entitled to receive six per cent per annum as interest, and a sum not exceeding five per cent per month “for *452 storage and other necessary expenses”. See also: Hunt v. Philadelphia, 35 Pa. 277. As to Cities of the Second Class: see Act of March 18, 1875, P. L. 7, section 7; Act of March 7, 1901, P. L. 20, art. XIX, section 3, cl. XXII. See also: Scranton v. Engel, 39 Pa. Superior Ct. 534. As to Cities of the Third Class: see Act of May 23, 1874, P. L. 230, section 20, cl. 4; as repealed and supplanted by Act of June 23, 1931, P. L. 932, section 2601; as amended by the Act of May 22, 1933, P. L. 927; as further amended by the Act of July 12, 1935, P. L. 718. See generally: Foster’s Application, 23 Dist. 558, 559, 560, (affirmed 60 Pa. Superior Ct. 8). The Act of May 7, 1907, P. L. 175, defined pawnbrokers and imposed a license tax, graduated according to gross annual receipts, upon them. Pawnbrokers are also required to pay a mercantile tax upon their business of retail merchandising done in connection with pawnbroking. It is undisputed that each of the sixty-three plaintiffs had fully complied with the applicable portions of the above requirements, and was fully licensed and lawfully conducting business at the time the Act of 1937 took effect. [3] Section 12 of the Act provides, inter alia: “In addition to interest at the rate of six per cent (6%) per year, a pawnbroker may charge and collect from the pledger fees for storage, insurance, investigation, and other services which shall be— “A. Not more than two per cent (2%) per month for the first three (3) months, and one and one-fourth per cent (1*4%) per month thereafter, nor less than one per cent (1%) per month on loans of fifty dollars ($50.00), or less, including renewals thereof, and one per cent (1%) per month on loans in excess of fifty dollars ($50.00) for which jewelry, watches, gems, gold or sterling ware has been pledged: Provided, however, That the Secretary of Banking shall, upon the effective date of this act, fix the fees within the limitations prescribed, and thereafter the Secretary of Banking may increase or decrease such fees within the limitations prescribed. “B. Not more than two and one-half per cent (2*4%) per month on loans for which other personal property has been pledged. . . . “A minimum of twenty-five ($.25) cents on loans of five dollars ($5.00), or less, and a minimum of fifty ($.50) cents on loans in excess of five dollars ($5.00) may be collected on any loan for interest and charges.” Prior to the effective date of the Act, and in pursuance thereof, the Secretary of Banking, without notice or hearing, fixed one per cent per month as the maximum storage charge which might be made on loans of $50 or less, secured by pledges of jewelry, watches, gems, gold, or sterling. [4] As concrete illustrations: the sale and manufacture of liquor: Mugler v. Kansas, 123 U. S. 623; the sale and manufacture of oleomargarine: Powell v. Pennsylvania, 127 U. S. 678; the sale of cigarettes: Austin v. Tennessee, 179 U. S. 343; the sale of futures in grain or other commodities: Booth v. Illinois, 184 U. S. 425; the sale of stocks on margin: Otis v. Parker, 187 U. S. 606; billiard hall establishments: Murphy v. California, 225 U. S. 623; the sale of malt liquors: Purity Extract and Tonic Company v. Lynch, 226 U. S. 192; the sale of drugs by itinerant vendors: Baccus v. State of Louisiana, 232 U. S. 334; the sale of trading stamps: Rast v. Van Deman & Lewis Company, 240 U. S. 342; peddling: Commonwealth v. Brinton, 132 Pa. 69; the sale of filled milk: Carolene Products Company v. Harter, 329 Pa. 49.