Halsell v. Merchants Union Insurance

Cook, J., delivered the opinion of the court. It appears from the record before us that appellant filed a hill of complaint in the chancery court of Jones county, alleging that he was the owner of certain described real estate and, being desirous of borrowing five hundred dollars, he applied to the Merchants’ Union Insurance Company, appellee, for a loan, offering said real estate as security for the payment of the borrowed money. It is also alleged that appellee loaned him the money taking, as security, a mortgage on the land, the loan to be paid in monthly payments fixed by the contract, and the interest charged being at the rate of ten per cent, per annum. The bill charges that the rate of interest which he contracted to pay is usurious. The hill admits that appellee is a building and loan association, within the definition of section 2, chapter 167, of the Laws of 1912, hut charges that said chapter is. — 277 — invalid, because in violation of section 90 of the Constitution, providing that the Legislature shall not pass “local, private, or special laws . . . regulating the rate of interest on money.” The hill prays for a cancellation of the contract, and for an injunction restraining appellee from attempting to enforce same. A de.murrer was interposed and sustained. The question presented by the briefs of counsel is the validity of chapter 167 of the Laws of 1912,- entitled “An act providing for the organization, regulation and supervision of domestic and foreign building and loan associations or domestic or foreign corporations, whose business is loaning money on real estate, to be repaid in monthly installments of principal and interest.” This act provides in some detail the method for the supervision and regulation of the associations and corporations mentioned therein. Section 2 of the act is as follows: “The term ‘building and loan association,’ as used in this act, shall apply to and include domestic and foreign corporations, companies, savings associations, societies or associations organized for the purpose of enabling its members, or borrowers who are not members, to acquire real estate, make improvements thereon, remove incum-brances therefrom or loan money to be repaid in monthly installments, or for the accumulation of a fund to be returned to its members who do not obtain advances thereon.” Section 9 of the act reads thus: “All associations, whether foreign or domestic, now organized, or that may hereafter be organized, shall be permitted to contract for loans to its members, or to applicants or borrowers who are not members in this state at a rate of interest not to exceed ten per cent, per annum, payable in equal monthly installments for the average time or duration of such loans, but to not be of less duration than two years.” It is urged by appellee that the act in question is neither a local, private, nor special law, but is a general — 278 — law applicable to all wbo come within the classification prescribed by section. 2. For the purpose of this decision it may be admitted that the business of a building and loan association falls within a class peculiar to itself, and that the Legislature, in the exercise of the police power, could confer upon such associations the privilege of charging a greater rate of interest upon its money than others are permitted to contract for. What are the distinguishing features of a building and loan association, which places this sort of organization in a class to itself? “The building association, as now existing, is a private corporation, designed for the accumulation by the members of their money by periodical payments into its treasury, to be invested from time to time in loans to the members upon real estate for home purposes, the borrowing members paying interest and a premium as a preference in securing loans over other members, and continuing their fixed periodical installments in addition, all of which payments, together with the non-borrower’s payments, including fines for failure to pay such fixed installments, forfeitures for such continued failure of such payments, fees for transferring stock, membership fees required upon the entrance of a member into the society, and such other revenues, go into the common fund until such time as that the installment payments and profits aggregate the face value of all the shares in the association, when the assets, after payment of expenses and losses, are prorated among all members, which in legal effect cancels the borrower’s debt, and gives the nonborrower the amount of his stock. ’ ’ Thompson on Building Associations, sec. 2; 6 Cyc. 120. Mr. Endlich, in section 1 of Law of Building Associations, has this to say: “The building association is an institution in modern society. Its plan was designed to meet the wants and accommodate itself to the peculiarities of men whose little earnings can be only slowly raised to an effective bulk. It is a creature of legisla — 279 — tive policy, and not of legislative caprice. In its essential plan and nature, it is the same all over the world, springing from the same considerations, ministering to the same necessities, achieving the same result. The similarity existing between statutes and usages relating to building associations in the various states and countries is neither accident nor merely imitation. It is at once the evidence of the recognition of identical requirements of society in the various communities. ’ ’ Section 2 of the act under consideration does not confine the operations of the associations and corporations defined thereby to its members, but confers a power to loan to “borrowers who are not members.” In other words, the building and loan association defined by the act is a new kind of building association, in no sense different from corporations and persons following the business of lending money on real estate, except it is not usual with banks and individuals to make contracts providing for monthly installment payments. A building and loan association proper is composed of its members, and its funds are accumulated from payments made by its members, and are loaned to its members to enable them to build or improve their homes. It appears that appellant was not a member, hut merely a borrower, and so far as the record discloses there is no pretense that the money was loaned to enable him to buy or improve real estate. The facts of this case illustrate the character of the legislation we are here considering. Stripped of details, and of its regulation, supervision, and license features, we find an effort to confer special immunities and privileges upon certain defined associations engaged in the ordinary business of loaning money. This is to he accomplished by naming the preferred class building and loan associations. The law fixes the contractual limit of interest charges, and it was not within the power of the Legislature to exempt, by special act, the associations — 280 — and corporations defined from the general law, under the guise of an artificial and purely imaginary special classification of the preferred class. Reversed and remanded. OPINION ON SUGGESTION OF ERROR. Cook, J. When the original opinion was filed in this case, the court was of opinion that chapter 167 of the Laws of 1912 violated section 90, par. “d, ” of the Constitution of the state. It is suggested that we erred, and it is urged that we misinterpreted the act in question; that we failed to give a proper value to some of the provisions of the act. The gist of the original opinion is embraced in the last two paragraphs of same, viz.: “The facts of this case illustrate the character of the legislation we are here considering. Stripped of details, and of its regulations, supervision, and license features, we find an effort to confer special immunities and privileges upon certain defined associations, engaged in the ordinary business of loaning money. This is to he accomplished by naming the preferred class building and loan associations. ‘ ‘ The law fixes the contractual limit of interest charges, and it was not within the power of the Legislature to exempt, by special act, the associations and corporations defined from the general law, under the guise of an artificial and purely imaginary classification of the preferred class.” Undoubtedly the Legislature has the power to define a building and loan association, and our former decision does not question this power; but we then thought that the definition of the statute was arbitrary and unreasonable, for the purpose of evading the letter and spirit of section 90 of the Constitution. It seemed to us that the associations bearing the statutory label were in no — 281 — essential particular different from all lenders- of money upon the security of real estate, except in the monthly payment feature. Section 90 is both prohibitory and mandatory; local, private, or special laws shall not be passed by the Legislature in the enumerated cases, and the Legislature must pass general laws governing the subjects named. We said the Legislature, obeyed the constitutional mandate by passing general laws “regulating the rate of interest on money,” and by chapter 167 of the Laws of 1912, the Legislature attempted, by arbitrary and unreasonable classification, to nullify the constitutional prohibition. This conclusion is challenged by the suggestion of error, and we will now proceed to examine the question anew. The- act under consideration, in its first section, places all building and loan associations now organized, or hereafter to be organized, under the supervision of the state auditor. Section 2 defines building and loan associations. Section 3 provides for the issuance of the stock of such associations, and how the same may be paid for. Section 4 is as follows: “Foreign building and loan associations and savings associations whose business is to loan money on real estate for a period of not less than two years, to be repaid, principal and interest, in equal monthly installments, may be admitted to do business in this state upon compliance with the conditions of this act.” Sections 5, 6, and 7 relate to the supervisory features of the act; section 8, how unpledged stock may be withdrawn. Section 9 reads this way, viz.: “All associations, whether foreign or domestic, now organized, or that may hereafter be organized, shall be permitted to contract for loans to its members, or to applicants or borrowers who are not members, in this state, at a rate of interest not to exceed ten per cent, per annum, payable in equal monthly installments for the average time or duration of such loans, but to not be of less duration than — 282 — two years.” Section 10 and 11 contain the penal parts of the law. The distinguishing characteristics of the associations mentioned in the act are: (a) Lending money on real estate: (b) loans to be payable in equal monthly installments for the average time or duration of such loans; (c) loans not to be of less duration than two years; (d) the associations are placed under the supervision of the state. Thus it appears that the right to do business and collect a rate of interest greater than the general law authorizes depends upon three conditions not imposed upon ordinary loans of money, viz.: (1) The security must be real estate; (2) the loans must not be payable in less than two years; and (3) loans to be paid in equal monthly installments. In the original opinion the only condition noted by us was the monthly payments, and we then believed that the supervision reserved in the state was merely a detail tacked on as an excuse for the granting of special privileges to a fictitious class not enjoyed by the banks and flesh and blood lenders of money. We missed the other distinguishing feature of the law requiring loans to be of not less than two years ’ duration, which we have now come to believe is a requirement of prime importance, which differentiates the business of these associations from any other class. After a careful reconsideration of the act in all of its details, and in its entirety, we have reached the conclusion that our former views were entirely too narrow, and that we confined the power of the Legislature within restricted bounds not justified by the well recognized rules for the construction of statutes. We now believe that there were reasons which justified the classification made by the law, and that the act is not repugnant to section 90 of the Constitution, and we therefore affirm the lower court, and decree here that the bill be dismissed.