Commonwealth v. Stratton Finance Co.
| Decision Date | 31 December 1941 |
| Citation | 310 Mass. 469,38 N.E.2d 640 |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
| Parties | COMMONWEALTH v. STRATTON FINANCE COMPANY & another. |
November 12, 1940.
Present: FIELD, C.
J., DONAHUE, QUA & DOLAN, JJ.
Equity Jurisdiction, Criminal acts. Small Loans.
In this Commonwealth there is no equity jurisdiction for the maintenance of a suit by the Commonwealth seeking that certain defendants, alleged to be operating a "loan shark business," be enjoined from habitual and continuous violations of the provisions of Section 96 of G L. (Ter.
Ed.) c. 140, as amended, that it be declared that all loans by them violating those provisions be declared void and that they be enjoined from collecting them, although in the circumstances the defendants' business be "offensive, detrimental and injurious to the life, health and general welfare of the borrowers and their families" and "contrary to the good morals, public peace and general welfare of the people and contrary to the public policy of the Commonwealth."
BILL IN EQUITY filed in the Superior Court on November 2, 1939. A demurrer was overruled by Greenhalge, J., and the case was reported to this court.
M. H. Goldman, for the defendants. M. M. Goldman, Assistant Attorney General for the Commonwealth.
The Commonwealth brings this bill in equity in its own name. The bill is long, but for the purposes of this opinion it may be summarized as alleging these facts: The defendants have engaged in the "loan shark business." They "keep and maintain a public nuisance . . . and are engaged in habitually, continuously, repeatedly, openly publicly, persistently, and intentionally" violating the statutes regulating the business of making small loans to the injury of the public. They maintain an office in Boston. They make loans of $300 or less on which the interest and expenses far exceed the amount permitted by law to be charged. Although not licensed, they are engaged in the business of making such loans at rates far in excess of the twelve per cent per annum allowed to unlicensed lenders by G. L. (Ter. Ed.) c. 140, Section 96, as amended. Their rates range as high as one hundred forty-one per cent per annum. They purposely select for their customers poor and necessitous wage earners. For the most part these borrowers are employees of department stores and of corporations which very often frown upon their employees becoming involved in debt. The borrowers are compelled to continue to pay such excessive interest through fear of losing their employment as the result of the defendants' attachments of their wages and threats to attach them. By reason of the defendants harassing the borrowers and disturbing their peace of mind by sending them letters through the mails and otherwise, they agree to pay such loans, including such unconscionable, exorbitant and unlawful interest. The defendants in most instances require the borrower to execute a note for an amount grossly in excess of the actual loan. They "are experienced in the chicanery by which illegal and unenforceable loan contracts and agreements are actually collected, and in the means by which an aura of legality is thrown about these devices in order to evade" the law, so that "such borrowers can seldom extricate themselves from debt and must continue to pay such excessive and unlawful interest until the borrower dies, loses his means of livelihood, or is forced" into bankruptcy. The great majority of such borrowers are wholly dependent upon their wages and salaries for the support of themselves and their families and live in constant apprehension of anything that menaces their means of livelihood. The excessive and unconscionable interest exacted by the defendants is a heavy and constant drain upon the incomes of the borrowers and deprives them of the necessities of life. The defendants arrange with automobile dealers for exorbitant finance charges upon purchasers of automobiles. Frequently the dealer does not exhibit the printed rate card to the purchaser, but arbitrarily sets a finance charge higher than the printed charge, dependent upon what the dealer believes the unwary purchaser will pay, the excess being divided between the dealer and the defendant company, thereby creating a loan at a rate of interest far in excess of that permitted by the small loans law. The defendants' business "is offensive, detrimental and injurious to the life, health and general welfare of the borrowers and their families," in that it diverts a large per cent of the borrowers' incomes from "otherwise beneficial directions," and materially reduces their ability to obtain the social and economic benefits which their incomes would normally secure to them. Said activities breed strife and unrest and cause the borrower in his extremity to go to others engaged in the same unlawful activities, further depriving himself and his family of the necessities of life and resulting in emotional and mental distress affecting the borrower's performance as an employee and adding to the relief rolls. Said business is obnoxious and detrimental to retailers of goods who serve the borrowers and their families because the excessive interest reduces the sum available to pay for supplies furnished. Because of these effects on many hundreds of persons the defendants' activities are contrary to the good morals, public peace and general welfare of the people and contrary to the public policy of the Commonwealth. The majority of the borrowers are humble citizens, ignorant of the law, and their legal rights against the defendants are inadequate and ineffective. They have no means to defend themselves. There is thus presented, the bill alleges, "an intolerable situation" that cannot be remedied, except by relief in equity.
The prayers are that the defendants be enjoined from violating the interest provisions of G. L. (Ter. Ed.) c. 140, Section 96, as amended; that all loans made in violation of the law be declared void; and that the defendants be enjoined from collecting them.
General Laws (Ter. Ed.), c. 140, Section 96, as amended, provides in part that "No person shall directly or indirectly engage in the business of making loans of three hundred dollars or less, if the amount to be paid on any such loan for interest and expenses exceeds in the aggregate an amount equivalent to twelve per cent per annum upon the sum loaned," without first obtaining from the commissioner of banks a license to carry on the said business. Section 106 provides, in effect, that if a greater rate of interest than is allowed has been paid on any such loan the person who paid it may file a complaint with the commissioner, who may order the excess refunded, or may make such other order as he may deem necessary. Sections 103 and 110 impose penalties which include a fine not exceeding $500 for any violation of Section 96 or of any order of the commissioner, and also imprisonment for not more than two months for carrying on without a license the business of making the loans to which Section 96 applies; and the fact that a defendant has made or assisted in making two or more loans of $300 or less upon which the charges exceed twelve per cent is made prima facie evidence of engaging in such business. These sections also contain a provision under which loans carrying a higher interest rate than that allowed may be declared void upon the petition in equity of the borrower (Section 103) and a provision rendering wholly void any loan by an unlicensed person in violation of the statute (Section 110). Cuneo v. Bornstein, 269 Mass. 232 .
The plain object of this suit is to...
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