Department of Financial Institutions v. Holt

• Decision Date: 13 November 1952
• Docket Number: No. 28867,28867
• Citation: 108 N.E.2d 629,231 Ind. 293
• Parties: DEPARTMENT OF FINANCIAL INSTITUTIONS et al. v. HOLT et al.
• Court: Indiana Supreme Court

Page 629

108 N.E.2d 629

231 Ind. 293

DEPARTMENT OF FINANCIAL INSTITUTIONS et al. v. HOLT et al.

No. 28867.

Supreme Court of Indiana.

Nov. 13, 1952.

J. Emmett McManamon, Atty. Gen., Thomas L. Webber, Deputy Atty. Gen., Clyde H. Jones, Chief Counsel, Indianapolis, for appellant.

John K. Ruckelshaus, John C. O'Connor, Ruckelshaus, Reilly, Rhetts & O'Connor, Indianapolis, for Indiana Ass'n of Installment Credit Companies, amicus curiae. Harold V. Whitelock, Indianapolis, of counsel.

Leo M. Gardner, Alan W. Boyd, Indianapolis, for appellees. Barnes, Hickam, Pantzer & Boyd, Indianapolis, of counsel.

DRAPER, Judge.

This action was brought by one Holt, a retail seller of automobiles, on behalf of himself and all others similarly situated, to enjoin the enforcement of so much of Section 58-910, Burns' Stat., Section 10, Indiana Retail Installment Sales Act, hereinafter called the 'Act', as purports to authorize the appellant Department of Financial Institutions to limit by regulation the amount which a purchaser of retail installment sales contracts can pay or agree to pay therefor to a retail dealer selling the same; to enjoin the enforcement of the rule of said Department adopted pursuant to the provisions of said section; and challenging the constitutionality of said section and said rule.

Appellee Moore, an automobile dealer, and a member of the class represented by Holt, and Appellee Universal C.I.T. Credit Corporation, a finance company and licensee of the Department, were thereafter permitted to intervene and file complaints seeking the same relief. Holt later dismissed his complaint, and the case was submitted for trial on the complaints of the intervenors and the pleadings responsive thereto. From an adverse judgment the Department appeals.

Appellee Moore and other retail sellers of automobiles frequently enter into written contracts in connection with such retail sales where the purchase price does not exceed $2,500, is payable in installments over a period of time, and where the sellers take and retain a security interest until full payment of the purchase price. Such contracts are 'retail installment sales' within the meaning of the Act. Burns' Stat. § 58-901.

Although only a portion of Sec. 10 is under attack here, a passing reference to some of the other sections of the Act might be helpful to a complete understanding of the question presented. Sec. 2 provides that such sales shall be evidenced by an instrument in writing signed by the retail buyer and a copy thereof shall be delivered to him at the time of its execution. Under Sec. 4 the contract is required to specify separately (a) the cash price of the article sold; (b) the amount of the down payment; (c) the unpaid balance of the price; (d) the cost of insurance, if any; (e) the balance owing; (f) the amount of finance charge; and (g) the time balance owed and the number of installment payments required, and the amount and date of each payment. Sec. 6 provides that such finance charge may not exceed the maximum finance charge which the Department is authorized and required to fix under Sec. 26 of the Act. By Sec. 9 of the Act the retail seller is prohibited from selling, assigning, or transferring such a contract to anyone other than a licensee under the Act. Sec. 11 provides for licensing persons who purchase retail installment contracts from retail sellers, and prohibits the purchase thereof by anyone not so licensed. Sec. 15 authorizes the Department to revoke or suspend any license issued by it for any failure to comply with the provisions of the Act or any rule or regulation of the Department; Sec. 16 provides for court review of departmental regulations and decisions; and Sec. 29 makes the violation of any of the provisions of the Act or regulations adopted pursuant thereto a criminal offense and prescribes penalties.

Because the capital of the average dealer is not unlimited, he usually sells such retail installment sales contracts immediately after their acquisition. Whether such sales are made with or without recourse is a matter of contractual arrangement between the retail seller and the licensee. There are about two thousand automobile dealers in the state of Indiana, and the annual volume of sale of such contracts in Indiana approximates $100,000,000.

C.I.T. is a licensee under the Act and purchases such contracts in the amount of approximately $25,000,000 a year from about four hundred retail sellers in the state, and has standing agreements for such purchases with about one-half of that number, including appellee Moore. There are between forty and fifty finance companies, the major part of whose business is the purchase of such contracts in Indiana. Some operate on a national basis, some on a state-wide basis, and others operate locally. Other licensees competing for such contracts are banks, industrial loan companies, small loan companies and credit unions.

Sec. 10 provides in relevant part that:

'* * * No licensee shall enter into any agreement with any retail seller regarding the purchase of any retail instalment contract whereby the retail seller shall receive, directly or indirectly, any benefit from or part of any amount collected or received from any retail buyer, as a finance charge or as the cost of the insurance to the retail buyer, in excess of an amount fixed and determined by the department and no licensee shall directly or indirectly pay any part of the amount collected as a finance charge or retail buyer's cost of insurance to any retail seller on any retail instalment contract purchased from him in excess of the amount so fixed; * * *.'

Pursuant to the provisions of Sec. 10 the appellant Department adopted Rule 28-926-3, which purports to fix the maximum amount of the finance charge which purchasers of retail installment contracts may pay to retail sellers of automobiles. Although the limitations of Sec. 10 are imposed only on licensees, in effect they are also imposed on sellers by the operation of Sec. 9, which prohibits the sale of retail installment contracts to anyone except licensees. Since the only lawful buyers are subject to price restriction, the sellers are likewise restricted if Sec. 10 is valid. It is undisputed that the amount which licensees would be willing to pay for such contracts, and consequently the amount the retail sellers would receive for them, would be higher than the maximum presently permitted under the regulation of the Department in the absence of such restriction.

The trial court found that the portion of Sec. 10 under consideration and the rule adopted pursuant thereto contravenes Art. 1, Sec. 1 of the Constitution of Indiana, ¹ and enjoined the enforcement, by the Department, of said statute and said rule. Although the attention of this court has heretofore been directed to Sec. 10, the question presented has never been considered or decided. We first consider the constitutional question.

Although it has not escaped criticism, the general rule in Indiana is that in determining the constitutionality of a statute involving the exercise of police power the question is one of law, and only those facts of which this court will take judicial notice will be considered, although extrinsic facts may be brought to the attention of the trial court by counsel to assist it in determining the matters of which it will take judicial notice. All of the attorneys interested in this case have taken commendable advantage of their opportunity to do so. In the consideration of this case we are governed by the general rule, and shall consider only the statute involved, the sections of the state constitution with which it is claimed to be in conflict, and facts of which this court will take judicial notice. Department of Insurance v. Schoonover, 1947, 225 Ind. 187, 72 N.E.2d 747; Kirtley v. State, 1949, 227 Ind. 175, 84 N.E.2d 712.

We approach a consideration of the constitutionality of the statute with a presumption in favor of its validity. If there is doubt concerning it, that doubt must be resolved in favor of its constitutionality. Richmond Baking Co. v. Dept. of Treasury, 1939, 215 Ind. 110, 18 N.E.2d 778, and cases cited.

It must be conceded that there were certain abuses in the traffic in these contracts in Indiana prior to the 1935 Act. Some of them are pointed out in United States v. General Motors Corporation, 7 Cir., 1941, 121 F.2d 376. These abuses resulted in excessive and unreasonable costs to the retail installment buyer. The 1935 Act followed as a consequence and provision was therein made, as above stated, for the regulation of the fair maximum finance charge which the retail buyer may be required to pay, and the amount which the licensee may pay the dealer for these contracts. The appellees do not challenge the validity of the former. They direct their attack at the latter, it being their position that the buying public is fully protected against unfair and exorbitant finance charges by the former and that the latter is an improper exercise of the police power, and constitutes an unwarranted restriction of appellee's liberty and property in violation of Art. I, § 1 of our Constitution.

The appellants on the other hand insist that the challenged provision of Sec. 10, and the regulations made pursuant thereto, are in the public interest and constitute a reasonable and valid exercise of governmental control. It takes the position that Sec. 10 can be sustained as a means of protecting the public against fraud, and as a means of restricting monopoly, and that fair maximum finance charges cannot be fixed or maintained unless the amounts paid to dealers can be restricted.

The provisions of Sec. 10 do limit and restrict the liberty and property rights of retail sellers of automobiles as guaranteed by the constitutional provisions above referred to. But it is conceded by the appellees, as it must be, that neither property rights nor contract rights are absolute, and that...