Halsell v. Merchants' Union Ins. Co.

• Decision Date: 09 June 1913
• Docket Number: 16,676
• Citation: 105 Miss. 268,62 So. 235
• Court: Mississippi Supreme Court
• Parties: R. E. HALSELL v. MERCHANTS UNION INSURANCE CO

62 So. 235

105 Miss. 268

R. E. HALSELL v. MERCHANTS UNION INSURANCE CO

No. 16,676

Supreme Court of Mississippi

June 9, 1913

APPEAL from the chancery court of Jones county, HON. SAM WHITMAN Chancellor.

Suit by R. E. Halsell against the Merchants Union Insurance Company. From a decree sustaining a demurrer to the bill of complaint plaintiff appeals.

The facts are fully stated in the opinion of the court.

Reversed and remanded.

R. E Halsell, for appellant.

Under the laws of 1912, page 301, chapter 229, a general law was passed, reading as follows: "The legal rate of interest on all notes, accounts, and contracts, shall be six per cent per annum, but contracts may be made in writing for a payment of a rate of interest as great as eight per cent per annum. And if a greater rate of interest than eight per cent shall be stipulated for, or received in any case, all interest shall be forfeited, and may be recovered back, whether the contract be executed, or executory." This act was passed by the Legislature of 1912, and was approved by the Governor February 24, 1912, and therefore became a law of the state.

The above act is a general act, and the only act regulating the rate of interest that the Legislature of the state could pass, and this act was passed in accordance with section 90 of the Constitution, which provides that the Legislature shall not pass local, private, or special laws, regulating the rate of interest, and the above mentioned act is covered by the above section of the Constitution.

Later without having repealed chapter 229 the Legislature of 1912 passed a law known as the Building and Loan Association Law and this will be found on page 176, chapter 167 of the laws of 1912. This latter act was passed, and approved on the sixteenth day of March, 1912, and by this latter act the appellee claims the right to collect from complainant ten per cent per annum, as interest on the loan, which rate is usurious and in violation of the laws of the state of Mississippi, besides the act of March 16, 1912, at page 176, is a special act and violates section 90 of the Constitution. The act of February 24th is the only valid legal act regulating the rate of interest, and the building and loan act is void, and cannot be enforced.

Appellant also contends that the act is void, that is, the act of 1912, chapter 167, for the reason that only associations, companies and corporations, etc., are allowed the privilege to do business under that chapter, thereby placing a restriction on individuals deriving the benefits given by section nine of the act, and an individual not being an association, that is, I do not see how it is possible, one individual can call himself an association, is prohibited from lending money in the same way, and charging the same rate of interest as the building and loan company, and this act violates the fourteenth amendment of the constitution of the United States, because it denies to individuals the equal protection of the laws, and abridges the privileges, and immunities of the individual to his detriment, and in favor of a preferred class. The act is therefore what we would term class legislation.

For the above reasons we think the contract in this case cannot be enforced, and that the demurrer ought to have been overruled.

Mayes & Mayes and Price & Price, for appellee.

On examining the opinion written by the court, as we understand it, it holds this law violative of the constitution of the state, because it allows associations and companies to engage in the business authorized by the act, when their business does not fall within the definition of what constitutes a building and loan association, as defined by Thompson on Building and Loan Associations, sec. 2, 6 Cyc., 120, and as defined by Mr. Erlich in sec. 1, Laws on Building and Loan Associations, written by him.

We think the decision of the court is unsound. When the court examines the act and keeps in mind the fact that the Legislature passed the act for the purpose of encouraging a certain character of loans to be made, we think the difficulty which the court encountered in interpreting this act, will be entirely dissipated.

In the first place, the act is designed to promote the building of homes, and to allow people to pay for those homes without incurring large obligations to be paid at a particular time. In other words, to allow them to pay for those homes by the payment of certain monthly installment of principal and interest, approximating about what would have been paid if persons obtaining the loans were paying rent. The whole act makes the right to charge this ten per cent interest dependent not upon the person who is engaged in making the loan, but the character of the loan made to such person. That is to say, the way in which it is to be repaid. This is the classification the act makes, and the classification is not upon the persons who may engage in this character of business, but upon the business itself.

Now, the greater number of persons that are engaged in this business authorized by this act, the smaller, necessarily, will be the interest rate which they will have to pay, because the effect of competition is to reduce cost. If the legislature had the right to say a building and loan association could loan money to its members at a greater rate of interest than the general law prescribing the rate, it then had the additional right to say what should be considered a building and loan association, and this is what the Legislature did say, and all it said.

When it is once conceded that the Legislature has the power, under the constitution of the state, to allow a building and loan association, because of the character of the loan it is making, to charge a rate of interest in excess of that allowed by the general law, then it must necessarily follow that it had the right within the meaning of the act, provided only that every person must engage in making the same character of loans, and pay in the same way. In other words, the law aimed at encouraging loans to be made principal and interest payable monthly, and it was not concerned in narrowing the right of those who should engage in this particular business. The more in the business, the better it would be for a borrower.

Why should the court held this law unconstitutional, because it allowed persons to engage in this business not included within the ordinary definition of what constitues a building and loan association. The thing which gave the name to building and loan associations, was the character of business which it was engaged in. The name was not given to it because of the particular character of corporation, or association which was engaged in this business, but the name arose out of the character of business done. If John Smith is engaged in the same character of business, why may not the Legislature say that John Smith, in so far as this act is concerned, shall be called a building and loan association? The truth is, the interest of the borrower is better subserved by the persons loaning money, who, in truth, loan to persons not members of any association. This is so, because where one is a member of the building and loan association, he frequently has to buy his money; that is to say, bid a premium for it. In addition to this, he must pay the interest also. All these features are eliminated, and the borrower is only required to pay the stated interest where the person or association is engaged in the character of business named by the act, and loans to persons not having any membership with them.

When the court holds that only building and loan associations dealing with its membership, can engage in this character of business, the effect of the decision is to drive out of the state the most desirable class of associations, or persons, engaged in the business, for the reason that to deal with them requires a payment of nothing except the interest; that is to say, not bidding any premium in addition to the payment of the interest.

We think the distinction drawn by the court in declaring this act unconstitutional, because it allows associations, partnerships and persons to engage in the business not falling within the definition of what heretofore has constituted a building and loan association, is unsound. The Legislature had a right to define what a building and loan association should be; it had a right to repeal the definition which Mr. Erlich made, or Mr. Thompson, or Cyc., or any other law book written prior to this act, and to establish for itself its own definition.

The court concedes that the Legislature has the power to make certain exceptions as to the rate of interest charged when applied to a certain class of loans, without violating section 90, paragraph D, of the constitution. We think there can be no doubt about the validity of a law which allows persons engaged in certain classes of business to charge a little higher rate than is allowed by the general law, even under a constitutional provision like ours.

The truth is, no authority can be found to the contrary, and the contemporaneous construction on this section of the constitution, shows what has been the policy of our jurisprudence on this question.

Immediately following the adoption of the constitution of 1890, sec. 2340, Code 1892, fixed the rate of interest but allowed an exception in favor of building and loan associations domiciled in the state. So that we feel that we can say with confidence that the Legislature did have power to make this distinction, and that when it did so, the constitution was not violated.

It is not unusual for the Legislature to create for itself what shall be the definition of a particular word. It may narrow it, and it may broaden it. The Legislature...