Linton v. Fulton Bldg. & Loan Ass'n

• Decision Date: 21 January 1936
• Citation: 90 S.W.2d 22,262 Ky. 198
• Parties: LINTON v. FULTON BUILDING & LOAN ASS'N.
• Court: Kentucky Court of Appeals

90 S.W.2d 22

262 Ky. 198

LINTON v. FULTON BUILDING & LOAN ASS'N.

Court of Appeals of Kentucky

January 21, 1936

Appeal from Circuit Court, Fulton County.

Proceeding between Claud Linton and the Fulton Building & Loan Association. From the judgment rendered, Claud Linton appeals.

Affirmed.

Jess F Nichols, of Fulton, for appellant.

L. A Hickman and Ewing L. Hardy, both of Louisville, amici curiæ.

Fred B Bassmann, of Newport, Lawrence Speckman, of Louisville, R. E Johnston, of Mayfield, Irvin Marcus, of Louisville, John W. Heuver, of Newport, Hogan Yancey, of Lexington, Miller Holland, of Owensboro, John Theison and Harry Peckinpaugh, both of Louisville, Louis E. Arnold, of Cincinnati, Ohio, and Carr & Carr, of Fulton, for appellee.

RICHARDSON Justice.

In 1918 the General Assembly (chapter 144, Acts 1918) by sections 854 to 878, inclusive, Kentucky Statutes, authorized "the organization, incorporation, operation and management of building and loan associations," created "the Department of Building and Loan Associations in the office of the Banking Commissioner," and provided "for the appointment of examiners and prescribed their duties and for the examination of all building and loan associations organized and doing business under the laws of this commonwealth."

Section 865a reads:

"For every loan made a note secured by first mortgage on real estate shall be given accompanied by a transfer and pledge of shares of the borrower. The shares so pledged shall be held by the corporation as collateral security for the performance of the conditions of said note and mortgage. The note and mortgage shall provide the number of shares pledged and the amount of money advanced thereon and shall be conditioned for the payment, as provided in the by-laws, of the monthly or weekly dues on said shares and the interest and premiums, if any, upon the loan, together with all fines, upon payments in arrears until said shares shall reach the value fixed by articles of incorporation or the by-laws or said loan is otherwise cancelled and discharged.

"The shares without other security may, at the discretion of the directors, be pledged as security for loans to an amount not exceeding 80 per cent of their value, as determined at the time of application for said loan.

"Provided, no loans shall be made upon paid-up, fully paid-up or matured stock.

"If the borrower neglects to offer security satisfactory to the directors within the time prescribed by the by-laws, his right to the loan shall be forfeited and he may, in the discretion of the board of directors, be charged with one month's interest at the rate for which said money is loaned together with all expenses, if any, incurred and the money appropriated for the loan be reloaned at the next or any subsequent meeting."

This section was amended by chapter 18, Acts 1934, p. 45, but this amendment is not material to the question to be now determined. Therefore we will not regard it for the purposes of this case.

The Fulton Building & Loan Association was organized under the Statutes, supra. Claud Linton made application for the issuance of stock in the association and for a loan. The stock was issued and the loan advanced to him. Thereafter other certificates of stock were issued to him and other loans advanced. The transactions between him and the building and loan association are not disputed. It is unnecessary to set them out in detail.

A section of the by-laws of the association required of its members, including Linton, the payment of dues, interest, and premium on the first Saturday of each month, except persons in the employ of a railroad. "Once in six months the profits arising from interest, premiums, fines and forfeitures were apportioned among the shares in good standing." All the members of the association, including Linton, paid interest on their loans at the rate of 6 per cent. per annum and 35 cents as premium on each $100 advanced to them and 60 cents as dues on each share of stock.

It is Linton's contention that his payments of interest, premium, and dues in excess of 6 per cent. per annum were usurious under section 2218, Kentucky Statutes, and, in so far as section 865a or any other section of the Statutes authorized the building and loan association to collect of him either the 35-cent premium or 60-cent dues, it is constitutionally invalid. It is his argument that so much of sections 854 to 878, inclusive, Kentucky Statutes, as authorize and permit the building and loan association to charge and collect of him, or any borrower, a rate of interest in excess of 6 per cent. per annum, is class or special legislation within the inhibition of section 59 of our Constitution.

We have so often defined and differentiated "class legislation," "special," "local," and "general" law, it is unnecessary to reiterate either. See State Racing Comm. v. Latonia Agricultural Ass'n, 136 Ky. 173, 123 S.W. 681, 25 L.R.A. (N.S.) 905; Commonwealth v. Ward, 136 Ky. 146, 123 S.W. 673; Douglas Park Jockey Club v. Talbott, 173 Ky. 685, 191 S.W. 474; Jewell Tob. Warehouse Co. v. Kemper, 206 Ky. 667, 268 S.W. 324; Commonwealth of Ky. v. Kentucky Jockey Club, 238 Ky. 739, 38 S.W.2d 987; Shaw v. Fox, 246 Ky. 342, 55 S.W.2d 11, 14; Ravitz v. Steurele, 257 Ky. 108, 77 S.W.2d 360.

In Shaw v. Fox we said: "Class legislation is permissible under our constitution, and is repugnant thereto only when it comes within either of the terms, special or local law or class legislation, as above defined. State Racing Commission v. Latonia Agricultural Ass'n, 136 Ky. [173] 174, 123 S.W. 681, 25 L.R.A. (N.S.) 905; Com. v. Ward, 136 Ky. 146, 123 S.W. 673; Douglas Park Jockey Club v. Talbott, 173 Ky. 685, 191 S.W. 474; Jewell Tobacco Warehouse Company v. Kemper, 206 Ky. 667, 268 S.W. 324.

"'Classification is a necessary feature and power of legislation, as it is impossible for any extensive code of laws to apply to every person or subject in the state.' City of Louisville v. Com., etc., 134 Ky. 488, 121 S.W. 411, 413.

"The power of classification for legislative purposes rests with the Legislature, subject to the constitutional limitation or restriction that it must rest on some natural and reasonable difference which appears reasonable and just in relation to the act in respect to which the classification is proposed. The Constitution permits the Legislature to indulge in making classifications of subjects of legislation for the purpose of making different classes, for the meeting of different contingencies, naturally requiring different legislation in order that the Legislature may adopt general legislation to meet the needs of the people, to promote some public object or the welfare or interest of the general public. Smith et al. v. Board of Trustees, 171 Ky. 39, 186 S.W. 927; Jones v. Russell, 224 Ky. 390, 6 S.W.2d 460. Such classification will not be disturbed by the court unless so manifestly unfounded, arbitrary, or unjust as to impose a burden upon, or exclude, one or more of a class, without reasonable basis in fact. City of Louisville v. Coulter, 177 Ky. 242, 197 S.W. 819, L.R.A. 1918A, 811; Mansbach Scrap Iron Co. v. City of Ashland, 235 Ky. 265, 30 S.W.2d 968; Jones v. Russell, supra.

"No general rule can be stated by which a reasonable basis of Legislative classification may be predicated, nor can it always be determined by analogy. The basis of classification of every act must be considered singly in the light of certain fundamental principles which are generally accepted by the courts. In ascertaining and determining the constitutionality of an act, it is a fixed rule of the courts to resolve all doubts in its favor (Coleman v Hurst, 226 Ky. 501, 11...