Mesaba Loan Co. v. Sher
| Decision Date | 28 October 1938 |
| Docket Number | No. 31843.,No. 31888.,No. 31842.,31842.,31843.,31888. |
| Citation | 282 N.W. 823,203 Minn. 589 |
| Parties | MESABA LOAN CO. v. SHER et al. CITIZENS MORRIS PLAN CO. v. PARKE. |
| Court | Minnesota Supreme Court |
Appeal from District Court, St. Louis County; Mark Nolan, Judge.
Appeal from District Court, Hennepin County; A. W. Selover, Judge.
Action on a note under the Morris Plan by the Mesaba Loan Company against E. Jack Sher and others, and action on a note under the Morris Plan by the Citizens Morris Plan Company against L. D. Parke. From the judgment in the Mesaba case, the plaintiff appeals, and the named defendant cross-appeals, and from an adverse judgment in the Citizens Morris Plan case, the defendant appeals.
Judgment in the Mesaba case modified, and judgment in the Citizens Morris Plan case affirmed.
M. J. Mulvahill, of Hibbing, for Mesaba Loan Co.
Nichols, Mullin & Farnand, James E. O'Brien, and Arthur P. Jensen, all of Minneapolis, for E. Jack Sher.
Van Fossen & Van Fossen, of Minneapolis, for L. D. Parke.
Junell, Fletcher, Dorsey, Barker & Colman and H. C. Carlson, all of Minneapolis, for Citizens Morris Plan Co.
In each case the plaintiff sues on a promissory note for a loan made pursuant to the plan of lending commonly known as the Morris Plan, authorized by L.1933, c. 246, Mason's Minn.St.1936 Supp. §§ 7774-25 to 7774-35, under which plaintiffs are organized as industrial loan and thrift companies. The statute authorizes such companies to engage principally in the business of making small loans "upon the security of co-makers, personal chattels or other property, exclusive of real estate, for a period not to exceed one year * * *". Section 7774-28. A certificate of authorization to engage in the business is required from the department of commerce. Such corporations are subject to the supervision of the commissioner of banks who, among other things, is required to make an examination at least once each year to satisfy himself that they are complying with the requirements of the act. They have the right, with the consent of the department of commerce, to sell and issue for investment, or to be pledged as security for a loan made contemporaneously therewith or otherwise, certificates of indebtedness, under any descriptive name, which may bear interest and which may require the payment to the corporation of such amounts from time to time as the terms may provide, and permit the withdrawal of the amounts paid upon the same, in whole or in part, from time to time, and the credit of amounts thereon upon such conditions as may be set forth therein. Upon the maturity of a note for which such a certificate of indebtedness is pledged, the borrower may, at his option, keep the certificate as an investment or surrender it and apply the amounts paid thereon in payment of the debt. The plan of lending permits the deduction in advance of one year's interest at not to exceed the rate of eight per cent discount per annum, and requires the borrower to purchase and pledge with the company a certificate of indebtedness in the amount of the loan. Such certificate is payable by the borrower in equal weekly, bi-weekly or monthly instalments, with or without interest, extending over substantially the period of the loan. Certain charges are authorized for making the loan. The statute expressly provides that payments on the certificate are "not to be construed as payments on the loan secured thereby." Section 7774-28.
The complaint in each case alleges that the defendant executed a note to the plaintiff and purchased and pledged a certificate of indebtedness in the amount of the loan as collateral security for its payment. Each note provides that it shall become immediately due and payable at the option of the holder if default be made in any of the payments required by the certificate so pledged, with right to foreclose the collateral. In the Citizens Morris Plan case, the note is for $200, of which Parke received $182. The $18 deduction represents one year's interest at 7% and $4 handling charge. The certificate of indebtedness is payable at the rate of $4 per week for 50 weeks.
In the Mesaba Loan Company case, the note is for $520, of which Sher received $478.40. The $41.60 deduction represents one year's interest at 7% and a $5.20 handling charge. The certificate of indebtedness is payable at the rate of $10 per week for 52 weeks. The defendants have defaulted in payment of the instalments for which the plaintiffs have declared the whole amount of the notes to be due.
Plaintiffs have the necessary certificates of authorization and have been and now are operating under the supervision of the commissioner of banks.
The defense in each case is usury. The claim is that the plan of lending, while it stipulates for a rate not to exceed eight per cent interest per annum in advance, in reality permits a charge in excess of twice the stipulated rate because the amortization of the loan by the weekly payments reduces the term of the loan for purposes of calculating interest to one-half of the stipulated number of weeks, in consequence of which the actual rate of interest is approximately double the stipulated one, and that in these cases, if the handling charges were eliminated from the calculation, the interest would be about 14%. It is urged that the statute is unconstitutional upon the grounds that: (1) It is class legislation violative of the provisions of the state constitution, Art. 1, § 2, and Art. 4, § 33, prohibiting special legislation, and the equal protection clause of the fourteenth amendment of the constitution of the United States for the reasons that (a) the statute arbitrarily creates a class of money lenders upon which it confers the special privilege to charge higher rates of interest than those operating under the general law; (b) that the statutory classification is arbitrary because it confines the right to engage in the business to corporations organized and operating under the statute, and (c) that the classification is arbitrary because it excludes from the benefits of the statute banks, trust companies, building and loan associations, and loans upon real estate; and (2) that the statute is a special law fixing the rate of interest, violative of Art. 4 § 33 of the Minnesota constitution which provides that the "legislature shall pass no local or special law regulating * * * the rate of interest on money."
In the Mesaba case the court below sustained the contention of unconstitutionality, but permitted plaintiff to recover $478.40, the amount actually received by the defendant, with interest at the legal rate, upon the ground that there was no usury because of want of usurious intent. In the Citizens Morris Plan case, the court held the statute constitutional, and plaintiff recovered the amount demanded.
1. The statute is not class legislation and does not violate the principles of classification in the respects claimed, since it does not distinguish between lenders operating under the statutory plan and other money lenders. Equal protection of the laws under the fourteenth amendment, U. S.C.A.Const., and the prohibition of special legislation under the state constitution, only require that the rights of all persons must rest upon the same rule under similar circumstances. State ex rel. Equity Farms, Inc., v. Hubbard, Minn., 280 N.W. 9; State ex rel Young v. Standard Oil Co., 111 Minn. 85, 126 N.W. 527; Minnesota Wheat Growers Co-op. Market Ass'n v. Huggins, 162 Minn. 471, 203 N.W. 420; Hartford Ins. Co. v. Harrison, 301 U.S. 459, 57 S. Ct. 838, 81 L.Ed. 1223. The same rule is applied to industrial loan and thrift companies as is applied to other lenders with respect to the rate of interest which may be charged and the right to receive payment of interest in advance. Such companies are authorized by section 4(b) of the act, Mason's ...
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