State ex rel. Beck v. Basham

• Decision Date: 10 July 1937
• Docket Number: 33017.
• Citation: 146 Kan. 181,70 P.2d 24
• Parties: STATE ex rel. BECK, Atty. Gen., et al. v. BASHAM.
• Court: Kansas Supreme Court

70 P.2d 24

146 Kan. 181

STATE ex rel. BECK, Atty. Gen., et al. v. BASHAM.

No. 33017.

Supreme Court of Kansas

July 10, 1937

Syllabus by the Court.

The statutes prohibiting usury represent long-established public policy of state designed to be beneficial to people, and charging of rate in excess of that provided is unlawful (Gen.St.1935, 41-101 et seq.).

The fact that statute fixing interest rates did not make usury a crime and fix a penalty therefor did not preclude state, on relation of Attorney General, from enjoining loan company from doing business in violation of statute (Gen.St.1935 41-101 et seq.).

That loan company charging usurious interest did not conduct its business in as offensive a manner as might have been done did not prevent its open and persistent violation of usury statutes from constituting a "nuisance," which state was authorized to enjoin (Gen.St.1935, 41-101 et seq.).

The repeated, continuous, and persistent violations of the statutes are what makes them "nuisances."

The sovereignty of state embraces power to execute its laws, and courts are open to state for an action either in its sovereign capacity or as a corporate entity.

The state was entitled to enjoin open, notorious, and flagrant violation of usury statutes by loan company, where criminal prosecution was not available because not provided by statute (Gen.St.1935, 41-101 et seq.).

1. Our statutes (G.S.1935, 41-101 et seq.) pertaining to interest rates and prohibiting usury represent a long-established public policy of the state designed to be beneficial to our people. It is unlawful to charge a rate of interest in excess of that provided by our statute.

2. One who conducts a business in flagrant violation of our statutes (G.S.1935, 41-101 et seq.) is conducting an unlawful business, and the fact that he conducts the business in a manner less oppressive than some other person conducts a similar business does not make it lawful.

3. Our courts are open to the state for an action either in its sovereign capacity or as a corporate entity. The sovereignty of a state embraces the power to execute its laws.

4. The state, on the relation of the Attorney General or the county attorney, may maintain an action to enjoin a business conducted in flagrant violation of our statutes (G.S.1935 41-101 et seq.) respecting lawful interest rates. The fact that the statute does not make the charging of unlawful interest rates a crime and provide punishment in the nature of a fine or imprisonment therefor makes injunction the appropriate, if not the only, remedy the state has for enforcing the statute.

Appeal from District Court, Sedgwick County, Division No. 3; Grover Pierpont, Judge.

Action by the State of Kansas, on the relation of Clarence V. Beck Attorney General, and another, against O. S. Basham, doing business as the Public Finance Company. Judgment for defendant, and plaintiff appeals.

Reversed with directions.

HUTCHISON, J., dissenting.

Clarence V. Beck, Atty. Gen., Forrest D. Smythe, Sp. Asst. Atty. Gen., Sidney L. Foulston, Co. Atty., and William C. Hook, Deputy Co. Atty., both of Wichita, and C. Glenn Morris, of El Dorado, for appellant.

K. W. Pringle, Henry Lampl, Maurice Lampl, Arnold C. Todd, and J. B. Patterson, all of Wichita, for appellee.

HARVEY Justice.

This was an action to enjoin defendant from conducting a business in flagrant violation of our statutes (G.S.1935, 41-101 et seq.) relating to interest rates, and for the appointment of a receiver to close his business. The trial court made findings of fact, a conclusion of law, and rendered judgment for defendant. Plaintiff has appealed.

In the petition it was alleged, with much detail, that defendant was conducting what is commonly known as a "loan shark business," of loaning to salaried people small sums at highly usurious rates of interest, in gross violation of our statutes; that his method of conducting the business was oppressive to borrowers and contrary to the public policy of the state. A hearing was had upon an application for a temporary injunction, which, by stipulation, was expanded into a hearing on the merits, defendant having filed an answer consisting of a general denial. The trial court found defendant is in the business of making short-time loans in small amounts and has a number of clients--employed people, who borrow because of some emergency, such as sickess or death, or to purchase some convenience or luxury, or to enter into business; that defendant admits an unlawful or usurious rate of interest is charged; for example, on a $50 loan $75 is paid in installments within five months; that no cosigners are required and no security taken other than the note; that of the witnesses called none expressed dissatisfaction with defendant's method of making loans, or with the fact they were paying illegal interest; that most of them knew they were paying an illegal rate of interest, but did not refuse to pay for that reason, although a few took bankruptcy; that only one suit was shown to have been brought against a debtor, and that was dismissed before judgment; that no garnishment proceedings were shown to have been brought, nor threats shown to have been made which might cause the borrower to be discharged; that the borrowers have not been harassed, but the usual method of calling upon them and requesting payment has been followed. As a conclusion of law, the court found plaintiff had failed to establish facts sufficient to warrant injunction and receivership.

Our statutes (G.S.1935, 41-101 et seq.) prescribe lawful interest rates. Similar statutes have existed throughout our history. Chapter 88, Laws 1855; chapter 75, Laws 1860; chapter 33, Laws 1863; chapter 51, G.S.1868; chapter 95, Laws 1871; chapter 134, Laws 1872; chapter 164, Laws 1889. The earliest of these statutes permitted any interest rate by contract. Dudley v. Reynolds, 1 Kan. 285. Later ones limited the rate of interest which might lawfully be charged or agreed upon. The title to the last of these statutes (chapter 164, Laws 1889) reads in part: "AN ACT regulating the rate of interest upon money, prohibiting usury, and providing penalties therefor. ***"

It is unlawful to charge or to contract for a rate of interest in excess of that provided by statute (State ex rel. v. McMahon, 128 Kan. 772, 280 P. 906, 66 A.L.R. 1072), and the state, by its Attorney General, in a proper case, may enjoin violations of the statute. Indeed, under some circumstances an individual may do so. Waite v. Ballou, 19 Kan. 601.

It has become the public policy of this state to limit interest rates. This is deemed prudent and necessary to prevent grasping persons from taking undue advantage of those in need of money, many times to their financial ruin and to the detriment of our people as a whole. It is not contended on behalf of appellee that our present statute on this subject is invalid; neither is it contended that the state by legislation throughout its history has not adopted a public policy with respect to interest rates, nor that this public policy is not one designed to be beneficial to our people. The fact this has been done, and the prudence or authority of our statutes, are not attacked, and in effect are conceded.

The evidence clearly shows, and the court found, that defendant is in the business of violating these statutes. He testified that the Public Finance Company is a partnership owned by three persons--one at Atlanta, Ga., one at Tulsa, Okl., and himself; that he manages the Wichita office; that the business consists in making small loans payable in short-time installments, to salaried people at interest and that he now has more than 250 such rates in excess of 150 percent. per annum, loans in Wichita.

On his behalf it is conceded, in effect, that defendant is conducting a business in flagrant violation of our valid statutes and in violation of the long-time, well-settled public policy of this state, but appellee contends that nothing can be done about it for two reasons: (1) Because the statute does not make the charge of usury a crime and fix a penalty therefor. This point was considered in State ex rel v. McMahon, supra, and held not to be a bar to an action for injunction by the state. Indeed, the fact a criminal action cannot be maintained makes injunction all the more appropriate, since the state does not have that remedy for the enforcement of the statute. (2) It is contended that defendant has not conducted his business in such an offensive manner as to amount to a nuisance, as was the case alleged in State ex rel. v. McMahon, supra. This argument appears to be predicated upon the view that statutes of this state designed for the public good and evidencing long-continued public policy may be openly and notoriously violated with impunity so long as the violator is pleasant or gracious in his manner of violating the statute. We pass for the moment this subtle thought and examine the record on this point. The document which defendant requires the borrower to sign in addition to an application for the loan of money,...