State ex rel. Home Planners Depository v. Hughes
| Decision Date | 02 July 1923 |
| Citation | 253 S.W. 229,299 Mo. 529 |
| Parties | THE STATE ex rel. HOME PLANNERS DEPOSITORY v. J. G. HUGHES, Commissioner of Finance |
| Court | Missouri Supreme Court |
Rehearing Denied 299 Mo. 529 at 539.
Alternative writ quashed.
Frank M. Ludwig, Fred S. Hudson and Glen L. Bruner for relator.
Jesse W. Barrett, Attorney-General, for respondent; T. E. Francis and B. T. Hurwitz of counsel.
James S. Summers, Busby, Sparrow & Patterson and Williamson, Pew Harris & Gaylord, amici curiae.
OPINION
In Banc
Mandamus.
-- Relator seeks to compel the Commissioner of Finance to license it under Section 10263, Revised Statutes 1919, as an unincorporated association of individuals "formed for the purpose of accumulating a fund or funds to be used for the purpose of enabling contributors to such fund, or their assigns, to secure a loan or loans for the purpose of acquiring a dwelling house . . . or discharging a mortgage or other encumbrance thereon." The surety bonds required by the section named have been tendered and no objection is made to them. The questions raised relate to the validity of Section 10263 and the legality of relator's plan of business.
Relator's declaration of trust sets out its plan and powers. It declares its purposes, generally speaking, in accordance with the provisions of the statute, and prescribes the method of electing trustees, and defines their powers and duties and relations to each other and those who shall become subscribers. It is provided that the certificates to be issued under the trust shall be issued in numerical order and be of like tenor except as to face value, and that all settlements and requirements with respect to certificates shall be in proportion to the face value. Monthly payments of $ 4 for each $ 500 of the face of each certificate is required for a period not exceeding 120 months. The trustees are empowered to provide options for settlement in various circumstances. "Certificates shall be eligible for loans, not to exceed the face value thereof, for the purposes enumerated in this declaration of trust, from the available funds of the loan fund, in its regular order according to the day, hour and minute the application to secure the certificate was made and signed, providing however, that if such certificate matures for a loan prior to the accumulation of thirty per cent of the face value the holder is entitled to advance the difference required to make up the amount of thirty per cent." Loans are to be made on real estate security. At the time of receiving loans certificate holders "may surrender their certificates and receive credit on the principal sum of their loans for the loan credit, under the terms of the certificate, or may reject such credit and carry the certificate according to its tenor; in either event the amount due on the loan shall be paid at a minimum rate of $ 8 monthly on each $ 1,000 borrowed, including three per cent interest computed yearly in advance and payable monthly, except in cases of misfortune," when extensions are allowed. "Certificate holders who have paid all installments required in accordance with the certificate terms and who have not obtained or accepted a loan, or made other settlements provided under their certificates, shall be entitled to a cash settlement of a sum equal to all credits to a loan fund, derived from the installments paid thereon, plus its pro rata share of the net earnings, if any, of the loan fund of the series to which it belongs; such sums to be ascertained by the trustees hereunder, and their determination shall be conclusive as to such amounts, provided that no such settlements shall be in excess of the face of the certificate plus an additional fifty per cent of the face of the certificate." It is provided that the payment on certificates, less deductions for expenses under other provisions, shall constitute a loan fund for payment of obligations on certificates. The first five monthly payments, one dollar per thousand of face value from each of the next seven payments and fifty cents per thousand from each subsequent payment are taken to constitute the expense fund.
It is provided that the trust shall continue until the expiration of twenty years after the death of the last survivor of the named trustees, except that the trustees may terminate the trust sooner by unanimous vote. At such termination the trustees are to distribute the property of the trust "ratably and in due and in proper share or proportion among those entitled thereto." The record contains the "Declaration of Trust of the Home Planners Fiscal Agency," which organization relator apparently intends to employ in the active management and handling of its affairs. The form of the certificate intended to be used is set out as an exhibit. It includes a table of values for settlements under several sets of conditions. A contract between relator and the fiscal agent also appears. Respondent avers he refused a permit because he found the business of relator would be in conflict with the Constitution and laws of the State in that: (a) it is a scheme in the nature of a lottery; (b) Section 10263, Revised Statutes 1919, is void for conflict with named constitutional provisions; (c) relator's plan and business bring it within Section 11 of Article 12; (d) that relator is not within the terms of Section 10263 for several reasons; (e) that the proposed plan is fraudulent in its nature.
The first question argued is whether relator's plan or scheme is a lottery or in the nature of a lottery within the meaning of Section 10 of Article XIV of the Constitution which forbids the authorization of lotteries or gift enterprises for any purpose. The term "lottery," thus used, includes every device whereby anything of value is, for a consideration, allotted by chance. [State v. Becker, 248 Mo. 555, 154 S.W. 769; State v. Mumford, 73 Mo. 647; 17 R. C. L. p. 1222 sec. 10.] Consideration, chance, prize -- these are the elements. That relator's plan includes the first cannot be denied. The questions debated relate to the second and third. The fact that each certificate holder eventually might or would receive an amount equal to the aggregate of his payments can make no difference if, in addition each secured a chance for a prize. [State v. Mumford, supra; State v. Lipkin, 84 S. E. (N. C.) l. c. 343, et seq.] Relator's plan provides for the ultimate repayment of all sums paid in, plus three per cent interest and a share in profits -- the whole not to exceed fifty per cent in excess of the face of the certificate. The loans it agrees to make to its certificate holders are to bear three per cent interest. The right to such a loan is obviously a valuable right. Judicial notice will be taken that a rate of interest of one-half the legal rate, three-eighths of the maximum contract rate, less than the rate paid by savings institutions whose purpose is to reloan funds, and much less than what all know to be the usual rate in the State on loans on real estate security, is less than the value of the money's use. [People ex rel. v. State Tax Commission, 196 N.Y. 39, 89 N.E. 581.] Under the plan of relator, though the question what would happen in the case of late subscribers be ignored, some early certificate holders would get the use of their loans, in part, for nearly ten years while others might or would get it for a materially less time, if at all. There would be a decided inequality in the value to the borrowers of the low rate loans they procured, dependent upon the time those loans would have to run. This inequality in value constitutes a prize within the prohibition of the Constitution if the element of chance determines the distribution of the rights to loans. [Fitzsimmons v. United States, 156 F. 477.] The real question is whether the distribution of loans under the plan is to be made by chance. "Certificates shall be eligible for loans in regular order according to the day, hour and minute the application to secure the certificate was made and signed." It is manifest that the subscriber, while he knows the "day, hour and minute" his application for the certificate is made, cannot know the number of certificates which have been applied for preceding his application. Even if he knew the actual number which had reached the Fiscal Agency and had been listed, he could not know how many applications had been taken thereafter by relator's representatives and had not reached the office for listing. It follows he cannot know his rank or order in the matter of eligibility for a loan That depends upon the...
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