State v. McMahon

• Decision Date: 05 October 1929
• Docket Number: 28,869,28,860
• Citation: 280 P. 906,128 Kan. 772
• Parties: THE STATE OF KANSAS, ex rel. WILLIAM A. SMITH, Attorney-general, et al., Appellant, v. W. A. MCMAHON et al., Appellees. THE STATE OF KANSAS, ex rel. WILLIAM A. SMITH, Attorney-general, et al., Appellant, v. O. P. HARCOURT et al., Appellees
• Court: Kansas Supreme Court

280 P. 906

128 Kan. 772

THE STATE OF KANSAS, ex rel. WILLIAM A. SMITH, Attorney-general, et al., Appellant, v. W. A. MCMAHON et al., Appellees.

THE STATE OF KANSAS, ex rel. WILLIAM A. SMITH, Attorney-general, et al., Appellant, v. O. P. HARCOURT et al., Appellees

Nos. 28,860, 28,869

Supreme Court of Kansas

October 5, 1929

Decided July, 1929.

Appeal from Wyandotte district court, division No. 2; FRANK D HUTCHINGS, judge.

Judgment reversed and cause remanded.

SYLLABUS

SYLLABUS BY THE COURT.

1. INJUNCTIONS--Relief Against Usury--Right of State. The exaction of usury ranging from 240 per cent to 520 per cent per annum for small sums of money loaned to wage earners, the collection of which is effected by garnishment proceedings and threats of such proceedings which cause the borrowers to be discharged by their employers, and which systematically set at naught the statutes enacted to prohibit usury and protect wage earners from ill-founded garnishments, may reach an extent and gravity which justifies the institution of injunctive proceedings by the state itself to suppress it.

2. SAME--Relief Against Usury--Pleading. A cause of action for injunctive relief to suppress the systematic exaction of usury from the wage earners in the industrial centers of this state, good against defendants' demurrers thereto, is stated in each of the plaintiff's petitions.

William A. Smith, attorney-general, and Roland Boynton, assistant attorney-general, for the appellant.

Thomas E. Joyce, of Kansas City, for the appellees.

OPINION

DAWSON, J.:

In these actions the state's relator seeks to stamp out the business of usurers who prey on the poorer classes of laboring folk in Wyandotte county. To that end the aid of the injunctive powers of the district court have been invoked. Demurrers to the plaintiff's petitions were sustained, and the state appeals.

The petitions allege that each of defendants keeps a place in Wyandotte county where usurious rates of interest ranging from 240 per cent to 520 per cent per annum are extorted from laboring men whose necessitous circumstances force them to borrow small sums of money. Defendants pretend to take assignments of the weekly or fortnightly wages of these borrowers under colorable sales thereof. The assignments purport to authorize the borrowers to act as agents of defendants to collect the assigned wages and to bring and deliver the same to defendants. Defendants systematically exact the usurious and grossly extortionate rates of interest above mentioned and thereby manage to keep the borrowers indebted to them for long periods of time. Defendants are enabled to do this because the borrowers are employees of industrial corporations which endeavor to avoid being dragged into court in garnishment and similar proceedings by promulgating and enforcing a rule to the effect that any of their employees whose wages are twice subjected to garnishment will be discharged. Defendants take constant advantage of this rule, and enforce their usurious exactions by threatening the borrowers with garnishment proceedings which would cause the latter to lose their jobs, and the debtors are thereby constrained to submit to whatever usurious and extortionate rates of interest defendants see fit to impose.

Plaintiff's petitions allege:

"That the defendants, in carrying on their said business, purposely select and intend to select poor and necessitous wage earners as their customers, for the purpose of compelling such poor and necessitous wage earners to renew from pay day to pay day and from month to month their excessively usurious loans to the end that such customers when once obtained by said defendants will for a long period of time be compelled to continue to pay the excessively exorbitant, usurious rates of interest hereinabove described.

"That the number of such poor and necessitous wage earners who are now customers of said business so carried on by the defendants numbers into hundreds. The amounts of loans range from $ 5 to $ 50, the average loan being about $ 15. That only the husbands sign said pretended assignments.

"That these wage earners are in almost every instance compelled, through fear of losing their jobs as a result of possible garnishment proceedings threatened or so brought by defendants, to pay and continue to pay such usurious interest and to repeatedly sign such pretended wage assignments.

"That by threatening to garnish, by garnishing, by threatening to serve notice of assignment, and by serving such notices of assignment, the defendants in the conduct of said business, as herein described, greatly and seriously disturb the peace of mind of the numerous poor and necessitous wage earners who deal with them, causing such wage earners to return to the place of business of said defendants and there to pay and to continue to pay such excessively usurious interest on the loans taken by them from pay to pay, and from month to month.

"That the defendants in the conduct of their business illegally and unlawfully interfere with the rights of their customers aforesaid in numerous instances by wrongfully garnishing them and by wrongfully serving notice of pretended assignment of wages upon the employers of such poor and necessitous wage earners, thereby jeopardizing the standing of said wage earners in the eyes of their employers and in some instances causing their discharge by such manner of conducting their aforesaid business, thereby depriving said customers of their rights to peacefully follow their respective lawful occupations without annoyance or injury thereto or deprivation thereof.

"That as hereinabove set out, said defendants have been carrying on the loan business within the state of Kansas in a manner repugnant to good conscience and good morals and against public policy. That the methods of doing business employed by said defendants are in conflict with the statutes of Kansas regulating the legal rate of interest to be charged by lenders of money, the rate of interest that lenders of money may contract to charge, and the manner of the payment of interest, as set out in R. S. 41-101 to 41-103.

"That said defendants in engaging in the lending of money at extortionate, usurious and unconscionable rates of interest have not only violated all of the principles of good conscience, good morals and public policy, but have engaged in business in direct violation of the provisions of the statutes of Kansas."

Plaintiff's petitions conclude with prayers for temporary and permanent injunctions restraining defendants from loaning money in small sums to laboring men at rates of interest in excess of ten per cent per annum. Plaintiff also prays for a receiver to take charge of the records and papers pertaining to the usurious loans of defendants, and that defendants' usurious loan business be wound up by making the proper credits upon the accounts of the borrowers for all usurious interest exacted and for the liquidation of all such borrowings according to law.

It is a familiar rule of pleading that as against a demurrer all the well-pleaded allegations of a petition are to be liberally construed and accredited as true. Accepting, therefore, the plaintiff's allegations at their face value, the question intrudes: Has the law no adequate preventive for such a deplorable condition of affairs? Counsel for defendants answers with a confident negative. He says there is for each of the hundreds of borrowers a plain and adequate remedy at law, and that the exaction of usurious interest is no concern of third parties, not even of the state itself. Is that so? We have a statute which limits the contract rate of interest to 10 per cent per annum. This statute provides that any person who contracts for a greater rate of interest than 10 per cent per annum shall forfeit the excess; and in addition thereto shall forfeit a sum of money, to be deducted from the amount due for principal and lawful interest, equal to the amount of interest contracted for in excess of ten per cent per annum. (R. S. 41-102.)

But according to plaintiff's allegations, the truth of which is conceded by the demurrers, this statute is systematically set at naught by the defendants. Between money lender and borrower, of course, it is altogether ineffective until invoked in some lawsuit. And according to the plaintiff's allegations, such a lawsuit will not arise once in every hundred times the usurious toll is taken from the wages of his victim. The wage earner has no time to attend court nor means to employ a lawyer to invoke the defense to the usurer's claim accorded by this statute. He must earn wages every working day to support his family. If garnishment proceedings are instituted which will bring his employer into court on matters of no concern to that employer, the unfortunate debtor is discharged. This dread consequence to the debtor can only be avoided by continued submission to defendants' usurious exactions.

It is undeniable that many an isolated oppression is practiced on a debtor by an exacting creditor for which the law furnishes no practical relief. In the situation portrayed by plaintiff it is perfectly obvious that for the hundreds of indigent debtors held in financial peonage by defendants the remedy supplied by law is pitifully...