Teegardin v. Foley, 35037

• Decision Date: 26 June 1957
• Docket Number: No. 35037,35037
• Citation: 166 Ohio St. 449,143 N.E.2d 824
• Parties: , 2 O.O.2d 462 TEEGARDIN, Appellant, v. FOLEY et al., Motor Vehicle Dealers' and Salesmen's Licensing Board, et al., Appellees.
• Court: Ohio Supreme Court

Page 449

166 Ohio St. 449

143 N.E.2d 824, 2 O.O.2d 462

TEEGARDIN, Appellant, v. FOLEY et al., Motor Vehicle Dealers' and Salesmen's Licensing Board, et al., Appellees.

No. 35037.

Supreme Court of Ohio.

June 26, 1957.

Syllabus by the Court.

1. In order to constitute a valid exercise of the police power, legislation must directly promote the general health, safety, welfare or morals and must be reasonable; the means adopted to accomplish the legislative purpose must be suitable to the end in view, must be impartial in operation, must have a real and substantial relation to such purpose and must not interfere with private rights beyond the necessities of the situation. (Paragraph three of the syllabus of Froelich v. City of Cleveland, 99 Ohio St. 376, 124 N.E. 212, approved and followed.)

2. A legislative purpose of the Retail Installment Sales Act, Chapter 1317, Revised Code, is that of separating the interest of the retail dealer from the interest of the financial institution in the profit resulting from the financing of a sale made by the dealer to a consumer; and Section 1317.08, Revised Code, which enjoins the retail dealer from receiving more than two percent of the principal balance of a retail installment contract upon the transfer or assignment thereof, as dealer participation in the profit derived therefrom, is reasonable, suitable to the end in view, impartial in operation and has a substantial relation to the general legislative purpose of Chapter 1317, Revised Code, which is within the proper area of control and regulation under the police power of the state.

Plaintiff, an automobile dealer and the appellant herein, instituted this action in the Common Pleas Court of Franklin County, naming the members of the Motor Vehicle Dealers' and Salesmen's Licensing Board, the Director of Highways and the Attorney General as parties defendant.

Plaintiff alleges that Section 1317.08, Revised Code, is unconstitutional in that it operaters to deprive him of property without due process of law, and that under its provisions he is denied equal protection of the law. He prays for a declaratory judgment, an injunction and incidental relief. ¹

After a protracted pleading skirmish, the cause was heard on its merits, and a judgment was rendered for the defendants.

Upon appeal to the Court of Appeals for Franklin County, a trial de novo was had, and judgment was again rendered for defendants.

The cause is before this court pursuant to the allowance of a motion to certify the record.

Hamilton & Kramer, Power, Griffith & Jones, Columbus, and Barnes, Hickam, Pantzer & Boyd, Indianapolis, Ind., for appellant.

William Saxbe, Atty. Gen., and Hugh A. Sherer, Columbus, for appellees.

MATTHIAS, Judge.

The issues before this court for decision are:

I. Does the Retail Installment Sales Act apply to automobile dealers so as to render them subject to a forfeiture of their licenses. for a violation thereof?

II. Do the provisions of Section 1317.08, Revised Code, limiting the amount a dealer may receive as a premium for the transfer or assignment of a retail installment contract to a financial institution violate his constitutional rights by depriving him of property (his freedom of contract) without due process of law or by denying him the equal protection of the law?

A retail installment contract, incidentally, is defined in Section 1317.01, Revised Code, as 'any written instrument which is executed in connection with any retail installment sale and is required by section 1317.02 of the Revised Code or is authorized by section 1317.03 of the Revised Code, and includes all such instruments executed in connection with any retail installment sale.' A retail installment contract usually consists of a promissory note and a chattel mortgage, and is referred to as 'paper.'

With respect to the first question, we adopt the reasoning of the Court of Appeals, which is as follows:

'The Dealers' and Salesmen's Licensing Board is granted the following authority under Revised Code Section 4517.12:

"The board may suspend or revoke any license if the licensee has in any manner violated the rules and regulations issued pursuant to Sections 4517.01 to 4517.18, inclusive, of the Revised Code, or has violated * * * any law relating to the selling, taxing, licensing, or regulation of sales of motor vehicles.'

'While Chapter 1317, Revised Code * * * [Retail Installment Sales Act] nowhere specifically mentions the sale of automobiles, or any other specific chattel, as being intended to be regulated by its provisions, it requires no difficult process of reasoning to conclude that the sale of all goods and chattels sold on an installment plan are governed and in effect regulated by its provisions.

'It is well recognized, and the evidence in the instant case substantiates the fact, that the great majority of all automobile retail sales are made on an installment basis. This fact is further emphasized by the frequent reference to installment sales, in Chapter 4517, Revised Code * * * [Automobile Dealers and Salesmen]. The ability of the retail seller of an automobile to successfully dispose of the time payment note he is required to accept is of prime importance to both the seller and the buyer. The balance of the provisions of Chapter 1317, Revised Code, supra, is also highly regulatory of the retail seller and substantially affects the retail automobile industry. The writer is therefore of the opinion that the violation of any of the provisions of Chapter 1317, Revised Code, supra, by a retail automobile dealer might very well subject him to a suspension or revocation of his license by the defendant board, in addition to the penalties provided in the act. The writer is further not impressed with the argument that the board would be without jurisdiction to so act for the reason that the statute under consideration carries its own penalty. If we were to carry this line of reasoning to its logical conclusion we would arrive at a point where any professional man or other licensee could violate any penal statute at random without fear of suspension or revocation of his license by a board or court as may be provided in such instances by statute. The fact giving rise to suspension or revocation of a license is invariably based on the violation of some penal statute, ordinance or regulation.'

It is our conclusion regarding this question that the Retail Installment Sales Act is, in the words of Section 4517.12, Revised Code, a 'law relating to the selling * * * or regulation of sales of motor vehicles,' and that a violation thereof may well subject the offender to a suspension or revocation of his license.

The next issue before the court is the constitutionality of that part of Section 1317.08, Revised Code, which limits the amount a retail dealer may receive as a premium for the transfer or assignment of a retail installment contract to a maximum of two per cent of the principal balance of said contract.

That part of Section 1317.08 Revised Code, which prescribes such limitation reads as follows:

'No person shall enter into any agreement with any retail seller regarding the purchase, assignment, or transfer of any retail installment contract whereby the retail seller shall receive or retain, directly or indirectly, any benefit from or part of any amount collected or received, or to be collected or received, from any retail buyer as a finance charge or as the cost of insurance or other benefits to the retail buyer, in excess of two per cent of the principal balance of the retail installment contract. No person shall, directly or indirectly, pay to the retail seller, and no retail seller shall, directly or indirectly, receive or retain any part of the amount collected, or to be collected, as a finance charge or retail buyer's cost of insurance or other benefits on any retail installment contract purchased, assigned, or transferred from him, in excess of two per cent of the principal balance of the retail installment contract, provided this paragraph does not apply in case of a bona fide sale of a retail installment contract, if, as part of the consideration for such sale and purchase, the retail seller agrees to act, and does act, as agent for the purchaser in making collection of all amounts due on and otherwise completely servicing said retail installment contract, including billing, posting, and maintaining complete records applicable thereto.

'* * * Any sale, assignment, or transfer of a retail installment contract in violation of this section is void. Except as specifically limited by this paragraph all instruments which are a part of a retail installment contract are freely assignable and transferable.'

The essential tests of constitutionality which legislation enacted pursuant to the police power must meet in order to be valid are (1) the legislation must concern an area in which government has a right to exercise some degree of control, (2) it must be reasonable and nondiscriminatory and (3) it must bear a substantial relation to the purpose sought to be effectuated. See Froelich v. City of Cleveland, 99 Ohio St. 376, 124 N.E. 212, and Nebbia v. New York, 291 U.S. 502, 54 S.Ct. 505, 78 L.Ed. 940, 89 A.L.R. 1469.

Section 1317.08, Revised Code, is but a part of Chapter 1317, Revised Code entitled 'Retail Installment Sales.' This chapter contains, in addition to the restriction in question, numerous restrictions, limitations, positive directives and quite severe penalties for a breach thereof (the voiding of agreements made in contravention thereof and a fine of up to one thousand dollars or imprisonment for one year, or both, are penalties included, and, as we have seen, the possibility of the suspension of the license of a violator). It is an undisputed fact, admitted by both counsel in their briefs and in their arguments to the court, that Chapter 1317 was enacted by the General Assembly in order to correct certain...