119 P.2d 302 | Wash. | 1941
As stated in appellant's brief, the precise question now to be decided is this: Is the small loan act, chapter 208, Laws of 1941, p. 609, unconstitutional and void, (1) in that it makes an arbitrary classification denying the equal protection of the laws; (2) in that it sanctions an illegal delegation of arbitrary authority, or (3) in that it authorizes unlawful searches and seizures?
The general purpose and scope of the small loan act are set forth in the title thereof, which reads as follows:
"An Act to define, license, and regulate the business of making loans in the amount of five hundred dollars ($500) or less; to permit the licensing of persons engaged in such business; to authorize such licensees to make charges at a greater rate than unlicensed lenders; to prescribe maximum rates of charge which licensees are permitted to make; to regulate assignments of wages or salaries, earned or to be earned, when given as consideration *382 for a payment of five hundred dollars ($500) or less; to exempt certain persons otherwise regulated; to provide for the administration of this act and for the issuance of rules and regulations therefor; to authorize the making of examinations and investigations and the publication of reports thereof; to provide for a review of decisions and findings of the Supervisor under this act; to prescribe penalties; and to repeal all acts and parts of acts in conflict herewith."
The act is patterned upon and adopts the cardinal principles and provisions of the sixth draft of the Uniform Small Loan Law proposed by the department of remedial loans of the Russell Sage Foundation, which in 1907 undertook, and since then has continued, an energetic and comprehensive study of the general small loan business, together with its various ramifications, throughout the United States and elsewhere. A full exposition of the historical development of regulatory small loan laws, culminating in the sixth draft recommended by the foundation, will be found in Hubachek, Annotations on Small Loan Laws (1938), particularly at page 192 et seq., and in an article by the same author appearing in 8 Law and Contemporary Problems 108 (1941), published by Duke University school of law. See, also, an article by Professor Warren L. Shattuck, "Regulation of Small Loans in Washington" (1941), 16 Wn. L. Rev. 117.
At least forty-one states (including Washington), the territory of Hawaii, and the District of Columbia have adopted some form of regulation with respect to small loans, and all but five of those jurisdictions have enacted laws substantially similar to, or in part resembling, one or more of the six drafts of the proposed Uniform Small Loan Law. Furthermore, during the last thirty years there has been extensive litigation bearing upon legislative acts patterned upon one or another of the drafts recommended by the foundation. *383 Our recently adopted small loan act therefore comes to us with a considerable background of legislative enactment and judicial decision.
Prior litigation in the various states with respect to such legislative enactments has usually taken the form of an attack upon their constitutional validity, and the challenges against them have been rested on many grounds, including the due process clause, the equal protection clause, and the privileges and immunities clause of the United States constitution, and corresponding provisions of the several state constitutions. Whatever may have been the form or ground of attack, however, the basic question in each instance has been whether or not the classification embodied in the challenged statute was reasonable. With the exceptions hereinafter noted and explained, small loan acts similar to the one here involved have been upheld in every court, both Federal and state, wherein the constitutional question has been raised. Because of the importance of the subject, and as a basis from which we shall proceed, we list the cases that have been called to our attention as sustaining the constitutionality of such legislation:
Federal Courts: In re Home Discount Co. (N.D. Ala. 1906), 147 Fed. 538; National Accounting Co. v. Dorman (E.D. Ky. 1935),
Alabama: Bullard Inv. Co. v. Ford (1921),
Arkansas: Jernigan v. Loid Rainwater Co. (1938),
California: Eaker v. Bryant (1914),
Colorado: Cavanaugh v. People (1916),
Delaware: State v. Wickenhoefer (1906), 6 Penne. (Del.) 120, 64 A. 273.
District of Columbia: Newman v. United States ex rel. Prender
(1913),
Florida: Edwards v. State (1911),
Georgia: King v. State (1911),
Illinois: People v. Stokes (1917),
Indiana: Financial Aid Corp. v. Wallace (1939),
Kentucky: Ravitz v. Steurele (1934),
Louisiana: State v. Hill (1929),
Maryland: Palmore v. Baltimore Ohio R. Co. (1928),
Massachusetts: Commonwealth v. Morris (1900),
Missouri: Ex parte Berger (1906),
Nebraska: Althaus v. State (1916),
New Jersey: Richmond v. Conservative Credit System of NewJersey (Sup.Ct. 1931), 10 N.J. Misc. 14, 157 A. 446, reversed on other grounds (1933),
New York: People v. Blumenthal (Sup.Ct. 1936),
North Carolina: State v. Davis (1911),
Ohio: Sanning v. Cincinnati (1909),
Oklahoma: Shinn v. Oklahoma City (1936),
Oregon: State v. Ware (1916),
Pennsylvania: Commonwealth v. Puder (1918),
Tennessee: Koen v. State (1931),
Texas: Brand v. State (1927),
Virginia: Sweat v. Commonwealth (1929),
Wisconsin: State ex rel. Ornstine v. Cary (1905),West Virginia: Cash Service Co. v. Ward (1937),
118 W. Va. 703 ,192 S.E. 344 .
Wyoming: State v. Sherman (1909),
Exhaustive annotations reviewing the cases involving the constitutionality of small loan legislation will be found in 69 A.L.R. 581 (1930) and 125 A.L.R. 743 (1940).
As suggested above, there are, or rather there have been in former times, some exceptions to the current of judicial authority upholding the constitutional *387
validity of small loan legislation. In the judicial reports of nine states, including our own, will be found earlier decisions wherein legislative acts having a degree of similarity to the Uniform Small Loan Law have, for one reason or another, been held unconstitutional. Those states are California, Colorado, Louisiana, Missouri, Nebraska, Pennsylvania, Tennessee, Texas, and Washington. We list these states without citing the specific cases therefrom for the reason that in each of those jurisdictions, with the exception of Washington, the earlier decisions have been superseded by the later cases which appear in the extensive list cited above as composing the overwhelming weight of authority. And the case from our own state, AcmeFinance Co. v. Huse,
We now take up the specific questions presented by appellant. His first contention, with respect to alleged arbitrary classification, relates to §§ 2, 17, 18, and 19 of the act. Section 2, which corresponds in principle to § 1 of the sixth draft of the proposed Uniform Small Loan Law, provides:
"No person shall engage in the business of making secured or unsecured loans of money, credit, goods, or things in action in the amount or of the value of five hundred dollars ($500) or less and charge, contract for, or receive a greater rate of interest, discount or consideration therefor than the lender would be permitted by law to charge if he were not a licensee hereunder *388 except as authorized by this Act and without first obtaining a license from the Supervisor." (Italics ours.)
Section 17 of the act, corresponding in principle to § 18 of the sixth draft, contains a similar prohibition against charging, contracting for, or receiving any greater rate of interest than that which would be permitted by law to one not a licensee under the act, except as provided for therein.
Section 18 of the act, which corresponds in principle to § 19 of the sixth draft, provides that any person who shall violate any of certain numbered sections of the act, including §§ 2 and 17, shall be guilty of a gross misdemeanor, and, further, that any contract or loan, in the making or collection of which any act constituting a gross misdemeanor shall have been committed, shall be void as to any principal, interest, or charges whatsoever.
In this connection, it may be noted that, while Rem. Rev. Stat., § 7300 [P.C. § 3156], heretofore made it unlawful to charge any greater rate of interest than twelve per cent per annum, the only penalty for violation thereof was that prescribed by Rem. Rev. Stat., § 7304 [P.C. § 3161], namely, the limitation of the lender's recovery to the principal, less certain penalties determined by the interest sought to be charged. In direct contrast, § 18 of the small loan act not only makes the entire loan contract void and unenforcible, but also imposes a criminal penalty upon the offender.
Section 19 of the act under consideration, corresponding in principle to § 20 of the sixth draft above mentioned, provides:
"This Act shall not apply to any person doing business under and as permitted by any law of this state or of the United States relating to banks, savings banks, trust companies, savings and loan or building and loan *389 associations, industrial loan companies or credit unions, nor to any pawnbroking business lawfully transacted under and as permitted by any law of this state regulating pawnbrokers."
Appellant contends that, although the act assumes to regulate, generally, the business of making loans in the amount of five hundred dollars or less, and in §§ 2 and 17 directs its prohibitions against all persons, nevertheless § 19 specifically exempts from the operation of the act eight classes of persons who are engaged in the lending of money in competition with him, and thus makes an arbitrary classification of persons and grants special immunities to those exempted. As a basis for his contention, appellant invokes the fourteenth amendment to the United States constitution, and Art. I, §§ 3 and 12, of the Washington constitution, relating to due process of law, the equal protection of the laws, and the privileges or immunities of citizens.
[1] A legislative act is not violative of any of the constitutional provisions above mentioned, so long as the classification effected is reasonable and has a fair basis, and therefore cannot be successfully attacked unless it is manifestly arbitrary, unreasonable, inequitable, and unjust. State v.Cannon,
The small loan act, like the Uniform Small Loan Law, is designed to remedy a specific evil which has *390
existed for many years. The origin, growth, and effect of that evil are fully depicted in the articles referred to above, written by Mr. Hubachek and Professor Shattuck. Indeed, the evil is too well known to require specific description here. Expressions of the courts with reference to it may be found inIn re Home Discount Co. (N.D. Ala. 1906), 147 Fed. 538; In reFuller (1940),
In making the classification that it did, the legislature undoubtedly concluded that the persons exempted from the operation of the act were sufficiently regulated and controlled by the terms of specific statutes previously enacted to regulate such persons and the businesses in which they are engaged. A classification based upon that consideration is not arbitrary or capricious, but is well within the discretion of the legislature.
In Mutual Loan Co. v. Martell (1911),
"This contention attacks § 6 of the statute which exempts from its provisions certain banks, banking institutions and loan companies. It is urged that the provision is discriminatory and therefore denies to plaintiff the equal protection of the laws.
"We have declared so often the wide range of discretion which the legislature possesses in classifying *391
the objects of its legislation that we may be excused from a citation of the cases. We shall only repeat that the classification need not be scientific nor logically appropriate, and if not palpably arbitrary and is uniform within the class, it is within such discretion. The legislation under review was directed at certain evils which had arisen, and the legislature, considering them and from whence they arose, might have thought or discerned that they could not or would not arise from a greater freedom to the institutions mentioned than to individuals. This was the view that the Supreme Judicial Court took, and, we think, rightly took. The court said that the legislature might have decided that the dangers which the statute was intended to prevent would not exist in any considerable degree in loans made by institutions which were under the supervision of bank commissioners, and `believed rightly that the business done by them would not need regulation in the interest of employes or employers,' citing State v. Wickenhoefer, 64 Atl. Rep. 273, a decision by the Supreme Court of Delaware. SeeEngel v. O'Malley,
"But even if some degree of evil which the statute was intended to prevent could be ascribed to loans made by the exempted institutions, their exception would not make the law unconstitutional. Legislation may recognize degrees of evil without being arbitrary, unreasonable, or in conflict with the equal protection provision of the Fourteenth Amendment to the Constitution of the United States. Ozan Lumber Co. v. UnionBank,
"This court sustained a classification like that of the Massachusetts statute in Griffith v. Connecticut,
In Cavanaugh v. People (1916),
"It is said, further, that the law is unjust and unreasonable because it exempts national banks, state banks, trust companies, building and loan associations and title and guarantee associations, and does not apply to those who loan money at 12 per cent or less, or who loan without security.
"The exceptions, however, appear to be reasonable, inasmuch as they cover only money lenders who are already subject to governmental supervision and control. Such exceptions have been held reasonable by the Supreme Court of the United States.Griffith v. Connecticut,
"Nor is there anything unreasonable in excepting those who loan without security, or at 12 per cent or less. The law was intended to correct abuses in the loaning of money by a class who loan at more than 12 per cent and on security.
"It is common knowledge that there is a large business carried on in loaning small sums at a high rate of interest secured on personal property. It is equally well known that there are grave abuses in the business, that borrowers are treated with great harshness, and often deprived of their property by a process which is little less than robbery.
"The legislature evidently recognized the evils of the system and deemed it necessary to correct them. The classification is not unreasonable nor arbitrary, and unless it is so the courts cannot declare it unconstitutional. Consumers League v. C. S.Ry. Co.,
"The law-making power has a wide discretion in prescribing regulations for the conduct of business, and the constitutionality of the act is presumed. Barrett v. Indiana,
In line with the two decisions from which we have just quoted at length, the cases in general are practically unanimous to the effect that exemptions or exceptions such as those contained in the Washington small loan act do not render the legislative classifications arbitrary, unreasonable, or unlawfully discriminatory. In re Home Discount Co. (N.D. Ala. 1906), 147 Fed. 538; National Accounting Co. v. Dorman (E.D. Ky. 1935),
We come now to the case of Acme Finance Co. v. Huse,
". . . nothing more than a statute making it a crime for certain persons to charge more than twelve per cent interest on loans under three hundred dollars and which forfeits the loan if the statute be disobeyed."
In the light of that statement of the true effect of the 1937 act, this court in that case held that the act consituted an arbitrary and unlawful discrimination, in that it granted special privileges and immunities to certain classes of persons exempted from its operation and, by the same token, denied equal protection of the laws to those persons within the range of its application.
That case is not in point here, however, for the reason that the statute as there interpreted bore no relation to a true small loan act such as is involved in this case. The best authority for the statement just made is the per curiam opinion in the same case, written by the author of the original opinion and appearing in
"A petition has been filed in this court praying for an extensive clarification of the opinion in the above entitled case, as hereinbefore published in
"We think that this fear is unwarranted. Upon an analysis of the opinion, it will be at once realized that, while, nominally, the court had before it an act providing *395 for the licensing and regulating of the business of making loans under three hundred dollars, four sections of the act had been vetoed and eight other sections rendered entirely inoperative as a consequence of the veto, so that there remained for the court's consideration only a general law relating to usury, making it a crime to contract for interest of more than twelve per cent per annum on loans under three hundred dollars, and wholly exempting numerous classes of lenders from its operation. In other words,the decision in no way relates to the constitutionality of asmall loan act, but only to the constitutionality of a generalcriminal statute. It is assumed as a matter of course that thedecision will not be invoked as a precedent except in cases of asimilar nature." (Italics ours.)
We deem it unnecessary to say anything further as to the inapplicability of that case to the problem presented here.
Concluding our discussion of appellant's first contention, we hold that the small loan act of 1941 is not unconstitutional by reason of the classification made therein, nor because of the fact that it exempts certain enumerated classes of persons.
[2] Appellant next contends that the act is unconstitutional because, allegedly, it sanctions an illegal delegation of authority to the supervisor of banking. This contention is directed against § 4 of the act, which corresponds in principle to § 4 of the sixth draft recommended by the Russell Sage Foundation. Section 4 of our act, so far as it is pertinent here, reads as follows:
"Upon the filing of such application and the payment of such fees and the approval of such bond the Supervisor shall investigate the facts and if he shall find that the financial responsibility, experience, character, and general fitness of the applicant, and of the members thereof if the applicant be a copartnership or association, and of the officers and directors thereof if the applicant be a corporation, are such as to command the *396 confidence of the community and to warrant belief that the business will be operated honestly, fairly and efficiently within the purposes of this Act, and that allowing such applicant to engage in business, will promote the convenience and advantage of the community in which the business of the applicant is to be conducted, and that the applicant has available for the operation of such business at the specified location liquid assets of at least ten thousand dollars ($10,000), (the foregoing facts being conditions precedent to the issuance of a license under this Act), he shall thereupon issue and deliver a license to the applicant to make loans in accordance with the provisions of this Act at the location specified in the said application, which license shall remain in full force and effect until it is surrendered by the licensee or revoked or suspended as hereinafter provided; if the Supervisor shall not so find he shall not issue such license and he shall notify the applicant of the denial and return to the applicant the bond and sum paid by the applicant as a license fee, . . ."
As a basis for his contention, appellant again invokes the constitutional provisions, Federal and state, above mentioned. His argument is that the effect of that section of the statute is to permit the supervisor to grant any application or to withhold any license at will, and to vest in him the decision of a pure matter of opinion which cannot be controlled or checked by tangible evidence.
The act does not confer uncontrolled authority upon the supervisor, for by § 23 an applicant or a licensee, upon denial of his application or upon revocation or suspension of his license, as the case may be, is entitled to appeal to the superior court and have a hearing de novo, during the pendency of which appeal any order of revocation or suspension of a license shall be stayed, and from an adverse judgment by the superior court the applicant or licensee may appeal to this court.
Appellant's principal objection to this section of the *397 statute is levelled against the "convenience and advantage" clause therein, his contention being that the supervisor is thereby clothed with arbitrary power uncontrolled by any prescribed rule of action governing such power.
It will be observed that the standard adopted by the legislature contemplated two factors: (1) the financial responsibility, experience, character, and general fitness of the applicant for a license, and (2) the convenience and advantage resulting to the community from the granting or denial of a license. Thus, the legislature sought not only to guarantee that the small loan business would be conducted by men of the ability, character, and financial standing necessary for the protection of those who may be compelled by reason of some serious emergency to borrow small sums of money, but also to make sure that the needs of the community in that respect were not outrun by the number of such establishments, at the risk of defeating the beneficent purposes of the act. The legislative desideratum was not the mere restriction in number of licensees, but rather the accomplishment of the well known objectives for which the act was passed.
It is not always necessary that statutes and ordinances prescribe a specific rule of action. This is particularly true in those situations where it is difficult or impracticable to declare a definite, comprehensive rule, or where the discretion to be exercised by an administrative officer relates to a regulation imposed for the protection of public morals, health, safety, and general welfare. 11 Am. Jur. 948, Constitutional Law, § 234.
In Weer v. Page (1928),
"The statute does not commit to the bank commissioner an unlimited discretion. It directs him to ascertain, `whether the character, responsibility and general fitness' of the incorporators `are such as to command confidence and warrant belief that the business of the proposed corporation will be honestly and efficiently conducted,' and `whether the public convenience and advantage will be promoted by allowing the proposed corporation to engage or continue in business.' These are sufficiently definite standards for the administrative action which the statute authorized. Public Service Comm. v. Byron,
In Equitable Loan Society, Inc. v. Bell (1940),
"As to clause [b], in Bank of Italy v. Johnson,
Statutory provisions using the formulae "public convenience and advantage," "public necessity," and similar expressions have been sustained in a legion of cases. United States v. American Bond Mortgage Co. (N.D. Ill. 1929),
Likewise, requirements relative to the financial responsibility, character, and general fitness of applicants for licenses have been repeatedly upheld by the courts. Gundling v.Chicago (1900),
We conclude this portion of our discussion by saying that, in our opinion, the provisions above referred to are sufficiently definite and certain to enable the supervisor to administer the act as intended by the legislature, and that they do not constitute an arbitrary or illegal delegation of authority.
Appellant's third, and last, contention is that the act is unconstitutional in that it authorizes unlawful searches and seizures. This contention is directed against § 10 of the local act, which embodies, in virtually the same words, the provisions of § 10 of the sixth draft of the proposed Uniform Small Loan Law. Section 10 of our act provides as follows:
"For the purpose of discovering violations of this Act or securing information lawfully required by him *401 hereunder, the Supervisor may at any time, either personally or by a person or persons duly designated by him, investigate the loans and business and examine the books, accounts, records, and files used therein, of every licensee and of every person who shall be engaged in the business described in section 2 of this Act, whether such person shall act or claim to act as principal or agent, or under or without the authority of this Act. For that purpose the Supervisor and his duly designated representatives shall have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of all such persons. The Supervisor and all persons duly designated by him shall have authority to require the attendance of and to examine under oath all persons whomsoever whose testimony he may require relative to such loans or such business or to the subject matter of any examination, investigation or hearing. . . ."
[3] In support of his contention, appellant invokes the fourth amendment to the Federal constitution and Art. I, § 7, of the Washington constitution. The Federal amendment, which has reference to unreasonable searches and seizures, may be at once eliminated from consideration, for it is well settled that its provisions are a limitation upon the power of the Federal government only, and have no application to the powers of the states. State v. Seattle Taxicab Transfer Co.,
[4] Art. I, § 7, of the Washington constitution reads:
"No person shall be disturbed in his private affairs, or his home invaded, without authority of law."
Constitutional provisions such as those contained in the article and section just quoted are primarily designed to protect individuals in the sanctity of their homes and the privacy of their books and papers, and *402 they are not infringed by the enforcement of reasonable rules which have been adopted in the exercise of the police power for the protection of the public health, morals, and welfare. 24 R.C.L. 704, Searches Seizures, § 6; see, also, 56 C.J. 1160, Searches Seizures, § 12.
We deem the provisions of § 10 of the small loan act not only reasonable, but absolutely essential to the proper enforcement of the act. It does not permit seizure of any sort, nor the invasion of the person's home, nor even an indiscriminate search into his private affairs, but simply authorizes access to the office and place of business of the individual and permits an examination of the books, accounts, and records pertaining to the small loan business conducted by him.
In Financial Aid Corporation v. Wallace (1939),
"The act in question requires individuals and concerns entering into the small loan business to keep certain records of all business transactions and provides for inspection and examination by the department. In other words, the small loan business comes under the regulation of the banking department and is subject to visitation and examination the same as banking institutions. The appellant claims that this provision amounts to an illegal search and seizure of the appellant's property. Regulatory provisions of this nature have been recognized so long that it would be folly to undertake to strike them down at this time. There is nothing in the act to violate Sec. 11, Article 1, of the Indiana Constitution. Shuman v. The City of Fort Wayne (1891),
To the same effect, see Badger v. State (1922),
The judgment is affirmed.
