Budget Finance Plan v. Gamson , 1949 Cal. LEXIS 144 ( 1949 )

CARTER, J.

I dissent.

The majority opinion cannot stand for two reasons: (1) It permits the Legislature by the 1945 amendment to the Personal Property Brokers Act to enlarge the meaning of the term “personal property broker” beyond the scope thereof as used in the 1934 amendment to the Constitution (Cal. Const., art. XX, §22). (2) The classification permitting such brokers to charge interest on real estate loans in excess of that others may charge is unreasonable and without a rational basis.

It is conceded in the majority opinion that the exemption of personal property brokers from the 10 per cent maximum interest rate by the 1934 constitutional amendment is governed by the then existing definition of a personal property broker, inasmuch as the Constitution did not define “personal property brokers. ’ ’ The law at that time described such persons as those lending money and taking as security therefor personal property. We must consider that definition in the light of the court decisions on the subject. In Matter of Application of Stephan, 170 Cal. 48 [148 P. 196, Ann.Cas. 1916E 617], the court upheld the classification of personal property brokers but did so on the ground that the security was personal property, the court stating, page 51: “But we think it must now be conceded that in the course of the development of modern civilization the business of loaning money on chattel mortgages, or like instruments, and that of loaning or advancing money on assignments or other transfers of wages, earnings, and the like, as well, have become so well known and so capable of classification and recognition that the legislature is entirely justified in describing them as a peculiar class and giving them the name of personal property brokers. ‘Their business is as distinct in many respects from other classes of business as is that of a pawnbroker. Nor can it be denied that abuses have grown up in connection therewith which the legislature might well deem to call for the regulations imposed by this law.” Likewise, in Baker v. Bryant, 24 Cal.App. 87 [140 P. 310], the court considered the old personal property brokers act and referred to exemptions therein of real estate mortgage security, stating: “This legislation has been preceded by other acts whereby the legislature attempted to limit the rates of interest and charges upon loans on chattel mortgage on certain personal property . . .

“The act of 1909, as amended in 1911, applies equally to all classes of personal property and to all loans regardless of the amount thereof. In these respects at least it is not subject to the objections which were sustained as against the former statute. But the respondent insists, nevertheless, that the statute attempts to pick out certain money lenders, to wit: those engaged in lending money and taking as security chattel mortgages, or bills of sale, or assignments of salary, etc., and to define such money lenders as personal property brokers, and to prescribe for them alone a maximum amount of interest which they may charge; and to impose upon them alone the burden of issuing tickets to borrowers, designating the nature of the security, etc. It is pointed out that the statute by its terms does not include loans upon pledge, or loans without security, or loans upon the security of bank books, bank deposits, interests in estates, or contracts, or loans secured by mortgage on real property . . .

“Likewise there is as much difference between the business of a personal property broker and that of one who lends money upon real estate security, as there is between the latter business and that of a pawnbroker. . . .

“ . . . And since the lending of money upon security of real estate, or of bank deposits, or of interests in estates, or of contracts, has not been included within the prohibitions of this statute, we may reasonably assume that the legislature has not found that the businesses pertaining to such loans are usually accompanied by the abuses which the legislature was seeking to remedy.” [Emphasis added.] That is a square holding that loans on realty are not included in the old Personal Property Brokers Act. Precisely the same propositions were declared very recently by this court in Carter v. Seaboard Finance Co., 33 Cal.2d 564, 576 [203 P.2d 758], where it is said: “. . . the Legislature in 1909 (Stats. 1909, p. 969, 2 Deering’s Gen. Laws, Act 5825) attempted to regulate the business of making small loans secured by personal property. This was the first Personal Property Brokers Act. That statute defined a personal property broker as one engaged in the business of loaning money on the security of personal property . . .

“The classification of personal property brokers as a distinct class has consistently been upheld by California courts as justified by the unique problems of that class. [Citing cases.] The Assembly Interim Committee, whose report has been referred to, in 1935 recommended that the classification be retained in future legislation, setting forth the special problems met with in connection with personal property brokers, and stated: ‘In the sense that personal property is used as security, it is distinguished from real property by being movable, destructible, difficult to record as to property rights therein, susceptible of abuse as to rights of third persons, and not subject to a period of redemption after foreclosure. These differences make personal property less valuable as security both to the borrower and to lender; special regulations are required to overcome these difficulties. Borrowers on personal property are subject to temptations in respect to its treatment after a lien is created, and lenders are tempted to abuses after default. This type of security and the fact that its possession is left with the borrower present problems of regulation peculiar to the class. ’ ” [Emphasis added.] Moreover, the very name itself—“personal property brokers,” indicates that lenders on the security of realty are not included.

It is no answer to say that a personal property broker may take land as security as long as he also takes personalty, because the distinction between such loans then becomes absolutely meaningless and we have a clear discrimination. A broker could take any nominal article or chattel and have realty as the only real security of any value. Thus, although ostensibly in the personal property security loan business, he is in effect in the real property security loan business. Hence, we have nothing left of the distinction between the two, which brings us to the discrimination feature. This discrimination is evidenced by the illustration I pointed out in my dissent in Carter v. Seaboard Finance Co., supra. The only basis for distinguishing between loans on personalty and realty is that the latter are more safe and less expensive to handle and therefore the interest rate may be less. But here the majority say that the interest rate may be without limit when the lender has more security—realty, in addition to the personalty. In other words, he gets the safety and economy of a realty loan, yet because he received additional collateral, he should not be limited in liis interest charges. If that is a reasonable basis for a legislative classification, so would the proposition that strong men may carry concealed weapons for their own protection but the weak may not, for the bigger they are the harder they fall. The money lender may be entitled to Ms “pound of flesh,” but he should be required to take it lawfully, and I do not believe that there are any considerations of justice or public policy which justify this court in placing a strained construction upon the plain language of the Constitution in order to permit the money lender to continue to exact more than the traffic can bear. This is what the majority decision accomplishes in this ease.

I would, therefore, reverse the judgment.