Tiley v. Grenada Building & Loan Ass'n ( 1926 )

I am unable to concur in the majority opinion in this case for two reasons: (1) I think the contract here involved is controlled by chapter 136 of the Laws of 1916, which provides for exactly the scheme reflected by this litigation in the present case, and, being the latter act, repeals chapter 216, Laws of 1914; and (2) if this law of 1916 does not repeal the act of 1914, and if the Act of 1914, chapter 216, is applicable, the said law is void for the reason that it is in conflict with the Constitution of the state, in that it violates sections 87 and 89 and paragraph (d) of section 90 of the Constitution of 1890.

Section 1 of chapter 136 of the Laws of 1916 provides that:

"Any persons, natural or artificial, including domestic and foreign corporations, lending money in this state to be paid back in monthly installments, may charge interest thereon at the rate of five per cent. per annum or less, for the entire period of the loan, aggregating the principal and interest for the entire period of the loan, and dividing the same into monthly installments, and may take security therefor by mortgage, deed of trust, or title, with waiver of exemption, upon and to real estate or personal property, or both."

The plan is that five per cent. for the entire period is calculated and divided into monthly installments, and, if paid in this way, it would be an average interest of ten per cent., because the average period of payment would be one-half of the aggregate time of the notes. Section 2 provides:

"That in any such loan contract provision may be made requiring the borrower, upon exercising any option to repay the loan before maturity, or upon any default in the payment of the monthly installments of principal and interest or upon the breach of any covenant entitling the lender to declare the whole indebtedness due and payable and to a foreclosure of the security, to repay the loan upon the following basis of settlement: The principal debt, with interest thereon at the rate of ten per cent. per annum, and allowing credit for all payments of installments of principal and interest upon loan, with interest thereon at the rate of ten per cent. per annum from date of payment to said lender, computed annually in accordance with the laws of the state of Mississippi."

It will be seen from a reading of these two sections together that they cover precisely what was done in the present case.

It is provided in section 3 of the act:

"That any such loan contract, and all the provisions thereof, shall be valid for the amount of the principal and interest charged, and such contracts shall not be held usurious."

This law is a general law covering every kind of plan of lending money to be paid back in monthly installments, and provides, in detail, how a default may be dealt with, and expressly authorizes the holder of a note or contract to provide for the advancement of the maturity of all notes or payments in case of default in meeting any one or more of them. It includes the plans provided for in chapter 216 of the Laws of 1914, and under the rules of construction announced in Swift Co. v.Sones (Miss), 107 So. 881; State ex rel. Knox v. WyomingManufacturing Co., 138 Miss. 249, 103 So. 11; M. O. R.R. Co. v. Weiner, 49 Miss. 739; Meyers v. Marshal Co.,55 Miss. 347 — in which cases it was held that where the legislature in a later act covers the entire scheme dealt with in the former act, the former act will be repealed by the later act, although there is some difference in the provisions of the two statutes. A subsequent statute, not repugnant in its provisions to a former one, but clearly intended to prescribe the only rule in the case provided for, repeals the former statute. It cannot be assumed that the legislature intended a general act which operates throughout the state to exist when a later act covering exactly the same subject-matter but containing minor details of difference could both operate at the same time in the same territory and on the same persons. They cannot both in such case be the law. Justice requires that every person shall be able to know what law shall govern his rights, and it is not desirable nor permissible to give one of the parties the option of selecting one of two laws, either of which might control his rights, while each is dissimilar in its provisions. It is the very essence of law that it shall be certain in its provisions and fixed in its terms, and when the legislature enacted chapter 136 of the Laws of 1916, it must be assumed that, inasmuch as that is a general law, that it was intended to repeal all laws upon the same subject, and this would be necessarily so if the other statutes are general laws.

In the second place, I think that chapter 216 of the Laws of 1914 is void because it undertakes to suspend the general law on the subject of interest charges in favor of particular private corporations and persons, which is prohibited by the above named sections of the Constitution. The general statute upon the subject of interest is section 2075 of Hemingway's Code (chapter 229 of the Laws of 1912), which fixes the highest contract rate of interest per annum at eight per cent., and, in the absence of a contract, at six per cent. This statute is applicable to all money lenders without reservation or exception. It is general in its terms, applies to everybody, and is in force throughout the state. It was in force at the time chapter 216 of the Laws of 1914 was enacted, and the effect of the provisions of chapter 216 is not to change the rate of interest as to persons doing the same kind of business, but is to change the rate of interest in favor of a special class of money lenders giving them rights that are denied to other people engaged precisely in the same kind of business.

It is provided in section 2075, Hemingway's Code (chapter 229 of the laws of 1912), that:

"If a greater rate of interest than eight per centum shall be stipulated for or received in any case, all interest shall be forfeited, and may be recovered back, whether the contract be executed or executory."

Under this law, if a natural person charges more than eight per cent. per annum, he loses the interest on his money although a corporation called a building and loan association may do the same business and charge ten per cent. per annum without being denied the right to sue for and recover the interest. Under section 2 of chapter 216 of the Laws of 1914, it is provided:

"The term ``building and loan association,' as used in this act, for the purposes of this act only, shall apply to and include any domestic or foreign corporation, company, savings association, partnership, person, society, or association organized for the purpose of enabling its members, or borrowers who are not members, to acquire real estate, make improvements thereon, remove incumbrances therefrom or loan money to be repaid in monthly installments, or for the accumulation of a fund to be returned to its members who do not obtain advances thereon."

It will be noted that the building and loan association is to be such, only "for the purposes of this act," and is not a building and loan association in the general legal acception of the meaning of those words. The persons who constitute such organization are such as are organized for the purpose: (1) To acquire real estate; (2) to make improvements thereon; (3) to remove incumbrances therefrom; (4) to loan money to be repaid in monthly installments; and (5) by the accumulation of a fund to be returned to its members who do not obtain advances thereon. The company or organization does not have to perform all of these functions. It will be noted that these things cover all kinds of loans affecting real estate. They may loan a person money who may seek to buy any kind of real estate whether with a desire to improve it or not. It may be for the rankest purpose of speculation. They may make loans for any kind of improvement on any kind of real estate having no reference to any kind of use necessary to further the general demands of society. They may be engaged in one branch of the business alone. They may loan money simply for the purpose of removing incumbrances from real estate; also they may loan money for any purpose whatever if it is to be repaid in monthly installments. A loan for this purpose need not have any restrictions whatever except that it will be repaid monthly. Every individual who lends money at all probably lends it for one of these purposes. If he is unorganized under the law, he cannot charge more than eight per cent. whether it be repaid monthly or for any other length of time. He may lend money for the purpose of buying real estate precisely as the building and loan association lends it for such purpose, but if he is unorganized into a corporation, he cannot charge more than eight per cent., and if he either contracts for or receives more than eight per cent., he loses the right to collect the interest.

It will be noted also from a reading of this section that the act does not confine the association to lending to its members as was provided in section 2348, Code of 1892, consequently the case of Building Loan Association v. McPhilamy, 81 Miss. 61, 32 So. 1001, has no application. As pointed out in that case, the members of the building and loan association shared the benefits as well as the burdens and participated in the profits and losses of the association, but the act here under review gives the building and loan association the right to loan to any person, regardless of membership, and the right to charge such person, although a nonmember, ten per cent. Section 9 of the act permits contracts for loans to be made to the members of the association and those who are not members, but it provides also that loans shall be payable in equal monthly installments for the average time of duration of such loans, but not to be of less duration than three years. Thus it will be seen that the legislature has carved out a bunch of favorites among money lenders, and authorizes its favorites to charge ten per cent. while it denies to others this right, which, according to my conception, violates not only the sections of the state Constitution, hereafter quoted, but also the provisions of the Fourteenth Amendment of the Constitution of the United States. It is said that it is permissible to classify, and that by means of classification the law may be general although it does not apply to all persons in the state. The legislature may classify when there is a sufficient basis of classification, but there must be some distinction that bears a just and proper relation to the classification and not mere arbitrary selection. The mere fact of classification will not relieve a law from being unconstitutional. The classification must be based on reasonable grounds having some substantial basis for its justification, and it cannot be mere arbitrary selection. This has been held in a long line of decisions in the United States supreme court as well as the state courts.

It is especially pointed out in Southern Railway Company v.Greene, 216 U.S. 400, 30 S.Ct. 287, 54 L.Ed. 536, 17 Ann. Cas. 1247, that the classification must be based upon some real and substantial distinction bearing a reasonable and just relation to things in respect to which the classification is imposed. At page 417 of 216 U.S., at page 291 of 30 S.Ct., at page 541 of 54 L.Ed., at page 1250 of 17 Ann. Cas., the court said:

"It remains to consider the argument, made on behalf of state of Alabama, that the statute is justified as an exercise of the right of classification of the subjects of taxation, which has been held to be entirely consistent with the equal protection of the laws guaranteed by the Fourteenth Amendment. It is argued that the imposition of special taxes upon foreign corporations for the privilege of doing business within the state is sufficient to justify different taxation, because the tax imposed is different, in that the one imposed on the domestic corporation is for the privilege of being a corporation, whereas the one on the foreign corporation is for the privilege of such corporation to do business within the state. While reasonable classification is permitted, without doing violence to the equal protection of the laws, such classification must be based upon some real and substantial distinction, bearing a reasonable and just relation to the things in respect to which such classification is imposed; and classification cannot be arbitrarily made without any substantial basis. Arbitrary selection, it has been said, cannot be justified by calling it classification. Gulf, etc., R. Co. v. Ellis, 165 U.S. 150, 155, 165, 17 S.Ct. 255, 41 U.S. (L.Ed.) 666; Cotting v. Kansas City Stockyards Co., 183 U.S. 79, 22 S.Ct. 30, 46 U.S. (L.Ed.) 92; Connolly v. Union Sewer PipeCo., 184 U.S. 540, 559, 22 S.Ct. 431, 46 U.S. (L.Ed.) 679."

See, also, Heath, etc., Co. v. Worst, 207 U.S. 338, 28 S.Ct. 114, 52 L.Ed. 236; L. N. Railroad Co. v. Melton,218 U.S. 36, 30 S.Ct. 676, 54 L.Ed. 921, 47 L.R.A. (N.S.) 84;Southwestern Oil Co. v. Texas, 217 U.S. 114, 30 S.Ct. 496, 54 L.Ed. 688; Magoun v. Bank, 170 U.S. 283, 18 S.Ct. 594, 47 L.Ed. 1037; Watson v. Maryland, 218 U.S. 173, 30 S.Ct. 644, 54 L.Ed. 987; Jones v. Brim, 165 U.S. 180, 17 S.Ct. 282, 41 L.Ed. 677; Tinsley v. Anderson, 171 U.S. 101, 18 S.Ct. 805, 43 L.Ed. 91.

Section 87 of the Constitution of 1890 provided that:

"No special or local law shall be enacted for the benefit of individuals or corporations, in cases which are or can be provided for by general law, or where the relief sought can be given by any court of this state; nor shall the operation of any general law be suspended by the legislature for the benefit of any individual or private corporation or association, and in all cases where a general law can be made applicable, and would be advantageous, no special law shall be enacted."

It will be noted that no special or local law shall be enacted for the benefit of individuals or corporations in cases which are or can be provided for by general law, or where relief can be obtained in court; that no general law shall be suspended for the benefit of an individual or private corporation. In the case ofPrince George's County Com'rs v. Baltimore Ohio RailroadCo., 113 Md. 179, 77 A. 433, it is said:

"A special law is one that relates to particular persons or things of a class as distinguished from a general law which applies to all persons or things of a class."

Section 33 of article 3 of the Maryland Constitution, provided that the General Assembly shall pass no special law for any case for which provision has been made by an existing general law. The Code (article 23, section 283) of Maryland contains general provisions prescribing the conditions under which railroad companies throughout the state may be required by county commissioners to protect the highways crossing the railroad track, at grade, by flagmen, or safety gates, etc. The Act of 1908, chapter 398, directed that a certain railroad company should erect and maintain safety gates with flagmen at two designated crossings of its tracks in a certain county under a daily penalty for failure to comply with the act, and this act was held unconstitutional and void because it was in conflict with that section of the Constitution. At page 183 of the official report (77 A. 434), of this case, the court said:

"The other objection to the act in question we think is well founded. Section 33 of article 3 of the Constitution of this state, expressly provides that ``The General Assembly shall pass no special law for any case for which provision has been made by an existing general law.' A special law is one that relates to particular persons or things of a class, as distinguished from a general law which applies to all persons or things of a class. InBaltimore City v. Allegany County, 99 Md. 1 [57 A. 632], Judge PEARCE said: ``In Cooley's Constitutional Limitations, 165, note, it is said: "The term general, when used in antithesis to special, means relating to all of a class, instead of two persons only, of that class."' In the case of Schmalz v. Wooley,56 N.J. Eq. 649, 39 A. 539, the court said that where a statute ``does not relate to persons or things of a class, but to particular persons or things of a class, it is special, as contradistinguished from a general law.' And in volume 7 of Words and Phrases, 6578, it is said: ``Special laws are those made for individual cases, or for less than a class requiring laws to its peculiar conditions and circumstances.'

"The obvious meaning of this provision of the Constitution is, that where there is a general law providing for a certain class of cases, the legislature shall not pass a special law for any particular case of that class. As said by Judge ALVEY, in State v. County, Commissioners of Balto. Co., 29 Md. 516: ``The special laws contemplated by the Constitution are those that provide for individual cases,' and the object of this provision ``was to prevent the abuses that occurred in the great multiplicity of legislation for particular and individual cases.'"

In Dundee v. School District (C.C.), 21 F. 151, it was said:

"A ``special' act affects a part only of the subject to which it relates, and whether an act is considered ``public' or ``private' is not relevant to the question of whether it is ``special' or ``general.'"

In State v. Des Moines, 96 Iowa, 521, 65 N.W. 818, 31 L.R.A. 186, 59 Am. St. Rep. 381, it was held that, under a section of the Constitution of that state prohibiting the passing of special laws in certain cases, that the legislature could not pass laws in the prohibited cases. In State v. Somers' Point, 52 N.J. Law, 32, 18 A. 694, 6 L.R.A. 57, the court said:

"A law is special or local, as contradistinguished from general, in the sense of the prohibitory clauses in this paragraph of the Constitution, which embraces less than the entire class of persons or places to whose condition such legislation would be necessary or appropriate, having regard to the purpose for which the legislation was designed. A law which so particularizes, and by such means is restricted in its operation to persons or places which do not comprise all the objects which naturally belong to the class, is special or local. . . ."

In State v. Yard, 42 N.J. Law, 357, the same court held that local and special laws are all those that rest on a false or deficient classification. Their vice is that they do not embrace all the class that they naturally embrace. They create preferences and establish inequalities; they apply to persons, things, or places possessed of certain qualities or situations, and exclude from their effect other persons, things, or places which are not dissimilar in these respects. In State v.Miksicek, 225 Mo. 561, 575, 125 S.W. 507, 511, 135 Am. St. Rep. 597, at page 605, the court said:

"In State v. Julow, 129 Mo. 163, 31 S.W. 781, 29 L.R.A. 257, 50 Am. St. Rep. 443, this court, in announcing the rule applicable to the proposition now under discussion, used this language: ``The legislature may legislate in regard to a class of persons, but they cannot take what may be termed a natural class of persons, split that class in two, and then arbitrarily designate the dissevered fractions of the original unit as two classes, and enact different rules for the government of each. This would be mere arbitrary classification without any basis of reason on which to rest, and would resemble a classification of men by the color of their hair or other individual peculiarities, something not competent for the legislature to do.State v. Herrmann, 75 Mo. 340.'

"The rule of construction in this state has been firmly established; in fact, as was said in State v. Walsh, 136 Mo. 400, 37 S.W. 1112, 35 L.R.A. 231, it is so well settled that it admits no contravention — that is, ``that a statute which relates to persons or things as a class is a general law, while a statute which relates to particular persons or things of a class is special. State v. Tolle, 71 Mo. 645; State v. Herrmann, 75 Mo. 340; State v. Julow, 129 Mo. 163, 31 S.W. 781, 29 L.R.A. 257, 50 Am. St. Rep. 443.'"

Measured by these standards, the law is clearly unconstitutional, because it is special rather than a general one.

In the case before us, a special class of money lenders is carved out of the general class of money lenders by an inadequate classification. I cannot see how there can be any special reason to allow an association the privilege of charging ten per cent. for money loaned for the purpose of buying real estate without reference to the purpose to be promoted by such purchase. The ordinary building and loan statutes are sustained on the ground that they are designed to provide homes for people, and that the providing of homes is a public necessity that would warrant the classification. The Code of 1892 permitted building and loan associations for this purpose to charge ten per cent., but the act here under review does not require anything to be done which a building and loan association, properly speaking, is created to do. They do exactly the kind of business that private individuals and banks do, and are granted special favors. It will be noted from the reading of the section above quoted that the building and loan associations provided for in this act are building and loan associations only for the purpose of the act. In other words, they are building and loan associations for the purpose of lending money at ten per cent., and for no other purpose. In the case of Yazoo Mississippi Valley Railroad Co. v. Southern Railway Co.,83 Miss. 746, 36 So. 74, the court said that the provision prohibiting the suspension of a general law by the legislature for the benefit of any individual or private corporation or association could not be passed at all under any circumstances or conditions — that it was absolutely prohibited. If it is not absolutely prohibited in the present case, the act is void because it was not passed in accordance with section 89 of the Constitution, and cannot, therefore, come within the saving clause of that section. This section reads as follows:

"There shall be appointed in each house of the legislature a standing committee in local and private legislation; the house committee to consist of seven representatives, and the senate committee of five senators. No local or private bill shall be passed by either house until it shall have been referred to said committee thereof, and shall have been reported back with a recommendation in writing that it do pass, stating affirmatively the reasons therefor, and why the end to be accomplished should not be reached by a general law, or by a proceeding in court; or if the recommendation of the committee be that the bill do not pass, then it shall not pass the house to which it is so reported unless it be voted for by a majority of all the members elected thereto. If a bill is passed in conformity to the requirements hereof, other than such as are prohibited in the next section, the courts shall not, because of its local, special, or private nature, refuse to enforce it."

It will be noted from this section that the legislature must appoint a local and private committee in both the Senate and the House, and the number of each committee is prescribed by the Constitution. It is then provided that no local or private bill shall be passed by either house until it shall have been referred to the local or private committee of such house and reported back with recommendations in writing stating affirmatively the reason therefor and why the end to be accomplished could not be reached by a general law, or by a proceeding in court; or, if the recommendation of the committee be adverse, that it shall not pass unless it be voted for by a majority of all the members elected to said house. The wisdom of this provision is apparent, as there had been a great evil growing out of local and private legislation prior to 1890. It is well known that members of the legislature are prone to vote for these local and private bills, if the local member desires, regardless of their views on the merit of the question. The section designed to have the legislature informed as to why a local or special law was necessary and why a general law could not be passed, or why relief could not be obtained in court.

It was known that members of the legislature rely greatly upon the recommendations of the committee, and, as a general rule, stand by the committee's report. As a journal must be kept of the legislative proceedings by the terms of the Constitution, members of the local and private legislative committee would hesitate to recommend a bill devoid of merit, or which could be provided for by general law, where their report was to be published in the journals as a perpetual record. The concluding clause of the section provides that:

"If a bill is passed in conformity to the requirements hereof, other than such as are prohibited in the next section, the courts shall not, because of its local, special, or private nature, refuse to enforce it."

It follows as clearly as day follows night that if a bill is not passed in conformity with the requirements of this section that the court must refuse to sanction and enforce its validity. The doctrine of Hunt v. Wright, 70 Miss. 298, 11 So. 608, andEx parte Wren, 63 Miss. 512, 56 Am. Rep. 825, has no application to section 89 of the Constitution. They dealt with rule of procedure which the legislature had power to suspend under the heading of "Rules of Procedure" from section 54 to section 77 The fact that an act is local or special appears on the face of the act. Appearing so, is it to be treated as void if it violates the sections of the Constitution? That depends solely upon how it was passed. To save it, the court must find it was passed as required by section 89 of the Constitution. It is manifest that the language used in section 89 contemplated that a bill should be passed strictly in conformity to this section with the light before the legislature that the committee's report under the section would give, and the providing of the condition in the section that if the bill is passed in conformity to the requirements hereof, the court shall not refuse to enforce it by the plainest reasoning and agreeable to the rules of interpretation, carries the implication that it must be so passed to have validity. In State v. Henry, 87 Miss. 125, 40 So. 152, 5 L.R.A. (N.S.) 340, the court held that where the Constitution named one rule or provision, by implication it excluded those not named; and it would seem to me that it would be trifling with the plain language of the Constitution to hold that if the bill is a local law and not passed in conformity therewith the court should deal with it as being unconstitutional. The only restriction on the power of the court to so declare is the provision that if it passed in conformity with the requirements, the court shall not refuse to enforce it — otherwise the court's power is full and complete.

Chapter 216, Laws of 1914, was Senate Bill No. 481, Laws of 1914. This bill was introduced in the Senate and referred to the Judiciary Committee, Senate Journal, p. 836. It was reported "do pass" by the Judiciary Committee, p. 844, Senate Journal. It passed the Senate with twenty-seven yeas, receiving a majority of the votes of the Senate, and was then referred to the Judiciary Committee of the House by the speaker, House Journal, 1914, p. 1119, and reported by the Judiciary Committee "do pass" (page 1223). There was a minority report. The bill failed to pass when first voted upon by a vote of fifty-eight yeas (House Journal, pp. 224 and 225), but it finally passed the House with a vote of sixty-four yeas and thirty-eight nays, thirty-five being absent (House Journal, p. 1828); and consequently it did not receive a majority of the votes of the members elected to the House, and it was not referred to the committee provided for by the Constitution itself.

The Constitution is designed to secure the benefits of good, orderly, safe, and sane government, and every officer is charged by his oath to support and maintain it. The founders of the government and the framers of the Constitution purposely created a system of checks and balance between the offices of the government by dividing them into three departments, with the idea that each department would operate as a check upon the other. The court was given final power of decision upon the constitutionality of the acts of the legislature, and was given this power for the express purpose of protecting the people by seeing that the Constitution was observed and respected. The supreme court was intended by the framers of the Constitution to be a Gibraltar against which the winds of sentiment and the waves of passion would blow and beat in vain. It was supposed that this court, as stated by the lamented Justice CALHOUN, was "imperviously padded to all outside clamorous sound or sentiment." If the court would perform its duty and declare laws passed in violation of the Constitution void and refuse to enforce laws passed in disregard of its provisions, the evil of local, special, and private legislation would be speedily remedied.

In Toombs v. Sharkey (Miss.), 106 So. 273, it was said, in determining whether a law is general or local or special in violation of the Constitution of 1890, "its substance rather than its form will be considered." Applying this rule to this case, it is difficult to see why the act here is not special, as it not only violates sections 87 and 89 of the Constitution, but violates paragraph (d) of section 90; and if it does violate section 90, the prohibition on the legislature is absolute. The object of the provision (paragraph [d], section 90, of the Constitution) is to have the general laws of the state regulating the rate of interest on money uniform and equal throughout the state. In a recent magazine article, two distinguished authorities stated that the third greatest industry in the United States was only earning somewhat less than three per cent. per annum on its investments. If that be true, and I think it is, what reason can justify the charging of ten per cent., which is more than three times the rate of the average earning of the agricultural industry, the chief industry of this state?

For these reasons, I think the judgment should be reversed.