Helbush v. Mitchell

  This is an action upon an installment promissory note. One of
the defenses was usury. Trial was had, jury waived. Judgment was
for plaintiff and defendants appealed. The only assignment of
error meriting consideration is that the note is usurious.
  The note in question is dated May 18, 1935; the principal
amount is $2350 and is payable in forty equal installments of
$58.75 on the 15th and 30th day of each month following the date
of the note. The note contains no provisions for interest except
interest after maturity and contains the usual acceleration
clause. It is undisputed that the sole consideration for the note
was a loan of $1880 and that the excess in the principal amount
of the note over the amount actually borrowed represents
interest. The inclusion of this interest in the principal of the
note accounts for the installments being $58.75, $47 of which is
attributable to principal and the balance to interest. It is also
undisputed that all installments required to be paid to and
including October 30, 1935, had been paid with the exception of
the installment due October 15 of that year. For failure to pay
the installment due October 15, 1935,

the holder of the note invoked the acceleration clause of the
note and on November 5, 1935, brought suit for all unpaid
installments.
  The appellants contend that under the term of the note in
question the parties thereto contracted for a greater rate of
interest than one per cent per month; that the contract is
therefore within the prohibition against usury contained in
section 7053, R.L. 1935, and hence the aggregate of the
installments paid should be applied upon principal in which event
at the time the action was filed all installments of principal
due prior to that time will have been fully paid and the action
premature. On the other hand the appellee insists that section
7053, supra, does not apply to moneylenders; that at the time
of the execution of the note moneylenders, under the provisions
of section 7064, R.L. 1935, were entitled to deduct interest in
advance at the rate of one per cent per month or less and in
addition to receive and require uniform weekly or monthly
installments; that, under the statutory power to deduct interest
in advance, interest computed in advance may be included in an
indebtedness; that the powers to deduct interest in advance and
to receive and require uniform weekly or monthly installments
were cumulative; in short that moneylenders at the time of the
execution of the note were authorized, under the provisions of
section 7064, supra, to "deduct" interest "in advance" up to
the maximum rate of one per cent per month upon the entire sum
borrowed for the entire period of the loan irrespective of
whether the contract required payment of uniform weekly or
monthly installments on account of principal.
  That portion of section 7064, supra, under which the appellee
justifies the transaction in controversy is quoted in the
margin.1 It was section 4 of Act 154 of the Session

Laws of 1933 entitled "An Act to license and regulate the
business of making loans and to provide exemption and punishment
for the violation of this Act." The Act was apparently designed
to control and regulate the business of moneylending upon
personal security or otherwise. It prohibited all persons,
natural and artificial, with certain exceptions with which we are
not concerned, from engaging in the business of moneylending
without a license thereto issued by the treasurer of the
Territory of Hawaii; defined the powers and duties of
moneylenders; imposed administrative conditions for the
protection of the borrower and the information of the government;
committed to the territorial bank examiner a supervisory control
and made violations or failure to comply with any of the
provisions of the Act a misdemeanor punishable by fine or
imprisonment or both. It has since been repealed. (L. 1937, Act
231, § 2, ser. D-140.)
  It is conceded that the payee of the note in question at the
time of its execution was a moneylender duly licensed as such
under the provisions of the Act. If the powers conferred upon
licensees under the provisions of the Act permitted the
imposition of the interest exacted in the instant case, the
exception considered must be overruled even though the interest
imposed exceeded the maximum lawful interest that might be
charged under the provisions of section 7053, supra. If,
however, the provisions of the moneylenders' Act are not
applicable to the facts in the instant case, then the rights of
the parties must be determined accordingly as the interest
exacted is in excess of or within the maximum lawful rate
prescribed by section 7053, supra.
  How interest was computed in this case is difficult to
determine. The sum of $470, the amount of interest charged, is
interest at the rate of one per cent per month

for twenty months on $2350, the full amount of the note. But
interest could only be legally computed on the amount of the
loan. The time intervening between the date of the note and the
date of the last installment was one year, seven months and
twenty-eight days. Interest at the rate of one per cent per month
for that period on $1880, the full amount borrowed, is $374.18.
And assuming arguendo appellee's construction of section 7064,
supra, to be correct, the interest exacted was in excess of the
maximum amount permitted to be "deducted in advance" by
moneylenders under the provisions of that section.
  Statutory licensees possess only such powers as are expressly
conferred or necessarily implied. The only powers expressly
granted licensees are those enumerated in section 4 of the Act.
The power to charge interest is not expressly granted licensees.
Nowhere in the moneylenders' Act is any reference made to the
subject of interest except in section 2 in respect to
applications for licensees and in section 4, as quoted, in
connection with the deduction of interest in advance. The power
to loan money however necessarily includes the implied power of
charging interest therefor. Nor does the Act contain any
limitation upon the rate of interest that may be charged except
where interest is deducted in advance in which event under the
provisions of section 4 interest may be deducted at the rate of
one per cent per month or less. Obviously interest was not
deducted in advance in the instant case. On the contrary the
interest was computed in advance and added to the amount of the
loan, the aggregate forming the principal amount of the note. The
Act contains no provision limiting the rate of interest that may
be imposed except where interest is deducted in advance. It
necessarily follows that in the absence of any provision in the
moneylenders' Act applicable to the facts of this case limiting
the rate of interest that might have been charged by the
licensee, the rights of

the parties must be determined by the provisions of section 7053,
supra, except as the provisions of that section may have been
impliedly amended by the power granted moneylenders under section
4 to "receive and require uniform weekly or monthly
installments."
  We unhesitatingly concede to the legislature the power to
permit a rate of interest in excess of the maximum lawful rate
where small short-term loans are involved. But not alone does the
Act fail to limit the rate of interest that may be imposed but it
also fails to limit the amount or duration of loans. Had the
legislature by whatever language employed indicated an intention
that licensees under the moneylenders' Act might exact interest
upon loans at a rate in excess of the maximum rate fixed by
section 7053, supra, it would be our plain duty to give such
intention effect, provided, of course, enforcement of such
intention did not violate some substantive rule of law. But in
our opinion the language employed in section 4 of the Act does
not manifest such intention.
  In this jurisdiction it has been repeatedly held that in the
computation of contractual interest payments made by the debtor
on account of an existing indebtedness, in the absence of
language to the contrary, must be applied first to the
satisfaction of interest due and if, after the payment of
interest there is a surplus remaining, then such surplus should
be applied to principal and the interest thereafter be computed
upon the remaining balance of principal. (Nawahi v. Trust
Co., 30 Haw. 359, 31 Haw. 958.)
  The rule obviously would be the same where the requirement of
uniform periodic installments was the result of contract. And the
general rule is that where a contract requires the payment of an
indebtedness with interest in equal periodic installments each
installment, in the absence of language to the contrary, is
applicable, first to the satisfaction of all interest due and if
a surplus exists after such

application such surplus is then applicable to principal and the
interest for the succeeding period is computable upon the balance
of principal remaining after the application of the preceding
installment. (Galveston  H. Inv. Co. v. Grymes, 50 S.W.
[Tex. Civ. App.] 467, 468, 469.)
  The moneylenders' Act is silent upon the method of computation
of interest. In the absence of language to the contrary it must
be assumed that the legislature intended that in the computation
of interest the usual and ordinarily accepted methods of
computation would be applied consistently with the general rule
that interest may only be computed "upon the actual amount due
for the actual period during which interest should run." 33 C.J.,
T. Interest, § 165, p. 249.
  Interest at the rate of one per cent per month upon the actual
amount borrowed would be legally computed as follows: On May 30,
1935, the due date of the first installment, there would be due
the lender on account of principal the sum of $47, the
one-fortieth part of the principal borrowed plus the sum of
$7.2774+, being interest at the rate of one per cent per month
from the date of the note to the date of the first installment;
on June 15, 1935, there would again be due on account of
principal the sum of $47, the one-fortieth part of the principal
borrowed, plus the sum of $9.4606+, being interest at one per
cent per month upon the remaining balance of principal from the
due date of the first installment to the due date of the second
installment. But, whereas upon the due date of the first
installment interest was computed upon the sum of $1880, the full
amount borrowed, interest in this instance is computed on the sum
of $1833, the remaining balance of principal to which amount the
same had been reduced by the payment of the first installment; on
June 30, 1935, the due date of the third installment, there would
again be due on account of principal the sum of $47, the
one-fortieth

part of the original amount borrowed, plus the sum of $8.93+,
being interest at the rate of one per cent per month on the sum
of $1786, the remaining balance of principal to which amount the
same had been reduced by the payment of the first and second
installments and so on to the last and concluding installment of
$47 plus the sum of 24¢+, being interest at the rate of one per
cent per month on the sum of $47, the remaining balance of
principal to which amount the same shall have been reduced by the
payment of the preceding thirty-nine installments.
  Powers conferred upon licensees either expressly or by
implication and the methods of their exercise should not be
confused. The phrase "in addition" preceding the last power of
the powers expressly enumerated in section 4 of the Act has in
our opinion no broader significance than the mere conjunction
"and." To construe the phrase otherwise would be to disregard its
ordinarily accepted meaning and attribute to its use the
implication that the power might only be exercised in the event
of the deduction of interest in advance. Nor from the existence
of the plurality of powers whether express or implied does it
necessarily follow that the donee thereof may exercise the same
indiscriminately without regard to the legal effect that the
exercise of one power may have upon the exercise of another
power. The presence of the additional power of receiving and
requiring uniform installments is certainly not sufficient in
itself to justify the conclusion that the legislature intended
that both the implied power to charge interest and the express
power to receive and require uniform weekly or monthly
installments might be exercised jointly irrespective of the legal
effect of the exercise of the latter upon the former. It is more
reasonable to assume that the legislature intended that all
powers whether express or implied should be exercised
consistently and with due regard to their legal effect.
 
  Research discloses that section 4 of the moneylenders' Act was
adopted from section 1 of chapter 479 of the Laws of 1921 of the
State of California entitled "An act to amend section four of an
act entitled ``An act defining industrial loan companies,
providing for their incorporation, powers and supervision,'
approved May 18, 1917," quoted in the margin.2 Appellee in
his supplementary brief calls to our attention article 1313 3/4
c, page 265 of the Complete Texas Statutes (1920), which also
contains similar language as that adopted in paragraph 1 of
section 4 of the moneylenders' Act. Both the California and Texas
statutes were in existence in 1933 and hence either may have been
resorted to by the draftsman of Act 154. It is immaterial which.
The language adopted by paragraph 1 of section 4 of Act 154 is
the same in both the California and Texas statutes and the
remainder of the sections of both statutes from which the adopted
language was taken is substantially the same. The other sections
of the local Act were apparently taken from the Uniform Small
Loan Act advocated by the Russell Sage Foundation. But whereas
the California statute and the Texas statute expressly provide

that the required installments may be "with or without an
allowance of interest on such installments" the local Act is
silent on the subject. In the absence of this qualifying clause
it is reasonable to conclude that the legislature intended that
differently from the California Act or from the Texas Act the
ordinary rules governing the computation of interest in the case
of installment contracts obtaining locally should apply. It is a
generally accepted rule of statutory construction that where the
legislative body adopts a law of another State all changes in
words and phraseology will be presumed to have been made
deliberately and with a purpose to limit, qualify or enlarge the
adopted law to the extent that the changes in words and phrases
imply. (2 Lewis' Sutherland Stat. Const. [2d ed.], § 404;
Howells Mining Company v. Grey, Chief Mine Inspector,
148 Ala. 535, 42 So. 448; Kirman v. Powning, 25 Nev. 378,
60 P. 834, 61 P. 1090; Stutsman County v. Wallace, 142 U.S. 293;
Whittlesey v. Seattle, 94 Wash. 645, 163 P. 193; Lawyers'
Rep. Ann. [1917D] 1084, 1085; In re Eaton's Estate, 170 Wash. 280,
16 Pac. [2d] 433, 434.) Moreover where portions of the
statute adopted are omitted the difference in phraseology between
the statute adopted and the local statute as ultimately enacted,
may have special interpretative significance. (United States F.
 G. Co. v. New York Rys. Co., 156 N.Y.S. 615, 619; Hale v.
Tyson, 202 Ala. 107, 79 So. 499, 504; State v. Mandeville,
88 N.J.L. 418, 98 A. 398, 399; Chicago Corp. v. Munds,
20 Del. Ch. 142, 172 A. 452.) Where, as here, the legislative body
adopts isolated portions of the statute of another State to the
exclusion of other provisions upon the same subject matter,
included in the same section from which the language adopted was
taken, the statute as ultimately enacted must be given effect
accordingly as such exclusions were intended to limit, qualify or
enlarge the portions adopted. By the exclusion of the provisions
of the

statute adopted containing the words "with or without an
allowance of interest on such installments" and their omission
from the provisions of paragraph 1 of section 7064, supra,
there was clearly manifested the legislative intention that the
power to "receive and require uniform weekly or monthly
installments" be qualified by the existing law of Hawaii
applicable to installment payments on account of principal.
  In the absence of legal justification of the interest deducted
charged in the instant case under any provision of law applicable
to moneylenders, the transaction must be judged by the law
obtaining at the time of the execution of the note in respect to
interest generally. Section 7053, supra, provided that "if a
greater rate of interest than one per centum per month shall be
contracted for, the contract shall not, by reason thereof, be
void. But if in any action on such contract proof be made that a
greater rate of interest than one per centum per month has been
directly or indirectly contracted for, the plaintiff shall only
recover the principal and the defendant shall recover costs."
Obviously all that has been said as to the method of computation
of interest under section 7064, supra, in the case of
installment contracts applies with equal force to the computation
of interest under the provisions of section 7053, supra. So
computed, at the maximum lawful rate, the aggregate interest to
which the lender was legally entitled by law was $189.39. The
interest charged exceeded that amount by $280.61.
  Where, as here, the principal amount of an installment note
includes both the amount of the loan for which the note is given
as security and interest thereon and the total amount to be paid
under its terms by the makers in the event of performance is in
excess of the principal received plus interest at the maximum
lawful rate for the term thereof, such note is, under the
provisions of section 7053,

supra, infected with usury. (Union Savings Bank v.
Dottenheim, 107 Ga. 606, 615, 34 S.E. 217; Alston v.
Greene, 43 S.W. [2d] [Tex. Civ. App.] 478.)
  It necessarily follows that the note in question, so far as it
relates to any interest either in the principal amount thereof or
in the amount of installments required, is unenforceable under
the provisions of section 7053, supra. Moreover the principal
and interest involved in the principal amount of the note and in
the respective installments being separable, all payments made on
account of the note should be applied on account of principal.
(Schnack v. Hare, 11 Haw. 747.) When so applied, on November
5, 1935, and at the time the within action was instituted, there
were no installments of principal due, the acceleration of the
due dates of the respective unpaid installments payable
thereafter was unlawful and the action premature.
  Consistent with the foregoing opinion, appellants' exception to
the decision of the trial judge upon the ground that the same was
contrary to law is sustained. Otherwise the record is free from
error. The cause is accordingly remanded with instruction to
dismiss the complaint.
1 "Sec. 7064. * * * Every person, co-partnership or
corporation licensed under the provisions of this chapter shall
have power:
  "1. To loan money on personal security, or otherwise, and to
deduct interest therefor in advance at the rate of one per centum
per month, or less and, in addition, may receive and require
uniform weekly or monthly instalments."
2 "Sec. 4. Every corporation under the provision of this act
shall have power:
  "First — To loan money on personal security, or otherwise,
and to deduct interest therefor in advance at the rate of six per
cent per annum, or less, and, in addition, to receive and to
require uniform weekly or monthly installments on its
certificates of investment, purchased by the borrower
simultaneously with the said loan transaction or otherwise, and
pledged with the corporation as security for the said loan, with
or without an allowance of interest on such installments.
  "Second — To sell or negotiate choses in action for the
payment of money at any time, either fixed or uncertain, and to
receive payments therefor in installments or otherwise, with or
without an allowance of interest upon such installments. Nothing
herein contained shall be construed to authorize corporations
hereunder to receive deposits or to issue certificates of
deposit. The issuance of choses in action herein authorized shall
be approved as to form by the commissioner of corporations and
shall bear the endorsement on the face of the instrument ``This is
not a certificate of deposit.'"