Fixing maximum rates of interest on money loaned within the
state by persons subject to its jurisdiction is clearly within the
police power of the state, and the details are within legislative
discretion if not unreasonably and arbitrarily exercised.
Classification, on a reasonable basis of subjects, within the
police power,
Page 218 U. S. 564
is within legislative discretion and a reasonable selection
which is not merely arbitrary and without real difference does not
deny equal protection of the laws within the meaning of the
Fourteenth Amendment.
The statute of Connecticut of 1907, limiting interest on loans
is not unconstitutional as denying equal protection of the laws
because it excepts loans made by national and state banks and trust
companies and
bona fide mortgages on real and personal
property: the classification is a reasonable one.
The contract clause of the federal Constitution does not give
validity to contracts that are properly prohibited by statute.
If the validity of the particular subject of classification
assailed has not been so foreclosed by prior decisions as to render
discussion frivolous, the motion to dismiss will be denied, but if,
as in this case, it is manifest that the contention is, in view of
prior decisions, without merit, the motion to affirm will
prevail.
83 Conn. 1 affirmed.
Upon a prosecution originating in the Police Court of the City
of Hartford, in Hartford County, Connecticut, the plaintiff in
error was tried and convicted in the superior court of the county
upon an information alleging, in six counts, the commission of
offenses against chapter 238 of the Public Acts of Connecticut of
1907. The offenses charged were the exacting on certain loans of
money a rate of interest greater than fifteen percent per annum,
contrary to the provisions of the first section of the act, and in
accepting notes for an amount greater than that actually loaned
with intent to evade the provisions of said first section, contrary
to the provisions of the second section of the act. During the
course of the trial, the accused, in various forms, assailed the
validity of the statute referred to because of repugnancy to the
contract clause of the Constitution of the United States and to the
equal protection clause of the Fourteenth Amendment. From a
judgment imposing a fine as to the conviction upon each count, an
appeal was taken to the Supreme Court of Errors. The judgment of
the superior court was affirmed (83 Conn. 1), and the case was then
brought here.
Page 218 U. S. 565
Since the filing of the record of the State of Connecticut has
moved that the writ of error be dismissed, or, in the alternative,
that the judgment be affirmed.
Page 218 U. S. 567
MR. JUSTICE WHITE, after making the foregoing statement,
delivered the opinion of the Court.
The motion to dismiss or affirm is in effect based upon the
claim that the assignments of error present no substantial federal
question. As the contentions urged required for their elucidation a
consideration of the provisions of the statute charged to have been
violated, we excerpt the first and second sections of the act. They
are as follows:
"SEC. 1. No person, firm, or corporation, or any agent thereof,
other than a national bank or a bank or trust company duly
incorporated under the laws of this state, or a pawnbroker, as
provided in chapter 235 of the Public Acts
Page 218 U. S. 568
of 1905, shall, directly or indirectly, loan money to any
person, and directly or indirectly charge, demand, accept, or make
an agreement to receive therefor interest at a greater rate than
fifteen percentum per annum. The provisions of this section shall
not apply to loans made to any national bank, or any bank or trust
company duly incorporated under the laws of this state, or to any
bona fide mortgage of real or personal property."
"SEC. 2. No person, firm, or corporation, with intent to evade
section one hereof, shall accept a note for a greater amount than
that actually loaned."
The claim that the statute operates to deny the equal protection
of the laws is based upon the provision exempting from the
operation of the terms of § 1 "any national bank, or any bank or
trust company duly incorporated under the laws of this state," and
"any
bona fide mortgage of real or personal property." The
contentions elaborated in the assignments of error find succinct
expression in the following proposition set out in the brief filed
in opposition to the motion to dismiss:
"It is claimed by the plaintiff in error that the statute in
question is an arbitrary, unjust, and unreasonable selection,
favoring a class; is detrimental to the public, stifles
competition, and that no good reason exists for the granting of the
privilege of loaning money at any rate of interest without taking a
mortgage on real or personal property to the favored class, to the
exclusion of all others."
"
* * * *"
"It is not a police regulation; there is no care imposed or
restriction in the loan of money by the favored few -- simply an
arbitrary, unreasonable limitation upon all except those privileged
under the statute."
"
* * * *"
"The regulation of interest charges is undoubtedly the proper
subject of state legislation, but, in the first place, this statute
is not a regulation of interest charges. It is
Page 218 U. S. 569
in effect a special statute permitting only certain favored
individuals or corporations to do an act or conduct a
business."
"
* * * *"
"There is 'no fair reason for the law that would not require
with equal force its extension to others it leaves untouched.'"
It is elementary that the subject of the maximum amount to be
charged by persons or corporations subject to the jurisdiction of a
state for the use of money loaned within the jurisdiction of the
state is one within the police power of such state. The power to
regulate existing, the details of the legislation and the
exceptions proper to be made rest primarily within the discretion
of the state legislature, and
"unless such regulations are so unreasonable and extravagant as
to interfere with property and personal rights of citizens
unnecessarily and arbitrarily, they are within the power of the
state, and that the classification of the subjects of such
legislation, so long as such classification has a reasonable basis,
and is not merely arbitrary selection without real difference
between the subjects included and those omitted from the law, does
not deny to the citizen the equal protection of the laws."
Watson v. Maryland, ante, p.
218 U. S. 173, and
cases cited. In the case at bar, the Supreme Court of Errors ruled
that the statute was not repugnant to the Fourteenth Amendment,
following a prior ruling to that effect made in
State v.
Hurlburt, 82 Conn. 232.
In the
Hurlburt case, discussing contentions similar to
those here urged against the validity of the Connecticut statute of
1907, based upon the exemption clause in question, the court
said:
"The exception from its operation of loans by national banks was
merely a recognition of the legal effect, in excluding state
legislation on the same subject, of the statutes of the United
States which regulate their right to
Page 218 U. S. 570
make such contracts. The further exception in favor of loans by
trust companies chartered by this state was fully justified by the
peculiar character of these institutions, each created by a special
act of legislation, and subject to the inspection of the bank
commissioners. Gen.Stat. 1902, ch. 199, 202. There was also
reasonable cause for the exception as to pawnbrokers. Their
business can only be carried on by those found by public authority
to be suitable persons to engage in it, and its character is such
as to make it not improper to allow a charge of interest beyond the
limit of 15 percent a year. Pub. Acts 1905, c. 235, p. 438. There
was also sufficient reason for restricting the statute so that it
should not apply to loans made to any bank or to any trust company
chartered by this state. Such institutions, managed by those
accustomed to financial operations and familiar with the worth of
money in the market from day to day, might well be deemed to
require no statutory protection against being forced by their
financial necessities to pay excessive interest for moneys
borrowed. Nor is the act invalidated by the exception of
mortgages."
"Publicity is one of the best safeguards against the making of
unconscionable contracts. Under our recording system, it is rare
that any
bona fide mortgage, either of real or personal
property, fails to be promptly spread upon the records of the town
in which is situated the property which is its subject. So far as
concerned chattel mortgages also, our General Statutes of 1902 (§§
4132, 4134) had already made other and reasonable provision as to
the rate of interest which might be charged, or which, in case of
foreclosure, could be allowed. The general assembly, in respect to
the matter of usury, had the right to deal with different classes
of money lenders or money borrowers in a different way, provided
there were nothing apparently unreasonable in creating such
distinctions and all the members of each class were treated
Page 218 U. S. 571
in the same manner.
Heath & Milligan Co. v. Worst,
207 U. S.
338,
207 U. S. 354;
Home
Telephone Co. v. Los Angeles, 211 U. S.
265,
211 U. S. 281. The enactment
of the statute now in question fell within this right.
Norwich
Gas & Electric Co. v. Norwich, 76 Conn. 565, 573."
In the argument on behalf of the plaintiff in error, no attempt
is made to meet the force of the foregoing statements of the court
below; and, clearly, in the light of such declarations, it is
impossible to conclude otherwise than that the classification
complained of has a reasonable basis, and that the exemption of
national banks, etc., was not a mere arbitrary selection.
In the argument for plaintiff in error, no reference is made to
the claim urged below of the protection of the contract clause of
the Constitution. The claim appears to have had reference to a
provision contained in § 5 of the Act of 1907, forbidding the
enforcement of contracts made in violation of the act, thereby
operating to deny validity to such contracts when made by those not
within the exempted classes. There was power to enact the provision
(
Missouri, Kansas &c. Trust Co. v. Krumseig,
172 U. S. 351,
172 U. S.
358-359), and, as said by the court below, the contract
clause of the Constitution of the United States "does not give
validity to contracts which are properly prohibited by
statute."
The Supreme Court of Errors of Connecticut did not err in its
judgment of affirmance. As, however, the particular classification
here assailed has not been the subject of express consideration in
any prior decision of this Court, and hence the power to make it
cannot be said to have been so explicitly foreclosed as to cause
contention on the subject to be obviously frivolous, the motion to
dismiss cannot prevail.
Louisville & N. R. Co. v. Melton,
ante, p.
218 U. S. 36. It
is, however, manifest from the analysis which has been made of
prior decisions, that applying the principles settled by the cases
which have
Page 218 U. S. 572
gone before, the contentions now advanced against the
correctness of the judgment are so wholly without merit as not to
require further argument. The motion to affirm must therefore
prevail.
Affirmed.