1. Business so nearly akin to banking as to be equally clothed
with a public interest may be brought under state supervision by
confinement to corporations. P. 373.
2. So
held of a business, conducted by a common law
trust, of soliciting and receiving loans in small monthly payments
under loan contracts which entitled the respective lenders, when
they had paid in a stated percentage, to borrow the face value of
their contracts in the order of their applications therefor on real
estate security, or, upon sale of this borrowing right, to receive
the amounts paid in on their contracts with a problematical
"bonus," or, by paying up contracts in full, to receive back their
face value with a share in a "surplus," with provisions as to
forfeiture, etc.
Id.
3. A law of New York forbidding any individual, partnership, or
unincorporated association to engage in the business of receiving
deposits or payments of money in installments, for cooperative,
mutual loan, savings, or investment purposes in sums of less than
$500 each
held not violative of the Equal Protection
Clause in not applying to the business of receiving larger deposits
in view of the greater protection needed by small investors and the
elements of chance, risk, and delay to investors existing in this
case. P.
264 U. S.
374.
4. A party as to whom a statute is not unduly discriminative
cannot contest its constitutionality upon the ground that it
discriminates unduly against others.
Id.
5. The operation of reasonable state laws for the protection of
the public cannot be headed off by making contracts reaching into
the future.
Id.
Reversed.
Page 264 U. S. 371
Cross-appeals from a decree of the district court in a suit
brought by Dillingham
et al., trustees, against New York
officials to enjoin them from enforcing a New York statute making
the continuance of the plaintiffs' business a misdemeanor. Laws,
N.Y. 1923, c. 895.
MR. JUSTICE HOLMES delivered the opinion of the Court.
The plaintiffs in this case are the president, vice-president,
and secretary and treasurer, who are also trustees, of the Mutual
Benefit League of North America, described in the bill as a common
law trust and sometimes denominated plaintiff. The defendants are
the Superintendent of Banks of the New York, the Attorney General,
and the District Attorneys of the same state. The suit is a
proceeding in equity brought to prevent the enforcement of an act
of the state legislature approved June 1, 1923, Laws of 1923, c.
895, which makes the continuance of the plaintiffs' business a
misdemeanor. The ground of the bill is that the statute impairs the
obligation of contracts, deprives the plaintiffs and those whom
they represent of their liberty and property without due process of
law, and denies them the equal protection of the law, contrary to §
10, Article I, and the Fourteenth Amendment of the Constitution of
the United States. The case was heard by three judges under § 266
of the Judicial Code, and an interlocutory injunction was issued
against prosecuting "this plaintiff" and enforcing the law as to
contracts actually entered into on or before June 25, 1923,
Page 264 U. S. 372
the date of the hearing, but, except to that extent, was denied.
both parties appeal.
The statute forbids any individual partnership or unincorporated
association to engage in the business of receiving deposits or
payments of money in installments for cooperative, mutual loan,
savings, or investment purposes in sums of less than five hundred
dollars each, or to conduct a business similar to the business of a
savings bank or a savings and loan association, or to promise to
make loans upon real estate security for building, etc., purposes
as an inducement for the payment of such sums. There are
amplifications to stop ratholes, but they need not be stated, as it
is not denied that the plaintiffs are within the act. The
plaintiffs' business consists in soliciting and receiving payments
under a complicated document which it is unlikely that the
applicant will understand. It is called a three percent loan
contract, and bears the large letters "Face Value $___." The
so-called face value is the amount ultimately to be paid by the
applicant, and is $100 or more. One percent of the amount is to be
paid by the applicant monthly. The contracts are placed in a series
which is closed at $140,000. The first four and one-half payments
are applied by the plaintiffs to the expenses of the business. The
subsequent receipts go into a fund appropriated to the series, as
do also interest on loans and lapses within the series. When that
fund is equal to the face value of a contract, the first applicant
in the order in time, if he has paid ten percent, may borrow the
face value of his contract at three percent on an approved first
mortgage of real estate, repaying at least seven dollars per
thousand every month, or he may permit the plaintiffs to sell his
right, and receive the amount that he has paid in, with a
problematical bonus that need not be described. If he prefers to
keep on and pay the full face value, the plaintiffs, 30 months
later, will repay it, without interest but with a share in
Page 264 U. S. 373
a surplus, if any, that we need not explain. Failure to pay five
installments forfeits the contract, but, after six payments, the
applicant may get a certificate for a considerably less sum than he
has paid, increasing, however, with the increase in the number of
the payments, and payable in one hundred months or less at the
option of the trustees. Further particulars are superfluous, but it
is obvious that the position and rights of the applicant are very
largely dependent upon chance, so so far as he is concerned. It is
true that his position in the series is certain, but it is
extremely improbable that he is told what it will be, as a man
would not be likely to come into a series if he knew that a large
number of people were entitled ahead of him to whatever advantages
the scheme offered. What a man does not know and cannot find out is
chance as to him, and is recognized as chance by the law.
Otherwise, insurance lost or not lost would not be a valid
contract.
That, however, is not the question here. The statute in
controversy is not aimed at gaming of any sort, but is a regulation
of a business so far akin to banking as to be at least equally
clothed with a public interest, and subject to regulation. A state
may confine banking to corporations.
Shallenberger v. First
State Bank of Holstein, 219 U. S. 114. We
see no reason why it may not confine the plaintiffs' business in
the same way. It is argued that the business is prohibited
altogether because the statute makes "any person" violating it a
criminal. It is said, truly enough, that a corporation is a person
in the sense of the New York laws. But a corporation could not
violate this law because its commands are addressed only to
individuals, partnerships, and unincorporated associations. So far
as this section is concerned, it does not prevent the plaintiffs
from going on with their business if they will subject themselves
to the supervision incident to the corporate form.
Page 264 U. S. 374
The distinction between the businesses of receiving small
deposits and those above five hundred dollars is legitimate. The
small sums generally come from people without much knowledge of
such affairs. Whatever may be one's own opinion about the wisdom of
trying to save the ignorant and rash from folly, it is a recognized
power that is used in many ways. We have adverted to the element of
chance in this very undertaking because it is one not likely to be
realized by an applicant. This and the long delay and loss that may
ensue upon any particular deposit would be sufficient warrant for
the state's effort at least to bring such business under
supervision and control, if not to prevent it altogether. It is
said that the statute, as drawn, extends to cases with which it
would be irrational to interfere. The judges below were careful to
exclude such a construction, but, at all events, it is no concern
of the plaintiffs. The statute, so far as it applies to them, must
be upheld.
Engel v. O'Malley, 219 U.
S. 128.
We do not agree with the Court below as to present contracts.
The operation of reasonable laws for the protection of the public
cannot be headed off by making contracts reaching into the future.
Manigault v. Springs, 199 U. S. 473,
199 U. S. 480;
Louisville & Nashville R. Co. v. Mottley, 219 U.
S. 467,
219 U. S. 482;
Atlantic Coast Line R. Co. v. Goldsboro, 232 U.
S. 548,
232 U. S. 558;
Denver & Rio Grande R. Co. v. Denver, 250 U.
S. 241,
250 U. S. 244.
We are of opinion that the injunction should have been denied
altogether. If there are objections to the law under the state
constitution that we do not perceive, they will be open to the
present plaintiffs when proceedings are instituted in the state
Courts.
Decree reversed.
Preliminary injunction denied.