Opinion
No. 44133.
January 30, 1967.
Suit to recover balance due on note under Small Loan Regulatory Act. The County Court, Jackson County, Darwin M. Maples, J., returned verdict in favor of defendants and plaintiff appealed. The Supreme Court, Rodgers, J., held that fact that on note form signed by borrowers there was printed acknowledgment of borrowers that they had received written statement showing amount and date of loan did not estop borrowers from pleading and proving that lender had not delivered to them the required written statement and that where lender offered no proof to show due care after borrowers had proven that they had not received the required statement, borrowers were entitled to directed verdict.
Affirmed.
Ethridge, C.J., Gillespie, P.J., and Brady, J., dissented.
Jones, J., dissented in part.
William B. Dorsey, Pascagoula, for appellant.
Sidney F. Beck, Jr., Pascagoula, for appellees.
This is a suit to recover the balance due on a note under the Mississippi "Small Loan Regulatory Act", Mississippi Code Annotated section 5591-09 (Supplement 1964). The defendants claimed the lender failed to comply with the terms of Mississippi Code Annotated section 5591-14 (Supplement 1964). When the case was tried in the County Court of Jackson County, Mississippi, the jury returned a verdict in favor of defendants, appellees here. The plaintiff, Consumers Credit Corporation of Mississippi, appealed to the circuit court where the judgment of the county court was affirmed. We affirm the judgment of the circuit court.
The record reveals that Emmitt J. Stanford wanted to purchase a certain type truck which was made especially for the vending of ice cream and "snowballs." This type of truck was manufactured in New York City. He found it necessary to borrow $2,500 to make the purchase. He contacted Mr. T.A. Parsons who was engaged in the business of brokering loans under the name "Surf Finance Company" of Pascagoula, Mississippi. Mr. Stanford went back to the finance office that afternoon, in company with Mrs. Stanford, and they signed two notes. Mr. Stanford testified that the notes were blank at the time they signed them. He said: "There wasn't anything on it when I signed it." He also testified that about a week later he informed Mr. Parsons by telephone the number of the truck and he wired him the money to pay for it. He said: "I signed the papers but they said it had to be processed and I would get my money later. I had to go up there and get all of the numbers and everything before I would get the money, so that is why they wired the money. I didn't pick up anything then." He testified that they did not receive any papers or statements stating the amount they had borrowed and what the charges were. He also testified that they made several payments on the notes but received no receipts therefor.
The appellant, Consumers Credit Corporation of Mississippi, contends on appeal to this Court that the trial court committed reversible error in failing to grant a directed verdict in its favor; in failing to grant a new trial; in granting certain instructions for the appellees; and in overruling appellant's objection to the introduction of a contract with the loan broker. Appellant further contends that the verdict of the jury was contrary to law because the appellees were estopped to assert their own wrongful acts in leading appellant to believe that all instruments had been filled out at the time of delivery.
The pertinent parts of the Small Loan Regulatory Act are as follows:
"This act is hereby declared to be a public necessity and is remedial in purpose and the same shall be liberally construed to effectuate the purposes thereof and shall be known as the `Small Loan Regulatory Act' of this state." Miss. Code Ann. § 5591-01 (Supp. 1964).
"The following words and phrases, when used in this act, shall, for the purposes of this act, have the meanings respectively ascribed to them in this section, except where the context clearly describes and indicates a different meaning:
* * * * * *
"(2) The term `licensee' shall mean and include every person holding a valid license issued under the provisions of the Small Loan Privilege Tax Act [§§ 5591-31 et seq.] of this state, except those specifically exempt by the provisions of this act, who, in addition to any other rights and powers he or it might otherwise possess, shall engage in the business of:
* * * * * *
"(b) Lending money either directly or indirectly, to be paid back in monthly installments or other regular installments for periods of more or less than one month, and whether or not the lender requires security from the borrower as indemnity for the repayment of the loan;"
* * * * * *
Miss. Code Ann. § 5591-02 (Supp. 1964).
"(a) Requirements for making and payment of loans. Every licensee shall:
"1. At the time any loan is made, delivered to the borrower, or if there are two or more borrowers to one of them, a statement in the English language, on which shall be printed a copy of section 9 [§ 5591-09] of this act, disclosing (a) the date of the loan, (b) the amount of the loan, (c) the schedule of payments or a description thereof, (d) the type of the security, if any, for the loan, (e) the name and address of the licensed office and of each person primarily obligated on the note, and (f) the agreed rate of charge.
"2. For each payment made on account of any such loan, give to the person making it at the time the payment is made a receipt specifying in plain, clear and simple terms the amount of the payment.
"3. Permit payment to be made in advance in any amount on any contract of loan at any time, but the licensee may apply such payment first to all charges in full at the agreed rate.
"4. Upon repayment of the loan in full, release any mortgage and restore any pledge unless such mortgage or pledge continues to secure an obligation to the licensee, and cancel and return any note and any assignment given to the licensee for the loan which is repaid.
"(b) Confession of judgment; incomplete instruments. No licensee shall (1) take any confession of judgment or any power of attorney running to himself or to any third person to confess judgment or to appear for the borrower in a judicial proceeding; nor (2) take any note, promise to pay, or instrument of security that does not disclose the amount of the loan before the addition of precomputed charges, a schedule of payments or a description thereof, the agreed rate of charge, nor any instrument in which blanks are left to be filled in after the loan is made.
"(c) Penalty. Any contract of loan in the making or collection of which any provision of this section shall have been violated either knowingly or without the exercise of due care to prevent the same, shall be void and the licensee shall have no right to collect or receive any principal, charges, or recompense whatsoever." Miss. Code Ann. § 5591-14 (Supp. 1964). (Emphasis supplied.)
The appellant points out that the words "due care" in the last sentence above-mentioned mean reasonable and ordinary care, or that degree of care which, under the same or similar circumstances, would ordinarily or usually be expected by or from an ordinarily prudent person. It is contended that this means, in effect, that a lender who substantially complies with the requirements of the Mississippi Small Loan Regulatory Act is relieved of the statutory penalty. The appellant argues that the broker was the agent of the borrower-appellees, and that the lender had no control over the broker or the borrowers, and had no notice that the note was not properly filled out. It contends that the broker acted for the borrower-appellees in filling in the blanks left in the note. Moreover, there was an acknowledgment written on the bottom of the note, whereby the borrowers acknowledged that they had received a full statement of their loan. The following words were written just above the signatures of the makers of the note: "The borrower acknowledges receipt of a statement of the loan in English as required by Section 14(a) of Mississippi Small Loan Regulatory Act." Thus, it is contended that the appellant used "due care" and that the appellees, Mr. and Mrs. Stanford, are "estopped from asserting (an) incomplete instrument."
The Mississippi Small Loan Regulatory Act is similar to a great many state statutes regulating the small loan business. Most of these acts require statements showing the amount and date of the loan, time of maturity, nature of the security, rate of interest, and usually the statute requires the lender to give the borrower plain and complete receipts for all payments made. 58 C.J.S. Money Lenders § 5 (1948).
The many statutes as well as cases reported on the subjects of pawnbrokers and small loan businesses underscore the fact that there is an unending effort on the part of the government to control the age-old abuse of a certain class of moneylenders in exacting exorbitant and oppressive interest rates from persons in necessitous circumstances. These people, as a rule, are unable to borrow in the regular channels of finance. It has been generally recognized by the judiciary that the legislative branch of government has a duty under its police power as a matter of public policy (Annot. 125 A.L.R. 744 — 1940) to protect poor people from the evils of usury. 40 Am.Jur. Pawnbrokers, §§ 8, 9, 10, 11 (1942).
The very nature of the business, whereby certain moneylenders are permitted to charge exorbitant interest, requires that they be held accountable for the violation of the regulations permitting them to enter into "improvident contracts". Early v. Williams, 239 Miss. 320, 123 So.2d 446 (1960). Ordinarily the statutes of various states declare that the violation of the regulations in the statute renders the contract void, (40 Am.Jur. Pawnbrokers, § 14 — 1942), and many statutes subject the lender to criminal prosecution. 58 C.J.S. Money Lenders § 10 — (1948).
It has been generally held that where the Small Loan Regulatory Act provides that the violation of the Act is a misdemeanor, or where such violation renders the loan void, the failure to furnish the borrower the required loan statement invalidates the loan.
Personal Fin. Co. of New York v. Lyons, 128 Conn. 254, 21 A.2d 652 (1941); New Italian Co-op. Co. v. Magliocco, 127 Conn. 521, 18 A.2d 368 (1941); Atta v. Bergin, 120 Conn. 152, 180 A. 298 (1935); Nicotera Loan Corp. v. Gallagher, 115 Conn. 102, 160 A. 426 (1932); Rothchild v. Citizens Loan Co., 102 Ind. App. 397, 2 N.E.2d 810 (1936); Wells v. Indianapolis Co., 88 Ind. App. 231, 161 N.E. 687 (1928); Industrial Loan Co. of Monroe v. Noe, 183 So. 175 (La. App. 1938); Morris Plan Corp. of New Jersey v. Leschinsky, 12 N.J. Misc. 1, 169 A. 357 (1933), 113 N.J.L. 414, 174 A. 729 (1934); Morris Plan Corp. of New Jersey v. Schwartz, 8 N.J. Misc. 417, 150 A. 390 (1930); Consolidated Plan of New Jersey v. Shanholtz, 7 N.J. Misc. 876, 147 A. 401 (1929); Randisi v. Household Fin. Corp., 269 App. Div. 975, 58 N.Y.S.2d 406 (1945); Rimpotti v. Household Fin. Corp., 179 Misc. 544, 40 N.Y.S.2d 171 (1943); Rosenblum v. Family Fin. Corp., 179 Misc. 1050, 39 N.Y.S.2d 230 (1942); Family Fin. Corp. v. McNeilage, 178 Misc. 263, 33 N.Y.S.2d 547 (1942); Family Fin. Corp. v. Miick, 176 Misc. 753, 28 N.Y.S.2d 830 (1941); 58 C.J.S. Money Lenders § 5 (1948).
The appellant contends, however, that since the appellees, Mr. and Mrs. Stanford, signed the note under an acknowledgment that they had received a full statement of their loan, the appellant-lender had done all required of it to show "due care", and that the appellees are estopped to claim that the note was not properly filled out at the time it was signed. This issue has not heretofore been presented to this Court, but other courts have held generally that the rule and guides set up by the legislature to control small loan businesses are expressions of public policy. Many courts have held that the parties to a small loan contract cannot set at naught the public policy of the state by their agreement. New Italian Co-op. Co. v. Magliocco, 127 Conn. 521, 18 A.2d 368 (1941); Consolidated Plan of New Jersey v. Shanholtz, 7 N.J. Misc. 876, 147 A. 401 (1929); Randisi v. Household Fin. Corp., 269 App. Div. 975, 58 N.Y.S.2d 406 (1945); Family Fin. Corp. v. Miick, 176 Misc. 753, 28 N.Y.S. 830 (1941).
In an analogous situation the courts have consistently held that a provision in a note that it shall not be construed so as to provide any charge in excess of that permitted by the Small Loan Regulatory Act does not save the note if it would otherwise be invalid because the provisions in the note are in violation of legal charges. Richmond v. Conservative Credit System, 10 N.J. Misc. 14, 157 A. 446 (1931); Consolidated Plan of New Jersey v. Shanholtz, 7 N.J. Misc. 876, 147 A. 401 (1929); Ulin v. Walowitz, 147 Misc. 724, 265 N.Y.S. 745 (1933).
Although there is authority to the contrary in states where the statutes are strictly construed, it has been generally held that a substantial compliance with the requirement of the Small Loan Regulatory Act is not sufficient to avoid the penalties for its violation. Atta v. Bergin, 120 Conn. 152, 180 A. 298 (1935); Richmond v. Conservative Credit Sys., 10 N.J. Misc. 14, 157 A. 446 (1931).
Di Nome v. Personal Fin. Co., 291 N.Y. 250, 52 N.E.2d 117 (1943); Personal Fin. Co. of New York v. Gross, 170 Misc. 166, 9 N.Y.S.2d 801 (1939).
This Court has had occasion to point out that:
"The Court cannot prevent people, who are in their right mind and under no disability, from making contracts nor rescue them from their folly. Obviously this was an improvident contract that the appellants should not have made. But Chapter 170, Laws of 1958, supra, expressly authorizes contracts such as are found in this case; and a party cannot be penalized as long as he complies with the law." Early v. Williams, 239 Miss. at 328-329, 123 So.2d at 449.
On the other hand, the Legislature of Mississippi has directed that:
"This act is hereby declared to be a public necessity and is remedial in purpose and the same shall be liberally construed to effectuate the purposes thereof and shall be known as the `Small Loan Regulatory Act' of this state." Miss. Code Ann. § 5591-01 (Supp. 1964).
Obviously, therefore, the purpose of the Act was to remedy an unsavory condition and to regulate and control the small loan business.
There is no conflict in the testimony that the appellant-lender did not give receipts for some of the payments made by appellees on the loan due. No testimony was offered by appellant to show that it used "due care" to comply with the requirements that the licensee issued a receipt for each payment, as required by Mississippi Code Annotated section 5591-14(a) 2. (Supplement 1964).
The burden of proof was upon the appellee-borrowers to show that the lender-licensee did not furnish them with a statement showing the amount and date of the loan, or issue receipts to them for payments made on the loan, as required by the statute. Personal Fin. Co. of New York v. Lyons, 128 Conn. 254, 21 A.2d 652 (1941). When the appellee-borrowers had introduced proof showing noncompliance with the statutory requirements, the burden of going forward with the evidence was upon the lender-licensee to show "due care" by explaining the failure to comply with the statutory requirements. 31A C.J.S. Evidence § 110 (1964). This is especially true where a party has special knowledge of required evidence, or where such evidence is within the control of such party, as is true of the lender-licensee in the instant case. Price v. Haney, 174 Miss. 176, 163 So. 684, 164 So. 590 (1935); 31A C.J.S. Evidence § 113 (1964).
In view of the expressed intent of the Legislature that the Small Loan Regulatory Act shall be "liberally construed to effectuate the purpose of the law," we have reached the conclusion that the phrase "without the exercise of due care" does not mean the licensee is excused from performing the acts required by the Small Loan Regulatory Act by printing in the note form an acknowledgment of the makers that they have received the written statement required by the statute. To hold otherwise would simply mean that the lender could avoid performing the statutory requirements by simply writing in the note an acknowledgment that these acts had been performed. Independent Loan Co. v. Tyson, 117 N.J.L. 259, 187 A. 361 (1936).
We hold therefore that the appellees, Mr. and Mrs. Stanford, were not estopped to plead and sustain by evidence the fact that the appellant-lender violated the Small Loan Regulatory Act by not delivering to the borrowers the written statement required by the statute. We are also of the opinion that since the appellant-lender offered no proof to show "due care" after the borrowers, Mr. and Mrs. Stanford, had proven that they did not receive the required statement, the appellees were entitled to a directed verdict in their favor. 88 C.J.S. Trial § 210 (1955).
We do not deem it necessary to discuss the other assignments of error set out in appellant's brief since we are of the opinion that the judgment of the trial court in favor of appellees was proper.
The judgment of the trial court is affirmed.
Affirmed.
PATTERSON, INZER, SMITH and ROBERTSON, JJ., concur.
JONES, J., concurs in the results and dissents in part.
ETHRIDGE, C.J., GILLESPIE, P.J., and BRADY, J., dissent.
The difficulties in this case arise from the peculiar structure of the Small Loan Act. It creates two categories of licensees — brokers and lenders. Brokers can charge substantial "service charges" measured by the statute. However, lenders, which are entirely separate but act only through a broker, are permitted to charge interest at six percent per annum, and nothing else.
This bifurcated system of small loans was in effect and substantially unregulated until the Small Loan Regulatory Act of 1958. Miss. Laws 1958, Ch. 170, being Miss. Code Ann. §§ 5591-01 to 5591-54 (Supp. 1964). It contained the two-category system. Apparently Mississippi is the only State with a small loan act regulating a two-part system. Other States bypass any broker, and regulate directly the lender, who deals directly with the borrower. Obviously it is easier to regulate one person, the lender, and thus to require him to give the borrower statements of loan, etc., than to make a lender see that a licensed broker complies with the statutory mandates.
Accordingly, the controlling opinion is in error when it states that the Mississippi Act "is similar to a great many state statutes regulating the small loan business." Those statutes and decisions are not in point here
The Stanfords signed the note, were charged service charges and interest allowed by statute, and received the money on their loan. The broker is insolvent, and is unavailable. Yet the majority opinion permits the Stanfords to keep the money and deny the debt to Consumers Credit. This windfall to them is rationalized by giving a liberal construction to a penalty statute. With deference, I cannot think that this result is justified either by the terms of the statute or a just result.
The controlling opinion is based on the penalty clause of Code Section 5591-14 of the Small Loan Act. That section requires that at the time a loan is made "every licensee" shall deliver to the borrower a statement itemizing the date, amount of loan, schedule of payments, type of security, agreed rate of charge, etc. The licensee is further required to give to the person making it, at the time payment is made, a receipt specifying the amount of the payment.
Subsection (c) of section 5591-14 then provides:
PENALTY. Any contract of loan in the making or collection of which any provision of this section shall have been violated either knowingly or without the exercise of due care to prevent the same, shall be void and the licensee shall have no right to collect or receive any principal, charges, or recompense whatsoever.
The note received by the lender contained the itemized statement required by the statute, and immediately before the admitted signatures of both borrowers, it had the following: "The borrower acknowledges receipt of a statement of the loan in English as required by section 14(a) of the Mississippi Small Loan Regulatory Act."
The statute recognizes the right of the broker to collect a service charge for services rendered to borrower by broker in arranging and negotiating a loan, and for "the accounting, guaranteeing, endorsing, collecting and other actual services rendered the borrower by the licensee [broker]." Miss. Code Ann. § 5591-02(3) (Supp. 1964). Regulations of the State Bank Comptroller recognize the right of the broker to collect payments. Regulation VIII, subsection (b), states that the complete separation of lender and broker "does not prevent a broker, for the convenience of the borrower, from cashing any draft * * *, nor shall it limit the services which the act provides a broker may render, namely, in arranging or negotiating the loan and for any accounting, guaranteeing, endorsing, collection, * * *" In short, the act not only authorizes a broker to represent the borrower in obtaining the loan, but also in collecting payments by the borrower for the borrower's convenience.
At the trial, Stanford admitted that he received the money on the loan, and that he signed the note, above which was the acknowledgment that he had received the statement of loan. He made eleven payments on it in the amount of $75 each. Mrs. Stanford also admitted that she signed the note. She stated the papers were not completely filled out, but when asked what was missing, she said, "I really couldn't say, just exactly." Dunham, an employee of plaintiff, said that plaintiff had no supervision over the broker preparing the form of note and statement of loan. Hendrick, president of Consumers Credit, testified that he personally did not see the papers before the closing of the loan, but his company reserved the right to approve or decline any loan. Consumers Credit approved this loan when it received from the broker the executed note containing an itemization of charges and deductions authorized by statute.
Under subsection 14(c), the "penalty" provision, if failure to give a statement of loan or receipt for payment is done "knowingly," that is, to the knowledge of the lender, the loan is void. It is undisputed here that the lender did not "know" that the statement was not given to the borrower.
Also, if the provision for giving a statement of the loan to the borrower is violated "without the exercise of due care to prevent the same," the loan is void. Does the evidence reflect that the lender failed to exercise due care to prevent a violation by the broker of the requirement that the borrowers receive the statement of loan?
Immediately above the borrowers' signatures in the note is the recitation that they received the statement of loan. They admitted they signed this, and the lender, plaintiff, received the note in this form. It seems to me that a borrower, who signs an instrument with that agreement in it, should be bound by the statement, in the absence of evidence that the lender knew or should have known that it was false, and there is no evidence to that effect. To permit borrowers to admit their signature, but to deny the effect of what they signed, as against the rights of the lender who accepted in good faith the completed, executed instrument, would authorize a disavowal of liability by borrowers in every instance where the lender sues on a note. We are not here dealing with the liability of the broker, which is another type of question. The lender had the right to rely on the admitted signatures of the borrowers to a document reciting that they received the statement of loan. The penalty in this respect would not apply, in my opinion, since this was the exercise of due care by the lender required by the act.
Section 14 also requires every licensee to give the borrower receipts for payment. The borrowers admit they were given some receipts, and state categorically that they were not given receipts on other payments of the total of eleven made. Here again is the question of whether the penalty applies. The lender did not know receipts were not given by the broker, who was collecting the payments, as it had a right to do, for the convenience of the borrowers. The record reflects that this is done in most instances. The statute provides that the service charge made by the broker may include services "to be rendered the borrower by the licensee [broker] in * * * collecting and other actual services rendered the borrower by the licensee." Miss. Code Ann. § 5591-02(3) (Supp. 1964). Regulation VIII of the State Bank Comptroller, subsection B, is to the same effect.
Does the record show a lack of due care by Consumers Credit in seeing that the borrowers obtained receipts for payments? Representatives of the lender did not know that the broker was not giving receipts for all payments. Apparently, the controlling opinion holds that the lender must take unidentified affirmative steps or make rules to require its broker to give the receipts, with some verification therefor. However, I can think of no practical way by which a lender could do this, when the broker is collecting the payments for the convenience of the borrower. Both are licensed by the state, and found by its agency to be reliable. For the purpose of collections, the broker is the agent of the borrower and not the lender. If this is true, then the borrower cannot complain about what his agent, the broker, failed to do. Certainly he should not assert a penalty against a lender for what the borrower's agent failed to do.
It would appear that, for the benefit and convenience of both the borrower and the lender, the Stanfords followed the practice, in making their eleven payments, of making them to and through the broker. The note itself provided that installments should be paid "to the lender named in (B) above, at its offices or its order. * * *" Further, "each of us understands that the lender has no agent authorized to accept payments hereon except at its office, * * * and that the signers may remit to the lender directly by mail or otherwise." Despite this, the borrowers made eleven payments through the broker. Under the statute the parties could have expressly agreed, but did not, to pay to the broker as a convenience. Since they could have so agreed, and in fact did so, by their actions, it would seem that the borrowers were using the broker as their agent for the purpose of transmitting their payments to the lender. Hence the broker was acting as the agent for the borrowers in collecting the installment payments. The broker may also have been acting in a two-fold capacity, as agent of the lender in the collection and transmission of payments. But this does not negative the fact that the broker's service charge included a charge for collection of the account, the service charge was paid by the borrowers, payment through the broker by the borrowers was a convenience to them, and the broker was acting as their agent also.
I would conclude, therefore, that the record does not support the Stanford's affirmative defense that the lender was guilty of a want of due care in not preventing the broker from giving receipts for each payment. This is especially true since the forfeiture statute, Section 14(c), is a penalty, and should be strictly construed against its invocation.
Finally, the result reached by affirming this judgment raises more questions than it either reaches or settles. What will now constitute "due care" by a lender, in seeing to it that a licensed broker does what he is required to do? The majority now holds that "substantial compliance * * * is not sufficient to avoid the penalties * * *" In a suit by a lender, can any borrower simply orally deny that he was not given a statement of loan and receipts for every payment, and make an issue of fact for a jury on whether the broker completely complied and whether the lender can recover a just debt? Is it consistent to say that generally a penalty is strictly construed, but in the small loan act it is liberally construed? These and other questions, stemming from the decision today, raise serious problems in the administration of the act by the State Bank Comptroller and in the making of enforceable loans by lenders through licensed brokers.
GILLESPIE, P.J., and BRADY, J., join in this dissent.
I concur in the result reached by the majority of the Court, but with all deference dissent insofar as the opinion bases its decision on a holding that the lender did not exercise due care to see that a copy of the original statement was given to the borrowers.
I think the lender had a great deal more upon which to rely than the mere statement in the note that the required documents had been given.
The main opinion quotes a part of Mississippi Code of 1942 Annotated (Supp. 1964) section 5591-02, "Definitions," but omits therefrom in the paragraph defining "licensee," that part which reads as follows:
"(a) Handling loans for a borrower for a fee, commission or charge paid by the borrower, and who arranges, negotiates, obtains or procures a loan of money for the borrower, to be paid back in monthly installments * * *."
The word "licensee" refers both to the broker and to the lender. The broker being one who arranges, negotiates, obtains or procures a loan of money for the borrower, must necessarily be the agent of the borrower.
In the same section (5591-02, Definitions) under paragraph (3), it is said:
"The term `service charge' as used in this act shall be construed to mean the amount charged a borrower, exclusive of the legal rate of interest, and other charges specifically allowed by this act, for services rendered or to be rendered the borrower by the licensee in arranging or negotiating a loan and for the accounting, guaranteeing, endorsing, collecting and other actual services rendered the borrower by the licensee." (Emphasis added.)
Under section 5591-03, both the broker and the lender are required to have a valid and subsisting license from the State of Mississippi as provided by the "Small Loan Privilege Tax Act."
In the Act known as "Small Loan Privilege Tax Act," section 5591-32, "Definitions," it is also provided that the word "licensee" shall mean and include both the broker and the lender, and section 5591-33 requires a license for both parties. Section 5591-35 provides for the application for license and details the information to be shown by such application.
After the application has been made the comptroller (of State Banks) is required by section 5591-39 to:
"* * * make an investigation for the purpose of determining whether or not the financial responsibility, previous experience, character, and general fitness of the applicant (including the members thereof if the applicant is a firm, partnership or association, and the officers and directors thereof, if the applicant is a corporation) are such as to merit the respect and confidence of the community in which the business is to be operated and to warrant the belief that said business will be operated honestly, fairly, efficiently and in compliance with the provisions of the applicable laws of this state, and the regulations promulgated by the department." (Emphasis added.)
The license is not to be issued until the foregoing matters are determined in the affirmative.
The broker who negotiated this loan forwarded the papers evidencing same to the lender after having endorsed them and guaranteed payment of the loan. The papers as shown in the majority opinion contained a statement that the papers required by the statute had been given the borrowers
We are of opinion that when the State, after having investigated and determined that the broker was one whose general fitness, financial responsibility, previous experience and character supported the belief that his business would be operated in compliance with the provisions of the law, thereafter issued its license to him, this was a representation by the State to those engaged in lending money that they were warranted in relying upon the statements and representations of the licensed broker. There is no question that the broker in this case was licensed and that he endorsed and guaranteed the payment of said loan. These facts, coupled with the statement of the borrower, whose agent the broker was at that time, warranted the lender in relying upon the statement in the note. Also, the broker (found by the State to be financially responsible) had endorsed and guaranteed the payment of the loan and had forwarded the note to the lender with an assignment with recourse and the act of the lender in relying thereupon was not a failure to exercise due care. The State had represented to the lender that this particular broker was a man whose experience, character and financial responsibility warranted the belief that the business would be operated honestly, fairly, efficiently and in compliance with the provisions of the laws of the State. We can not see how, when the State said this to the lender, the lender would be guilty of a lack of due care in relying upon the statement of the broker and upon the fact that he personally guaranteed the payment of the loan.
I do agree that the majority opinion reached the right result, basing its holding on failure to deliver to the borrower a receipt for each payment as provided by section 5591-14(a) (2).
It is our conception that after the broker had negotiated the loan, had endorsed and guaranteed same, and secured the money from the lender, he was no longer the agent of the borrower because his position as collector of payments would be inconsistent with an agency for the borrower, but would be consistent with an agency for the lender. Moreover as provided in section 5591-02, "Definitions," Paragraph (3), the term "service charge" covers not only the services rendered to the borrower in arranging or negotiating a loan and guaranteeing same, etc., but covers "collecting" and other actual services.
If the legislature had intended at this point for the broker to be the agent of the borrower, they would not have used the word "collecting." The proper term, if it was intended that the broker be the agent of the borrower, would have been that he was being compensated for "paying or transmitting payments" on said loan rather than for "collecting payments."
We are of opinion that the majority was in error in holding the lender did not exercise due care in the making of the loan. We think the result should have been based upon the fact that the broker in "collecting" as authorized by the legislature was acting as agent of the lender and that he knowingly or carelessly or without the exercise of due care failed to deliver receipts for payments made, and therefore his principal was charged with such failure.