Personal Finance Co. v. Gilinsky Fruit Co.

255 N.W. 558, 127 Neb. 450, 1934 Neb. LEXIS 70

• Court: Nebraska Supreme Court
• Decided: June 22, 1934
• Docket: No. 28995
• Status: Published

Opinions

Thomsen, District Judge.

A demurrer was sustained by the district court to a petition attempting to recover on an assignment of wages made in Council Bluffs, Iowa. Plaintiff and defendant assignor are residents of Iowa. The employer, the other defendant, is in Omaha, Nebraska. The assignment is security for a loan bearing 31/2 per cent, a month interest. The petition alleges the validity of the contract under the small loans statutes of the state of Iowa. The assignment fails to comply with our statutes in that it provides for a substantially higher rate of interest. Comp. St. 1929, sec. 45-120. The question presented is the validity of the order of dismissal, the plaintiff electing to stand on his petition.

It is our view that plaintiff’s petition does not state a cause of action, in that, though the assignment may be valid under the laws of the state of Iowa, it is contrary to the settled public policy of this state. Ordinarily, assignments of this character are judged as to their validity by the law of the state where the assignment is made, but if the enforcement of the contract is contrary to the public policy of the state in which its enforcement is attempted, the law of the latter state will prevail. 12 C. J. 473. The rule is an old one. Varnum v. Camp, 13 N. J. Law, 326; Herschfeld v. Dexel, 12 Ga. 582; Guillander v. Howell, 35 N. Y. 657.

Only slight consideration of circumstances attending this legislation is required to distinguish these laws from the conventional type against usury. The latter were to guard against excessive rates; the former to combat those which were extortionate and oppressive. Rates as high as 1,300 per cent, were being charged; about one family in five of all American cities in which the population exceeded 25,000 were victims of loan sharks, according to an impartial authority. Russell Sage Foundation 1932 book on small loan legislation, page 54.

“The evils against which the law is directed had become a public scandal. The rapacity of money-lenders who impounded chattels and wages to secure small loans to those in pecuniary distress had become intolerable. Persons engaged in that business were practically uncontrolled. Many of their operations were secret, but the iniquity of their compensation for the use of money created a demand for the restraints of police power. The act in controversy not only puts a limit on exactions for the use of money, but provides punishment for the violation of its provisions and opens to official scrutiny the transactions of all who are authorized to charge limited fees in addition to interest at the rate of 10 per cent, per annum.” Judge Rose in Althaus v. State, 99 Neb. 465. See, also, Wight v. Baltimore & O. R. Co., 146 Md. 66, 37 A. L. R. 864, and note.

The legislature has thus fixed a limit beyond which, in the interests of public welfare, a contract cannot be enforced. The rate of interest provided in this assignment is beyond the highest lawful rate established by our legislature as a method of destroying a baleful economic practice. The fact that the excess rate is not glaringly higher than our lawful rate makes the violation less apparent, but no less unlawful. The court is not required by rules of comity to enforce a contract so contrary to our public policy.

The demurrer was properly sustained.

Affirmed. .