:
NO. 

### 3050

(Affirmed

by,Letter to Hon. Callan Graham, Ch. Comm$tte.e

on State.Affair.4,

Rouse of,Representatlves, Jan. 

### 31, 1951)

.HOU E BILL NO. 420~IS'BECONSTITUTIONA S L'
Opinionholding House Bill~Ro..& .(&all 'A Bill3 unconstitutional

because:,.

. .~ . '(.(1;. "It violates ~&tic& ‘XVI, Section 11, by -attempting to authorize interest' of -dre.thah-ten,pef,,,cent.per .an$um. .; ,. (2) It is a special'law.88flxing the +aii'$e

of interest+in violation of .Constitution, Artlcle~

III;~?$@tlon56i .~ Q)*.~ It.is dlscrimlnatory~ln violation of .*%qual"Protec-' .'.: tlon? Clause of Federal~Const@ut$onand-'TexasConstitution,: Article'

I Section 

### 3, Article I;.~S~otlon'1~,~~~~~~ticle III, SectIon 

### 56;' ;.~

_’

OFFICE'OE THE AfiOREEY GENERAL '-' ':~': .' .:

May 

### 13, 1939

HonorableR. Emmett' Morse .Opinion Eo; 9-726, Speaker of the House of Ret.Constltutionality of CommltRepresentatives

.. .:: tee amendment to Iiouse.Bill No. ,Austin,.

Tees 420, ,whlch&'a bill to regulate the business of making loans of -~$5C@.OO

or less-and provides.‘, that such lenders may make certain &are;@ in additlon,to lO$ Dear Sir: Interest.

4ie beg ‘to ~ackno#edge receipt of your request .of May 1st for an opinion of.th$s department on <the constitutionality
,~ of the above mentioned .bill @ibh~ls now pending before the'cur: .'. ,rent'session

of,-the Legislature. Bue:to'the importanceof-theHon. R. Emmett Worse, r@e 2 (O-&6)

question and the complexityof the many legal problems involved,
we have given the matter extensiveand deliberate consideration. We are pleased, therefore,to submit this conference.opinion which reflects the researchand deliberationof the entire Attorney General'sdepartment.

The Committeeamendment to House Bill No. 420 constitutes a comprehensive act to regulate the business of making small loans not exceeding9b5CQ.00.We attach hereto a copy of the bill so that the same may be referred to in conjunc. RhIith this opinion,but shall summar$.ze the salient features o :.bia,asfollows~: .:'

Section 1 setsgouts at length ~the

purposes of the bill, which are stated to“b~"‘~~'lie~d':~or're~ted-~~credit .tosmall and necessitousbcrrowers,brought about by.econdc conditions. The bill provides for 'thesu@ervisionand'licensI.ng by the Ranking Commissionerof the State:~of al.Yperscns,:corporations, etc., who engage in the business of making..smaUloans expresslyex-

~. cepting however banks.' savings b&ks~.?4orrisF&n banks industriaibanks; &i'a&investni&t co&nies &es,~trustcompanies, ,building:~andl&n,..assoc Ia insurancegompantlons,credit unions Andy

pawnbrokers (Section,20)::~ ~Licensees'under

the act are expresslypermitted (under,Seotlon U-A) to charge inaddition to .lO$ per anuum interest (l).'an initial~.charge

of 5$ and (2) a monthly charge of.

lMeth8:~unpaid bal&nce of the loan not to 8Xc88d,$2,CO.--

In th8 8v8nt these:pertissive '8additiona~

charges*' should be held by a~ court inn&y partlcula,r case %ot to be chargeable $o the borrower",the:licensed lender shall be entitled to a return of principal less 10% penalty (S8ctlonIQ-&. The bill con- ~~~ins.many.regulatorj~.pr~9si~ns~and.provides.a'criminal penalty forvIolations (Section19). The Bill, in Section 24 thereof, expresslyrepeals the 'Loan Brokers'Regulatory,Act (Acts 1927, 40th Le annual 1islature, 1st Called Session,page 30, Chapter 171, the

150.00 occupationtax on Loan Brokers (Section14 of Artitle 5069,:

5071, 5073, Title 79 R.C.S. 1925). only in so far as they ar8 inconsistent w$th,thls <ill.
The~AttorneyGeneral, in passing upon the constitutionality of proposed or enacted legislation, may.not look to the policy,wisdom, or deslrabllltyof the'Act, but he is concerned solelywith ~the

question of whether or not the particular Act
comeswithin the limitations prescribedby th8'Stateand Federal Constitutions.'~-,,In determiningthis question,he must b8 guided by the decisions .andpronotuicements of th8 Courts of Texas end the United States. 'When the Supreme~.Court of Texas has defined the.meaningand applicationof a particularprovision of the Constitutionof TexaS,.it.is$ot with%n the province of the Attorney General to seek,to~place-any~'djffsrentconstruction upon it. It '.. is.hLs duty to follow the:interpretation as defined by the Court. : ,~, :;

;~~,: ;Hon. R. Emmett Morse, page 3 

### (O-726)

The essence of House Bill 420 is the legislativesanction, contained in Section 13 thereof, permittingthe lender "to contract for and receive8 from the borrower,in addition to ten per cent per annum interest, certain "chargesas reimbursement for all expenses incurredand payment for all servicesrendered in connection

with the loan." May the Legislature properlypermit such charges in view of Article XVI, Section 11, of the Constitution

of Texas?which provides:

"All contractsfor a greater rate of interest than ten per centum per annum shall be deemed usurious,and the first Legislature i after this amendment is.adopted, shall provide appropr ate pains and penalties to prevent the sam8....".

What-is the definition ,of interestas used in this provision of the Constitution? Does it.mean.tW ekf; return on the loan to th8~ lender, or does it mee.the total amgmt paid by the borrawer to-the lender including incidentalexpenses in connection with the loan? Gaines J speakingfor .the..Supreme Court of Texas.in Parks v.. Lubbo&(i899), 92.Tex. 635, 5l. S.W. 322, .quo$?d-the.,common

law definition of'.interest from Abbott's Law Dictionaryas 'being 8aUcompensation

usually .reckoned

by a percentage of the loan, use,or forb8arance'of the money;" Article 5069 Revised Civil Statutes.of Texas, tention" to this common law definition. 

### 1925,:adds&he word "deIt reads:

n'Interestl

,isthe'compensation allowedby law or fixed by the parties ,to a contractfor the use or forbearance or detention of mosey......"

With the possible excepticnof..the word Nd8tention1f the stat$itory~

definitionis.declaratory of the common law. 1% is self-evident

that the legislature,.~y not change the meaning and effect of the constitutional provisionby altering either the statutorydefinitionof !%iteresttl or by amending the statutes heretofore enacted,providlng pains and penaltiesto prevent usury as directed~bythe.Consti.tution.

As to whether expenses connect8d.withaSloanare included in VnteresV1 as that word is used in Article jor1, Section 11, of the Texas Constitution, let uslookto the ~cases. Texas courts have uniformlyheld that .the,compensation to the lender may in no event be more than 10 per cent. This prohibition may not be circumventedby subterfuge suchas calling a part of the compensation

a "service charge?, ncommission~t
or "storagecharge

91 if it isin fact'V.nteres in disguise".

, .I; Inspection fee"

ItIf the amount paid.by th8~ borrower to the lender in excess of the.legal,,interest was as.compensation.-

.

Hon. R. Rmmett Morse, page 4~ (O-726)

for the us& of the money loaned it is usury, whatever may be the guise under which the transactionis clothed." Hudman v. Foster (AustinCourt of Civil Appeals) 210 S.W. 262,

Thus in Joy v. ProvidentLoan Society 37 S.W.(2) 2% (writ of error diSIdSS8d) the TexarkanaCourt :f Civil Appeals held that a pawn broker 'dght not collect."s.torage charges'! from the borrower in addition to ten percentinterest. 'The court said:

than the sis ours)

regular.zra~of&$erest woXi&dgiv8.*!'. (Empha- :.
.. ..,. - ,,_ - :.

- ,. .~-~Forres~o~~S~~~~~~~~o~~~~~~e~to~'~v..:~ooks~ ~(Waco Courtof~ Civil ;Appeals:,1932)zq,51 ‘&W;'(2);

&5 ,:the':court:~declared theloan:usurious.~becapse the-barik:&arged

&e.%rrower'a ten
yer 'center

"servlce~~charge"-:~~'-ddit~on.~to::'a,,:ten 'R&:cent:

interest. that:. opinion tht$

-icourt said?,,-.,

.:'

such e v c s. The evidencewholly .failed .to~,sh~~.~t--~~~i,~~,,tra~ service wasrendered
as would authorize a charge therefor,~'.~~:.~means em-... ployed in this case cannot be used to avoid the effect of the usury:statutei~~r To;allowextra;c&rgas:~for such service~s;,.would:de.stroy::.the~ pqrp0se.I

o$-.,thel usury flaws. Independent:::L~ber,~~Company,-~..'.Gulf,,Sta.te;Bank,.. 299 :ZLW. 939;:~':Slaughter:Com$any,~v.~~,,Rller,- 196~.-S.W.~~,704.",...

(Empha- sis. o*.,)., ..- ~.
.:$&.ce :RcCl&d~on sp&king,f'&j~jjh,~ 'Austin. Court of Civil Appeals In Reltimore.Trus~t 6ompan.y

;r;.:-.~nders.,~~~,:S.fdo,(2) 710, (writ- of error ~diq&ssed)l said:, ~~. .

Hon. R. Emmett Morse, page 

### 5 (o-726)

"Under this state of facts it is clear that the expenses, testifiedto by Viner as going to make up note 2, were expenses incurred by the bond company in the conduct of its business; that is for printing, negotiating,etc., its own bonds and guaranteeing the collateralsecuring them. They were not in any proper sense expenses incurred or servicesrendered to appellees by the bond company in the ca city of broker or agent for appellees (the borrowers p" or otherwise. The bona company might as properly charge to appellees its office rent salaries of its officers,~agents and employeesand o-&

er expenses of operating its business."

In the case of IndependentLumber Companyv. Gulf State Bank 299 S.W. 939,'(writof error refused), the GalvestonCourt of Civil Appaals held to be usurious a series of loans on which
a bank charged the borrower eight per cent "inspection fee" for inspectingthe propertyby which the.loans~were Secured. The evidence showed that the "inspectionfee? was charged in all in-. stancesregardless of whether or.not an:inspection.actually was made. The court said:

%idln&tte~~ it 'was &v8% ~eken.contemplated that appellant(the borrower)was to..nor did it in fact ever get anything except the use of'the money. No quid pro quo could thereforehave gone to it,for anything else..... Th8 mere takingoutin advance, by the, discountingmethod, of the full conv8ntionalrate in Texas of 10 per cent per annumdidnot constitute usury but that malum prohibitumlay in tacking on still another six per cent per annum charge,for,no additionalor different service to the borroweri,,but for 'th8 amount of trouble to the bank in carrying that type of loan.' Fowler v. Equitable Trust Company, 141 U.S. 

### 384, 3.2 S.Ct. 1, 

### 35 $.Ed. 786; F8d8ral Mortgage CompanyV. Bank, 254 S.W.,1002."

98 &W.(2) In the case of Texas Farm~MortgageCompanyv. Rowley

8% the~FortWorth Courtof Civil Appeals held that certainnotes iearing 

### 7&% interest securedby deed of.$&&t were usuriousbecause the deed of trust stipulatedthat the borrower should pay all taxes which might be assessed against the notes, which contingenttaxes When added to the 7+$interest of the notes tip&&&

total more than 10% which would amount to usury. It is to be noted that th8Se taxes were clearly *expensesincurred in connection

with the loan* as contemplated by Section 13-A of House Bill 420. Yet the Court of, Civil Appeals consideredthem to be within the meaning of "interest"if chargeableto the borrower. We quote from.that opinion:. .

Hon. R. Emmett Morse, page 6 (O-726)

"And th8 provisionin the mortgage, to‘the effect that the borrowerwould gy~any taxes that might be assessed against the note while the holder is
a resident of another~county 4 manifestlywas intended.toprwide for ~paymen of taxes~ on the

n ote in the event it shouIdhave"a taxable situs in that county by reason'of establishinganoffice or agency in that county for transactionof any.of~itsbuciness. The stipulation could not. have been employed,'with any other contingency fin view; and therefore.it manifestsan intention to charge more than 10 Der cent interest fork the
use of the monev borroved;' in the event of the happening ,ofthat. contingency

a.@ if the ..taxes ofi $f&! ':cote ;.i !$,+$f ~f&$&j't;.

ff44ereo$.;

'shotid :&- ; +&ea!;q:$.F ;dnt pr '&iilfm' "~‘ ~miiphasis:

oys.).: '. .: .A~.cwT&'- &I: .&iT'@ &c.g*&#? yg.:

t,j& i&a:&r

qjy ;j@ Texas ~&,~~~&&;:~~~i':

!~fi&;~;,;.&&,j&~&~

w. ,~~i&&s~i,~~@a

GeT'&&,;~ o;$'.ae &j~&g~~fix~~~

~pfi&ql ~db~~ajibJi"t~:~~eine~,.~Co~t a*:~+~ '10, 

### 1939.;7*~~7+ig1

ygg&.*a) o~~y~~a,+&g&+~ ;.tibajssw cd** et .a1 v. ElizabethRowley ec al, the ab&:.Q~o~~jC@&~f &:::bpmon of 'the Fort,Worth.Court

was expresslyaaprovdd. though the case ,, ,,,&.: keve'r&a f&.$$@'

!,+@j-~d-i *hat: <jja~~$&~ :'t;ie

~hh~~~,lhad:;:6een..,ini-i;~ Didmrlv &e'dij&d..' Z We!.Qdbt&

'from'wg. ejj&fon .b?: th& ~&~&ssion &&tis;ll;si”i, ‘

. ~,- ..: :,-:

.‘A .:r: ‘~., ;~;‘i:,~j- _i

never stated:

."Howeve.r;

in'bur ~o$i#on the ,question has been foreclosedby the'SnI&me'~Court'in the recent case 'of Kansas City 'Life InsuranceCompany v. Duvall,'

:lOk'S.Wi(2)ll:'and~tkiat'-case controls 'this

one..,. It was held that such prokision~inthe contract created a contingency which madade

the Ioan usurious from its beginning;....

The record shows that it'was proven. that'for the'year 1933 the rates for State, County, school and road purposes in~hentonCounty; where 'the land was situated, were siich

that upon the face'value of the note the taxes,-'woiild have amounted to such sum that when added to the interest provided for in theHon. R. Emmett Morse, page 

### 7 (O-726)

loan the interestrate would have exceeded 10 par cent. We think the decision above mentionedhas again decided the question thus urged. It was there held that because of the tax provision in the contract,if the contingency arose in the future by which the tax wh$bh might be paid would
cause the rate to exceed 10 per cent then the contractwas *potentially usurious'hrom the beginning."

The foregoing cases clearly illustrate the well-established rule in Texas, that when it appears that any chargesmade against a borrower in addition to the maximum rate of Interest of 10 per cent per annum, whether they b8 called nexpensesllanservice chargesnt,

Ynspection fees", "storagechargesYor "taxes fact additional compensationto the, lender; ,and

as such 4.n~~8% in alsguls8", it then follows as.8 matter of ,law'that the loan is usqrlous

. We are, therefore,forced to the conclusionthat the courts of Texas have-definedYlnterestwso as to includeall compensationpaid to the lender for th8 ,nse' of money, though a part thereofmayrepresent nr8imburs8m8nt for expenses incurred in connection

with the loan." Applying this definitionof nlnt8rest1R to the "charges"expressly

r rmitted to be made by lenders under Section 13-A of House Bill 20, we are unable'to excape the conclusion that these %harg8sn are presumptlv8ly additional%nter8st"within the meaning of Article~XVI,Section 11, of the *stitution of Texas.

We are not-ware of the"&&,e holding ~that a borrower may be properly Chargedwithout-of-pocket expenses arisi$ggin connectionwith a'loan which are paid to visions in notes providingthat th8 in the event the note be placed in the handsof an attorney for col.lection

.have been upheld. StanfordV. united States InV8Stm8;t zorporatiQ@~<



### 272 S.W. ‘568;

Min8r vi Paris Exchange ~Bank,

### 53

. "A commission

paid to.the agent or broker of a borrower for'servicesrendered in respect of the transaction, will not render a loan usuriou~.~~ ~42 Texas Jurisprudence

### 934;Williams v. Bryan, 

### 68 Tex. 

### 593, 5 S.W. &Ol. I?or.do the courts consider commissions pald'to agents of the lender to be in the nature of additional interest,where the'agent is ~the "special"as distinguished from the ng8neralnagent of the lender. This rule is well stated by Judge Smith of the San Antonio Court of Civil Appeals in Hughes
v. Security F!ullding.and Loan Association, 62 S.W.(2) 

### 219:

Ylhe act of an agent, having only special and limited authority; in charging the borrowera fee by way of a commission for making a loan or for examining title to property to be mortgaged $0 s8cure th8 amount of. .

Hon. R. Emmett Morse, page 

### 8 : 

### (O-726)

the loan is not the act of his principal,and the fee so charged does not render the loan usurious. Jones on Mortgages,642...

'*The rule would be different, so as to charge the lender, if the agent were a general agent, with authority to make loans for the lender in such sums or at such.times

as he pleases. Jones, 642-a. In this case the agent had no such authority. His authority extendedno further than that of receivingand forwardingapplications for loans, deliveringmoneys actually lent, and collectingand remitting installment payments from the borrower. He had no authority whatever to make loans, to :pass:upon~.risks,, or appraise se'curities

for ..apuelleei.S.

~i.~

t388 also: N ‘oel

v.'Paahandle.~Building and- LoanAssoclatlon, 

### 85 S.W.@. 

### 733 hrit of error~refus8d); ::.Sales v. .Wrcantile:lVa- .tional.Dank,



### 89 S.W.(2!3.

2+?7:.+rit

of error~diSmiSS8d).'.-Pla. sme rule with respectto .ganeraLagents;~would apply: to Servantsor .' ~employees

of the lender::

..Baltimore:Trust

CompanyV:Sanders, 

### 105 S.W.(2) 

### 710

&rritof .8rror

dh~missad)~.~

Cost of..-preparation: ana ::examination'of.abstracts mayLbech+rged to~the borrowers:: e. : In all OS sh8se::caSes where'the cou&~sanction8d'papments by the borrower for.8xpenS8.6 &r.connection:with thelloan ‘<isto be noted that in every instance the paymentswere:not mad8 it

to the lender, but to $hir nartieg We beli8V8 this fact:clearly distinguishes

these caS8s ~rom~.the.&tuation~contemplated by Settion 13-A~:.Of

this Bill&,.

W8;hav8 been unable to find a ~Single T8XaS

case which permits the lender.-to:collect from.the borrower, in addition to interest in8xcesS of ,lO&for expenses incurred or ,servi.ces

rendered:by

him in connection

with the loan. See.Trinity Fire InsuranceCompanyv. Kerrville~ Hotel .Comuany(TexasSupreme Court) 

### 103~~S.W,~

(2) 121. -:

Doubtless it may be' argued that the lender could.render services to the borrower in connection with.th8~

,loan which services are not .ofthe.ty$e ordinarilyincidental.to a loan and which could be rendered by.the lender.moreeconomicallythan the.same service could be renderedby, a&hird party. .I

t may~be further argued that compensationfor such service is.not to be construed
as interest if the slender canrender an accurate.accounting.showing that such servicesrepresent out-of-pocket.expense,which can be isolated as chargeableto the particularloan and distinguishable from the lender's general overhead.expense or expenses, which are incidentaltothe lender,'s general business..

The decisionsof.ourvarious appellate courts negative this argument but if they did not, 'wethink the bill attempts toHon. R. Emmett Morse, page 

### 9 (O-726)

authorize interest of more than ten per cent in another respect. Section 13(A)(b) attempts to authorizethe,borrowerto contractat the time of the making of the loan to pay not to exceed 13 per cent per month of th8 monthly balance as a service charge presumably to compensatethe lender for the cost of collecting {he amount of the note. It iS importantt0 not8 that th8 borrow8r's obligationto pay for such potential services which have not been rendered at the time of the creationof the o ligation to pay there.fY for is unconditional and is not dependentupon the lender actually rendering such servicesthereafter. The act would authorize the borrower to obligatehimself to pay an amount certainwhether such servicesmay be rendered or not. Since the validity of the contract must be tested as of the date ~ofits execution,the fact that such s8rvic86are thereafteractually renderedby the lender do86 not remove th8 vice that the borroweruncond&tionallycontracts to pay an additional sum for such servicesregardless of whether or not they may be rendered., It cannot be questioned that the borrower's obligationto pay for servlcas that are never readered is properly construedas .interest.- 3y the 'same

logic the borrower'sunconditional promise .to..pay:~for uture services which may ormay not be.rendered bye the '~8nd8r;must~also be construedas interest. .Sitice the bill.attempts

to authorize such unconditionalobligationin addition:tolnt+rest,of10 per cent per annum; it is clearly contrary to :theconstitutionalprohibition against usury.

&ikeWi& clearly diSt,ing&.habi8 ar8 ~those

cases wherein the lender 1s.

paid by the~?wrroy8r :for property or .s&-vic8s not connected

with the customary cr8.ditor-d8btOr relationship.

"Withoutviolating the'usurylaw charges,may be tide for legitimatebenefits to a borrower; .~received

by him either .from third persons who did not share them with th8 lender or from the lender himself for some~ distinctly separateand additionalconsiderationother than the simple loanof money" - 

### 42 Texas Jurisprudence 

### 931 40. Thus a man may'properly'charge for his services in buying 

### b&ding materials althoughhe may be lending the money to buy them with. ~Crrv. McLniei 

### 5 S.W. (2) 

### 175, 30 S.W.(2) 

### 487, affirmed by Corn. of App. 

### 33 ~S!Wi (2) 

### 427.

In Slaughterv. Eller (Amarillo Court of Civil Appeals, writ of error refused) 

### 196 S.W. 

### 704; the court held that the lender might receive compensation for his labor in supervisingthe conduct of the borrower'sbusiness. The.court said:
(IThe contract in this case provided the means by which Slaughtermight keep informed of the conditionof Eller's business and prevent a use of funds other than in the businesswhich Slaughter,was financing. The. .

Hon. FL Emmett Morse, page 10 (C-726)

attention to the details by which this was to be accomplishednecessarilyimposed some labor. !lkeborrower might legitimately agree'to compensate the lender for servicers of. such char& ter, althoughperformed in the interest of the lender, providedalways that such charges are not made a mask behind which to conceal the true purpose of the parties."

The court said further:

"It is also stated generally that any advantageor benefit exactedwhich, added to the interest reserved, increases the compensation received for the loan to
an amount in excess g&the lawful interest constitutes us@f.i;;)' ". ',' ,;,

Inthe~same~

categorymay be placed the.casesrelating to buildingaud ~ldan~associati'ons !wherein

thencourtShave recognized ,the am capacity,of

a&an as borrower atia StOCkhOld8r. Contin8ntal 'Savings a.ria l3ui1ding~~~Association v. w00a @astlana~~Court of civil' AppeCI~~).~3.'S.W;:,~~2).:770i'affimaed by com+pp. 56 S.w.(2) ,641;: ,- .,

: ;: ; ,: ,'~:. T&&g'n~'from :the'qUestion~,of what is and what is not YnteresV' as d8fiXIed.by thecoUrts.of this state;let us conSid8r the more general question:.to what extent a-s the Usury revision of the T8xaSCOnStitUtiOn circumscribethe authority of %l 8 Legislatura~to .ex8rCise

,its'.discretion

with'reference

to regulatingthe busiriess;of making loans?.

~May the tigislatureignore'the constitutional mandate to.npr'ovide'appropriate pains ma penalties to prevent"us,Ury as to a,specific cla~ss of lenders in the furtheranceof what it .deems'to be the publicwelfare?

This questionwas squarely 'before the Supreme Court of Texas in Watson v. 

### Alken,. Tex.' 536, wherein it consideredan usurious loan made~ after the adoption of the Constitution of 1876 but prior to the enactmentby the Legislatureof any statuteproviding "pains and penalties*' for usury. 'ChiefJustice Gould in that opinion said: :~'

“on ing I&y 27, 1876,~Watson ~%&r$@Ied

of Aiken $3,000 agreeto pay interestat the ranted of eighteen per cent Der annum. The constitution which took effect in April of that year provided that in the absence of contract the rate of interest should not exceed eight per cent per annum, and authorised'parties to contra.& to "agree upon any rate not~to exceed twelve per cent per annum.' It then proceeds thus: 'All interest 'charged above this last named rate'shallbe deemed u.su%=ious, and the Legislature shall at its first session provide appro-, priate pains and penalties'to prevent and punish usury.'- .

Hon. R. Emmett Morse, page 11 (O-726)

Article 16, Section 11.

. . .
"In our opinionAiken occupiesno more favorable position than if his loan had been made after the act of the Legislaturetook effect. When his loan

bush it was left tue of the cpnsti t 0 to the Legislatureto 'nrescribe' rains and uenalties 'I fl a contr ct for usurious interestwas a contract in violation of law." @mphas,i~

ours)
Equally persuasiveof the proper construction of such
a constitutional

prohibitionisthe, more recent case by the Texas .Supreme

Court, City of Wink v. Griffith .Amusement Company 100 S.W. (2) 695, wherein the court was required to construe&ticle III, Section 

### 47, of the Stat8 Constitution which prOVid86 that "the Iegislatureshall pass laws prohibitingthe establishment of lotteriesand gift enterprisesin this state, as we1.l as the sale of~ticketsin lotteries,giftenterprises or other evasions involvingthe,lottery~principle, astablished~or

existing in other states." Chief Justice'Cureton.found that "lotteries&have b88n prohibitedby the.,Renal Code inaccordance withthe constitutionalmandate. 'Giftenterpriss# ana~,%therevasions involving the lottery principle I neverthel' 's;remain and stand con- ~~. demned by the constitution of'the sta as being against public policy....rfjefendant in Error's 'Rank .Night' plan was obviously

an evasion "o?"the

lottery laws~by the-~avoidance.of a direct charge for prize chances.... but neverth81ess.~r..manif8stly an attempted 'avoidance'

o,f the'lotterystatute~:'by artifice' in accordance with the generallyaccepted definitionof ~'.evasion'. Tnerefore defendant in error's 'RankNight' plan stands condemnedbv the Constitution

of Texas. Being condemn@ by the Constitution, it is against the 'public policy of the'Statelt'. (Emphasis ours)

Chief Justice Cureton wasthere speakingof a constitutional provisionwhich directea~ the legislatureto pass remedial legislation as does the usury provision;,the Legislature

had there failed to provide a remedy for a part of the evil recitedby the Constitution, and ye,tthe Chief Justice declared that the defendant'sact "stands condemnedby.the Constitution of Texas." Applying this reasoningto our question, it follows that the usury provision of the Constitution permits of no discretionby the Legislatureto withhold as to any class the "pains and penalties" for usurywhich the Con,s.titution~prescribes.

In view of the above,two clear pronouncements by the Supreme Court ~ofTexas,we feel it unnecessaryto burden this opinionwith additional citation of authorities. Our conclusions
as to the limitationsplaced upon the Legislature with referenceHon. R. Emmett Morse, page.12 (O-726)

to loans the which, under the d8fiXXitiOn of ~'inter8st1~

announcedby tour ts, are in fact usurious could not be better expressed than in the language of Judge Laitimore,speaking for the Texas Court of CriminalAppeals in Juhan v..:&ate, 216 S.W. 873:

'We are not permitted to concern ourselveswith the '. question as to whether the loan broker is necessary and useful in a community,to meet the wants of those~wholack ability to measure up to the financial standing requiredby the bankers,nor as to whether the loan shark is an evil that should be effectively banished from our midst. Evils must be met and abolish8d or minimized according to the wisdom of
our ~&hl'8, u within he limits fixed bv our $%mstitution.w &m$Lasis 0-A)

We therefore,respectfully adViS8 you that it is the opinion of t&is departmentthat th8 Committeeamendment to House Bill 420 exceeds the limitations of.ArticleXVI, Section 11, of th8 Constitution

of -Texas in that Section 13-A thereof purports to put the cloak of legis~tive sanctionabout a special class of loans which may be usurious as a matter of law.

We also believe that this bill is unconstitutional for severaladditional reasons. We shall mention th8Se brieflywithout attempting to discuss each one exhaustively.

Section l3-C.of th8 bill seeks to give to,all charges permittedby Section 13-A a presumptionof validity. This we believe is contrary to the spirit.ofth8 constitutional i&bition against usury. As said by the Texas Supreme Court in Hemphill v. Watson, 60 Tex. 679:

Vhe section of the Constitution above alluded to (Article16, Section 11, of Constitution of 1876) made usury a quasi offense which the Legislature was chargedwith suppress Ll g and punishing. It even defined what should amount to the offense of usury, aeclaring such offense to consist in charging interest at a greater rat8 than twelve per cent per annum. This provision is prohibitoryin its nature and selfexecuting so far as to render all contractsof the kind denounced immediatelyillegal; and it left to the .Legislature

the only remainingduty of sayingwhat penalties shouldbe impo.sea upon offendersagainst this clause of the Constitution. Cooley on Constitutidnal Limitations,100 nOtej Law v. People, 87 111. 

### 385. "'A3 power to uass laws of a certain character is urohibitorya ,.,

Hon. R. Emmett Worse, page 

### l3 (O-726)

of such acts as those laws would authorize.13t

We believe.

Section 

### 13-C of,

this bill is discriminatory
as to certain features thereof and therefore violates the "equal protection"clause of the United States Constitution and the followingprovisionsof the Constitution of Texas:

Article III, Section 

### 56. "The Legislatureshall not, except as otherwiseprovided in th&Constitution, pass any local or' special law authorizing..... fixing the rate of interest."

Article I, Section 

### 3. "All free men, when they form
a social compact,have equal rights, .and. no man, or set of men, is entitled to exclusives separatepublic emoluments,or privil8ges,~~but in consideration

of public services." : ,. Article.

I shall.be'

JrSaction~19: oivo.'kti&i of. this state priV8d:'of'~,lif8.;~

liber.ty,..

property,privileges or immunities;.or inanymanner disfranchised:, ~8XC8pt

by Ch8 dUeCoUrS8,Of the +3W~Of th8.tind.w -1

Section.l3C prOvid8S.that~if: a;loan.made

~bya licensed lender in accorpance'with the rate provisions-of Section 

### 13-Abe found by a.court to.,be usurious, suchlender will be ~penalizea~ only to the extent of lC$.Of the principalamount of the lOan; whereas if.a'non-licensed lender (a!idhe;<may.be. in the 8Xempted categoriesand therefore:ineligible 'for .a license)should make the identicalloan, h8 issubj8ct to the penalty of double the amount of usurious interestpaid, under Articla 

### 5073 of the Revised Civil Statutes.

The last paragraph of.Section

### 3 of the bill requires every licensee to appointthe RankingCommissionerhis attorney for process of service; No provisionis made in the bill requiring the Ranking Commissionerto give notice of any service of?; process to the defendant.. .Suchprovisions

were held to invalidate the Loan Brokers statute of 1918. (Acts 34th Leg. 

### 1915, C 

### 28, Vernon's.Annotated Civil Statutes, Supplement

### 1918,Articles 6171-a-6171-1) as per the opinion of Lattimore,J in Juhan
v. State (Tex.Ct.of Crim.App., 

### 1919)216 S.W.(2) 

### 873 at page 877:

n

. . ..and then to fU#her write in section 7 of said act (article617lg), as a.part of 'the law governing such business', that such private citizen shall file with the county clerk of each county where he does business a written, irrevocablepower of attorney, naming the county judge of such county as his dulyHon. R. Emmett Morse, page 14 (O-726)

authorizedagent and attorney in fact, for the purpose of accepting service for him or it or being servedwith citation in any suit brought againsthim
or it, in any court of this state, 'and consenting that the serviceof any civil processupon such county judge as his or its attorney for such purpose, in any suit or proceeding,shall be taken and held to be valid, waiving all claim and right to object to such service or to any error by~reason of such service,'is to attempt to place such obligationin said bond as to make it unreasonableand.discriminatory. No citizen of this state can be compelledto relinquish or.waivehis right to his day in court' as a condition to engaging in any lawful business. Nor will a law requiringa bond seeking to impose such conditionbe upheld by us. We, are not surprised that the bonding companiesand solvent citizens,as iS disclosedby this record, r8fUS8d t0 make for appellant the bona requiredby this act. uIId8r its conditions and th8 terms of this law, th8 county judge~mighi!

accept service, or~b8 served with citation t in a suit against appellant in the most remote
coun y in the state, and in a lawsuitwholly foreign to th8 loan brokeragebusiness,ma In such case, even without lnnniledge on the part of appellantof Said Suit Or SeZTiC8, Or acC8pt8d 68IViC8,a-jUdgment m$ght be rendered against him and his bondsmen for any amount; ana,.8ven though the servicebe d8- fective, erroneous;and illegal,appellant andhis suretieswould be powerless,-for by the express provisionsof the law such written appointmentof the county judge as his' attorney in fact must contain ~appellant's

consent to,sUch service,and his waiver of any right to object..to:any error therein. 'Notwithstanding

the fact that; 'asto :the.ordinary citizan erroneousand defective service renders the judgmenteither void~or voidable, as the caSe may appear, for some reason effort.ishere mad8 to take from the man engaged in the business of loan broker such right, and he is thus penalizedand denied the right of equal protectionof the law, and deprived of his propertyand privileges ~without

due coUrse of law. !Phere

is no provision in this law requiring the county judge to notify, or in any otherway acquaint, the loan broker with the fact that he has accepted service or been servedwith citationin any suit against him, which facts may result from the consideration

that it would do the loan broker no good, inasmuchas he could not take any steps to~release himself by reason of any defect in the citation....."Hon. R. Emmett Morse, page 

### 15 (0-726)

See also Hess v. Pawloski,274 U.S. 352, 

### 47 Sup.Ct. 632, 

### 71 L.&I. 1091, wherein the Massachusetts statute providingfor substituted service on non-resident motoristswas upheld because "it is required that he shall actually receive and receipt for notice of the service and a copy of the process." We, therefore, believe. this provisionof Section 

### 3 of the bill is a denial of due process.

'Ihe committeeamendment to House Bill No. 420 being unconstitutional

for the various reasons above enumerated, we shall pretermitany more detailed consideration of its sions.

Yours very truly

AT!CORNEY

GENERAL By/& Walter R. Koch Walter R. Koch~Assistant
(s&Victor W. Bouldin Victor W.. Bouldin,Assistant : specificproviOF TEXAS

WFtK:FL/wb

This opinionhas been consideredin conference, approved, and ordered recorded.
g;wCld&Mann

. . Al!TORNEYGENERALGF!l!FXAS

APPROVED: tX'&NI;~CQJC.TEE BY:
,

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