Court Opinion

ID: 5575958
Source: CourtListenerOpinion
Date Created: 2022-01-11 01:24:16.307998+00
Date Added: 2024-06-11T08:35:55.609126
License: Public Domain

Lumpkin, J.
I can not concur in the views expressed by Mr. Justice Atkinson. The fallacy underlying the opinion of my learned brother is that it deals with the certificates sued on as single separate contracts, disconnected from the general plan of operation of the company which they disclose. On the face of each certificate it is evident that it was only one of many, which it was contemplated should be issued as part of a general scheme. The nature of the scheme sufficiently appears, in my opinion, to show its illegality. From the face of the certificates the following facts may fairly be said to appear: The company exercised the business of issuing certificates like these, in large numbers. Those oh which the suit *166was brought are of a class known as class A. The plan was for the subscribers to pay on each certificate $1.25 per month for 130 months. Of each installment twenty-five cents was used for expenses, leaving one dollar net to be used by the company, or an aggregate for the whole time of $130. .Of each $1 thus paid in, twenty-five cents was placed in the reserve fund, for the protection of live outstanding certificates. This was all which was required to be thus held. The other seventy-five cents was to be carried to a redemption fund. This could be used to pay off certificates maturing, or before maturity according to a multiple table presently to be referred to, or for returning the $1 per month to representatives of deceased certificate-holders. The contributions to the reserve and redemption funds' might be loaned to certificate-holders, upon their certificates, or they might be loaned with real estate- or bonds as security. For these installments the company agreed to pay to the holder, at the end of the period, $505.54. Certificates could be called in before maturity. Certificates paid before, maturity were to be paid in the following order: first, No. 1, then No. 3, then No. 9, then No. 2, then No. 6, then No. 18, and soon indefinitely under a multiple table based on 3. If paid prior to maturity, the redemption value should be $15 if paid one month-after date; $18.05 if paid in two months; $21.11 if paid in three months, and so on, the redemption value increasing $3 with each installment paid, besides interest at four per cent, on the redemption value for the preceding month. For a failure to pay installments on any certificate a forfeiture would result. Thus, omitting the expense item, the plan or scheme was to promise large numbers of people $505.54 for each $130 paid in monthly installments during 130 months (ten years and ten months), or nearly 390 per cent, of the total payments (about 70 per cent, per annum on the amount for the average time of the payments) ; or, to those-who should he paid off by the use of the multiple table, $15 for a total of $1.25 paid in, if the certificate should be paid in one month, or 1200 per cent, of the amount paid in, — 1500 per cent, of the $1 having an earning capacity. Other fixed sums would be-paid at times later than the first month, all entirely without .regard to what the money paid in might earn. If they loaned out the money in the reserve or redemption funds, in this State they could only lawfully charge 8 per cent, per annum interest, while they *167promised the enormous percentages above mentioned. Whence were they to come? If all remained in, nothing short of a-financial miracle could make payment possible. It was alone through lapses of many that some could hope for redemption. These lapses played a double part in the transaction: The whole scheme evidently looked to the uncertain chance of the ruin of some for the possibility^ of complying with the promises to others. It was based and founded on the possibility of lapses. This is a wholly different thing from a life-insurance company, • which lays aside a reserve that, at some reasonable and fixed rate of interest, is estimated to accumulate enough to meet the policy at maturity, according to' tables of expectancy. The States, generally if not universally, by statute now require this to be done. Lapses may add to profits, but are not the sine qua non in any legitimate- business. Nor is there ány analogy between such a scheme and the contracts of indemnity involved in fire, marine, or accident insurance.
The effect of lapses on the numbers of the certificates to be called in under the multiple table is to create a mere hazard or chance. To take a simple illustration: Let us suppose that at the end of five months after starting, for the first time a payment was to be made, of twenty certificates, which would they be?. By the table Nos. 1, 3, 9, 2, 6, 18, 27, 4, 12, 36, 5, 15, 45, 54, 7, 21, 63, 8, 24, 72. Suppose five of these had lapsed (say 1, 12, 8, 24, and 72), then five others would have to take their places, and thus become subject to redemption by the accident of lapses before other certificates of earlier date. The regular numerical order of issuance did not fix the order of payment. c"And the multiple table was subject to shifting and uncertainty by lapses. It is -said that there is no evidence here that the purchasers took the certificates in numerical order, and could not select the number desired, 80> as to choose a number subject to redemption by the table. It does not clearly appear that this was universally true; but there is an indication that such was generally the case, and that under some circumstances it was certainly so. In the fifth paragraph of the certificate it was provided that' after sixty installments had been paid, if a default should then take place, the holder might apply within a limited time, surrender his old certificate, and have a new one issued to him for the amount paid in, less the amount carried to expense fund, “which shall bear the next unsold num~ *168her." This indicates that the certificates sold were numbered in regular order. If the one thus numbered happened to be named in the multiple table as subject to early redemption, no other purchaser could choose and buy it. If it happened not to be so, the taker could not ask for a different number. •
But it is said that the language of the certificate as to redeeming and paying the arbitrary amounts fixed (prizes) was permissive. While the words are permissive in form, it is palpable that the scheme was to hold out early redemption at arbitrarily large amounts as a method of doing business. After deducting 25 per cent, from each installment paid, for expenses, of the remaining $1 it was declared that seventy-five cents should be placed to “a redemption fund.” What is a redemption fund, if not a fund with, which it is intended to redeem ? What was the meaning of declaring that the redemption value of a certificate “shall be fifteen dollars if paid one month after date,” if it was not intended to hold out a possible redemption in one month? How? By the use of the multiple table and possible lapses. True it is said that the redemption fund “may be used” to pay for redeeming before maturity. But it is also said that the fund “may be used” to return to the estate of a deceased certificate-holder the amount paid in by him (less the expense deduction). Suppose that the administrator of such decedent should call for his money within the time limited, would it be any answer to say to him: “We merely said we ‘may’ pay you, not that we would do so”? Or suppose that a lottery company should issue tickets stating that they “may” have drawings, not positively that they will do so, would this be any reply to a charge that they would be conducting a lottery scheme ?
In Equitable Loan & Security Company v. Waring, 117 Ga. 599, the nature of this company and of its certificates was fully considered. Certificates like the one now before us, belonging to class A, were practically treated as unlawful both by the majority and the minority of the court (pp. 602 (1), 652), though the majority of the court did not pass upon the question. The main point of difference was whether a new series of certificates known as class B, issued after the United States mails had been closed to class A, was legal or not. Three of the Justices held that they were. Two dissented. One was absent. The writer of this, then *169on the bench of the superior court, wrote an opinion, expressing his views, which will be found, published in 117 Ga. 604, et seq. In that case, the facts were more fully developed by evidence than they here appear; but under what was there said and the authorities cited, I am of opinion that enough appears to hold that this scheme was a lottery, or at least a similar scheme or device, and contrary to public policy. In the case just referred to, Mr. Justice Cobb, in delivering the opinion of the majority, said of certificates of class B (p. 66£): “If under the contract no certificate ■can ever be called for redemption until it has earned at least eight per cent., then there is no element of prize in the contract.” He construed the certificates of class B not to be subject to be redeemed until they had earned eight per cent. This can not be said of certificates of class A. By inference from this statement of Mr. ■Justice Cobb, there was a prize element in class A. And if what has been said above, as to the issuing and numbering of the certificates, the chance application of a multiple table thereto, the effect of lapses on the application of the multiple table, and the gathering by chance lapses and distributing by chance numbers, is correct, then the scheme indicated on the face of the certificates was a scheme or device in the nature of a lottery, and contrary to public policy. It is suggested that the company might have had other money not arising from the sale of certificates, and might use it to meet them at maturity. The reply is that the suggestion goes to the solvency of the company, not to the legality of the scheme of which the certificates sued on form a part. But it may be remarked that the certificates indicate that the company was conducting the business of dealing in these certificates (which I think illegal), for profit, charging 20 per cent, of all installments, and all transfer fees, for expenses. There was nothing to indicate that they did anything else; nor can we well assume or infer from- what appears that this scheme was designed as a mode of giving away money outside of that gathered in. Design which distinguishes a legitimate business from an illegitimate one does not mean merely the design to conduct, for a consideration, a scheme of chance, with prizes to the fortunate.
The company has invoked a ruling, by its demurrer, that its class A certificates were illegal; and I think the demurrer was properly sustained. For recent cases on the subject see Siver v. *170Guarantee Investment Co., 183 Mo. 41 (81 S. W. 1098); State v. Nebraska Home Co., 66 Neb. 349 (60 L. R. A. 448, and note); Stevens v. Cincinnati Times-Star, 72 Ohio St. 112 (73 N. E. 1058).
I am authorized to state that Chief Justice Fish and Mr-. Justice Evans concur in the views expressed.