Opinion
No. 38121.
September 24, 1951.
1. Taxation — notes for loans at 5% interest payable monthly principal and interest.
Where, as allowed by statute, a loan company making loans on monthly installments charged interest on the principal amount for the entire period of the loan at the rate of five per cent, per annum, and divided the sum of the principal and interest into monthly installments the notes held for such loans were exempt from taxation. Secs. 5590, 9697(n) Code 1942.
2. Taxation — rate of interest.
The rate of interest as mentioned in the statute exempting from taxation notes and loans at a rate of interest not exceeding six per cent per annum was intended in the usual, ordinary and every day sense of the term, in common understanding, which is the interest charged for the period of the loan, namely the per centum of the amount lent which is charged for the use of the money for a fixed period of time, which is the thing contracted for by the parties. Sec. 9697(c) Code 1942.
Headnotes as approved by Ethridge, C.
APPEAL from the circuit court of Hinds County; M.M. McGOWAN, Judge.
John G. Burkett, for appellant.
In the computation of interest rates, there are certain invariable and unchanging principles of mathematics which are used. These principles are in operation throughout the English speaking world, and probably everywhere.
This rule is expressed in 33 C.J. p. 248 under the heading, "Computation", in the following language: "Interest is generally to be so computed as to avoid the payment of compound interest, and to secure a calculation of interest upon the actual amount due, for the actual period during which interest should run".
In 66 C.J. p. 205, another rule is stated: "Where the principal sum of a loan or debt is made payable in installments at specified intervals within the full period of loan, but the interest for the full period on the whole principal sum is agreed to be paid, or is taken or withheld by the lender in advance, or is included in the face amount of the note, the transaction is usurious, whether or not the rate of interest stipulated in the contract exceeds the maximum specified by law, if the sum so agreed to be paid or so deducted as interest is greater than interest at the lawful rate on the principal sum for the period for which it is actually lent. Similarly, where interest is calculated at the highest lawful rate for the full period of the loan and the aggregate of the principal and the interest as so calculated is divided into a series of notes, which mature at intervals within the full period, the transaction is usurious".
It is true that the above text deals with usury, but the law of usury is applicable in tax cases as was held by this court in the case of Gulley, State Tax Collector v. Gulf Coast Industrial Loan Company, 168 Miss. 768, 151 So. 754.
In Hubachek's book entitled "Annotations on Small Loan Laws", published in 1938, under sponsorship of the Russell Sage Foundation, the rules on computation of interest rates are set forth with clarity and simplicity.
On the computation of interest, on page 147, this writer says on that subject: "The term `interest' is a device of language by which a formula is expressed in a word. The formula is frequently stated in general statutes fixing maximum contract rates in such words as `six dollars for the use of one hundred dollars for one year, and greater or lesser amounts in time and proportion'. There are three elements in the formula and each is essential to its proper application. They are: the amount charged, the amount lent, and the time involved. When each element has been accurately determined, application of the formula to ascertain the rate of interest charged requires merely the use of elementary arithmetic".
Only when all three factors are known can the rate of charge be computed and reduced to a per cent per annum for comparison with the rate allowed by law.
On page 150, he gives examples of how the interest rates are often increased: "Another illustration may demonstrate the peculiar difficulties which commercial practices have created in the application of the principles of interest computation. When the privilege of deducting the maximum interest in advance exists it extends only to interest which is accurately computed. It has been used, however, to mask a different practice — the deduction in advance of interest computed on the initial amount of the loan which is repayable in brief periodic installments of principal, in spite of the fact that the amount of which the borrower originally has the use diminishes constantly during the life of the indebtedness. This practice produces a per cent rate of interest approximately twice as large as the original discount rate".
There are several cases in Mississippi and other states which throw light upon the subject of interest computation, and which bear out the rules heretofore set forth herein: Fry v. Layton, 191 Miss. 23, 2 So.2d 561.
Another case is Johnson v. Carter, 203 Miss. 38, 33 So.2d 296.
The case of Agostini v. Colonial Trust Co., 36 A.2d 33, a Delaware case decided recently is directly in point. Also Columbus Industrial Bank v. Rosenblatt, III Conn. 84, 149 A. 209, and Unity Plan Finance Co. v. Green, 179 La. 1070, 155 So. 900.
In the case of Equitable Finance Co. v. Board of Supervisors of Lee County, 146 Miss. 734, 111 So. 871, this question is put to rest finally and definitely.
This rule is in the case of Industrial Loan and Investment Co. v. Adams County and City of Natchez, 163 Miss. 654, 141 So. 756.
Creekmore Creekmore, for appellee.
Our instalment loan statute, Sec. 5590, 5591, supra, became a part of our law by Chap. 136 Laws 1916. The manifest purpose of that statute was to encourage the making of loans of this type at low interest charges. It defined the interest rates that might be charged, and it prescribed the method of determining whether those rates are exceeded. It is under this statute that appellee has conducted its business in the State of Mississippi. The statute has been noticed by our Supreme Court in the following cases: Tiley v. Grenada Building Loan Ass'n., 143 Miss. 381, 109 So. 10; Guaranty Investment Loan Co. v. Stevens, 161 Miss. 473, 137 So. 335; and Industrial Loan and Investment Co. v. Adams County, 163 Miss. 654, 141 So. 756.
Appellant insists that the statute should be given a strict construction. It is, of course, true, as a general rule, that tax exemption statutes are to be strictly construed and that claimants for exemption must show a clear right thereto. But the exemption statute here involved (Sec. 9697(v)) is perfectly clear: Evidences of indebtedness and money loaned "at a rate of interest not exceeding 6% per annum" are non-taxable. It is the instalment loan statute that must be construed so as to give effect to the legislative purpose and intent. This court must determine what is the meaning of the language "at the rate of 5% per annum" as used in that statute; and when the statute has been so constructed and the meaning of the language therein used so determined if it then be clear that the loans made by appellee pursuant to that statute bear "a rate of interest not exceeding 6% per annum" then they are exempt from taxation; otherwise not.
That the usual rules of statutory construction should be followed by the court in construing the instalment loan statute is made abundantly clear by the case of Gunter v. City of Jackson, 130 Miss. 637, 95 So. 844.
In construing statutes, the primary aim of the courts is to ascertain and give effect to the real intention of the legislature. "Legislative intent as an aid to statutory construction, although often elusive to the perception of unaided vision, remains nevertheless the pole star of guidance". Quitman County v. Turner, 196 Miss. 746, 759, 18 So.2d 122; Beard v. Stanley, 205 Miss. 723, 39 So.2d 317; State Highway Comm. v. Coahoma County, 203 Miss. 629, 32 So.2d 555; Kennington Saenger Theatres, Inc. v. State, 196 Miss. 841, 18 So.2d 841; Zeigler v. Zeigler, 174 Miss. 302, 164 So. 768; Smith v. Chickasaw County, 156 Miss. 171, 125 So. 96; Gandy v. Public Service Corp., 163 Miss. 187, 140 So. 687.
"It is the firmly established rule in this state that in construing statutes not only the language, but the purpose and policy which the legislature had in view must be considered, and the court, in interpreting the statute, will give effect to such purpose and policy." State Highway Comm. v. Coahoma County, 203 Miss. 629, 651, 32 So.2d 555; Sheffield v. Rice, 201 Miss. 133, 28 So.2d 745; Zeigler v. Zeigler, 174 Miss. 302, 164 So. 768; Smith v. Chickasaw County, 156 Miss. 171, 125 So. 96; Gandy v. Public Service Corp., 163 Miss. 187, 140 So. 687.
"The court in construing a statute will not impute an unjust and unwise purpose to the legislature when any other reasonable construction can save it from such imputation." Hendrix v. Foote, 205 Miss. 1, 41, 38 So.2d 11; Gunter v. City of Jackson, 130 Miss. 637, 94 So. 844; Dunn v. Klingman, 93 Miss. 310, 47 So. 503.
In construing a statute, the court must ascribe to it some real and practical purpose as viewed by men of sound judgment addressing themselves to a practical situation. State Highway Commission v. McGowen, 198 Miss. 853, 23 So.2d 893.
"The legislature has the power to define for itself. It may upset the dictionary and give to any word a meaning of its own. . . . The legislative definition outweighs the dictum of the lexicographers". Mathiston v. Brister, 166 Miss. 67, 145 So. 358; Stone v. General Contract Purchase Corporation, 193 Miss. 301, 7 So.2d 806.
As the purpose of the legislature in enacting Sec. 37 of the Code was to encourage the lending of money at a rate of interest not greater than 6%, Beck v. Tucker, 147 Miss. 401, 113 So. 209; Johnson v. Carter, 203 Miss. 38, 33 So.2d 296; and as its purpose in enacting Sec. 41 of the Code was to define interest rates, and to fix rules for calculating the same wherever the issue of usury or taxation is presented, Chap. 179 Laws 1926, Hood v. First National Bank, 45 So.2d 251; so likewise it was the purpose and intent of the legislature in enacting Secs. 550 and 5591 of the Code to encourage the lending of money at defined rates of interest to be repaid on the instalment plan, and to fix rules for determining whether those rates have been exceeded whenever the issue of usury or taxation may be presented.
The Legislature was well cognizant of the fact that if loans made under this statute were subject to ad valorem taxation, no person knowing such to be the case, would make any such loan. The ad valorem tax rates in most, if not all, of the counties and municipalities of the state were, and now are such that if loans made under this statute were subject to taxation, the net return to the lender for the use of his money would be far less than that which he could obtain through the making of straight 6% loans. The Legislature was well aware of these facts, they being of common knowledge, and it certainly did not intend that a person lending money under this statute would be penalized "to such an extent as to work a self-destruction of the act". Such an unwise and unjust purpose cannot be attributed to the legislature, but on the contrary the court must ascribe to the statute as written, a real and practical purpose, as viewed by men of sound judgment addressing themselves to a practical situation. The only reasonably practical construction that can be given to this statute; the only construction that would make effective the legislative purpose and intent to encourage the making of loans of this type, and to enable the men of limited financial means to borrow money on the instalment plan, is for this Court to hold that it was not the intention of the legislature that loans of this type be subject to taxation.
It is our sincere belief that the legislature by the very wording of the statute itself has said that loans made pursuant to its provisions are at "the rate of 5% per annum or less", and having so pronounced that they are at "the rate of 5% per annum or less" they necessarily come within the express terms of the exemption statute, i.e., they are loans bearing "a rate of interest not greater than 6% per annum". In this situation it must be borne in mind that the legislature had the power to define for itself the term "rate of interest"; and to provide how interest at that rate shall be calculated. It had the power to do this, even though the method it has prescribed for calculating interest at that rate may be contrary to rules prescribed by mathematicians or contrary to dictionary definitions. Such was specifically held in Mathiston v. Brister and Stone v. General Contract Purchase Corporation, supra. All that the legislature had done here is to prescribe the rate of interest at which persons operating under the provision of this statute may lend money, and to prescribe the method whereby the interest yield or return on the money loaned at that rate of interest is to be calculated. As we have demonstrated before that yield will always be more than 5% and always less than 10%, — the actual yield being dependent upon the number of monthly instalments over which the loan is to be repaid.
Insofar as matter of taxation (and usury) is concerned, our Court in several cases has pointed out that the law is not concerned with the yield which a person may receive from money invested, so long as that money is not loaned at a "rate of interest which exceeds 6%". Thus, the case of Equitable Finance Co. v. Board of Supervisors, 136 Miss. 744, 111 So. 871, and Hood v. First National Bank, 45 So.2d 251.
The case nearest in point which has come to our observation is Golden Gate Bridge Highway District v. Filmer, 217 Cal. 754, 21 P.2d 112, 91 A.L.R. 1, and see Old Colony Railroad Co. v. Commissioner, 284 U.S. 552, 76 L.Ed. 484, in which the converse situation was presented.
For many years the loaning of money on the instalment plan has been a well established and well recognized business in this State. Since 1930, heavy privilege taxes have been imposed upon persons engaging in that business; the present statute being Section 9696-134 of the Code. The businesses of these persons are absolutely destroyed if, in addition to the privilege taxes laid upon them, they are also required to pay ad valorem taxes upon the loans which they have made. The purpose of the legislature in enacting the instalment loan statute was not one of entrapment. It did not intend that a person entering upon such a business, on the faith of this legislative enactment, should have his business subjected to destruction by requiring ad valorem taxes to be paid on the loans he makes. It did not intend to impose a penalty on those who loan money under that statute; but rather, as our Court said in Tiley v. Grenada Building Loan Ass'n., 143 Miss. 381, 109 So. 10, to grant a "privilege to all persons to lend money at 5% on monthly instalments on long terms". The intent was to encourage the making of such loans, and thereby to fulfill the public need for a means of obtaining money at low interest charges, with the privilege of repaying the same monthly as their income permitted. Such is what the legislature sought to do, and such was the purpose and intent of the statute. This Court should give effect to that purpose and intent; it should make the statute one of a living and vital force, and not one of destruction.
Appellant in reply.
There are no elements of buying and selling, or profits or losses in this case. It is purely and simply a matter of lending money, with the sole income therefrom being interest.
We do not believe that it is possible to find any difference whatever in the meaning of the terms "interest received from money lent", and "yield" from "money lent", when the only element involved is the return to the lender from money lent to the borrower, as compensation for the use of such money. They are interchangeable, and amount to one and the same thing. The meaning of the terms are identical; "interest of income from money lent" is the "yield" and the "yield" is the "interest or income from money lent". Both mean "compensation for the use of money lent by the lender to the borrower". That is what interest is. 33 C.J., p. 178.
In the calculations furnished by appellee, it is readily seen that beginning with the second month, the interest exceeds six per cent per annum. The records shows that all of the loans made by appellee are made to be repaid in monthly installments. There are no loans where the principal is paid in a lump sum. All are in installments. Therefore all loans made by the appellee do produce an income or interest in excess of six per cent per annum.
It is an impossible feat to find a "rate of interest per annum" without taking into consideration the amount of money actually lent; the time the borrower has the actual use of it; and the amount of income or compensation which the lender receives for the use of the money actually lent.
This Court has held that interest or income from money lent consists of anything of value or benefit coming to the lender, no matter by what name it may be called.
In Gulley v. Gulf Coast Industrial Loan Company, 168 Miss. 768, 151 So. 754, this Court specifically held that "yield" is the amount of advantage or benefit derived by the lender from the borrower, for the use of money lent. The Court said: "The principles of law governing questions of usury are applicable. Any benefit or advantage exacted and received by the lender from the borrower, whatever may be the form, which added to the interest taken or reserved will yield more than the rate of interest allowed by law, is usury".
Thus the "yield" is found by this case to be the same as interest received. The name by which called makes no difference, it is still income or compensation for money lent.
Appellee says that this Court must determine what is the meaning of the language "at the rate of 5% per annum" as used in the statutes under consideration, and says further that the legislature had the power to define what "a rate of interest per annum" meant.
We admit that the legislature might possibly have such power but submit that it failed and refused to do so in the statutes here under consideration. Having failed to do so, then we must assume that the legislature intended that these terms have applied to them their common, ordinary and every day meaning. If some different meaning was to be attributed to these words, would not the legislature have said so in the act? Insofar as this Court is concerned it has already declared the meaning of such words. In the case of Rogers v. Rivers, 135 Miss. 756, 100 So. 385, this Court said on this subject: "The language of the statute `8 per cent. per annum' must be given its plain meaning; 8 per cent. annum means 8 per cent. payable annually".
We reiterate here that there is no "buying" and "selling" or "profits" or "discounts", or "premium" in this case. It is strictly a business of lending money. That is appellee's only activity.
It is significant that every case upon which appellee depends and which is cited in its brief, is concerned with buying and selling of securities, and profits or losses made or sustained by reason of such buying and selling, of commercial paper, bonds and notes. Such cases, we submit, are not in point here.
(Hn 1) Appellant, Mrs. Thomas L. Bailey, State Tax Collector, and plaintiff in the court below, seeks to back assess appellee, North American Finance Company, defendant below, for state, county, and City of Jackson ad valorem taxes for 1949 on certain notes and debts owned by appellee. The Circuit Court of Hinds County, acting without a jury and affirming the Board of Supervisors of Hinds County and the City Council of Jackson, disallowed the back assessments. On appeal by the State Tax Collector these two causes were consolidated. Miss. Code of 1942, 1950 Supp., Sec. 9697(u) provides in part that the following property shall be exempt from ad valorem taxation: "* * * all notes and evidences of indebtedness bearing a rate of interest not greater than six percent (6%) per annum, and all money loaned at a rate of interest not exceeding six percent (6%) per annum * * *". Miss. Laws 1946, Ch. 234, Sec. 1. The question is whether the loans which appellee makes are in excess of six per cent interest per annum under the terms of the quoted statutory provision. We hold that they are not, that the notes owned by appellee are exempt from taxation under Sec. 9697(u), and therefore affirm the judgment of the circuit court.
Appellee is a Mississippi corporation with its principal offices and place of business in Jackson, Mississippi. It is engaged in the business of loaning money on the monthly installment loan plan as authorized by Miss. Laws 1916, Ch. 136, now Code of 1942, Secs. 5590 and 5591, which provide:
"5590. Monthly instalment loans — how interest may be paid. — Any persons, natural or artificial, including domestic and foreign corporations, lending money in this state to be paid back in monthly instalments, may charge interest thereon at the rate of five per cent. per annum or less, for the entire period of the loan, and aggregate the principal and interest for the entire period of the loan, and divide the same into monthly instalments, and may take security therefor by mortgage, deed of trust, or title, with waiver of exemption, upon and to real estate or personal property, or both."
"5591. Loan paid before maturity — how. — In any such loan contract as authorized in last preceding section provision may be made requiring the borrower, upon exercising any option to repay the loan before maturity, or upon any default in the payment of the monthly instalments of principal and interest, or upon the breach of any covenant entitling the lender to declare the whole indebtedness due and payable and to a foreclosure of the security, to repay the loan upon the following basis of settlement: The principal debt, with interest thereon at the rate of ten per cent. per annum, and allowing credit for all payments of instalments of principal and interest upon loan, with interest thereon at the rate of ten per cent. per annum from the date of payment to said lender, computed annually in accordance with the laws of the state of Mississippi.
"Any such loan contract, and all the provisions thereof, shall be valid for the amount of the principal and interest charged, and such contracts shall not be held usurious."
Code Sec. 36 fixes the legal rate of interest on notes at six per cent per annum, but allows the parties to agree in writing to an eight per cent rate.
Appellee makes all of its loans strictly in accordance with the above quoted installment loan statute, Sec. 5590. No issue is made here concerning usury. Appellee charges interest on the money loaned at the rate of interest of five per cent per annum for the entire period of the loan, and then aggregates the principal and interest and divides the total into monthly installments. Since the loan is repaid in monthly installments, the interest yield which appellee receives for the use of its money is in most instances more than six per cent. For example, under the statutory plan a loan of $120 for twelve months at five per cent interest per annum results in a total note of $126. Since the borrower repays it in twelve monthly installments of $10.50 each, he does not have the use of all of the money for the entire period, but for six and one-half months.
Appellant insists that the actual period of use of the full sum must be considered in determining the "rate of interest" under the exemption statute, and that the appellee's yield on such a loan would be more than six per cent on that basis. Under the above example, it would be 9.23 per cent. However, (Hn 2) we think that the phrase "rate of interest" in Sec. 9697(u) was intended by the Legislature to mean the usual, ordinary, and everyday sense of the term, in common understanding, which is the interest which is charged for the period of the loan, namely, the per centum of the amount lent which is charged for the use of the money for a fixed period of time, which is the thing contracted for by the parties.
Sec. 5590, which is designed to encourage the making of small loans at a low interest rate, specifically provides that a lender who follows the procedure outlined in that statute is charging interest "at the rate of five per cent. per annum." Code of 1942, Sec. 9697(u) grants the exemption for notes "bearing a rate of interest not greater than six per cent (6%) per annum." The latter provision was apparently first enacted in 1912, Miss. Laws 1912, Ch. 241. See also Miss. Laws, 1916, Ch. 100; Hemingway's Code of 1917, Sec. 6879(w); Miss. Code 1930, Sec. 3108. When the installment loan statute of 1916 was enacted, the exemption act had been in effect four years, and we think that the Legislature intended that the later statute would be within the provisions of the earlier one. A contrary result would have discouraged the salutary purposes of the installment loan act.
It would also have been inconsistent with the terms of the two statutes. The exemption is for notes "bearing" the stated rate of interest. Notes used by appellee did not state on their face any rate of interest before maturity, but the amount of the loan and note was the aggregate of principal and five per cent interest for the period. The notes were "bearing" or carrying interest at less than the rate necessary for exemption. They were made in accord with Sec. 5590, which provides that installment loans so computed were "at the rate [of interest] of five per cent. per annum". The ordinary meaning of these two statutes read together indicates that the Legislature in granting the exemption contemplated not an accountant's conception of an "effective" rate of interest or interest yield, but the usual sense of the term, the interest which is charged and agreed to by the parties for the period of the loan.
Code Sec. 41 supports this construction. Its source was Miss. Laws 1926, Ch. 179, which provides:
"That where an interest rate is provided, mentioned or allowed by any statute of this state which would subject the evidence of indebtedness upon which such interest applied to taxation, such interest rate shall not in any action or suit hereafter filed or tried, be held to subject such evidence of indebtedness to taxation by reason merely of the collection, or payment, or contract for payment of earned interest at the statutory, or prescribed maximum rate per annum with semi-annual rests.
"That the maximum rate of interest may be charged on all loans where principal and interest both fall due at the same time in less than one year after the date of the note evidencing same."
Chapter 179 made specific reference to the tax exemption statute in question. It indicated the interrelationship of both. It apparently was aimed at the contrary result in Rogers v. Rivers, 1924, 135 Miss. 756, 100 So. 385, 37 A.L.R. 313. Sec. 1951, Code of 1930, which is the present Code of 1942, Sec. 41, was a complete redraft of Chap. 179, Laws of 1926, in the apparent belief that its original purpose was thereby preserved. Sec. 41 provides: "Interest rates — how same may be paid. — When any particular rate of interest per annum is specified in any contract or evidence of indebtedness it shall not be construed as any increase of said rate merely that the interest at the specified rate per annum is stipulated to be paid quarterly, or semi-annually, or at any other period less than a year, nor shall the fact that the principal and interest is paid at a date earlier than that stipulated in the contract or evidence of indebtedness be taken as any increase of the rate per centum although paid for the whole period stipulated."
This act specifically states that the mere fact that interest is paid in installments "shall not be construed as any increase of said rate" of interest. It defines the interpretation of "rate of interest" where the interest is paid in installments. And its earlier draft indicated the relationship of that phrase to the one used in the exemption statute. See also Ch. 137, Laws of 1914, now Code of 1942, Sec. 37; Johnson v. Carter, 1948, 203 Miss. 38, 33 So.2d 296. The Legislature manifestly intended that transactions conformable to the installment loan act should not be taxable.
In Industrial Loan and Investment Company v. Adams County, 1932, 163 Miss. 654, 141 So. 756, tax exemption of notes representing loans made by appellant was denied because the loans did not comply with the installment loan act. The Court pretermitted a decision on the present issue. Somewhat analogous on the distinction between rate of interest and interest yield is Equitable Finance Company v. Board of Supervisors of Lee County, 1927, 146 Miss. 734, 111 So. 871, 872, where auto lien notes bearing not over six per cent interest were held to be exempt. The exemption was not affected by the fact that appellant, which obtained the notes from the automobile sales company, bought them at a discount. The Court said that it did not think "that the test is whether the owner of the notes * * * gets them at such a discount as will enable him to reap more than 6 per cent in profit on his money." To the same effect on a bond issue is Golden Gate Bridge Highway District v. Filmer, 1933, 217 Cal. 754, 21 P.2d 112, 114, 91 A.L.R. 1. In that case the court refused to adopt the accountant's phrase "`effective rate' of interest," or interest yield, and held that the phrase rate of interest meant "what is usually called interest by those who pay and those who receive the amount so denominated in bond and coupon." Old Colony Railroad Co. v. Commissioner of Internal Revenue, 1931, 284 U.S. 552, 52 S.Ct. 211, 214, 76 L.Ed. 484.
Affirmed.
The above opinion is adopted as the opinion of the Court, and for the reasons therein indicated, the judgment of the Court below is affirmed.