On appeal from the Supreme Court, whose opinion is reported in 129 N.J.L. 497.
For the plaintiff-respondent, Charles N. Kors and Irving Edelstein.
For the defendant-appellant, Harry Kay.
The opinion of the court was delivered by
CASE, J. On January 9th, 1941, the defendant, Hub Loan Company, a corporation licensed under R.S. 17:10-1, et seq., to engage in the small loan business, loaned plaintiff, Samuel Edelstein, the sum of $190 on his promissory note. When the debt had been paid down to $83.17 and interest plaintiff defaulted in his obligation. The company brought a District Court action and paid the clerk of the court, as it was obliged to do, R.S. 2:32-16, the sum of $4.56, statutory fees for the issuance and service of summons. On the day fixed for trial Edelstein -- defendant in that action -- failed to appear although he had been duly served with process. The case was marked "no appearance." The loan company did not act upon its statutory right to file its proofs and take final judgment but permitted the borrower to resume the making of installment payments. When the balance of the note debt had been reduced to $16.88 principal and 88 cents interest the borrower paid the company the sum of $22.32, made up of the sum of the two items just mentioned and the company's disbursement of $4.56, supra, and was given his promissory note marked "paid." He then brought the present suit against the company alleging that it had violated the Small Loan Act by accepting the reimbursement of $4.56. He was awarded judgment for $237.17 which was the total of everything he had paid -- principal, interest and the item of $4.56. The judgment of affirmance in the Supreme Court is now before us.
The recovery is rested upon R.S. 17:10-14:
"* * * In addition to the interest herein provided for no further or other charge or amount for any examination, service, brokerage, commission, expense fee, or bonus or other thing or otherwise shall be directly or indirectly charged, contracted for, or received, except on actual sale of the
security in foreclosure proceedings or upon the entry of judgment. If any interset, consideration or charges in excess of those permitted by this chapter are charged, contracted for, or received the contract of loan shall be void and the licensee shall have no right to collect or receive any principal, interest, or charges whatsoever, and the borrower shall be entitled to recover from the lender any sums paid or returned to the lender by the borrower on account of or in connection with the loan."
The legislature, through the years, has endeavored to steer a difficult course between, on the one hand, the necessities of the small borrower, with little or no collateral, unwelcome as a patron of the more considerable lending agencies, and on the other hand the tendency of the lenders of small loans to impose unfair charges upon the borrower. An examination of the decisions will indicate various devices by which small loan companies undertook to exact from the borrower charges that were unduly burdensome; as is illustrated by the form of the promissory note used in Consolidated Plan of New Jersey, Inc., v. Shanholtz et al., 7 N.J. Mis. R. 876; affirmed in 107 N.J.L. 517, sub nom. Consolidated Plan of New Jersey, Inc., v. Palkowitz et al., which obligated the borrower upon default to pay "all reasonable costs, including attorney's fees" and fixing the attorney's fees at fifteen per centum of the debt; an obligation that by its terms arose on mere default and not as an item of court costs taxed under statutory authority. The legislative policy, however, has been to regulate the small loan business but not to illegalize it or to bind it so closely that it may not function. This is to be remembered in construing the statute; as is also that the suit is for the recovery of a penal forfeiture for the doing of an act alleged to be prohibited by statute and that the statute is in this respect penal and as such to be strictly construed in favor of the person penalized. Gionti v. Crown Motor Freight Co., 128 N.J.L. 407. It is to be noted in this connection that if accepting the reimbursement was a violation of R.S. 17:10-14 it was also, under R.S. 17:10-21, a misdemeanor on the part of the company and of any of its officers, agents and employees who participated in the act.
Looking at the facts of the instant case without at once taking the legalistic view, we observe no abuse by the company of its franchise. It was fully within its rights and was quite within the field of legitimate business practice in bringing the suit upon default by the borrower in his obligation. It went into the least technical and most inexpensive of the courts and paid out only that which it was obligated to pay in order to secure the issue and the service of summons. That disbursement, a court charge which carried no profit to the company, is the sole questioned item. The company did not, as it could have done, press to final judgment and execution. That course would have resulted, not only in embarrassment to the borrower, but in supplementary charges, all of which, including the item of $4.56, would have been legally collectible. That which was done involved the least expense to the borrower and was altogether to his advantage. Indeed, the stipulation of facts upon which the case went in did not charge the lender with having exacted reimbursement as a condition precedent to the cancelling of the debt and the return to the borrower of his note; it simply presented -- and the stipulation of facts runs in the same words -- that "the plaintiff gave and the defendant accepted" the money, and that upon the making of the payment the "defendant returned to the plaintiff" the promissory note and marked the indebtedness "paid."
But it is said that the receipt of the questioned item was in addition to the interest and that therefore, by the terms of the statute, the borrower may recover everything that he has paid. If the meaning of the expressions "expense fee" and "or other thing" were to be ascertained by reference to the words with which they are associated, all of which relate to matters antecedent to the suit, there would be room for argument whether court ...