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dent of the Hopkins Building Corporation had said: “The stand that the Commonwealth Finance Corporation had taken, that they had fallen down on their advances, and unless they came across within a certain time they would need some money to complete the Hopkins Apartment, and I felt it would be a good thing for our company to consider taking up the question of making that loan; that the bonus that the Commonwealth was charging, I think he said, was $180,000 and that he would pay us half of that, and that he would save the other half if we would come in with that money, because he wouldn't have to pay the Commonwealth because they had fallen down on their contract. asked me if I wouldn't take it up with the company, and I did mention it to Mr. Sturm; I mentioned it to Mr. Thomas, who was interested in our company and was Mr. Carozza's banker, and eventually we got together."


As soon as the parties reached that stage of their negotiations when it was agreed that the lenders would make an actual loan of about $220,000, bearing 6 per centum interest yearly, provided that they would be paid a bonus therefor of $75,000 and would be secured in the payment of the amount of the loan with interest, and the bonus exacted by a mortgage lien on the property

-sale of bonds

offered, the usurisecured by ous nature of the mortgage. bargaining attached and remained no matter the method or form under which cover was sought. The technical perfection of the plan evolved, for the purpose of making an essentially usurious loan assume the flawless documentary guise of a sale and purchase of corporate bonds, can afford no occasion for the court to blink the nature of the legal fiction designed to veil the usury. The intention to exact more than the legal rate of interest existed at the inception of the contract, and persisted unaltered until the end. It is immaterial that the de

vice adopted provided that the payment of this bonus be secured through the medium of a receipt of second mortgage bonds whose face value was $75,000. The evidence on this record clearly refuted the contention of the appellees that the transaction was a sale and purchase at a discount, but in good faith, of bonds maturing in 6 months. 2 Machen, Corp. § 1694, and cases cited above; Webb, Usury, § 61.

3. In the refinancing of the Hopkins Building Corporation in May, 1922, the loan of $500,000 from the Metropolitan Life Insurance Company and that of $575,000 from the Commonwealth Finance Corporation were sufficient to pay off all encumbrances and obligations, including the principal and interest of the money actually loaned by the appellees, and all but $50,000 of the usurious bonus with interest. In other words, a total loss to the appellees of this sum of $50,000 merely meant a $50,000 default in the amount of usury promised. So there would have been no mortgage deed from Carozza if there had been funds available to meet this $50,000 deficit in the agreed usury. It follows that, whether this sum of $50,000 was paid to the appellees in money or was secured to them by a mortgage lien, the new mortgage debt was not a part of the original loan or indebtedness, but a part of the original usurious exaction. The essential nature of this mortgage debt could not be affected by the delivery of appellees' checks for the amount of the mortgage debt, less the discount at a lawful rate, simultaneously with the receipt by the appellees of checks covering in full the whole of the usurious bonus. The result of this exchange of checks would have been accomplished if the appellees had drawn no checks and the amount of the checks issued by the appellees had simply been deducted from the checks received by the appellees. Where, with knowledge on the part of all concerned, a

(Md., 131 Atl. 332.)

debt is paid by money obtained

Paymentwith funds furnished by creditor and returned.

from the creditors for that purpose, and then immediately refunded to the creditors by the debtor, the transaction is not a payment in fact but is a series of merely illusory acts, to be dealt with according to their substance and not their form. Consequently the checks of the appellees were a futile gesture, without effect upon the intrinsic nature of the loan, and by their issuance the usurious bonus

Usury-effect of advance of funds to satisfy and their immediate return.

cannot be said to have been redeemed or settled for by the obligors in money or other valuable consideration to the amount of the face of the checks. Border State Perpetual Bldg. Asso. v. Hilleary, 68 Md. 52, 54, 55, 11 Atl. 505; Border State Perpetual Bldg. Asso. Hayes, 61 Md. 599, 600.


Neither can this purporting fresh indebtedness of Carozza and wife to the appellees be considered a renewal, in whole or in part, of the original indebtedness of the Hopkins Building Corporation on account of the money actually advanced by the appellees when the bonds for $295,000 were delivered to them. The principal and interest of the actual loan had been paid them in full, together with a large amount of usury, and only a residue of $50,000 of usury remained unpaid. It is a necessary conclusion that this unsatisfied amount of usury was the only basis for the consideration recited in the mortgage of Carozza and his wife to the appellees. And it was not until the execution and delivery of this mortgage that the bonds representing this usurious loan were canceled and the deed of trust to Bond and Meyer, trustees, was released. Such a redemption or settlement is no more than a renewal of the usury involved, but it is not a renewal, in whole or in part, of the original indebtedness, which is limited to the

amount of the original loan or advance made, without any usurious addition. The sole effect, therefore, of the mortgage deed was to transform the status of Carozza and his -assumption of wife from that of guarantors to that of principal debtors to the appellees in the sum of $50,000, on an obligation whose sole consideration was usury.


execution of

mortgage to

refund usurious one.

While the mortgage notes and mortgage deed were given to Mr. Mullikin as mortgagee, this was a formality resorted to for its convenience, and the notes and mortgage deed were promptly transferred to the appellees, the principals of the mortgagee. In no sense -novationwas this new mortgage a new contract or novation made for valuable consideration by innocent new parties, whose rights should be held, upon equitable principles, unaffected by the antecedent happenings. It is not necessary to recite the testimony, but it is sufficient to state that the court is bound by the proof to decide that the appellees were affected, at the time of the execution of the mortgage loan and deed, with full knowledge of all the facts and circumstances which, in the judgment of the court, made the mortgage notes and deed an intrinsic part of an original usurious contract in which the appellees were participants at its creation, with knowledge or charged with notice of the usury exacted. Brown v. Waters, 2 Md. Ch. 201. In no sense are the appellees innocent assignees for value, without notice, and for convenience we shall hereafter call them the mortgagees, as they actually were in effect.

It is doubtful if the acts embraced in the transactions attending the execution and delivery of the mortgage note and deed of May 1, 1922, constituted a redemption or settlement by the obligors "in money or other valuable consideration," or if a consideration of a promised

amount of usury was a "part of the original indebtedness" within the meaning of § 6, art. 49, entitled "Interest and Usury," of Bagby's Code 1914, when read with §§ 4 and 5 of the same article and the decisions in Border State Perpetual Bldg. Asso. against Hilleary, and against Hayes, reported in 68 Md. 52, 11 Atl. 505, and 61 Md. 599. But it is not necessary for the court to determine if § 6 has any effect on the rights of the litigants, because the appeal presents a controlling and decisive question of constitutional law.

4. Assuming that the borrower were not a corporation, it is a necessary consequence of the court's conclusion on the issues of fact presented by the record that the taint of usury is upon the mortgage here assailed quite as much as upon the original transaction of which it is the culmination, because under the circumstances of this record usury is not purged by the substitution of new notes secured by a mortgage on a part of the property covered by a former mortgage between the parties, where the same usurious consideration persists, even though the principal debtor is dropped from the new obligation and the relation of the mortgagors to the appellees is changed from that of guarantors to that of principal debtors. The guarantors and the appellees were in privity, and, when the guarantors became the principal debtors of the appellees on an obligation for which they had been the guarantors, the principal debtors were not bound to

-duty to pay -usury of obligor.

pay, under the facts of the record, any more of the usurious consideration than their original principal had been bound to pay to the appellees at the time of the execution of the mortgage notes. Lazear v. National Union Bank, 52 Md. 78, 120, 123, 36 Am. Rep. 355; 39 Cyc. 1005; 29 Am. & Eng. Enc. Law, 2d ed. 517, 519, 533; Webb, Usury, §§ 308-312.

On the assumption last made, that the original principal borrower

was not a corporation, the appellants would be entitled to relief under their bill of complaint, but the Hopkins Building Corporation, the original principal borrower, was a corporation, and the statutory law of Maryland makes a distinction between a corporate and a noncorporate borrower. While a noncorporate borrower is free to plead usury, the statute declares that "no corporation shall hereafter interpose the defense of usury in any action at law or in equity." Code 1924, art. 23, § 131. If this be a valid law, the agreement of the principal debtor was valid and enforceable by virtue of the statute, the guarantors thereof were liable, and the mortgage notes and deed the guarantors gave to the appellees would not be usuri- corporate ous, but upon the consideration recited, and therefore valid and enforceable, infra.

-right of successor of


5. The Constitutions of 1851 and of 1864 read that: "The rate of interest in this state shall not exceed six per cent per annum and no higher rate shall be taken or demanded, and the Legislature shall provide by law all necessary forfeitures and penalties against usury." Art. 3, § 49 (1851); art. 3, § 50 (1864).

While this provision was held in Bandel v. Isaac, 13 Md. 202, not to be self-executing but requiring suitable legislative enactment to make it fully operative, nevertheless the provision was an express denial of any statutory authorization of a rate in excess of 6 per centum yearly. There is, however, no such inhibition upon legislative discretion in our present Constitution, which reflects a radical change of public policy in the subsisting section stating that:

"The legal rate of interest shall be six per cent. per annum, unless otherwise provided by the General Assembly." Art. 3, § 57.

This is a declaration which at once proclaims the lawful rate and confers upon the General Assembly ample power to change that rate

(Md., 131 Atl. 332.)

and its incidence in any manner and at any time within the limitations of other constitutional provisions.

It was said, in Citizens' Secur. & Land Co. v. Uhler, 48 Md. at page 459: "That the Legislature has the power to prescribe a rate of interest for all persons and all corporations either above or below 6 per cent. is not questioned. That is, to pass a general law on the subject, but it has no power to authorize one person to charge 6 per cent. and another 10 per cent. and another 25 per cent. The pernicious effects of such special class legislation are so obvious that, in the absence of plain language, showing such to be the intention, we are not to presume that either the framers of the Constitution, or the people who adopted it, meant to confer a power so extraordinary on the Legislature."

See Birmingham v. Maryland Land & Permanent Homestead Asso. 45 Md. 541, 543; Scott v. Leary, 34 Md. 399, 400.

In the case cited, the court rested its decision upon the view that the Legislature had undertaken "by a special law to authorize a certain class of corporations to loan money at a higher rate of interest than is allowed by the Constitution and general law of the State." The court recognized the power of the Legislature to pass a general law on the subject. In fact, at that time the class of corporations known as building and loan associations was permitted by a general law, affecting only this class of corporations, to make regulations and exact charges which would have been held usurious in a corporation not within this particular class. Baltimore Permanent Bldg. & Land Soc. v. Taylor, 41 Md. 409, 418. While the early case of Robertson v. American Homestead Asso. 10 Md. 397, 69 Am. Dec. 145, was decided under the Constitution of 1851, and adopted the English rule that a building association transaction was not a loan of money but a dealing with a partnership fund, in which the per

son to whom money was advanced had an interest in common with the other members of the society or association, and while this basis for holding the transaction was not usurious has never been discarded, yet, even in that case and during that constitutional period, the court said, with reference to building association mortgages, that it had "no hesitation in pronouncing them, if executed in conformity with the provisions of that act" (i. e., with respect to building associations) "free from all objection on the ground of usury." The later decisions of this tribunal certainly stress the point that, if the statute authorizing the formation of building and loan associations be strictly complied with, the dealings within the scope of the ordinary business of the associations will be relieved of all imputation of usury. Stewart v. Workingmen's Bldg. & L. Asso. 106 Md. 675, 68 Atl. 887; Washington Nat. Bldg. & L. Asso. v. Andrews, 95 Md. 696, 700, 53 Atl. 573; White v. Williams, 90 Md. 727, 45 Atl. 1001; Bagby's Code 1924, art. 23, §§ 161, 169. See Spithover v. Jefferson Bldg. & L. Asso. 225 Mo. 660, 26 L.R.A. (N.S.) 1135, 125 S. W. 766, 20 Ann. Cas. 1248, 1254, for cases in other jurisdictions.

Other illustrations may be found in the rate of interest allowed by public general and local law in reference to state and county taxes, and by the general statute permitting any lender, when licensed, to charge interest at the rate of 31 per centum per month on a loan not in excess of the sum of $300 in amount or value. Bagby's Code 1924, art. 81, § 54; art. 58A.

In 1916, the Legislature enacted that "no corporation shall hereafter interpose the defense of usury in any action at law or in equity," and this is now the law. Acts of 1916, chap. 374; Laws 1916, chap. 596, § 100A; Bagby's Code 1924, art. 23, § 131. The legislation applies to all corporations, and so is not within the rule enforced in the case of Citizens' Secur. & Land Co. v. Uhler

48 Md. 455; and its constitutionality, while not discussed, was implicit in the decision of this court in Penrose v. Canton Nat. Bank, 147 Md. 200, 207, 209, 127 Atl. 856. In an able opinion by Chief Judge Bond, this court held in that case that the effect of this legislation "is to leave lenders and corporate borrowers free to agree upon any rate of interest above the regular limit" of the statutory law. See Bagby's Code 1924, art. 49, §§ 1 to 6; Kinsey v. Drury, 146 Md. 227, 233, 126

Atl. 125.

The appellants here insist that this statute is unconstitutional, on the ground that it is class legislation and deprives corporations of the equal protection of the law. From the prevailing opinion in the appeal of Citizens' Secur. & Land Co. v. Uhler, supra, the appellants have taken the sentence, "that the Legislature has the power to prescribe a rate of interest for all persons and all corporations either above or below 6 per cent. is not questioned," to mean that any enactment on the subject-matter is unconstitutional unless it embrace within its purview "all persons and all corporations." The language of this sentence is general, but the context does not warrant this broad deduction. The next sentence restricted the expression merely to mean "a general law" as contradistinguished from a special act, and, in view of the plenary and unrestricted nature of the power granted by the General Assembly, we could not assent to any other limitation being introduced into the Constitution by judicial construction.

It should, furthermore, be observed that, in the decision referred to, the question was if the franchise or privilege of charging usury could be conferred upon a particular class of corporations by what the court termed a special law. The corporation there was a lender. Here the inquiry concerns a borrower, and the legislation includes all corporate borrowers upon which are conferred no additional power or privi

lege, but which are deprived of a
defense whose interposition was
wholly a matter of choice on the
part of every borrower. See Ewell
v. Daggs, 108 U. S. 143, 153, 27 L.
ed. 682, 685, 2 Sup. Ct. Rep. 408.
The case relied upon by the appel-
lants does not enforce their point.
Nor do we find any substantial
ground to hold void § 131 of article
23 of the Code.

The principle that unequal and
partial legislation is void does not
deny to the legislative body the pow-
er to make the application of laws
public in their object embrace all
citizens, or include only those with-
in a particular class, as bankers,
traders, workmen, or corporations,
or even particular kinds of corpo-
rations, as for example, railway car-
riers, banking institutions, or insur-
ance companies. It is well recog-
nized that, unless express constitu-
tional provisions forbid, the author-
ity which legislates for the state at
large must determine whether an
enactment should extend to all its
citizens or to a single class, and to
prescribe distinctions in the rights,
obligations, duties, and capacities of
its citizens, whether natural or arti-
ficial. The only restriction upon the
power of the Legislature to suspend
the operation of a
general law of the law-equal
state is that the protection-
power when exer- pend general
cised must result in
a suspension which is uniform, both
in the privileges conferred and the
liabilities imposed in its application
to all persons and property similar-
ly situated and in like condition
within either the political territory
or the class affected, and which
shall not be an arbitrary classifica-
tion, but one supported by some
sound and defensible reason inher-
ent in the subject-matter. Chesa-
peake Bank v. First Nat. Bank, 40
Md. 269, 17 Am. Rep. 601; Clark v.
Harford Agri. & Breeders' Asso.
118 Md. €08, 85 Atl. 503; Watson v.
State, 105 Md. 650, 66 Atl. 635;
Griffith v. Connecticut, 218 U. S.
563, 54 L. ed. 1151, 31 Sup. Ct. Rep.


power to sus


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