Carozza v. Federal Finance & Credit Co.

• Decision Date: 09 December 1925
• Docket Number: 30.
• Citation: 131 A. 332,149 Md. 223
• Parties: CAROZZA ET AL. v. FEDERAL FINANCE & CREDIT CO. ET AL.
• Court: Maryland Court of Appeals

131 A. 332

149 Md. 223

CAROZZA ET AL. v. FEDERAL FINANCE & CREDIT CO. ET AL.

No. 30.

Court of Appeals of Maryland

December 9, 1925

Appeal from Circuit Court, Baltimore County; T. Scott Offutt, Judge.

"To be officially reported."

Suit for injunction by Antonio T. Carozza and others against the Federal Finance & Credit Company and another to restrain the foreclosure of a mortgage. From a decree dismissing their bill of complaint, plaintiffs appeal. Affirmed.

Argued before BOND, C.J., and PATTISON, URNER, ADKINS, DIGGES PARKE, and WALSH, JJ.

J. Le Roy Hopkins and Shirley Carter, both of Baltimore, for appellants.

James Thomas and William L. Marbury, both of Baltimore (H Courtenay Jenifer, of Towson, and Theodore C. Waters and Addison E. Mullikin, both of Baltimore, on the brief), for appellees.

PARKE J.

The appellant, Antonio T. Carozza, was the owner of a property in Baltimore county known as Ingleside, and on April 29, 1922 he and his wife, Margaretta M. Carozza, executed a mortgage conveying the same to Addison E. Mullikin to secure an indebtedness of $50,000, and on July 10, 1922, the mortgagors gave a mortgage lien on the same property to Harry M. Rowe, Sr., as security for a contemporaneous loan of $60,000. Mr. Mullikin assigned the mortgage debt and deed on May 1, 1922, to the Federal Finance & Credit Company and to the Baltimore Acceptance Corporation, which were his principals in the loan, and, default occurring, foreclosure proceedings were begun on June 1, 1923. Upon the theory that the mortgage to Mullikin was without consideration, on the ground that the mortgage debt was but a renewal obligation for a portion of a former usurious charge made by the principals against Carozza, the appellants Antonio T. Carozza and Margaretta M. Carozza, his wife, and Harry M. Rowe, Sr., began proceedings in equity and secured an injunction against the foreclosure. After the bill of complaint was amended in conformity with the judgment of the chancellor on a demurrer interposed to the original complaint, answers were filed, and testimony was taken in open court, and the bill of complaint was dismissed on the proof.

The appellants insist that there should be a reversal, because they contend that the entire mortgage debt is without consideration and is merely a renewal of a part of a former wholly usurious obligation, which, while in the form of a purporting corporate debt under an issue of bonds, actually was the personal loan of Antonio T. Carozza upon his individual credit and the security of his own property, and that, by reason of his ownership of all of the capital stock of the corporate obligor at the time of the creation of the debt, the corporate obligor was none other than Carozza himself. It is also argued by the appellants that the statute providing that corporations shall not plead usury is void on constitutional grounds. These positions present issues of fact and of law, and a statement of the controlling facts will be necessary in order to grasp their significance.

The Hopkins Building Corporation, a Maryland corporation that owned a lot of land at the northwest corner of St. Paul and Thirty-First streets in Baltimore city, proposed to build and operate on this site a large apartment house to be known as the Hopkins Apartments. The contract to build this apartment house was let to the Fisher & Carozza Bros. Company, a corporation engaged in construction, for the sum of $1,300,000, which included, it was said, the price of the lot and the cost of the buildings. The control of both corporations from their origin was in Antonio T. Carozza, one of the appellants, who was their president, and who was vitally concerned in their success, because he was then the owner of almost all of their stock.

Through the efforts of its president, Antonio T. Carozza, the Hopkins Construction Corporation secured the agreement of the Commonwealth Finance Company to furnish, for a bonus of $180,000, the sum of $900,000, payable in monthly installments of specified but varying amounts, which, with the last payment of $50,000 in November, 1921, should equal the total of $900,000.

The details of the agreement were set forth in a paper writing or "committal" dated at Washington on April 30, 1921, and addressed to the Hopkins Building Corporation over the signature of William A. Mills, the agent of the Commonwealth Finance Corporation. And on this "committal" appears this indorsement:

"I hereby accept the within commitment and loan and guarantee repayment of same as mentioned. This the 2d day of May, 1921.

A. T. Carozza. [ Seal.]"

In pursuance of this agreemnt, the Hopkins Building Corporation on May 9, 1921, gave to William A. Mills, the agent of the lender, a first mortgage lien on its lot for an ostensible subsisting indebtedness from it to Mills of $1,080,000 on its obligation in that amount and of like date with the mortgage, payable $50,000 on the 1st day of January, 1922, and $50,000 on the 1st day of every month thereafter until December 1, 1922, when the whole of the unpaid residue of the principal and the interest at the rate of 6 per centum per annum fell due. And, in further performance of the terms under which this loan was obtained, and as a substitute for a costly corporate bond to the lender guaranteeing the completion of the apartment house when and as planned, Antonio T. Carozza and his wife gave a second mortgage on May 5, 1921, to the lender on the Lake Drive Apartment House in Baltimore city, which belonged individually to Antonio T. Carozza, and which was subject to an outstanding mortgage of $250,000. The second mortgage was in the amount of $200,000, without interest during a period of two years, and was to remain a lien until the Hopkins Apartments had been completed and their corporate owner had paid $300,000 on account of the principal of the loan of $1,080,000. These paper writings were duly assigned by the agent, William T. Mills, to his principal, the Commonwealth Finance Company, which made the first payment under this plan of $50,000 on May 5, 1921, and which thereafter made monthly payments until by October 1, 1921, the sum of $564,033.85 had been advanced on the promised aggregate of $900,000.

The requisition of the Hopkins Building Corporation for October 5, 1921, was $232,249.88, but it was not forthcoming from the Commonwealth Finance Company, which promised, however, to pay in installments of $116,124.93 on or before October 25, 1921, and of $103,716.27 on November 5, 1921. The first installment was paid, but the second was not, and, as the Commonwealth Finance Company failed to pay anything more, the total advances made by it to the Hopkins Building Corporation aggregated $680,158.79.

By reason of this default, the Hopkins Building Corporation was in a most precarious situation. Under a recorded purporting mortgage indebtedness of $1,080,000 on an unfinished apartment, with a liability to the Fisher & Carozza Bros. Company in the sum of at least $620,000 on account of the building of the Hopkins Apartments, and with no liquid resources and its credit impaired, the financial situation was acute, and particularly so because of the sum due the construction company the amount of $220,000 was owing to subcontractors, who were demanding a payment, which could not be met until the Hopkins Building Corporation would discharge its indebtedness to the Fisher & Carozza Bros. Company.

In this emergency $220,000 in money had to be procured immediately in order to complete the Hopkins Apartment House. An application was made to the Federal Finance & Credit Company and the Baltimore Acceptance Corporation, two corporations engaged in lending money. After surveying the situation, doubt arose if the mortgage of the Commercial Finance Corporation to secure the purporting subsisting loan of $1,080,000 was a lien on the land granted, because at the time of the execution of the mortgage, the debt between the parties was but $50,000, and the mortgage was, in fact, to obtain a lien of $1,080,000 for future advances of money to the extent only of $850,000, and there was no compliance by the mortgage of the statutory condition precedent that a mortgage to secure future loans or advances shall not be valid unless the amount or amounts of the same and the times when they are to be made shall be specifically stated in the mortgage. Bagby's Code 1924, art. 66,§ 2. See High Grade Brick Co. v. Amos, 95 Md. 571, 52 A. 582, 53 A. 148; Western Nat. Bank v. Jenkins, 131 Md. 239, 101 A. 667, 1 A. L. R. 1577; Loan & Savings Ass'n v. Tracey, 142 Md. 211, 120 A. 441.

The money lenders concluded that they would grant to the Hopkins Building Corporation the desired loan of $220,000 at 6 per centum interest a year for eight months, for a bonus of $75,000, provided the principal, interest, and bonus could be legally secured by a lien upon (a) the Hopkins Apartments of the borrowing corporation, and (b) the Lake Drive Apartments in Baltimore city and the tract of land in Baltimore county called Ingleside, which were both owned by Antonio T. Carozza. In addition, it was a part of the program to institute equity proceedings to set aside the mortgage deed of the Hopkins Building Corporation to William A. Mills to secure an alleged indebtedness of $1,080,000, that had been assigned by Mills to the Commonwealth Finance Corporation. By these proceedings it was hoped to secure for the two lending corporations a first mortgage lien on the borrower's property, either through a compromise settlement and release of the Commonwealth Finance Corporation's claim on the basis of the money actually advanced. with interest, or through a cancellation by the court of the mortgage lien.

The form and manner evolved for the securing of the...