Faust v. Twenty-Third German Bldg. Ass'n of Baltimore City

• Decision Date: 19 November 1896
• Citation: 35 A. 890,84 Md. 186
• Parties: FAUST v. TWENTY-THIRD GERMAN BLDG. ASS'N OF BALTIMORE CITY.
• Court: Maryland Court of Appeals

35 A. 890

84 Md. 186

FAUST v. TWENTY-THIRD GERMAN BLDG. ASS'N OF BALTIMORE CITY.

Court of Appeals of Maryland

November 19, 1896

Appeal from the circuit court of Baltimore city.

Action by Jacob Faust against the Twenty-Third German Building Association of Baltimore City. There was a decree for defendant, and plaintiff appeals. Reversed.

Argued before McSHERRY, C.J., and FOWLER, PAGE, ROBERTS, and BRYAN JJ.

R. Bernard & Son, for appellant.

George R. Willis, for appellee.

BRYAN J.

The questions in this case concern the taxation of mortgages. The appellant draws in question the meaning and validity of certain sections of chapter 120 of the Acts of 1896. He maintains that the sections from 146a to 146f, both inclusive, do not apply to building or homestead associations, and that they are unconstitutional, null, and void. Without at present giving our attention to the proceedings by which these questions are presented, we will examine the sections which have been mentioned: Section 146a enacts that "all mortgagees or assignees holding mortgages of record in this state shall annually pay a tax of eight per centum upon the gross amount of interest covenanted to be paid each year to said mortgagee or his assigns by the mortgagor, to be collected by the proper authorities as other taxes for county and state purposes in the several counties and municipal and state taxes are collected in Baltimore city." Section 146c enacts that after the passage of the act all covenants shall be void which provide that the mortgagor shall pay any or all taxes, assessments, public dues or charges levied or to be levied by law on the mortgage debt created or secured by such mortgage, or on the interest covenanted to be paid. Section 146d enacts that when, after the passage of the act, any person or corporation shall lend money on mortgage on property in this state, their agent or attorney shall take an oath, to be indorsed on the mortgage that the mortgagee has not required, and will not require the mortgagor to pay the tax levied on the interest covenanted to be paid. And section 146f enacts that, whenever any mortgagor pays the tax required to be paid by the mortgagee, he shall be entitled to have the amount so paid deducted, with interest, from the mortgage debt. The language of the last three sections is significant of the purpose of the legislature. It speaks of "mortgage debt," and of "lending money on mortgage." The terms used are appropriately applicable to the conditions existing between debtor and creditor; to a transaction wherein money is received by one party, and a contract is made by him to repay it to the other party. Now, in a building association mortgage the contract is not of this nature. These mortgages were first authorized in this state by the act of 1852, c. 148, which is substantially embodied in the Code, art. 23, §§ 95-102, inclusive. The building association is authorized to advance to any of its members the sum which he would be entitled to receive, upon the dissolution of the corporation, for any number of shares which he holds, and to take from the member who receives the advance a mortgage on real or leasehold property to secure the payment of the weekly dues on the shares, and all fines and penalties which may be incurred, and also interest on the sum advanced. The payments of dues and interest are to continue until the shares are worth the sum of money advanced upon them. The association is reimbursed for its outlay by its ownership of the stock, which, in the natural course of its business, if successful, will gradually enhance in value until it equals the sum advanced upon it. But the mortgagor never covenants for a payment of the sum of money advanced. He and the other stockholders are engaged in a joint enterprise, which, according to reasonable expectation, will raise the value of the stock to an amount which is fixed and settled when the association is formed. Some members wait until this consummation is reached, and then receive the money for their shares; but the borrowing member receives his money at the time of the loan, and pays interest on it until the end is attained. The difference is very marked between a transaction of this kind and the ordinary contract between debtor and creditor. In Robertson v. Association, 10 Md. 397, this court considered the nature of building association mortgages, and it decided expressly and distinctly that the sum advanced to the mortgagor by the association could not be regarded as a debt. Robertson had executed a mortgage in which it was recited that a loan of $460 had been made to him by the building association, and he covenanted to pay interest on this sum, and to pay his fines and weekly dues, but there was no covenant to repay the sum of $460. The court said: "It is obvious that the sum actually due according to the covenants in the mortgage cannot be ascertained by estimating the sum ($460) named in the mortgage as if it were a debt secured, or money to be repaid; there being no covenant in the mortgage, or any obligation on the mortgagor, requiring him to repay that sum, or any part of it, as such." In a subsequent part of the opinion it is said: "The sum of $460 was paid to the mortgagor by the society as the ascertained value, in advance, of his shares of stock in the corporation. And although, in the preliminary part of the mortgage, it is recited to be 'a condition precedent to the money below named being loaned to him that these presents should be executed,' yet the consideration is stated to be $460 'in hand paid by the corporation to the mortgagor,' while the mortgage contains no covenant or obligation whatever for the repayment of said sum, or any part of it. This court cannot regard the principal sum named in the mortgage as in any sense a loan." Robertson's Case has always been regarded in this state as settling the true character and nature...