Wm. S. & John H. Thomas, Inc. v. Union Trust Co., 79.

• Decision Date: 27 June 1930
• Docket Number: No. 79.,79.
• Citation: 231 N.W. 619,251 Mich. 279
• Parties: WM. S. & JOHN H. THOMAS, Inc., v. UNION TRUST CO. et al.
• Court: Michigan Supreme Court

251 Mich. 279

231 N.W. 619

WM. S. & JOHN H. THOMAS, Inc.,

v.UNION TRUST CO. et al.

No. 79.

Supreme Court of Michigan.

June 27, 1930.

Appeal from Circuit Court, Wayne County, in Chancery; Fred S. Lamp, Judge.

Suit by Wm. S. & John H. Thomas, Inc., against the Union Trust Company and others. From decree dismissing bill, plaintiff appeals.

Affirmed.

Argued before the Entire Bench. Edmund M. Sloman, of Detroit, for appellant Wm. S. & John H. Thomas, inc.

Milburn & Semmes, of Detroit, for appellee Clifford B. Edwards.

Campbell, bulkey & Ledyard, of Detroit, for appellee Union Trust Co.

David I. Hubar, of Detroit, for appellee Chas. R. Talbot.

CLARK, J.

The defendant Union Trust Company is trustee in a first mortgage by plaintiff, Wm. S. & John H. Thomas, Inc., a Michigan corporation, securing an issue of bonds, and it is also trustee in a second mortgage to secure the payment to defendants Clifford B. Edwards and Charles R. Talbot of the principal sum of $100,000. In statutory foreclosure of the second mortgage the mortgaged premises were sold and bid in by the trustee for Edwards and for Talbot. The mortgagor by this bill seeks to set aside the foreclosure, and, the bill being dismissed, it has appealed, and it here contends that the second mortgage was not in default at the time of instituting the proceeding to foreclose because (1) upon a proper application of credits or funds in the hands of the trustee nothing was due on the mortgage, and (2) the loan was usurious, and, if purged of usury, nothing was due.

1. Criticism of application of credits or funds in the hands of the trustee is wholly without merit, and calls for neither set up nor discussion of the account.

2. The interest or usury statute is sections 5997, 5998, Comp. Laws 1915:

‘(5997) Section 1. The People of the State of Michigan enact, That the interest of money shall be at the rate of five dollars upon one hundred dollars for a year, and at the same rate for a greater of less sum, and for a longer or shorter time, except that in all cases it shall be lawful for the parties to stipulate in writing for the payment of any rate of interest, not exceeding seven per cent. per annum: Provided, That this act shall not apply to existing contracts, whether the same be either due, not due or part due.

‘(5998) Sec. 2. No bond, bill, note, contract or assurance, made or given for or upon a consideration or contract, whereby or whereon a greater rate of interest has been, directly or indirectly, reserved, taken or received, than is allowed by law, shall be thereby rendered void; but in any action brought by any person on such usurious contract or assurance, except as is provided in the following section, if it shall appear that a greater rate of interest has been, directly or indirectly, reserved, taken or received, than is allowed by law, the defendant shall not be compelled to pay any interest thereon.’

Act No. 335, Pub. Acts 1927, amending certain sections of Act No. 84, Pub. Acts 1921, provides (part 2, c. 1, § 1): ‘No corporation shall interpose the defense of usury to any cause of action hereafter arising,’ and (part 2, c. 2, § 12) ‘Every stock corporation shall have the power to borrow money,’ etc.

The statute quoted denying to all corporations the defense of usury is attacked as unconstitutional. The attack, although made variously, comes chiefly to this, that the statute is class legislation, and therefore void. In Miller v. Reid, 243 Mich. 694, 220 N. W. 748, 749, and in Hovey v. Wark-Gilbert Co., 248 Mich. 502, 227 N. W. 543, the validity of the statute was assumed. Straus v. Elless Co., 245 Mich. 558, 222 N. W. 752, supports constitutionality. Other states have like statute unquestioned as to constitutionality, notably New York, where the statute has been considered many times over a long period of years. In Maryland constitutionality of the statute was challenged, as here, and the statute held valid in an exhaustive and a well-considered opinion, with ample citation of authority. Carozza v. Federal Finance & Credit Co., 149 Md. 223, 131 A. 332, 342, 43 A. L. R. 1. We quote:

‘The usury laws therefore proceed upon the theory that a usurious loan is attributable to such an inequality in the relation of the lender and borrower that the borrower's necessities deprived him of freedom in contracting and placed him at the mercy of the lender. The law regards the borrower as in vinculis, and so the injury inflicted and the relief afforded as personal to the individual wronged. A corporation, on the contrary, is not a natural person, but an artificial legal entity, which intervenes between the lender and the persons who own its stock or form its membership. It is organized for commercial or other purposes which are best subserved by the advantages given through the corporate powers conferred by the state of which it is the creature. It has no sensations, and cannot be coerced by its necessities into any legal obligations beyond its defined and limited corporate powers. It is primarily a creature of the law under which capital concentrates for business and other gainful ends in an amount judged sufficient for the particular undertaking, and with the knowledge that what has been contributed in the form of capital and resources is the usual measure and limit of the loss of the corporate membership.

‘The individual borrows from a need springing from his own personal necessities, but the corporation becomes a borrower from a corporate exigency. Although popular prejudice against usury subsists, the...