Mayor of Baltimore v. Harper , 148 Md. 234 ( 1925 )

I am unable to concur in the opinion of the Court.

At the outset it should be borne in mind that the mortgage in this case is not an equitable mortgage, but is a legal or technical mortgage within the meaning of the statutory law of this State. In other words, it is a mortgage which was given by the debtor to the creditor for an existing indebtedness between them in an ascertained amount and payable at a specified future time, and subject to the power of the creditor to defeat the legal estate granted by the payment of the mortgage debt.Stanhope Co. v. Dodge, 52 Md. 492; Bagby's Code, 1924, art. 66, secs. 2, 5, 6, 26; art. 81, secs. 198, 204; art. 21, secs. 32, 34.

The legal title to the mortgage debt, no matter how evidenced, is conclusively presumed to be in the party holding the record title to the mortgage deed, and this legal title may be assigned by deed or by an assignment endorsed on the mortgage itself in the form indicated by the statute. The equitable title to the mortgage indebtedness may, however, be in an assignee under an assignment not of record, or without the requisites of a formal legal assignment. Morrow v. Stanley, 119 Md. 590, 598, 601;Getz v. Johnson, 143 Md. 542, 547-549. See Byles v. Tome,39 Md. 461, 464; Western Md. Ry. Co. v. Goodwin, 77 Md. 281; 2Jones on Mortgages (7th Ed.), secs. 786, 787, 812a, 813, 820.Bagby's Code, 1924, art. 66, secs. 2-26; art. 21, secs. 21, 32, 35, 42, 43.

2. The Acts of 1896, chapters 120 and 143, provided (a) for the taxation of technical mortgages at the rate of eight per centum annually upon the gross amount of interest covenanted to be paid each year to the mortgagees or their assignees holding mortgages of record in this State (chapter 120, secs. 146A-146F); and, also, (b) for the taxation of "all bonds, certificates of indebtedness or evidences of debt of whatsoever form made or issued by any public or private corporation * * * not exempt from taxation by the laws of this State and owned by residents of Maryland," at the rate of thirty cents on each one hundred dollars of the assessed value, if interest were paid thereon (chapter 120, sec. 194, and chapter 143, sec. 201). It is clear that the two rates apply to different and mutually exclusive subjects of taxation, and that the indebtedness of the mortgagor, whether in the form of a writing obligatory, a promissory note, or simply evidenced by a recital in the mortgage deed, and whether held by the mortgagee or by his assignees, was not a bond, certificate of indebtedness, or evidence of debt, within the meaning of the enactments.Musgrove v. Balto. Ohio R.R. Co., 111 Md. 638. It is further plain that if the mortgagee assigned the entire mortgage indebtedness or a portion either to one or to several in either equal or unequal moieties, the assignee or assignees would not be the holders of a bond, a certificate of indebtedness or an evidence of debt within the purview of the statute. Nor would the mortgage indebtedness be transmuted into a bond or any other form of indebtedness or evidence thereof by the mortgagee's agreement, for a new consideration from the assignee, to guarantee the payment of the principal and interest of the mortgage indebtedness to one or to several assignees of the whole or fractions of the mortgage debt; and this is true quite independently of whether the guaranty was either to all or to some or was in the form of a writing (a) endorsed on a promissory note or single bill which had been given for the mortgage debt, (b) incorporated in the assignment of the mortgage, or (c) embodied in a separate instrument. 20 Am. Eng. Encyc. of Law (2nd Ed.), 1028 1030-1032, 1039-1044; Patrick's Appeal, 105 Pa. St. 356; Jones on Mortgages (7th Ed.), secs. 824a, 821, 822; 27Cyc. 1289; Richardson v. Owings, 86 Md. 663, 665-668. Should the assignor reserve by the stipulations of the assignment the legal title to the mortgage deed, and retain possession of the original evidence of the mortgage indebtedness for the purpose of more effectually collecting and enforcing the payment of the principal and interest of the debt secured by the mortgage deed and of otherwise fulfilling his duties, and make the consideration for his services a proportion of the interest and the control of the foreclosure proceedings, the evidence of these relations between the assignor and his one or more assignees would be a declaration of trust whereby the assignor would hold the legal title to the mortgage deed and debt for the use and benefit of the assignees. Jones on Mortgages (7th Ed.), secs. 819, 817, 818, 804, 805, 812a, 813; Snyder v. Parmalee, 80 Vt. 496;Carson v. Phelps, 40 Md. 73, 98-101, Boyd v. Parker,43 Md. 182, 199, 200, 201; Dixon v. Clayville, 44 Md. 573, 578-580; Dickey v. Pocomoke City Bank, 89 Md. 280, 294, 295; 27 Cyc. 1289; 19 R.C.L. "Mortgages," sec. 120. In no sense of the term is such a declaration of trust a bond, certificate of indebtedness or evidence of debt. The equitable interests of the assignees under such declarations of trust cannot affect or alter the nature of the mortgage, which, by successive exemptions of all the other political divisions of the State, is now only subject to taxation in Frederick County. Code 1924, art. 81, sec. 198; Musgrove v. Balto. Ohio R.R. Co., 111 Md. 629.

In the instant case the participation certificate is, in effect, at once a declaration of trust and a statement of the specific quantity of equitable interest or ownership of its holder in the mortgage debt. The presence in this evidence of equitable ownership of a guaranty of the title and of the payment of the interest and of the principal, if the latter be not collected within six months next succeeding the maturity of the mortgage debt, of a grant of various incidental and accessory administrative powers, and of a prescribed compensation, cannot change the essential nature of the participation certificate, which must be looked at as a whole, and its fundamental quality is then determined by a consideration of its primary stipulations and not by its collateral and secondary, provisions.

The fallacy of holding the participation certificate to be taxable as a certificate of indebtedness lies in treating the participation certificate as a primary obligation, with an existence apart from and independent of the mortgage indebtedness. The participation certificate is a muniment of title to a definite equitable interest in a mortgage indebtedness, which has been assigned to the extent represented by the certificate, but the obligations assumed by the assignor and mortgagee of guaranty are inherently secondary, as they are conditioned on the default of the mortgagor, who is the primary promisor. Appeal Tax Court v. Rice, 50 Md. 302, 316; Johnsonv. Hines, 61 Md. 122, 136; Littig v. Hance, 81 Md. 412, 430;Hyatt v. Vanneck, 82 Md. 465, 475; Fales v. Thompson,1 Mass. 134. The liability of the mortgagee as guarantor is, therefore, a collateral obligation to the primary one of the mortgagor to pay the principal and interest of the mortgage debt. The obligation of the guarantor to pay could arise only upon the possible happening of a future contingency, and the amount payable could not be determined until after a default had occurred, if ever, on the part of the mortgagor. Such a contingent liability is not a debt, although it may become a debt when the contingency has happened.

Accordingly, it is evident that when the participation certificate was issued by the assignor there was no debt in existence, nor was there one then created between the assignor and the assignee. Hence, where the relation of debtor and creditor did not exist between the assignor and the assignee, the participation certificate could not have been issued as a "certificate of indebtedness or evidence of debt." The terms certificate of indebtedness or evidence of debt, as used in the revenue statute under discussion, are limited in their application, ex vi termini, to a subsisting or pre-existing debt or indebtedness at the time of the issuance of the certificate, for a definite ascertained sum of money, debitum inpraesenti, solvendum in futuro. By no tenuous extension of meaning can this participation certificate be called a certificate of indebtedness or evidence of debt. The fiscal administrative officials of the State have never heretofore attempted to ascribe such a meaning to the language of the statute. It would seem that the uniform policy and practice of officials charged with the enforcement of the revenue laws should be given its usual significance. Baltimore v. Johnson, 96 Md. 737, 742, 743; Baltimore v. Machen, 132 Md. 618, 621; Hess v.Westminster, 134 Md. 125, 131, 132; Musgrove v. Balto. O.R.R.Co., 111 Md. 639; Endlich, Interpretation of Statutes, secs. 357, 360; Sutherland, Statutory Construction, sec. 361;Baltimore v. State, 15 Md. 458; Kiersted v. State, 1 G. J. 248.

If the view of the majority of this Court is sound, upon the passage of the Acts of 1910, throughout the State, and now, by reason of the gradual repeal of the mortgage tax in Baltimore City and the other counties, in Frederick County only, if A owed B a debt of $3,000 on a promissory note of that amount, and gave to B a mortgage deed to secure the payment thereof, and thereafter B assigned to C, by a separate unrecorded paper writing, $2,000 of the debt, with a guaranty of the payment of the amount of the assigned debt and interest, we should have A paying taxes on the mortgaged property, B on the mortgage debt, and C on the writing evidencing his equitable title to his portion of the mortgage debt. In other words, B would be taxed on the mortgage debt at the rate of eight per centum upon the interest payable and covenanted to be paid, and C would be taxed on $2,000 of the same mortgage debt at the rate at which securities are taxed. I find no warrant for this construction.Baltimore v. Machen, 132 Md. 618, 621.

In Lederer v. Fidelity Trust Co., 267 U.S. 17, 45 Sup. Ct. Rep., No. 8, p. 206, 69 L.ed. 234, the Supreme Court had under consideration a section of the internal revenue law which imposed a stamp tax as follows: "1. Bonds of Indebtedness: On all bonds, debentures, or certificates of indebtedness issued by a person, and all instruments however termed, issued by any corporation with interest coupons or in registered form, known generally as corporate securities, on each $100 of face value or fraction thereof, 5 cents." In the language of Mr. Justice Holmes: "The question more narrowly stated is whether the certificates are instruments issued, etc., known generally as corporate securities." The Supreme Court did not rest its conclusion that the stamp tax applied on the ground that the certificates represented an "indebtedness," but solely on the theory that the certificates in question were "corporate securities," saying: "But be the undertaking greater or less, the security better or worse, we cannot regard these certificates as anything but corporate securities by general understanding and in fact." The statute in the instant case is so dissimilar as to make the case of Ledererv. Fidelity Trust Company, supra, inapplicable to the question before this Court. In that case, the equipment trust certificates possessed qualities which brought them within the express terms of the federal statute, while in the present appeal the participation certificate clearly lies outside of the meaning of the State act, which does not contain the provision upon which the decision by the Supreme Court is founded.

For these reasons, I find myself unable to concur in the conclusions of the Court in this case and in that of State TaxCommission v. George M. Englar, No. 48 Appeals of January Term, 1925, where a similar question is involved.