Commonwealth v. Hoffman-Henon Co.

Dissenting Opinion by

Mr. Justice Chidsey:

I am constrained to dissent for the reason that the construction placed by the majority upon the 1933 *222amendment to The Fiscal Code of 1929 subverts tbe avowed purpose of the Code, to provide revenue by taxation. It is not necessary to add to the facts which have been substantially and fairly recited in the majority opinion. Moreover, I fully subscribe to the basic question involved, as set forth therein: “. . . whether a straw man, to whom a corporation conveys its property for the purpose of having him mortgage it to secure a loan for the corporation’s use and who thereafter reconveys the property to the corporation, subject to the mortgage, is a predecessor in title within the meaning of Section 1401 of The Fiscal Code of 1929, P. L. 343, as amended by the Act of June 3, 1933, P. L. 1474, 72 PS §1401.”.

The exception engrafted upon the Act of 1929 by the amending provision of 1933 was obviously a legislative adoption of the decisional law first promulgated in Sweeney v. Arrowsmith, 43 Pa. Superior Ct. 268, and later followed by this Court in Davis v. Seltzer, 313 Pa. 382, 169 A. 761. Under The Fiscal Code and decisions of this Court, tax claims of the Commonwealth and a lien therefor upon settlement of the taxes due, took priority over the lien of a mortgage upon a judicial sale even though the unpaid taxes accrued after the recording of the mortgage. This was patently unfair to a mortgagee who had loaned money in good faith to a predecessor in title of the corporation, with no knowledge or foreseeability that his mortgagor was not really borrowing for his own benefit but obtaining the loan for a corporation. This was recognized by the Superior Court in Sweeney v. Arrowsmith, supra, which adopted the opinion of the eminent President Judge Endlich of Berks County who held that it would be repugnant to a clear dictate of natural justice to hold a mortgagee responsible for the obligations of one with whom it had no dealings what*223soever, and that consequently the mortgage lien should be accorded precedence over a tax lien where the mortgagee could not foresee or actually contemplate an eventual transfer of the mortgaged premises to a corporation. The reasoning underlying this holding is found at p. 270 of the Court’s opinion: “. . . It cannot be reasonably supposed, therefore, that one selling land to an individual and taking a mortgage upon it from him for part of the price should foresee or actually contemplates the eventuality of its passing at some future time into the hands of a corporation— a failure of that corporation to pay its state tax upon capital stock — and the impairment, possibly the wiping out, of the security for the unpaid purchase money by the enforcement of a lien filed therefor by the commonwealth and taking precedence of the mortgage.”.

In Harper v. Consolidated Rubber Co., 284 Pa. 444, 131 A. 356, the rule laid down in Sweeney v. Arrow-smith, was held inapplicable since the mortgagee in the Harper case was dealing with the corporation. This Court, speaking through Mr. Chief Justice Moschzisker, held that where a purchase money mortgage is taken directly from a corporation, the mortgagee takes it with notice of the Act and knows that the Act in express terms gives preference to the Commonwealth for State taxes which might in the future be assessed against the mortgagor. We must assume in construing that part of Section 1401 in which we are particularly interested that the Legislature had in mind the decisions of the appellate courts and that the purpose of the 1933 amendment was to eliminate the hardship that resulted under a situation similar to that presented in the Sweeney case. See McBride et al. v. Rome Township, 347 Pa. 228, 231, 32 A. 2d 212. Construing the 1933 amendment in the light of these prior decisions, I think it apparent that the *224Legislature, interested in tax receipts by the Commonwealth, did not intend to accord a mortgage lien a superior status where the one asserting the lien was put on notice that the individual mortgagors were merely straw parties to the transaction and a corporation was the real party in interest. Assuming for purposes of this dissenting opinion, as the majority opinion does, that the terre-tenants had reason to believe that the Henons were straws for the corporation, the answer to the question posed by the majority, viz., “Why, then, was the mortgage of the Henons to the Price Estate not the mortgage of a predecessor in title to the corporation?” is, in my opinion, perfectly obvious.

That legal title was in the Henons at the time the loan was given and that they therefore come within the literal meaning of the term “predecessor in title” cannot be questioned. However, the amendment must be construed with reference to the object intended to be accomplished by it in connection with the avowed purpose of the Code, and this is so even to the extent of restraining the meaning of general terms in order to clearly interpret the spirit and reason of the enactment: Null v. Staiger, 333 Pa. 370, 376, 4 A. 2d 883. Since the 1933 amendment had as its purpose the prevention of an injustice, where the loan is made with notice that the corporation is the real mortgagor, the concept of injustice or possible hardship readily disappears, for the party taking the mortgage does so with full knowledge that the property will eventually pass into the hands of the corporation, and that the Commonwealth could in the future settle State taxes against the corporation and thereby completely wipe out the mortgagee’s security if the corporation were unable to pay.

I attach no significance to the fact noted by the *225majority that “. . . it was more than a year after the lien of the Henons’ mortgage had attached before the State tax was settled against the corporation.”, calling attention to the cases of Scranton Lackawanna Trust Co., to use, v. Scranton Lackawanna Trust Co., Guardian, 310 Pa. 125, 129, 165 A. 42 and Davis v. Seltzer, 313 Pa. 382, 383-384, 169 A. 761. The terretenants in the instant case would have no standing to complain on this ground for, in my view of the amendment, they are in the same position as the mortgagee in the Harper case, knowing full well that by the express language of the Act of 1929 their security was postponed to State taxes which might be assessed against the corporation in the future. In the Scranton case there was no statute then in effect according precedence to the Commonwealth’s tax lien and in the Davis case the original mortgagor had no connection with the corporation either before or after the execution of the mortgage. In the Harper case, Schover et al. v. Comet Oil & Refining Co., 284 Pa. 189, 130 A. 413, was cited with approval and quoted therefrom as follows: “. . . ‘Our first thought must always be the preservation of government [and the] enforcing of lawful means necessary to successfully carry it forward; the means should always be available for its continued security, not hindered or prevented by lesser rights which may suffer because of such enforcement. The common good is superior to individual or private rights; [the State] therefore has a natural equity [and is] fairly entitled to first rank in the list of claims that may be had against any or all property. The protection which individuals receive at the hands of the government is compensation for any so-called impingement of right.’ . . .”.

The majority opinion, in referring to the letter from the Secretary of Revenue notifying the sheriff *226that the Commonwealth would have no claim against the mortgaged premises, cites the Home Owners’ Loan Corporation Tax Case, 149 Pa. Superior Ct. 440, 27 A. 2d 688. This case, which involved local taxes, stands for the proposition that where a public official charged with the duty of collecting delinquent taxes, is obliged to furnish the owner of the real estate with a correct and complete statement of taxes certified to him for collection, the payment of all taxes contained in such a statement is a discharge of the real estate from liability for taxes due and payable.

While it is ordinarily true that where a landowner attempts in good faith to pay taxes but is led to believe that the taxes had been paid through the inadvertence, mistake or neglect of the receiving officer, the attempted payment is equivalent to actual payment, that principle has no application to the facts of this case. In the instant case the Secretary of Rev-ea ue did not certify that the taxes were paid, but on the contrary the letter clearly disclosed that taxes were due. The statement in the letter that the Commonwealth of Pennsylvania would have no claim against the real estate for corporate taxes since the amount bid at the sale was not sufficient to cover the amount of the judgment, was a misapprehension of the law by the Secretary of Revenue which in no way binds the Commonwealth. The Commonwealth’s lien for capital stock taxes against the real estate of a corporation is not divested by a sheriff’s sale, which realizes a sum insufficient to pay any part of, the taxes: Commonwealth v. Lowe Coal Co., 296 Pa. 359, 145 A. 916. A state as the sovereign is not estopped by the errors, misinformation or laches of its officers or agents from collecting taxes legally due. An administrative officer or body exercising discretion conferred by the Legislature is not vested with the power *227to abrogate tbe statutory law of the Commonwealth: Commonwealth v. Western Maryland Railway Company, 377 Pa. 312, 321, 322, 105 A. 2d 336; Commonwealth v. A. M. Byers Company, 346 Pa. 555, 560, 31 A. 2d 530.

For the reasons stated, I would affirm the judgment of the court below.

Mr. Chief Justice Steen joins in this dissent.