Appeal Tax Court v. Rice

Miller, J.,

delivered the opinion of the Court.

The appellee, Rice, is a member, and owner of four shares of the stock of The Harlem Permanent Building Association of Baltimore City,” and he was assessed therefor under the Act of 1876, ch. 260. He now claims exemption from taxation in respect to these shares, upon the ground that all the capital and funds of the association are invested in loans to its members, secured by mortgages on real or leasehold property, and that by the first section of this Act, “ mortgages upon property in this State and the mortgage debts respectively secured thereon ” are exempted from taxation. This exemption of the securities in which the funds are invested, he insists operates an exemption of the shares of the association in the hands of individual owners and members. It is not pretended that it was not competent for the Legislature of 1876, to repeal any previous exemption that had been granted to mortgages to building associations or to mortgages generally; and all previous exemptions from taxation which the Legislature had power to repeal, are expressly repealed by the second section of this Act. Assuming then that

the appellee’s counsel are right in the position that where the capital of a corporation is invested in securities exempt from taxation, such exemption carries with it the exemption of the shares of its stock in the hands of the owners, the question arises, does the exemption clause here relied on extend to and embrace the peculiar class of mortgages adopted and used by building associations ? In entering upon this inquiry we must hear in mind the principle universally recognized, that to make out a case of exemption from the taxing power of the State, so essential to the support of its government, it is incumbent upon the party asserting the claim, to show that the power to tax in the particular case has been clearly relinquished, and if this has not been done in clear *313and explicit terms, or by necessary implication, the question whether or not the exemption has been granted must be resolved in favor of the State. This doctrine must be applied, to the construction of the clause in question, and in order to apply it the more correctly, we must examine the antecedent legislation upon this subject.

The formation of corporations known as Building Associations, was first authorized in this State by the Act of 1852, ch. 148. That Act after authorizing the peculiar form of mortgage, which is now so well known, declares that “ Any such mortgage or mortgages, and the mortgage debt, or debts intended to be secured thereby,, as aforesaid, is, and are hereby declared exempt from taxation; the property so mortgaged as aforesaid to the corporation, being taxed in the hands of the individual member or mortgagor.” By the General Assessment Law of the same Session, (Act of 1852, ch. 337,) this express exemption was continued, for by that Act only property now by law Kable to be valued and assessed,” was subject to taxation; and this exemption was also continued in the same terms by the Code, Art. 26, sec. 36.

The General Assessment Act of 1866, ch. 157, repealed all exemptions, and subjected all property, real, personal and mixed of all kinds and descriptions whatever, within the State, to taxation. But by the Act of 1867, ch. 341, certain exemptions were granted, and among them is the exemption of “ all mortgages for purchase money in the hands of the original mortgagee, or his executors, administrators and legal representatives, in case of the death of the mortgagee, together with all equitable liens for the purchase money of lands and real estate which may remain due and unpaid.” This is the only reference to mortgages in that Act, and it is clearly confined to a certain description of general mortgages. It is plain that it has no application whatever to mortgages given to build*314ing associations. But by sec. 88, of the General Corporation Act of 1868, cb. 411, sec. 36, of Art. 26, of tbe Code, was re-enacted in terms, and by this means the special exemption of this class of mortgages was revived.

Afterwards, by the Act of 1870, ch. 394, this proviso was added to the second section of the Act of 1867, ch. 341, “Nor shall any tax of any kind be assessed, levied or collected, on any mortgages of any hind, or on any mortgage or bill of sale upon any property in this State.” These terms are broad and comprehensive, and plainly show that when the Legislature intended to grant exemp-r tion to every class and description of mortgages, they employed apt words to effect that object. This Act of 1870, was before the Court for construction in the case of Emory, et al. vs. The State, 41 Md., 38, and it was there held that the intention of the Legislature in passing it was to exempt the mortgage securities themselves, and that it had no application to the taxation of the capital stock of corporations. In that case the Court also reasserts the rule that “in order to entitle a party to claim exemption of any property from the common burden of taxation, it must, clearly appear that it comes within the terms of the law under which the exemption is claimed.”

This law was followed by the General Revenue Act of 1814, ch. 483, amending and re-enácting the 81st Article of the Code. Sec. 2, thus amended, describes property made liable to taxation, and this description includes “ all debts secured by or investments in private securities of every kind, nature 'and description, except mortgages.” This exception is an exemption of “mortgages,” and this is the only reference to such securities which the law contains. In sec. 3, which provides other exemptions, is found the special exemption of “ all shares of capital stock of building associations of which the funds and capital stock are invested in mortgages on real or leasehold property, sub*315ject to taxation to the extent of such investment.” This exemption exactly meets the appellee’s case, and if it were to he found in the Act of 1876, he would encounter no difficulty. But as we have said this latter Act repeals all antecedent exemptions over which the Legislature had repealing power. The terms of the repealing clause are most explicit and comprehensive, “ and all Acts or parts of Acts exempting any other property, except that exempted by this Act, from valuation, assessment or taxation for State, county or municipal purposes, which can be repealed "by this General Assembly, are, to the extent of such exemption, whenever or however the same has been heretofore granted, hereby expressly declared to he repealed to the extent of said exemption as aforesaid, and to he hereafter of no force or effect in granting such exemption.” We entertain no doubt whatever that this clause effectually repeals, if they had not been repealed before, all special exemptions of mortgages to building associations, and of the shares of stock in such corporations contained in each and every of the antecedent statutes to which we have referred. The appellee’s case, therefore, rests entirely upon the true construction and effect of the exemption contained in this law. What is it? It is found in the first section •by way of exception to property made liable to taxation, and is in these terms: “All investments in private securities of every kind, nature and description belonging to residents of this State, except mortgages upon property in this State, and the mortgage debts respectively secured thereon.” This, when read as an exemption, declares simply that “ mortgages upon property in this State, and the mortgage debts thereby secured,” are exempt from taxation.

From the review we have made of these laws, it appear that a special exemption of mortgages to building associations, was granted by the Act of 1852, which first autho*316rized their existence; that it was continued until repealed hy the Act of 1866; that it was then restored hy the Corporation Act of 1868; that during a portion of this same period, exemptions of mortgages, or of investments in mortgages, were granted by General Assessment Acts; and that the Act of 1816, sweepingly repeals all previous special exemptions, and, so far as mortgages are concerned, retains simply an exemption similar in effect to that embodied in some of the antecedent General Revenue Statutes. This action goes far to show that the purpose of the Legislature in the passage of the Act of 1816, was to repeal the special exemption in favor of this peculiar class of mortgages, and to retain the exemption that had been previously granted hy general laws to mortgages of a different character and description. But apart from this the terms of the exemption itself clearly point to and define the mortgages intended to he exempted. They are mortgages upon property securing mortgage debts. In common parlance, a debt is a sum of money due from one person to another, and in its legal acceptation, the term means a sum of money due hy certain and express agreement, as hy bond for a determinate sum, a bill, or note, a special bargain, or rent reserved on a lease, where the quantity is fixed and specific, and does not depend on any subsequent valuation to determine it. 1 Jac. Law Dic., 197, 198. So the common understanding, as well as the legal definition and effect, of a mortgage securing a debt, is a conveyance of property hy one person to another, as security for the payment of a definite, ascertained sum of money, debitum in proesenti solvendum in futuro, and which, so far as the property will go, secures the payment of that specific sum, at all events and irrespective of any future contingency. Such a conveyance usually contains a covenant to repay, which raises a personal obligation on the part of the mortgagor, and it is also now the common *317practice to have the debt between the parties evidenced by a promissory note, single bill, bond or some other written instrument. In our opinion, the exemption in question, only extends to, and embraces mortgages and mortgage debts of this description. This construction gratifies all the words of the exemption, and the rule hy which exemptions are to be construed, forbids any construction which the language employed does not clearly justify. But mortgages to building associations which the law has sanctioned and which are now commonly used, are instruments quite different in character and effect. Such an instrument recites that the mortgagor member has received an advance of a certain sum on his shares, upon condition that he will execute a mortgage to secure, not the payment of that sum with interest, but to secure “the payments and performance of the covenants hereinafter mentioned.” The payments which the succeeding covenants require, are not payments amounting to the sum advanced with interest, but of a certain weekly sum on each of his shares, of the interest on the sum advanced, and of all fines that may he imposed on him in accordance with the constitution and by-laws of the association, and these payments are to continue not for any definite time, so that the amount due on any given day or week could be ascertained, but until the time arrives when the association shall have sufficient funds on hand, over and above all losses and liabilities, to pay the holders of every unredeemed share a specified sum. It is evident, therefore, that the amount a mortgagor may have eventually to pay under these covenants, is altogether uncertain. It may be more or less than the amount he has received as an advance, and the payments may continue for a longer or shorter period, according as the association meets with success or failure in its management and operations. The feature that prominently distinguishes a mortgage of *318this character from an ordinary mortgage securing a debt, is apparent, and has been pointed out in almost every case in which the attention of this Court has been called to such an instrument. Thus in Robertson’s Case, 10 Md., 397, where a mortgage of this description first came under the notice of the Court, it was at once said “there is no provision in this mortgage for the payment of the sum named therein as the consideration for which it was executed, nor any part of it as a mortgage debt.” And in laying down the rule for ascertaining the amount the mortgagee association would be entitled to receive in prcesenti out of the proceeds, in case the mortgaged property should be sold, the Court say: “it is obvious that the sum actually due cannot be ascertained by estimating the sum 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.” It was also decided in the same case that as the Act of 1852, prescribed the very terms of such an instrument, and authorized its execution, it was not subject to the provisions of the Act of 1825, ch. 50, (Code, Art. 64, sec. 2,) requiring a mortgage to specify on its face the principal sum it was intended to secure, and for the same reason was not obnoxious to the laws against usury. The same peculiar and distinguishing characteristics of these mortgages are also pointedly noticed in Shannon’s Case, 36 Md., 394, in Lister’s Case, 38 Md., 118, 119, and in Williar’s Case, 45 Md., 562. We are therefore very clearly of opinion that mortgages of this description are not within the terms of this exemption in the Act of 1876. The exemption in the second section of the Act of 1878, ch. 413, is in substantially the same terms: “ mortgages ujaon property wholly within the State, and the mortgage debts respectively secured thereon,” and must receive the same construction. Consequently the *319question, that has been raised and argued in other tax cases at the present term, as to the effect of a supposed repeal of the former Act by tbe latter, does not arise in this case.

But it has been argued, that the whole value of the shares of stock in these associations, consists in the value I of the mortgages securing the payment of these weekly ' dues, and that to tax the shares while the property covered by the mortgages is also taxed, amounts to such! double taxation as is prohibited by the 15th Article of our Declaration of Rights. We by no means admit that suchA is the character of these shares or that their value is to be thus estimated, but assuming it to be so, and that holders of redeemed shares, are, in the strict sense of the term, borrowers from the holders of unredeemed shares, and that the latter are in fact lenders of money on the faith of these mortgages, the question comes simply to this, is it 'j competent for the Legislature to impose a tax upon investments in mortgages, in the hands of the mortgagees, j when the mortgaged property securing them is also subjected to taxation in the hands of the mortgagors ? Such : taxation has been enforced in this State for a long period. It was in force at least from 1841 to 1867; and during this time it was made lawful for the mortgagor to insert in the mortgage a covenant that he will pay “ all taxes, assessments, public dues or charges levied or to be levied by law on the mortgage debt or debts created or secured by such mortgage.” Act of 1847, ch. 255, Code, Art. 64, sec. 4. As to the expediency of laws imposing such taxation, the Legislature are the exclusive judges. The Courts can only determine the question of power, and as to this we entertain no doubt. In our opinion the 15th Article of the Declaration of Rights, does not prohibit the Legislature from taxing to the mortgagees investments in mortgages, notwithstanding the property mortgaged to secure such investments may be taxable and taxed to the mortgagors.

*320(Decided 30th January, 1879.)

It follows: that the order of Baltimore City Court, directing these shares to he stricken from the list of property assessed to the appellee must he reversed, and his petition dismissed with costs.

Order reversed, and petition dismissed.

The same state of facts substantially is to be found in each of the cases of Charles W. Janson, John S. Jackson, Elijah Milbourne, Hamilton G. Clark and James Robert Marley, and all of them must be disposed of in the same way. In some of these cases the parties claiming exemption hold what are termed redeemed shares, and in others what are called paid up shares. But this in the view we have taken of the law, makes no difference. By the first section of the Act of 1816, ch. 260, and the second section of the Act of 1818, ch. 413, the Legislature has subjected to taxation “ all shares of stock in any company or corporation incorporated by or located in, and doing business in this State.” These building associations are incorporated under the laws of this State, and the shares of their stock, whether they he redeemed, unredeemed, or paid up shares, clearly fall within the terms of the law, and must be assessed and taxed to their respective owners.

Orders reversed, and petitions dismissed.