Weaver v. King County

*184Weaver, J.

The principal question of law on appeal was first presented to this court 12 years ago in Deer Park Pine Indus., Inc. v. Stevens Cy., 46 Wn.2d 852, 286 P.2d 98 (1955).

The rationale of Deer Park is this:

The right of a stockholder to receive corporate assets in kind in the voluntary dissolution of a solvent corporation is an incident of corporate stock ownership, the right following ownership of the stock. The conveyance of corporate real property as a liquidating dividend to a distributee-stockholder by the liquidating trustee of a solvent corporation in dissolution is not a “conveyance, grant . . . or transfer . . . for a valuable consideration, . . .” or a “sale” in the ordinary sense, within the meaning of RCW 28.45.010, and thus subject to the 1 per cent real estate transfer tax authorized by statute, if implemented by an appropriate county ordinance.

This is the fifth time the same question has been presented to this court.1 We have held uniformly that the transfer is not a taxable event.

We turn to the facts of the instant case.

Prior to July 13, 1960, plaintiffs-respondents owned all of the capital stock of three corporations, Metropolitan Laundry Company, Aurora Launderers and Cleaners Corporation, and Crescent Laundry and Cleaning Company. The assets of each corporation consisted of good will, accounts receivable, supplies, other personal property, and laundry and dry cleaning plants. Ownership of real property was incidental to the conduct of these businesses.

*185July 13, 1960, plaintiffs agreed to sell to Pantorium Launderers and Cleaners, Inc. (hereafter called Pantorium) all of their capital stock in the three corporations for about one million dollars. At that time, the real property owned by Metropolitan had an agreed market value of $400,000. It was encumbered by a mortgage to Carroll Mortgage Company on which approximately $46,000 remained unpaid. By this transaction, Pantorium became the owner of Metropolitan’s corporate stock.

January 2, 1961, Pantorium voted to dissolve Metropolitan. Eleven months later, the liquidating trustee of Metropolitan delivered to Pantorium a statutory warranty deed conveying Metropolitan’s real estate “subject to” the Carroll mortgage. The deed recited no consideration for the transfer but stated that its purpose was “to effect a transfer of the property to said Grantee as a liquidating dividend in the process of distributing the assets of the Metropolitan Laundry Co. (now in process of voluntary dissolution).”

As a condition of recording the deed, the treasurer of King County demanded from Metropolitan the payment of 1 per cent excise tax on a valuation of $400,000. The tax was paid under protest, and this action was commenced by plaintiffs, as the assignees of Metropolitan, for its recovery. Defendant county appeals from a judgment in favor of plaintiffs entered after the court granted a motion for summary judgment.

It is argued that there may be a controlling factual difference between a “one-step” transaction (illustrated by Deer Park, supra, and Doric Co. v. King Cy., 57 Wn.2d 640, 358 P.2d 972 (1961), because there had not been a recent sale of the corporate stock prior to dissolution), and a “two-step” transaction (illustrated by Estep v. King Cy., 66 Wn.2d 76, 401 P.2d 332 (1965), wherein voluntary dissolution was effected by transfer of the real property shortly after the distributee-stockholder had purchased the stock). This is a distinction without a difference, and, as stated in Estep, supra, it would make a distinction that

would write into Washington law a provision not voiced by the legislature and would make suspect every convey-*186anee of real property by a corporate liquidating trustee. It would involve the county and the courts in a search for subjective intents, motives, and purposes every time a transfer of stock is followed by a transfer of real property in corporate dissolution. Any change in the application of the statutes and ordinance must be legislative.

In each of the four appeals involving the instant question, King County has shifted the emphasis of its argument to a slightly different factual pattern, but, as this court pointed out in Ban-Mac, Inc. v. King Cy., 69 Wn.2d 49, 416 P.2d 694 (1966):

In each of these cases, the factual pattern has varied to some extent. In King County’s present appeal, there is a further slight variance in the fact pattern, but we feel that if several pages of this opinion were used in detailing and discussing the facts, we would still have to be faced with the application of the rule of law to which we have adhered for the past 11 years.

The property was distributed to Pantorium “subject to” the 1956 Carroll mortgage with an unpaid balance of approximately $46,000. The mortgage provided:

The mortgagors consent to a personal deficiency judgment for' any part of the debt hereby secured which shall not be paid by a sale of said property.
The covenants and agreements herein are joint and several, and binding upon our, and each of our, successors in interest, ....

The county argues that the above provision of the mortgage binds Pantorium to “assume” the mortgage and thus furnishes a consideration for a taxable transaction at least to the extent of the mortgage, and that such a tax was paid in Deer Park, supra.

We do not agree with the county’s contention. The grantee of a deed is not bound by the mortgagor’s covenant binding himself and his successors to pay the mortgage debt, even though the mortgage declares that the covenant runs with the land, unless the grantee has, in some way other than by mere acceptance of the deed, assumed the mortgage indebtedness.

*187The court said in Perkins v. Brown, 179 Wash. 597, 38 P.2d 253, 101 A.L.R. 275 (1934):

The rule undoubtedly is that the obligation of a grantee to assume and pay a mortgage debt must be established by evidence that is clear and conclusive, and can not be established by inference. . . . While the obligation need not be expressed in any particular language, yet the expression upon which reliance is placed must unequivocally show that the grantee has undertaken to pay the debt.

The evidence fails to establish that Pantorium undertook to pay the Carroll mortgage and agreed to a deficiency judgment in the event of foreclosure, either expressly or by implication.

Finally, it is urged that Christensen v. Skagit Cy., 66 Wn.2d 95, 401 P.2d 335 (1965), casts some doubt upon the rationale of Deer Park. In Christensen, real property was conveyed to a corporation in return for the issuance of corporate stock. We held the transfer of the land to the corporation in return for the corporate stock to be a sale within the ambit of RCW 28.45.050 and hence taxable. The transaction is the exact reverse of the instant case and is based upon different legal theories which are discussed in Deer Park, and Christensen, supra.

The judgment is affirmed.

Hill, Hunter, Hamilton, and Neill, JJ., concur.

Deer Park Pine Indus., Inc. v. Stevens Cy., 46 Wn.2d 852, 286 P.2d 98 (1955); Doric Co. v. King Cy., 57 Wn.2d 640, 358 P.2d 972 (1961); Estep v. King Cy., 66 Wn.2d 76, 401 P.2d 332 (1965); Ban-Mac, Inc. v. King Cy., 69 Wn.2d 49, 416 P.2d 694 (1966).

It is significant that the legislature has met six times since the rule of Deer Park, supra, was announced. It has not changed the rule by statute.

King County’s constant appeals upon the same question are in the nature of ingeminated petitions for rehearing; or are made, perhaps, with the hope that changes of membership of the court may eventually change the rule.