Title: Prince George's County Maryland v. Brown

State: maryland

Issuer: Maryland Supreme Court

Document:

Prince George's County, Maryland v. Sidney J. Brown, No. 27, September Term, 1997.
[Transfer Tax - Prince George's County - Tax paid on recording of mortgage securing future
advances not refundable despite lack of any advances.]
Circuit Court for Prince George's
County Case # CAL95-15223
IN THE COURT OF APPEALS OF MARYLAND
No. 27
September Term, 1997
_________________________________________
PRINCE GEORGE'S COUNTY,
MARYLAND
v.
SIDNEY J. BROWN
_________________________________________
Bell, C.J.
Eldridge
Rodowsky
Chasanow
Raker
Wilner
Karwacki, Robert L.
     (retired, specially assigned), 
JJ. 
_________________________________________
Opinion by Rodowsky, J.
_________________________________________
Filed:  February 18, 1998
In this case the mortgagor under a commercial mortgage securing future advances
seeks a refund of Prince George's County transfer taxes on the ground that no advances were
or will be made under the mortgage.  The Court of Special Appeals ordered that the taxes be
refunded.  Brown v. Prince George's County, 114 Md. App. 242, 689 A.2d 1245 (1997).  We
shall reverse for the reasons set forth below.  
I
Three enactments are relevant to the refund claim in the instant matter.  They are the
Prince George's County, Maryland (the County) transfer tax ordinance, the Maryland
recordation tax statute, and the Maryland statute recognizing mortgages for future advances.
Prince George's County Code (1995 ed.) (the County Code), § 10-188(a) provides
in relevant part as follows:
"A tax is imposed at the rate of one and four-tenths percent (1.4%) of actual
consideration paid or to be paid under every instrument of writing conveying
title to real property, or any interest therein, in the County, offered for record
and recorded in the County[.]"
This ordinance expressly includes mortgages and deeds of trust within the term, "instrument
of writing."  County Code § 10-188(d).  Further, "[u]pon any refinancing of property by the
original mortgagor or mortgagors, the tax shall apply only to the consideration over and
above the amount of the original mortgage or deed of trust."  Id.
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     Chapter 784 of the Acts of 1957 added § 464C to the Code of Public Local Laws of
1
Prince George's County (1953 ed.).  In relevant part, § 464C(a) read:
"A tax is hereby imposed at the rate of one-fifth of one per centum of the
actual consideration paid or to be paid under every instrument of writing
conveying title to real property, or any interest therein, in Prince George's
County, offered for record and recorded in said County ....  The term
'Instrument of Writing' shall include deeds, mortgages, deeds of trust ...."
The County has imposed a transfer tax since 1957.  Chapter 784 of the Acts of 1957.
The language of tax imposition now found in County Code § 10-188(a) is nearly identical
to the original imposition under Chapter 784.   
1
The statutes concerning the Maryland recordation tax are codified in Maryland Code
(1986, 1994 Repl. Vol.), Title 12 of the Tax-Property Article (TP).  That tax is imposed on
an instrument of writing recorded with the clerk of a circuit court or with the State
Department of Assessments and Taxation.  TP § 12-102.  In the recordation tax scheme
"instrument of writing" includes mortgages and deeds of trust.  TP § 12-101(c)(2)(ii).  The
recordation tax  makes special provision for mortgages for future advances in TP § 12-105(f).
In substance, the tax applies only to the principal amount of debt incurred at the time of
recording.  TP § 12-105(f)(1).  When any additional debt is incurred, the debtor is expected
to come forward and pay the recordation tax on the new amount.  TP § 12-105(f)(2).
Alternatively, the borrower may pay, upon recording, the tax on the maximum principal
amount secured by the instrument, even though that amount has not been advanced at the
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     The text of TP § 12-105(f)(1) through (4) is:
2
"(f)
Partial debt. — (1) Except as provided in paragraph (4) of this
subsection, if the total amount of secured debt has not been incurred at the
time of recording or filing the instrument of writing, the recordation tax
applies only to the principal amount of the debt incurred at that time.
"(2)  Except as provided in paragraphs (3) and (4) of this subsection, on
or before 7 days after any additional debt is incurred after recording or filing
an instrument of writing, a statement under oath of the amount of additional
debt shall be filed with the clerk of the circuit court or with the Department,
and the recordation tax shall be paid on the additional debt by the debtor.
"(3) If the additional debt under paragraph (2) of this subsection is
applied to repayment of the debt previously incurred, the recordation tax does
not apply to the additional debt.
"(4)
The recordation tax may be computed and paid on the maximum
outstanding principal sum, however expressed, that is stated to be secured by
the instrument of writing, without regard to the amount of secured debt
actually incurred, advanced, or readvanced."
time of recording.  TP § 12-105(f)(4).   The Maryland recordation tax dates to Chapter 11
2
of the Acts of 1937, and the provision deferring the tax on amounts to be advanced under a
mortgage or deed of trust after recordation was added by Chapter 277 of the Acts of 1939.
Thus, a model for deferred tax was extant when the public local law of 1957 created a
transfer tax in the County. 
The third enactment relevant to our analysis is Maryland Code (1974, 1996 Repl.
Vol.), § 7-102 of the Real Property Article (RP).  This statute recognizes the lien effected
by a mortgage for future advances up to "the aggregate principal sum appearing on the face
of the mortgage or deed of trust and expressed to be secured by it, without regard to whether
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or when advanced or readvanced."  RP § 7-102(a)(1).  The priority of future advances is
governed by § 7-102(b) that provides in relevant part as follows:
"If after the date of the mortgage or deed of trust, any sum of money is
advanced or readvanced ... priority for such sum of money ... dates from the
date of the mortgage or deed of trust as against the rights of intervening
purchasers, mortgagees, trustees under deeds of trust, or lien creditors,
regardless of whether the advance, readvance, endorsement, or guaranty was
obligatory or voluntary under the terms of the mortgage or deed of trust."
RP § 7-102 was part of the revision of the laws relating to real property enacted by
Chapter 349 of the Acts of 1972.  The 1972 enactment eliminated restrictions on mortgages
for future advances which were set forth in Maryland Code (1957), Art. 66, § 2.  The
restrictions of Art. 66, § 2, however, did not apply in the County (or in Baltimore County).
See Maryland Code (1957), Art. 66, § 3; Welsh v. Kuntz, 196 Md. 86, 98, 75 A.2d 343,
347-48 (1950).  Consequently, in 1957, when the County imposed a transfer tax, the legal
effect of mortgages or deeds of trust securing future advances that were recorded in the
County was substantially that later achieved under the statewide provisions of RP
§ 7-102(a)(1) and (b). 
II
In the instant matter the taxpayer, Sydney J. Brown (Brown), seems to have had an
ongoing business relationship with a banking institution that has undergone a number of
acquisitions and that we shall call "Sovran."  In June 1991 Brown was indebted to Sovran
for $2,824,102.15 (the Old Debt) on a loan originally in the amount of $5 million that was
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secured by a deed of trust on, inter alia, real estate in the County.  On June 5, 1991, Sovran
issued a commitment to Brown to lend him an additional $2,015,897.85 (the New Debt).
Brown's purpose in obtaining the commitment was to use the New Debt to pay off  a loan
to another lender.  Pursuant to the commitment a "modification agreement-deed of trust and
security agreement," dated June 26, 1991 (the Deed of Trust) in the face amount of
$4,840,000 was recorded on June 28, 1991, among the land records of the County.  A
handwritten insert at the foot of page two of the Deed of Trust advised that "[t]his Deed of
Trust is being modified from $2,824,012.15 to $4,840,000.00 with no funds being advanced
at this time."  Upon the recording Brown paid a transfer tax in the amount of $30,238.46
calculated at the then rate of one and one-half percent on the New Debt.
Although the June 5, 1991 commitment is not in evidence, it is undisputed that that
commitment was subject to conditions.  No funds were ever advanced under the Deed of
Trust because Brown had not met one or more conditions of that commitment.  On July 14,
1992, Brown and Sovran agreed that his outstanding loan with Sovran would not exceed
$2,781,055, the amount to which the Old Debt had been amortized.  On August 6, 1992,
Brown and Sovran entered into a "second modification agreement-deed of trust note"
providing, inter alia, that Sovran "'shall not be obligated to advance any additional proceeds
of the loan evidenced hereby after July 14, 1992.'"  Consequently, Brown not only had not
borrowed any of the New Debt, but he would be unable to borrow any of the New Debt in
the future.  
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Brown thereafter sought, under TP § 14-908, a refund of the transfer tax on the Deed
of Trust from the County's Director of Finance.  That statute in relevant part reads:
"A person who submits a written refund claim for transfer tax that has
been erroneously or mistakenly paid to or illegally or erroneously assessed or
wrongfully collected by ... the Director of Finance in Prince George's County
... is eligible for a refund from the ... Director of Finance ...." 
The Director rejected Brown's refund claim. 
The Maryland Tax Court affirmed.  That agency found it to be "very clear that at the
time that this tax was collected, and Mr. Brown admits the same, that this tax was in fact
due."  Consequently, ruled the Tax Court, the tax was not erroneously or mistakenly paid,
and Brown was not entitled to a refund. 
On judicial review of the agency decision the Circuit Court for Prince George's
County affirmed.  That court concluded that the "proper measuring time to determine
whether consideration is adequate is at the time of recording.  Hence, Brown's expectation
satisfies the criteria for 'consideration to be paid' utilized at the time of recording."
Accordingly, the circuit court concluded that there was no error or mistake within the
meaning of the refund statute. 
The Court of Special Appeals reversed.  The heart of that court's analysis is the
following passage:
"At the time of recording, because [Brown] expected to receive additional
funds, he was required to pay the full tax assessment.  The record reveals that,
at the time the 1991 Modification was recorded, [Brown] did, in fact, expect
'to be paid' by Sovran the consideration for which the additional transfer tax
was collected.  Sovran, however, never advanced any additional funds beyond
those due from prior obligations.  Under these circumstances, (1) [Brown] did
-7-
not receive actual consideration, (2) the tax was erroneously paid, and
therefore (3) he is entitled to a refund."
Brown, 114 Md. App. at 245, 689 A.2d at 1246 (footnote omitted).
Thereafter, we granted the County's petition for certiorari.  The County here argues
that under TP § 14-908 Brown was not entitled to a refund because the taxes were not
erroneously paid when the Deed of Trust was recorded.  Brown argues that there was no
consideration to support the payment of the tax and that TP § 14-908 authorizes the refund.
III
Brown submits that there was no actual consideration for the transfer by him to
Sovran of a lien on Brown's real estate.  We have recently reiterated that "[u]nder our
decisions ... 'a benefit to the promisor or a detriment to the promisee' [is] sufficient to
constitute 'valuable consideration.'"  Harford County v. Town of Bel Air, ____ Md. ____,
____, ____ A.2d ____, ____ (1998) [No. 114, September Term, 1995, filed January 14,
1998, slip opinion at 20-21].  The consideration for Brown's increase of Sovran's lien was
Sovran's legally enforceable promise to advance the New Debt.  See, e.g., Ehlen v. Selden,
99 Md. 699, 59 A. 120 (1904) (prospective lender under commitment for a construction loan
entitled to agreed upon standby fee, although borrower never exercised right to require that
loans be made).  Further, the fact that Sovran's commitment of June 5, 1991, was subject to
conditions does not impair the legal efficacy of Sovran's promise.  "A conditional promise
may be consideration, and 'when a man acts in consideration of a conditional promise, if he
-8-
gets the promise he gets all that he is entitled to by his act, and if, as events turn out, the
condition is not satisfied, and the promise calls for no performance, there is no failure of
consideration.'"  3 S. Williston, A Treatise on the Law of Contracts § 7:18, at 346-47 (R.A.
Lord ed., 4th ed. 1992) (quoting Gutlon v. Marcus, 165 Mass. 335, 45 N.E. 125 (1896)).  
Brown emphasizes that the County transfer tax rate is applied to the actual
consideration paid or to be paid.  In Dean v. Pinder, 312 Md. 154, 538 A.2d 1184 (1988),
we noted that the dictionary definition of "actual" includes "'existing now; present, current.'"
Id. at 161-62, 538 A.2d at 1188.  That case involved a transfer of the fee simple title to realty
in Kent County by deed from the shareholders of a corporation to the corporation, after a
transfer tax had been paid by the shareholders on their acquisition of the realty from prior
ownership.  The Kent County transfer tax applied the rate to the "actual" consideration.  The
transfer to the corporation was subject to the Kent County transfer tax despite the absence
of payment in money or property by the corporation to its shareholders as consideration for
the deed.  We held that the increase in value of the shareholders' stock in the corporation,
which prior to the transfer had had no assets, constituted consideration to be measured by
the value of the realty as evidenced by the purchase prices paid by the shareholders to their
grantors.  We  rejected the argument that actual consideration was restricted to money or
other tangible property which changed hands at the time of the transfer being taxed.  Id. at
162, 538 A.2d at 1188-89. 
In Dean we also referred to the fact that the modifier, "actual," had been dropped from
"consideration" in the revision of the recordation tax statutes effected by Chapter 8 of the
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     Maryland Code (1957, 1980 Repl. Vol.), Art. 81, § 277(r) specially provided for a rate
3
in the County of $1.65 for each $500 unit "of the actual consideration paid or to be paid."
Acts of 1985.  See Dean, 312 Md. at 162-63, 538 A.2d at 1189.  Compare Maryland Code
(1957, 1980 Repl. Vol.), Art. 81, § 277(b)(1) (generally providing a rate of fifty-five cents
per $500 units of "the actual consideration paid or to be paid") with TP § 12-103(a) (rate
applied to $500 units "of consideration payable or of the principal amount of the debt
secured.").   Nevertheless, the revisor's note following Maryland Code (1986), TP § 12-103,
3
advises that the section "is new language derived without substantive change from the
description of the units to which the recordation tax rate[] in former Art. 81, § 277(b)(1) [is]
applied."  Thus, the General Assembly did not believe that "actual" substantially contributed
to the intended meaning of "consideration" in the recordation statute.  Rather, the
Legislature's view of these changes indicated "that the word 'actual' was not intended as the
restrictive modifier that the [taxpayers] suggest[ed]."  Dean, 312 Md. at 163,  538 A.2d at
1189.    Just as money or tangible property need not have been paid at the time of recording
of the deed to the corporation in Dean for there to have been actual consideration, so, here,
the word "actual" does not require that the loan proceeds be advanced at recording.  Brown
received "actual" consideration.  
Brown argues that "the true value of the transaction was zero."  Appellee's Brief at
9.  In our view the controlling issue in this case is whether the consideration moving to the
transferor, Brown, was correctly valued at the time of recording.  The instrument of writing
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on which the tax was paid, the modification agreement-deed of trust and security agreement
recorded June 28, 1991, recites that
"Grantor [Brown] is justly indebted unto Sovran ... for money borrowed in the
principal amount of FOUR MILLION EIGHT HUNDRED FORTY
THOUSAND and *** NO/100 DOLLARS ($4,840,000.00), for which amount
the said Grantor has made and delivered a certain Deed of Trust Note (the
'Note') of even date herewith in the principal amount hereinabove recited."
The longhand insertion following this recital explains that the principal amount secured by
the Deed of Trust consists of the Old Debt and the New Debt.  As pointed out in Part I of this
opinion the County transfer tax does not follow the model of the Maryland recordation tax
and permit deferral of the payment of the tax until the New Debt is advanced.  The County
transfer tax places no burden on the clerk to attempt to compute the probabilities of whether
future advances will in fact be made.  Absent a County provision similar to the state
recordation tax provision that expressly permits deferral of the payment of the tax until future
advances are made, there is no way in which the County's transfer tax can be administered
other than by valuing the "actual consideration ... to be paid" by the maximum amount that
may be advanced.  In this case that is the recited $4,840,000 of indebtedness, less the
refinanced Old Debt.
The Court of Special Appeals read Brown's expectations into the tax statute.  Brown,
114 Md. App. at 245, 689 A.2d at 1246 ("The record reveals that, at the time the 1991
Modification was recorded, [Brown] did, in fact, expect 'to be paid' by Sovran ...."
(Emphasis added)).   That mode of analysis is inconsistent with Motels of Maryland, Inc. v.
Baltimore County, 244 Md. 306, 223 A.2d 609 (1966), involving the Baltimore County
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transfer tax.  In that case the prospective developer of a motel recorded, and paid transfer
taxes on,  a "short form" of what it thought was a lease to it of the motel site, but the written
instrument underlying the "short form" was not a lease but a contract to lease.  Financial
difficulties of the "lessor" prevented any lease from ever taking effect.  On that basis the
developer sought a refund.  We held that the contract to lease transferred an equitable
leasehold title to the prospective lessee at the time of recording, so that the transfer tax had
properly been paid.  The fact that the lease was never entered into did not give rise to a right
to a refund.  In that connection we said:
"Motels, we think, is no more entitled to a refund of the transfer tax it
paid than would be the recorder of a contract of sale of realty seemingly valid
in form and substance which later is judicially held not to warrant specific
performance, or the recorder of a similar deed later judicially held invalid
because of mistake or fraud.  The clerk of court who is required to collect the
transfer tax by the Tax Resolution cannot be expected to divine that one who
presents for record a paper which ostensibly and reasonably purports to
transfer a taxable interest either does not think that it does or later turns out to
have been mistaken in a belief that it does.  Nor can the clerk be required to
act as a chancellor by going outside the proffered paper to resolve its
effectiveness to accomplish what it is offered to and seems to accomplish."
Id. at 317, 223 A.2d at 615.
In support of his position Brown cites the opinion of the Attorney General of
Maryland reported at 43 Op. Att'y Gen. 353 (1958).  The question there presented was
whether, under the Maryland recordation tax, the borrower under a construction loan who
had paid at the time of recording the recordation tax on the entire principal sum that could
be advanced, was entitled to a refund when no advances in fact had been made.  The
Attorney General opined, without citation to authority, that a refund would be available.  Id.
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     TP § 14-917(a) and (b) provides: 
4
"(a)
Recordation tax and transfer tax. — Except as provided in
subsection (b) of this section, interest shall be paid on a refund claim under
§ 14-907 or  § 14-908 of this subtitle at the rate of 6% a year on the amount
(continued...)
at 353-54 ("It is obvious that the Legislature only intended to tax the amount of debt actually
incurred and secured.  Until such time as the corporation has actually received money under
the trust, no debt has been incurred and secured and no taxes are payable.").
For purposes of the instant matter, we need not analyze whether the Attorney
General's opinion was correct under the statutes and case law dealing with the refund of
taxes at that time.  It is sufficient to note that the taxpayer involved in the problem presented
to the Attorney General was not legally obligated to pay any recordation tax at the time of
recording, due to the special provision concerning future advances that has been in the
Maryland recordation tax statute since 1939.  In the matter before us, there is no such special
provision, and Brown was properly required to pay transfer tax on the actual consideration,
valued by the New Debt. 
In a sense, Brown argues for a second look at liability for the tax.  Although he does
not challenge the computation of the tax at the time of recording, he asks that the transaction
be reevaluated after Sovran's commitment had terminated due to the non-occurrence of its
conditions.  No provision, however, in the County's transfer tax statutes entitles a taxpayer
to that second look.  Further, TP § 14-917(a), dealing with the payment of interest on refunds
of transfer taxes, provides that "interest shall be paid ... from the date that the tax was paid."4
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     (...continued)
4
of the refund from the date that the tax was paid.  
"(b)
Exceptions. — Interest may not be paid on a refund claim based
on a mistake or error that is attributable only to the claimant and not to the
Department, a clerk of the court, or the Director of Finance in Prince George's
County."
This strongly indicates that the Legislature contemplated that the validity of an application
of a transfer tax would be determined at the time of recording and not at some indeterminate
time after the fact.  The requirement that interest be measured from the date of payment of
the tax would mean, under a second look application, that the interest would include the
period during which the commitment to make future advances was conditionally enforceable.
It is unlikely that the General Assembly intended that result.
Here, the transfer tax was not "erroneously or mistakenly paid to or illegally or
erroneously assessed or wrongfully collected by" the Director of Finance in the County.
Accordingly, TP § 14-908, the refund statute, does not apply.
JUDGMENT OF THE COURT OF SPECIAL
APPEALS REVERSED.  CASE REMANDED
TO THAT COURT FOR THE ENTRY OF A
JUDGMENT AFFIRMING THE JUDGMENT
OF THE CIRCUIT COURT FOR PRINCE
GEORGE'S COUNTY.  COSTS IN THIS
COURT AND IN THE COURT OF SPECIAL
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APPEALS 
TO 
BE 
PAID 
BY 
THE
RESPONDENT, SIDNEY J. BROWN.