Case Name: LESTER ASSOCIATES, a General Partnership, Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent
Court: Commonwealth Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 2003-02-10
Citations: 816 A.2d 394
Docket Number: 
Parties: LESTER ASSOCIATES, a General Partnership, Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent.
Judges: BEFORE: COLINS, President Judge, McGINLEY, Judge, SMITH-RIBNER, Judge, PELLEGRINI, Judge, FRIEDMAN, Judge, COHN, Judge, and SIMPSON, Judge.
Reporter: West's Atlantic Reporter, Second Series
Volume: 816
Pages: 394–403

Head Matter:
LESTER ASSOCIATES, a General Partnership, Petitioner, v. COMMONWEALTH of Pennsylvania, Respondent.
Commonwealth Court of Pennsylvania.
Argued Dec. 4, 2002.
Decided Feb. 10, 2003.
Mark E. Halbruner, Lemoyne, for petitioner.
Ronald H. Skubecz, Harrisburg, for respondent.
BEFORE: COLINS, President Judge, McGINLEY, Judge, SMITH-RIBNER, Judge, PELLEGRINI, Judge, FRIEDMAN, Judge, COHN, Judge, and SIMPSON, Judge.

Opinion:
OPINION BY
Judge SMITH-RIBNER.
Before the Court en banc are exceptions filed by Petitioner Lester Associates, a general partnership, to the opinion and order filed by a panel of this Court on July 22, 2002, after remand from the Pennsylvania Supreme Court, that affirmed the order of the Board of Finance and Revenue approving the imposition upon Lester Associates by the Department of Revenue (Department) of real estate transfer tax of $110,692.32, with interest. Lester Associates raises two questions: whether the Commonwealth is bound by a decree of the Cumberland County Court of Common Pleas declaring that title to the real property involved is vested in Lester Associates and whether Lester Associates proffered sufficient proof that its March 20, 1995 deed was void ab initio such that there was no transfer of real estate justifying the imposition of a real estate transfer tax.
The Supreme Court granted allowance of appeal in this matter, and it issued a per curiam order vacating this Court's order in Lester Associates v. Commonwealth, 751 A.2d 253 (Pa.Cmwlth.1999), which affirmed the imposition of real estate transfer tax upon Lester Associates, and remanding as follows:
AND NOW, this 28th day of November, 2000, the Order of the Commonwealth Court is vacated. The Commonwealth Court erred when it relied upon Sabatine v. Commonwealth, 497 Pa. 453, 442 A.2d 210, 212 (Pa.1981), for the general proposition that the Department of Revenue is not bound by a Common Pleas Court's decision. Accordingly, this matter is REMANDED to the Commonwealth Court for consideration of whether Lester Associates proffered sufficient evidence that the March 20, 1992[sic] deed was void ab initio, Sabatine, 497 Pa. at 458, 442 A.2d at 212, such that there was no transfer of real estate, justifying the imposition of realty transfer tax by the Department of Revenue.
Lester Associates v. Board of Finance and Revenue, 563 Pa. 519, 762 A.2d 1084 (2000).
I
According to the stipulations submitted jointly by the parties, Lester Associates is a general partnership with a fictitious name registered with the Corporation Bureau of the Department of State. By a deed dated August 19, 1992 and recorded October 23, 1992, Lester Associates took title to certain commercial property in Cumberland County. By a deed dated January 1, 1995 and recorded March 20, 1995, Lester Associates purportedly conveyed the property for nominal consideration to "Lester Associates, L.L.C." Lester Associates, L.L.C. was never registered as a fictitious name or legal entity in Pennsylvania or in any other jurisdiction. A realty transfer tax statement of value dated February 24, 1995 and recorded with the deed listed a fair market value of $11,069,232 but claimed exemption from the tax as a corrective or confirmatory deed.
By deed dated January 2, 1995 and recorded August 23, 1995, there was a second purported conveyance for nominal consideration from Lester Associates, L.L.C. to Gateway Square Associates, L.L.C. (Gateway), which is a Tennessee limited liability company that was formed on December 28, 1994 and that is not and has not been registered with the Department of State as a foreign limited liability company. The partners in Lester Associates are the same persons as the members of Gateway. That deed was accompanied by a realty transfer tax statement of value and claim for exemption stating fair market value as $6,229,557.39 and also claiming exemption as a corrective or confirmatory deed. From October 23, 1992 to the present, Lester Associates has treated the property as a partnership property and has enjoyed sole beneficial interest in it.
The Department granted an exemption as to the second deed but assessed a real estate transfer tax upon the purported March 1995 conveyance. On March 6, 1996, Lester Associates appealed to the Department's Board of Appeals and also filed an action seeking a declaratory judgment that the deeds recorded on March 20 and August 23, 1995 had no legal effect on the title to the property, which remained in Lester Associates. Gateway and the Department were named as defendants and were served with notice. The trial court granted the Department's preliminary objections to being named a party in the action under Section 7540(b) of the Declaratory Judgments Act, 42 Pa.C.S. § 7540(b). Lester Associates amended its complaint and omitted the Department as a party. Gateway never responded, and a default judgment was entered. Notice was served on Gateway, the Department and the Attorney General. In June 1996 the court held a hearing on Lester Associates' motion for adjudication and final decree upon default judgment. Counsel for the Department and the Attorney General attended the hearing, as directed, but did not enter an appearance and declined the opportunity to intervene. The court issued a final decree on October 7, 1996, stating in part:
It is DECLARED, ADJUDGED, AND DECREED that, by virtue of Defendant's default, and as between the parties to this action, title to the property bounded and described as follows shall be deemed to be in Plaintiff, Lester Associates....
NOTHING HEREIN is intended to express an opinion as to the effect of this Decree, if any, upon any issues of real estate transfer tax liability.
The Board denied Lester Associates' appeal despite the trial court's decree. As noted above, this Court affirmed and the Supreme Court vacated and remanded.
Upon remand, the parties elected to proceed on the existing record, and a majority of a panel of this Court once again affirmed the imposition of the tax. Although acknowledging case law that a purported transfer to a nonexistent entity is void ab initio, see, e.g., Borough of Elizabeth v. Aim Sher Corp., 316 Pa.Super. 97, 462 A.2d 811 (1983), the majority noted that Lester Associates treated Lester Associates, L.L.C. as an entity with the capacity to buy and sell property, and it emphasized that Gateway is an entity that has the capacity to buy and sell real property. The majority stated that it was obvious from the history of the transactions that Lester Associates intended to convey the property to Gateway through an admittedly nonexistent entity. The majority cited Pruitt v. Ferguson, 224 Va. 507, 297 S.E.2d 714 (1982), for the proposition that a deed to a nonexistent person is a valid conveyance to the intended but misnamed grantee if such person exists and if the intention of the parties can be ascertained. Further, the majority rejected Lester Associates' alternative argument that a beneficial interest in the property was not transferred and stated that the deed is a document that shows a transfer of legal title to real estate within the meaning of Section 1101-C of the Tax Reform Code of 1971 (Code), Act of March 4, 1971, P.L. 6, as amended, added by Section 4 of the Act of May 5, 1981, P.L. 36, 72 P.S. § 8101-C. Lester Associates filed exceptions, which are now ripe for determination.
II
Lester Associates first argues that the Commonwealth, i.e., the Department, is bound by the Common Pleas Court's decree declaring that Lester Associates has title to the property in question. It notes that the Common Pleas Court has jurisdiction to determine the validity and effect of a deed to real property. Section 931(a) of the Judicial Code, as amended, 42 Pa. C.S § 931(a), provides the courts of common pleas with unlimited original jurisdiction of all actions and proceedings except where exclusive jurisdiction is vested in another court by statute or rule, and Section 7533 of the Declaratory Judgments Act, 42 Pa. C.S. § 7533, provides that any person interested under a deed or other writings constituting a contract may have determined any question of construction or validity arising under the instrument and obtain a declaration of rights, status or other legal relations thereunder. The trial court adjudicated the matter within its jurisdiction, and its order has not been stricken, opened or appealed.
Section 7540(b) of the Declaratory Judgments Act, 42 Pa.C.S. § 7540(b), provides that in any proceeding that involves the effect of any legal relation, status, right or privilege upon the determination of any tax, the taxing authority shall be served with a copy of the proceeding, but if it does not enter its appearance the requirement of Section 7540(a), 42 Pa.C.S. § 7540(a), that all persons who have or claim an interest that would be affected must be served shall be satisfied if the court considers that the interests of the taxing authority are adequately represented. Here the Department filed preliminary objections stating that its interest was solely that of a taxing authority, and the proper procedure under 42 Pa.C.S. § 7540(b) would be to serve it and then let it decide whether to enter an appearance. The Department was so served and expressly declined the opportunity to intervene to attempt to prove that a transfer had taken place. The trial court determined that the Department's interests were adequately represented.
In Sabatine the parties arrived at a settlement of an action in equity seeking to nullify a sale of land, and they entered into a consent decree that the recorded deed was of no effect. This Court and the Supreme Court affirmed.the Department's denial of a request for a refund. The consent decree was not a legal determination by the trial court of the matters in controversy; it did not specify any underlying facts, and it had no weight in any other proceeding except to show that the parties were bound by its terms. The Supreme Court's remand order in the present case indicates that this Court erred in concluding that Sabatine stood for a general proposition that the Department is not bound by an order of the trial court. Plainly the concern of Sabatine was that consent decrees not be given binding effect upon the Department when it had no hand in drafting them. In contrast, the Department elected not to participate or to intervene even though directed to attend the hearing. As Lester Associates points out, the trial court did not say that its order had no effect on the issue of the tax but rather that the court did not express an opinion on the issue. The Department is bound by the order of the trial court.
Next Lester Associates contends that the record demonstrates that the March 20, 1995 deed was void ab initio such that there was no transfer of real estate to justify the imposition of the real estate transfer tax. Section 1102-C of the Code, 72 P.S. § 8102-C, imposes a realty transfer tax upon every person who presents for recording any "document" in respect to the transaction. Section 1101-C defines "document" in part as "[a]ny deed, instrument or writing which conveys, transfers, devises, and vests, confirms or evidences any transfer or devise of title to real estate.... " This Court has stated: "The realty transfer tax is a tax upon the transaction, the transfer of title to real estate as evidenced by a document that is to be recorded." Wilson Partners, L.P. v. Commonwealth, 723 A.2d 1079, 1082 (Pa.Cmwlth.), aff'd, 558 Pa. 462, 737 A.2d 1215 (1999).
Lester Associates stresses that for a deed to be valid the grantee must be capable of taking title at the time of the conveyance. In Borough of Elizabeth, where an owner deeded a property to a corporation that had not yet come into being formally and was not shown to have any de facto existence before its articles of incorporation were filed over a year later, the trial court held that the deed was invalid. The court stated: "A deed that purports to convey real estate to a nonexistent corporation has no effect." Id., 462 A.2d at 812 (citing Africa v. Trexler, 232 Pa. 493, 81 A. 707 (1911), among others). The stipulation of the parties states that Lester Associates, L.L.C. has never existed and that it was named as the grantee in the March 20, 1995 deed. Thus the March 1995 deed was void ab initio, and because there was never a transfer of title there was no basis for the tax.
The Department agrees with the rule that for an instrument to convey title to land the grantee must exist at the time of the conveyance and be capable of taking title. Nevertheless, it cites 23 Am.Jur.2d Deeds § 28 (1983) for the proposition that this rule does not apply when a living person in existence is described by a fictitious or assumed name; if a living person is identifiable as the grantee named in the deed, the deed is valid. It quotes Pruitt, 224 Va. at 512, 297 S.E.2d at 717 (1982): "A deed to a nonexistent person is a valid conveyance to the intended but misnamed grantee, if such a person exists and if the intention of the parties can be ascertained."
The Court concludes, however, that the stipulations do not establish that Lester
Associates, L.L.C. was an assumed name for Gateway or that the March 1995 deed intended to convey the property to Gateway through that instrument. To the contrary, the stipulations are that another deed from Lester Associates, L.L.C. to Gateway was prepared around the same time. The evidence presented by Lester Associates, as reflected in the stipulation, shows that Lester Associates, L.L.C. did not exist and was not capable of taking title to property at the time of the purported conveyance to it. The Court thus concludes that Lester Associates has proffered sufficient evidence to establish that the March 1995 deed was void ab initio. Of course, any further purported conveyance from Lester Associates, L.L.C. was necessarily void as well. In short, there never was any legal transfer of title to the property that would justify the imposition of the real estate transfer tax. The exceptions of Lester Associate are sustained, and the order of the Board of Finance and Revenue is reversed.
ORDER
AND NOW, this 10th day of February, 2003, the exceptions filed by Lester Associates to this Court's decision of July 22, 2002 are sustained, and the decision of the Board of Finance and Revenue is reversed.
. The majority relied on an interpretation of Sabatine v. Commonwealth, 497 Pa. 453, 442 A.2d at 212 (1981), as holding that the Department is not bound by a court of common pleas decision.
. Although the Court reviews determinations of the Board of Finance and Revenue in its appellate jurisdiction, the Court's review is de novo. Sabatine.