Allen v. National State Bank

Fowler, J., delivered the opinion of the Court: Mrs. Hinchman and her husband executed a mortgage for the sum of $11,500, dated the 6th March, 1899, and therein covenanted to pay to the mortgagee, the National State Bank of Camden, New Jersey, a non-resident corporation or its assigns, interest upon the mortgage debt at the rate of six. per centum per annum. The mortgagors are also non-residents, but the lands mortgaged are located in Harford County in this State. The mortgagee was duly assessed upon the assessment books of Harford County for the year 1899, upon the gross amount of the mortgage interest, and a tax of eight per centum was duly levied upon such assessment for State and county taxes for said year, and placed in the hands of Edward M. Allen, who is authorized by law to collect and receive all State and county taxes duly levied and legally collectible. The mortgagee has refused to pay the tax so levied amounting to the sum of $55.20, and this suit was brought to recover it.

The mortgagee, the defendants below, pleaded the general issue, and that it is a corporation formed under the laws of the United States for the purpose of transacting a general banking business at Camden, in the State of New Jersey, and that its domicil is in said city. ■ The case was tried before the Court without a jury, and the learned Judge below granted the defendant’s prayer asking him “to rule as a matter of law that it being admitted by the pleadings that the defendant is a non-resident of the State of Maryland, it is therefore not liable in this action for taxes upon the income of the mortgage held by it upon real estate in Harford County, Maryland, and the plaintiff is not entitled to recover. ⁵¹¹ The clerk was directed by the Court to enter judgment for the defendant, but no judgment appears by the record to have been actually entered. However, an agreement by counsel has been filed intended to perfect the record so as to present the case as fully as though the facts therein agreed to and the ruling of the Court were embodied in a formal bill of exceptions duly signed. We will, therefore, proceed to dispose of the questions sought to be presented by this appeal without regard to the defects in the record. The questions to be considered are, first, whether section 146A of the Act of 1896, ch. 120 (Poe’s Supplement, Art. 81, section 146A, p. 551), so far as it taxes the interest covenanted to be paid in mortgages on lands in Maryland held or owned by non-resident mortgagees, citizens of other States, is a valid and constitutional exercise of the taxing power of the Legislature; and, second, if the Legislature has such power did it intend to exercise it by the passage of the Act above mentioned ?

No question is made as to the amount of the tax levied in this case, but the question is whether any such tax can be levied. The provisions of sec. 146A is as follows : “All mortgagees or assignees holding mortgages of record in this State shall annually pay a tax of eight ger centum upon the gross amount of interest covenanted to be paid each year to said mortgagee or his assigns by the mortgagor to be collected by the proper authorities as other taxes for county and State purposes in the several counties * ■ * * * * and the tax hereby levied shall each year be paid in the county * * * where the greater portion of the property covered by the mortgage is located.” In the first place this Court has already held that the Act in question is valid in respect to mortgagees residing in this State, the land mortgaged being also located here. In the case of Faust v. The Building Assn., 84 Md. 186 , we held that ■“the power of the Legislature to-tax mortgage debts has been frequently exercised, and it has been recognized by the decisions of this Court. If any doubts “continues the Court” have ⁵¹² heretofore existed, they are set at rest by section 51, Art. 3, of the Constitution, as amended by the Act of 1890, ch. 426.

The amendment is in these words “but the General Assembly may by law provide for the taxation of mortgages upon property in this State and the debts secured thereby in the county or city where such property is situated.” The method of carrying out this constitutional provision was also approved in the same case. ‘ ‘The tax levied” “said Bryan, J., delivering the opinion of the Court” “cannot be considered as excessive or unjust. Eight per centum on the interest, even if it should be six per centum would be forty-eight cents on the one hundred dollars of principal * * * The adjustment shows on its face a studious effort to discharge a public duty in a spirit of justice and moderation. The assessment and levy were made in the legitimate exercise of the powers of the Legislature in relation to subjects confided to its discretion, and it is our duty to declare them valid.” It is true that the tax is levied upon the interest and not directly upon the mortgage debt, but this method which we approved in Fausts case, supra, is only another method of taxing the latter, and the rate of taxation is determined by a percentage of the interest. I. Having, therefore, determined that the Act in question is valid so far as it applies .to resident mortgagees holding mortgages on land in Maryland, is it valid as to non-resident mortgagees owning mortgages of the same character?

Upon general principles it would seems that there ought to be no difficulty in answering this question in the affirmative. It is one of the axioms of the law of taxation that the State has the right to tax all persons and all property of every kind within its jurisdiction. McCulloch v. Maryland, 4 Wheat. 316 . But it is contended that the interest of the mortgagee is in the nature of a chose in action, and that according to the well-settled rule, here and elsewhere, such property must be assessed and taxed to the owner where he has his domicil.

The case of the Appeal Tax Court v. Patterson, 50 Md. 366 , is cited to sustain this proposition. It is there said, that property of a non-resident cannot be taxed unless it has an actual situs ⁵¹³ within this State, so as to be under the protection of its laws. But what was actually decided in that case was that a resident of Maryland owning stocks, bonds and other certificates of public debt issued by other sovereign States, or by municipalities created by them which are exempted by the States issuing them may be taxed by this State. Conceding, for the present, that the interest of the mortgagee is in the nature of a chose in action, the general rule that its situs for taxation is the residence of the owner, is a mere fiction of law, and “yields whenever it is necessary for the purpose of justice that the actual situs of the thing should be examined, and whenever the legislative intent is manifested that this legal fiction-should not operate.” Green v. Van Buskirk, 7 Wall. 139 ; Bristol v. Washington Co., 177 U. S. 141 ; Hervey v. Rhode Island Works, 93 U. S. 664 ; St. Louis v. Ferry Co., 11 Wall. 428 .

In Patterson’s case, supra, it is said: “The general rule mobilia sequuntur personam relied on by appellant is far from being of universal application, and has been qualified by numerous exceptions in cases of taxation.” The Act we are considering expressly provides that the interest of. the mortgagee shall be taxed not where he resides but in the county or city where the mortgaged land is located. So that the case of Latrobe v. Baltimore City, 19 Md. 13 , and that of Baltimore City v. Stirling, &c., 29 Md. 49 , cited to maintain the proposition that a mortgage debt is taxable at the residence of the creditor are not applicable here. And so there are many instances that can be cited where the express provisions of tax laws take the place of this fiction. Thus in this and many other States shares of the capital stock of corporations which are dioses in action and which are owned by non-residents are taxed by express provision of statutes where the corporation is located and not where the owner resides.

In the case of Savings Society v. Multnomah Co., 169 U. S. 421 , this very question appears to have disposed of. Gray, Justice, in delivering the opinion of the Court said : “ By the law of Oregon as of some other States of the Union, a mortgage of real property does not convey the legal title to the ⁵¹⁴ mortgagee, but creates a lien or incumbrance as security for the debt; and the right of possession as well as the legal title remains in the mortgagor both before and after condition broken, until foreclosure. Notwithstanding this, it has been held both by the Supreme Court of Oregon and by the Circuit Court of the United States for the District of Oregon that that State has the power to tax mortgages of land there, though owned and held by citizens and residents of other States.”