DMH Joint Venture v. Hahner

BISHOP, Judge. DMH Joint Venture (“DMH”) appeals from an order of the Circuit Court for Prince George’s County (Ahalt, J.) which denied DMH’s motion for summary judgment and granted the motion for summary judgment filed by the appellees: Dorothy M. Hahner; William M. Densford; William E. Miller, II; Frances L. Miller and The Riggs National Bank of Washington, D.C., co-trustees under the will of John W. Miller; and John L. Miller and Associates (“Appellees”). In denying DMH’s motion the court ruled that appellees, as the sellers of a certain piece of agricultural land, had adequately notified DMH, the buyer of that land, of the potential imposition by the State of an “agricultural land transfer tax,” Subtitle 3 of the Tax Property Article, and, therefore, the appellees were not liable under § 13-308 of the Tax Property Article which provides that: Notice of tax liability. (a) Notice to buyer. — When a contract is executed for the transfer of any interest in agricultural land, the seller shall notify the buyer, in writing, that the transfer may be subject to the agricultural land transfer tax.

(b) Liability for failure to notify. — If a seller fails to notify a buyer as required by subsection (a) of this section, the seller is liable to the buyer for the agricultural land transfer tax paid by the buyer. The circuit court judge then ruled, by way of granting appellees’ motion, that, by the express terms of the parties’ land sales contract, the agricultural transfer tax was to be paid one-half by the buyer and one-half by the sellers. ²⁶⁰ On appeal DMH raises the following issues: I. Did the circuit court err in its initial holding that DMH is not a “buyer” within the purview of § 13-308?

II

Did the circuit court judge err in his alternative conclusions that a buyer’s actual knowledge of the agricultural land transfer tax satisfies the statutory requirement that the seller give the buyer written notice of such a tax and that DMH had actual knowledge of that tax.

III

Assuming that DMH was adequately notified of the agricultural land transfer tax, thereby satisfying the requirements of § 13-308(a), did the circuit court judge err in ruling by way of summary judgment that, under the terms of the land sales contract, the parties agreed that each would pay one-half of the agricultural land transfer tax? Although we rule in the appellees’ favor on only one of these three issues, that being number III, we, nevertheless, affirm the judgment. FACTS Prior to August 1987, the appellees were tenants in common of an approximately 42 acre tract of land (the “Property”) located in Oxon Hill, in Prince George’s County. In January 1986, Harvey Maisel, individually, and on behalf of John Driggs, and Maisel-Hollins Development Company, Inc. (which included Michael Hollins) prepared a written offer (the “first offer”) to purchase the Property.

That offer provided in relevant part that: All Documentary Stamps, Transfer Taxes and Recordation Taxes are to be paid for equally by Seller and Purchaser, provided, however, any transfer or other taxes pertaining to any rezoning or farmland or timberland assessment for the Property shall be paid solely by Seller to the extent that they exceed the regular rates for transfer and recordation taxes. (Emphasis supplied.) (The undisputed evidence indicates that both Maisel and Hollins took special notice of the ²⁶¹ provision concerning the payment of the agricultural land transfer tax.) When the first offer was rejected by the appellees the parties entered further negotiations. On August 14, 1986, these negotiations culminated in an “Agreement of Sale” between the appellees, as sellers, and the individuals who had made the first offer (Harvey Maisel, Michael S. Hollins, and John Driggs) as the buyers. This agreement, which provides in general terms that the buyers were to pay $5,237,277.00 for the Property and set August 3, 1987 as the closing date, also directs, at “Section 9”, that: The cost of preparing all necessary conveyancing papers, the title examining charges, notary fees and recording taxes incurred in recording the deed, and all other ordinary settlement charges shall be paid by Purchaser.

Transfer taxes shall be split equally between Seller and Purchaser. Subsequent to the signing of the August 14 Agreement of Sale, but before the eventual closing date, Driggs, Maisel and Hollins entered into a joint venture, DMH, which had as its purpose the acquisition and development of the Property. The three individuals assigned to DMH “all their right, title, interest and estate” in the Agreement of Sale. Thereafter, on August 3, 1987, the closing date under the Agreement, appellees conveyed the Property to DMH; this was apparently the first time that appellees were made aware of the assignment.

When the deed to the Property was subsequently recorded the following taxes were assessed against the Property: a State Agricultural Land Transfer Tax of $238,327.95, as provided for in §§ 13-301 et seq. of the Maryland Tax Property Article (1986); a Prince George’s County transfer tax, pursuant to Prince George’s County Code § 10-188; and a general State transfer tax applicable to all real estate transactions, Md. Tax Property Code Ann. §§ 13-202 to 13-203. This assessment precipitated a dispute between the parties as to who should pay the agricultural land transfer tax. Appellees asserted that, pursuant to Section 9 of the ²⁶² Agreement of Sale, one-half of each of the taxes, including the agricultural land transfer tax, should be paid by the buyer and one-balf by the sellers. DMH, on the other hand, argued that appellees failed to provide the written notice required by § 13-308(a) and, therefore, under § 13-308(b) appellees were solely .responsible for the value of the tax.

To avoid any further delays in the transaction, the parties entered into an agreement whereby each paid one-half of each tax and DMH reserved the right to institute legal proceedings to recover any amount paid by it for the agricultural land transfer tax. DMH subsequently filed suit, under § 13-308(b), in which it asserted that appellees, as the sellers of property subject to an agricultural land transfer tax, had failed to provide DMH, as the buyer, of written notice of such tax and that under § 13-308(b) appellees were, therefore, liable for the full amount of that tax. Both sides filed motions for summary judgment. The circuit court judge, ruling on the motions for summary judgment, held that: (1) DMH, as the assignee of the land sales contract, is not a “buyer” entitled to the protections of § 13-308.

(2) Assuming that DMH is a “buyer” under § 13-308, where the buyers of property which is subject to an agricultural land transfer tax have actual notice that the property is subject to such a tax, the requirements of § 13-308(a), which calls for written notice, are satisfied. (3) The admissions by Maisel and Hollins that they considered that the Property carried an agricultural land transfer tax, coupled with the court’s observations of the buyers’ sophistication in real estate matters, indicated that the buyers did have actual knowledge of the agricultural land transfer tax and, therefore, the notice requirements of § 13-308 were satisfied. (4) The parties agreed that all transfer taxes would be paid one-half by each party and pursuant to § 13-102 of the Tax Property Article that agreement controls. ²⁶³ The court then issued an order which, in effect, maintained the economic status quo. Scope of Review The circuit court judge, in entering summary judgment under Maryland Rule 2-501, determined that “there was no genuine dispute as to any material fact and that ... [appellees were] entitled to judgment as a matter of law.” Md. Rule 2-501(e).

On review of this decision: [W]e [too] are concerned with whether there was a dispute as to any material fact and if not, whether the moving party was entitled to judgment as a matter of law. In considering the duly shown facts, all reasonable inferences deducible therefrom must be considered in a light most favorable to the party opposing the motion and against the party making the motion. Liscombe v. Potomac Edison Co., 303 Md. 619, 621 , 495 A.2d 838 (1985). I. Is DMH a “Buyer” Section 13-308(a) provides that “[w]hen a contract is executed for the transfer of any interest in agricultural land, the seller shall notify the buyer ... that the land may be subject to the agricultural land transfer tax.” The circuit court judge concluded that, since the “buyer” under this section must be a party to the transaction “when a contract [of sale] is executed,” § 13-308 did not provide any protection for a subsequent assignee of the contract who, although a buyer, was not so “when a contract [of sale] was executed.” We disagree with the court’s conclusion and hold that DMH is a “buyer” entitled to the benefits of § 13-308.

Assuming, but only for purposes of this discussion, that appellees did not satisfy the notice requirements of § 13-308(a), under § 13-308(b), at the moment that appellees and the individual buyers executed the August 14, 1986 ²⁶⁴ “Agreement of Sale”, the appellee's became liable to the buyers to pay the full amount of the agricultural land transfer tax resulting from the August 14 Agreement. Consequently, when the individual buyers assigned “all their right, title, interest and estate” in the “Agreement of Sale” to DMH, DMH, as assignee, took “the subject of the assignment with all rights and remedies possessed by or available to the assignor,” Motor Vehicle Security Fund, State of Maryland v. All Coverage Underwriters, Inc., 22 Md.App. 586, 614 , 325 A.2d 115 (1974), including the statutory remedy for the transfer tax under § 13-308. Appellees contend that the practical effect of this holding will be “that any person or entity intervening, by acquisition or development of some right or interest in or under a contract of sale, between the time of the execution of a contract for the sale of real property and the ultimate conveyance by deed, would be entitled to [§ 13-308(a)] notice,” from the seller. The statute, however, does not require that notice be given after the execution of the contract of sale but only “when a contract is executed.” Since the seller executes a contract of sale only with the buyer/assignor (and not subsequent assignees) the seller would not be required, under our interpretation of § 13-308, to provide notice to subsequent assignees.

We note that § 13-308(a) requires that notice be provided when a “contract ” is executed and not when a “deed ”, Md. Real Property Code Ann. § l-101(c) (1986), is transferred. Appellees,, citing Strickland v. Sellers, 78 F.Supp. 274, 276 (1948) and Snodgrass v. Sisson’s Motor Home Sales, Inc., 161 W.Va. 588 , 244 S.E.2d 321, 322-23 (1978), argue that the right conferred upon the buyer by § 13-308 is a penalty provision and is, therefore, not assignable. Id. The applicable rule, as stated in 6A C.J.S. Assignments § 42 (1975), is that: A statutory right of action is generally assignable, except where it is conferred on one of a particular class, in the nature of a personal privilege, or penalty available to him alone. ²⁶⁵ A statutory right of action is assignable where the statute imposes a contractual relation, and not a penalty in the strict sense.

We reject appellees’ classification of § 13-308 as a strict penalty provision or personal privilege. Rather, we find that this provision “imposes a contractual relation” between the buyer and seller by defining which of the two must pay the agricultural land transfer tax where the writings of the parties are silent on the issue. See § 13-102 and § 13-308.

II

Notice We also reject the circuit court judge’s interpretation that the § 13-308(a) requirement, that notice of the agricultural land transfer tax be “in writing”, is satisfied where the seller fails to provide the written notification but the buyer has actual notice of such a tax. The issue here is essentially “[w]ill knowledge of the facts of which notification is to be given, acquired informally, take the place of the law’s punctilios?” 1 M. Merrill, Merrill on Notice § 505 (1952). Merrill states as the general rule that: If it [(notice)] is simply for the purpose of giving information, or of creating a likelihood that information will be received by the noticee, knowledge, which accomplishes this end, is an acceptable substitute. If, on the other hand, the notification is required for some formal purpose, such as the preservation of a record, or impressing the noticee with the significance thereof, knowledge will not take its place.

This position is in accord with the few Maryland appellate decisions which touch upon the issue. The Court of Appeals has held on the one hand that, “the requirement of notification purposed to inform may be satisfied by proof of actual notice [(knowledge)].” State v. Barnes, 273 Md. 195, 210 , 328 A.2d 737 (1974); see also McClay v. Maryland ²⁶⁶ Assemblies, Inc., 269 Md. 465, 476-77 , 306 A.2d 524 (1973) (Board’s failure to provide appellants with proper statutory-notice of a hearing was of no effect in light of appellant’s appearance at the hearing); Clark v. Wolman, 243 Md. 597, 600 , 221 A.2d 687 (1966) (to same effect as McClay). But, on the other hand, the courts have held that strict compliance with the statutory notification procedures are required, for example, to cancel a workers’ compensation insurance policy because the purpose of the statute is not just to notify the employer, but, more importantly, to insure that a substitute policy is obtained. Pressman v. State Accident Fund, 246 Md. 406, 412-13 , 228 A.2d 443 (1967).

Moreover, the logic underlying Merrill’s statement of the rule is also in accord with the purpose underlying the Maryland cases interpreting a statutory notice provision; that being to “carry out the intent of the General Assembly.” Compare Dean v. Pinder, 312 Md. 154, 161 , 538 A.2d 1184 (1988) and Merrill § 505. Undoubtedly a purpose of the notice provision embodied in § 13-308 is to inform the potential buyer of the impending agricultural land transfer tax and this purpose would certainly be satisfied by the buyer’s actual knowledge of such a tax. However, the words of the statute, which are the primary source of the legislature’s intent, Dean, 312 Md. at 161 , 538 A.2d 1184 , indicate that information dissemination is not the primary objective of § 13-308; the primary objective is to preserve the State’s agricultural land. The agricultural land preservation motive behind the agricultural land transfer tax is evidenced by the overall statutory scheme.

Section 13-306 of the Tax Property Article requires that two-thirds of the revenues generated by the agricultural land development tax are to be “remitted into the Maryland Agricultural Land Preservation Fund...,” § 13-306(a)(2), and used “to preserve agricultural land and woodland,” Md. Agricultural Code Ann. §§ 2-501, and 2-505 (1985). The tax supports this preservation motive in two ways: it generates revenues to enable the State to purchase agricultural land preservation easements, Agri ²⁶⁷ cultural Code § 2-505(c)(3); and, secondly, the tax inhibits property owners from transferring agricultural land to non-agricultural uses, see Md. Tax Property Code § 13-305. Although the revenue generating motive of § 13-306 is furthered regardless of whether the seller gives the buyer written notice of transfer tax (from