Mayor of Baltimore v. Maryland Trust Co.

Johnson, J., delivered the opinion of the Court. This is an appeal from an order of the Circuit Court of Baltimore City, sustaining in part exceptions filed by Maryland Trust Company, Trustee, to the account of the auditor as stated in the case of Maryland Trust Company, etc., Trustee, v. The Hotel Rennert Company of Baltimore City. The Hotel Rennert Company of Baltimore City, a body corporate, from its incorporation until February 10th, 1932, when receivers were appointed by the Circuit Court of Baltimore City to take over its management, operated the Hotel Rennert, located at Saratoga and Liberty Streets. On March 1st, 1899, the company executed a mortgage to the Continental Trust Company, Trustee, upon the hotel property and the furniture, ⁵⁴⁸ fixtures and supplies contained therein, to secure an issue of $750,000 first mortgage gold bonds due and payable March 1st, 1949.

Some of the bonds were retired by the operation of a sinking fund, but the issue has been in default as to both principal and interest since March 1st, 1932, and there now remains due appellee, successor by merger to the Continental Trust Company, Trustee, the sum of $723,721.68 on behalf of the bondholders. On February 10th, 1932, a creditor of the hotel company filed a bill of complaint in the Circuit Court for Baltimore City, alleging insolvency of the company, and on the same day the chancellor assumed jurisdiction and appointed Charles P. Coady, Frederick J. Singley and John H. Shaab, as receivers, to take charge of the realty and personalty of the Hotel Rennert Company, to collect the outstanding debts due it and “convert its property, estate and assets into money * * Of the receivers appointed, Frederick J. Singley is the survivor, and at the time of the receivership, taxes on the realty as well as corporation taxes owed by the hotel company were in default and sufficient moneys were not realized from the conduct of the receivership by the operation of the hotel property to permit a substantial reduction of such taxes. Appellant on March 31st, 1932, filed in the receivership case a claim for 1931 Maryland corporation taxes. Subsequently on October 6th, 1932, an additional claim was filed by the city for 1932 Maryland corporation taxes, while on October 6th, 1934, a new claim was filed by appellant for such taxes covering the years 1931 to 1934, inclusive.

On November 27th, 1934, it filed a petition seeking authority to sell the real estate for state and city taxes due thereon. This effort was resisted by the receivers, who answered the petition, and it is conceded that the chancellor failed to grant the city’s request for the sale of the real estate in satisfaction of such tax claims. ⁵⁴⁹ On December 29th, 1939, Maryland Trust Company, successor trustee under the indenture of mortgage dated March 1st, 1899, filed its petition, in the court having jurisdiction over the receivers, for authority to assert its lien for the benefit of the bondholders and two days later such authority was granted, while on February 27th, 1940, the court passed its decree directing the trustee to sell. The receivership proceeding and the proceeding instituted by the trustee were consolidated, and at the sale the real property was bought by appellant for the amount of taxes due it. The personalty subject to the mortgage lien was sold for $9,113.46, and this amount was increased by receipts from other sources to $10,582.98.

The contention in this case relates to the proper application of that sum, which was by the auditor allowed appellant upon its claim of $12,058.27 for taxes, interest and penalties thereon upon tangible personalty for the years of 1931 to 1940, both inclusive. Exceptions filed by appellee to that audit were heard by the chancellor, who ordered the sum of $4,085.52 distributed to appellant for taxes, interest and penalties thereon due it for the years 1935 to 1940, inclusive, and the remainder of the sum, amounting to $5,777.46, was distributed pro rata between appellant upon its tax claim, with interest and penalties for the years 1931 to 1934, inclusive, amounting to $7,252.95, and appellee on behalf of the claims of bondholders, which amounted to $723,721.68. No objection is raised by appellee to , the allowance in full of taxes levied and assessed by appellant for the years 1937 to 1940, inclusive, except as to penalties, and although, in addition to allowing preferences for the years last stated, the chancellor also allowed the city’s tax claims for the years of 1935 and 1936, appellee has not appealed. So that at the outset it will be seen that in distributing the sum of $10,582.98, to which the exceptions related, the chancellor accepted neither the contentions of appellee nor ⁵⁵⁰ appellant, for according to appellee’s contention no taxes should have been allowed for the years 1931 to 1936, inclusive, while appellant insisted that taxes for those years were allowable as preferential claims.

It will also be noted that the chancellor, while denying a preferential status of the tax claims of the City for the years 1931 to 1934, inclusive, did allow such claims to participate ratably with the claims on behalf of the bondholders. Appellee objects to the allowance of