Motels of Maryland, Inc. v. Baltimore County

Hammond, C. J., delivered the opinion of the Court. Motels of Maryland, Inc. sued Baltimore County to recover $6,142.50 it had paid the County as a transfer tax when it recorded what it calls a “short form” of a written “leasing agreement.” Motels’ theory was that it had paid the money under a mistake of fact in that it had thought the initial writing trans ³⁰⁹ ferred a leasehold interest in land and thus was subject to the County ordinance imposing a tax on recorded transfers of estates in land at the rate of three-quarters of one per cent of the value of the property transferred, when the fact was that the writing was no more than a present personal contract to execute a lease at a future time. Since the County taxing ordinance did not establish a procedure for refunding taxes paid in error, Motels claimed in an amended declaration under the common counts for money payable and for money paid at the request of the County and five special counts. Count three alleged that Motels had entered into “an initial lease agreement” dated June 30, 1960, with the Bowches Corporation “covering the tract of land then owned by [Bowches] on the northwest corner of Loch Raven Boulevard and Joppa Road,” and that the agreement provided for the erection of a motel and other improvements and “subsequently, the leasing of said improvements.” It then was alleged that “the commencement of the term itself” was made contingent on the completion of the improvements and that Bowches had encountered financial difficulties and could not complete the improvements, “thereby precluding the commencement of the contemplated lease.” Count four alleged that after Bowches became unable to complete the improvements, Motels “mistakenly believing it had a leasehold interest in property to protect against a foreclosing mortgagee” of Bowches and should record that interest (when actually it had none—not even “any possible expectant interest”), recorded at the record office of the Circuit Court for Baltimore County on January 24, 1962, “a short form of the initial leasing agreement * * * said short form being dated November 9, 1961, and embodying the same agreement and pertinent terms as the aforedescribed initial agreement dated June 30, 1960,” and that simultaneously Baltimore County “improperly and/or illegally charged and collected” from Motels a Baltimore County Realty Transfer Tax levied pursuant to Tax Resolution No. 8 (1962) oí the County Council of Baltimore County in the amount of 56,142.50, and Motels “erroneously and/or mistakenly paid same tax” with “no' consideration or benefit whatsoever [moving] to the Taxpayer in that the re ³¹⁰ cording of the short form of the initial leasing agreement failed to transfer any interest in any estate and failed to transfer any declaration or limitation of use” because Motels “could under no circumstances expect satisfaction of the condition precedent that said motel be finally constructed by The Bowches Corporation in that perfected mechanics’ liens on the unfinished work and pending foreclosure proceedings by an intervening mortgagee made completion impossible.” Count five alleged that it would be unconscionable for Baltimore County to retain the tax it had collected since Motels had formed “a related corporation” which had bought the land involved from Bowches “in order that the construction of said motel might be completed,” and when the transfer from Bowches to the related corporation was made Motels “through its related corporation, was again subjected to the payment of transfer tax and thus, in fact, was doubly taxed for the effectuation of but a single transfer.” Count six alleged a fruitless demand for refund, and Count seven reiterated the impropriety and illegality of the demand for the tax and the payment thereof.

Judge Menchine sustained the County’s demurrer to the amended declaration holding that as a matter of law “the instrument” was one “transferring an estate in land” since “the words ‘Estate’ and ‘Transfer’ as used in the Tax Resolution include contingent estates” and the Resolution shows no legislative intent to grant a refund if a contingency becomes impossible. He concluded there had been no mistake in the payment of the tax. We think his action in sustaining the demurrer was correct. Tax Resolution No. 8 (1962) of Baltimore County in § 1 levies a special tax “upon the transfer of any estate of inheritance or freehold, or any declaration or limitation of use, or any estate above seven years, in Baltimore County, at the rate of 24 of 1% of the value of the property transferred” (in case of a lease for a term of more than seven years, not perpetually renewable, the tax is to be based upon the capitalization at ten per cent of the average annual rental over the entire term of the lease plus any other actual consideration other than rent).

Section 21 defines the word “estate” as used in the Resolu ³¹¹ tion to embrace “every description of real property including, but not limited to, fee simple estate, leasehold estate, limited estate, and legal and equitable interests in real property.” The word “transfer” as used in the Resolution is defined to mean “the act of the parties, or of the law, by which the title to property is conveyed from one person to another.” Motels’ claim in essence is that the short form it recorded was a synopsis or condensation of the “lease agreement” of June 30, 1960, the recordation of which is in substance and effect the recordation of the lease agreement, and that the lease agreement was not a lease which would have transferred a leasehold estate but no more than an agreement to make a lease at a future date which transferred no estate or interest. A contract to make a lease of realty differs from a lease of realty in nature, effects and consequences, much as a contract to sell realty does from a conveyance of realty. Whether a writing constitutes a contract to lease or a lease is a matter of the real intention of the parties. Language which almost always would import a present demise may be found in light of the context and surrounding circumstances to constitute a personal contract to thereafter make a lease.

On the other hand, language which almost always would be understood as a promise later to make a lease has been construed as constituting words of present demise, that is to say, a lease. The fact that there is in the writing a provision for the execution of a lease in the future, or a reference to such a lease, does not necessarily show that no more than an agreement for a future lease is intended since such language may be just a covenant of further assurance, a security for the execution of a more formal instrument. A writing may be a lease though it does not give a right to immediate possession since a lease for years may create an estate to commence in futuro. 1 Tiffany, Landlord and Tenant, §§ 62 and 63 (1912); 1 American Law of Property § 3.17 (Casner ed. 1952); 51 C. J. S. Landlord and Tenant, §§ 184 and 185; 32 Am. Jur.

Landlord and Tenant, § 28. Thus the allegations of fact of the amended declaration do not permit a precise or accurate determination of whether the initial agreement of June 30, 1960, which is referred to by the equivocal label of “leasing agreement” was a lease or a con ³¹² tract to lease. However, the crucial document was not the initial agreement but the so-called “short form” that was recorded. There is no statutory provision or warrant for recording a shortened version of a longer writing as the equivalent of the longer.

The writing that actually is recorded must meet the statutory requirements for a paper that is recordable and it stands on its own and has the character its terms and provisions give it. A short recorded writing dealing with the subject matter of a preexisting unrecorded longer writing may have the same character as the longer writing, or a different character. If in this case the longer writing was only an agreement to make a lease, rather than a lease, that would not prevent the short form actually recorded from being a present lease if its terms made it so. 1 ³¹³ The amended declaration alleges that Motels recorded “a short form of the initial leasing agreement * * * said short form * * * embodying the same agreement and pertinent terms as the aforedescribed initial leasing agreement dated June 30, 1960.” If the characterization of the short form be treated as an allegation of fact, it cannot be determined whether it was a lease or a contract to make a lease inasmuch as the allegations of the amended declaration as to the initial “leasing agreement” leave the matter in doubt. Whichever it was Motels is not helped since Tax Resolution No. 8 makes taxable the transfer of “every description of real property including * * * real and equitable interests in real property”; if it was a present lease, it transferred a leasehold estate (that is, a legal interest in land) ; if it was a contract to make a lease, it transferred to or created in Motels an equitable interest under the broad, almost all embracing sweep of the language of the transfer tax ordinance.

In either case Motels became subject to the transfer tax. 1 Restatement, Property § 6, points out that interests in land are legal and equitable and that “an equitable interest is that kind of an interest which has its origin in the principles, standards and rules developed by courts of chancery.” 30 C. J. S. Equity § 60, recognizes that an equitable interest in land is an interest which is not a legal estate but a right to have the legal title transferred, a right which a court of chancery will recognize, not by virtue of a chancellor’s sense of moral right but under the established rules and principles of equity jurisprudence. 1 Pomeroy, Equity Jurisprudence, § 146 (5th ed. Symons 1941), says much the same things and suggests that an equitable interest is to be differentiated from a mere equity, saying “a cestui que