Musgrove v. Baltimore & Ohio Railroad

⁶³⁰ Pearce, J., delivered the opinion of the Court. This is an action of assumpsit brought hy the appellant, Samuel O. Musgrove, Treasurer of Howard County, to recover from the appellee, the Baltimore and Ohio Railroad Company, the sum of $1,736,000. The narr. contains but one count, for money payable hy the defendant to the plaintiff, but sets out at much length the circumstances under which it is claimed the plaintiff became entitled to this large amount. The hill of particulars filed in the case is as follows : “The Baltimore and Ohio Railroad Company to Samuel C. Musgrove, Treasurer of Howard County.

Mortgage. Eate. Income. Tax.

Amount Due 1904. $75,000,000 3y2% $2,625,000 8% $210,000 $70,000,000 4% $2,800,000 “ 224.000 1905. (C 210,000 a cc 224.000 1906. “ “ “ “ 210.000 “ “ “ “ “ 224.000 1907. “ “ “ “210.000 “ “ “ “ “224,000 $1,736,000.” The averments of the narr. may he summarized as follows: That the amount claimed is for taxes due on two mortgages recorded in Howard County, and executed hy the defendant in pursuance of the Act of Assembly, Chapter 140 of 1896, paragraph 200. That under the provisions of Chapter 120 of 1896, paragraph 146a, all mortgagees or assignees holding mortgages of record in the State of Maryland are required to pay annually a tax of eight per centum upon the gross amount of interest covenanted to be paid each year to the mortgagee or his assigns by the mortgagors, to be collected by the proper authorities as other taxes are. ⁶³¹ That by Chapter 140 of 1896, paragraph 200, any railroad company was authorized in executing a mortgage on property located in this State to secure bonds issued by such company, to covenant in such mortgage to pay the taxes levied on such mortgage, or the bonds secured thereby, or on the interest payable thereon. That the defendant is incorporated by Chapter 123 of 1826, as a resident corporation of this State, with its main ‘office in this State, in which it owns and operates various track rights, terminals, and rolling stock, and is a large holder of stocks and bonds of other railroads outside of this State, but which stocks and bonds are held in this State bj the defendant.

That the two mortgages mentioned in the bill of particulars, are, 1st, one from the defendant dated July 1st, 1898, to the Mercantile Trust Company of New York, Trustee, for $75,000,000, bearing interest at 3% per cent, per annum, duly record in Howard County, and upon property located in this State, to secure the payment of bonds named in said mortgage, issued and outstanding prior to Sept. 1st, 1903, and still outstanding; 2nd, another mortgage of same daté, from the defendant to the United States Trust Company of New York, and John A. Steward, Trustee, for $175,000,000 with interest at 4 per cent, per annum, also duly recorded in Howard County, and upon property located in this State, to secure payment of bonds mentioned in said mortgage, and issued to the amount of $70,000,000, outstanding prior to Sept. 1st, 1903, and still outstanding. That in each of said mortgages, the defendant, as authorized by Chapter 140 of 1896, paragraph 200, covenanted with the mortgagee and its assigns to pay all taxes levied' on said mortgages, or the bonds secured thereby or the income thereon, and by virtue of said covenants became liable for such tax. That it was provided by Chapter 120 of 1896, paragraph 146a, that where such mortgage is recorded in two or more counties in this State, the tax so levied shall be due and pay ⁶³² able in that one of the two counties where the greater part of the mortgaged' property is located. That by Chapter 405 of 1904 certain counties of this State were exempted from the operation of Chapter 120 of 1896 providing for the. taxation of mortgages, and that after the passage of the above Act of 1904, a greater part of the property covered by-said two mortgages was located in Howard County than in any other county wherein the said tax on mortgages is in force and collectible.

That the passage of Chapter 794 of 1906, and Chapters 283 and 564 of 1908, did not affect the right of Howard County to collect the tax claimed. That the defendant in pursuance of the several Acts mentioned in the narr., was assessed upon the books of Howard County upon the gross amount of interest covenanted in said two mortgages to be paid, according to the amount of the outstanding bonds for the years ending, Sept. 1st, 1904, 1905, 1906 and 1907. That by Chapter 317 of 1896, the Treasurer of Howard County was constituted the collector of all State and county taxes for said county and authorized to receive all moneys due said county from any source. That -the County Commissioners of Howard County duly levied upon said assessment of income due to said two mortgagees or their assigns, the said tax of eight per cent, and plhced said levy in the hands of the plaintiff, by means of all .which the defendant became indebted, and still is indebted to the plaintiff for county taxes as aforesaid, and being so indebted afterwards undertook and promised to pay the plaintiff the same on demand.

That the plaintiff has duly demanded the taxes mentioned in the bill of particulars, but the defendant has refused and still refuses to pay the same, and the plaintiff claims $2,-000,000. To this narr., the defendant demurred, and its demurrer was sustained, and judgment being entered thereon in favor of defendant, the plaintiff has appealed. Since the decisions in Faust v. The Building Assn., 84 ⁶³³ Md. 186, and Allen v. Nat. State Bank, 92 Md. 509 , there can be no question that mortgages of land in this State, owned and held by citizens of other States, as well as of this State, may rightfully be taxed in the counties of this State where the land is situated, and' that though the tax be levied upon the interest, and not directly upon the mortgage debt, “this is only another method of taxing the latter, and the rate of taxation is determined by the percentage of interest.” The only question-therefore which it will be either necessary of useful to consider, is whether the Legislature has intended by the passage of the various Acts relating to this subject, to exercise the power to impose the tax in question here; or, changing the form of expression, without altering its substance, whether the Legislature intended to impose this tax upon railroad mortgages given to trustees to secure bonds issued by it and sold to investors as other marketable securities are sold.

Section 146a of Chapter 120 of the Acts of 1896 is now codified as sec. 183 of Art. 81. As originally enacted, it provided that: “All mortgagees or assignees holding mortgages of record in this State shall annually pay a tax of eight per 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 municipal and State taxes in Baltimore City, are collected; * * * provided that if any mortgage is recorded in two or more counties, or in Baltimore City and in any county or counties in the State, the tax hereby levied shall each year be paid in the county or Baltimore City, where the greater portion of the property covered by the mortgage is located.” This section contained provisions for the application of said taxes which have been omitted here, because immaterial in this case. Sec. 146a, as codified in sec. 183 of Art. 81, provided that the tax above mentioned should be paid by all mortgagees of assignees holding mortgages of record in Worcester, Wieom ⁶³⁴ ico, Somerset, Carroll, Howard, Montgomery, Frederick. Washington and Garrett Counties, hut exempted from the payment of said tax, Baltimore City and all the remaining counties of the State, and provided that the tax collected in the several counties in which it was still collectible should he applied exclusively to county purposes. 'Chapter 794 of 1906, added Dorchester County to the counties in which such tax should he levied and collected.

Chapter 283 of 1908, further exempted Washington County, and Chapter 564 of 1908, further exempted Garrett County, so that now, the only counties subject to the operation of sec. 183 of Art. 81, relating to the tax on mortgages, are Worcester, Wicomico, Somerset, Carroll, Howard, Montgomery and Frederick, and as averred in the narr., and admitted by the demurrer, the greater part of the property covered by the mortgages in this case is located in Howard County, than in other county wherein said tax is-collectible. Sec. 185 of Art. 81, declares all covenants contained in any mortgage executed after March 30th, 1896, and recorded in counties where said tax is collectible, for the payment by the mortgagor of any taxes levied on the mortgage debt, or the interest payable thereon, to be null and void; and section 186 of Art. 81, provides that “any person or corporation lending money on mortgage upon any property in any one or more of the counties enumerated in sec. 183, in addition to the oath as to the bona fides of the consideration, must also make oath that neither the mortgagor, nor any one for the mortgagor has been required to pay the tax levied upon the interest covenanted to be paid, in advance, nor will the mortgagor, nor any person for him be required to pay the same. These sections were originally secs. 146c and 146d of Chapter 120 of 1896. But further, Chapter 140 of 1896, now section 209 of Art. 81, provided as follows: “It shall be lawful for any railroad company, or other corporation in executing a mortgage on property located in this State for the purpose of securing the payment of bonds issued by such corporation, to covenant in ⁶³⁵ such mortgage to pay the taxes levied upon such mortgage, or the bonds secured thereby, or on the interest payable thereon; and in such cases the oath prescribed in section 186 shall not be required'; provided, however, that nothing contained in this section, shall be held or construed, to waive, release, or otherwise interfere with the valuation and assessment for the purposes of taxation of any bonds secured by such mortgage in the hands of the holders thereof resident in this State respectively, as directed in the case of other bonds by this Article.” Chapters 120 and 140 of 1896, were both approved on the same day, March 30th, 1896.

The above recited acts cover all the legislation of the State referred to in the argument and in the zealous and' earnest brief of the appellant, and if there was no other legislation upon the subject, the language of sec. 209 of Art. 81, would give color to his contention, and if considered, as it was in his brief, apart from contemporaneous construction of that Act, and without the light thrown upon it by some of the subsequent decisions of this Court, might make it difficult to escape his conclusion. But there is other, and most significant legislation upon this subject not alluded to in the appellant’s brief, and which we therefore presume he did not feel affected his position. Section 194 of Chapter 120 of 1896, was in these words: "All