Prince George's County v. Brown

RODOWSKY, Judge. In this case the mortgagor under a commercial mortgage securing future advances seeks a refund of Prince George’s County transfer taxes on the ground that no advances were or will be made under the mortgage. The Court of Special Appeals ordered that the taxes be refunded. Brown v. Prince George’s County, 114 Md.App. 242 , 689 A.2d 1245 (1997).

We shall reverse for the reasons set forth below. I Three enactments are relevant to the refund claim in the instant matter. They are the Prince George’s County, Maryland (the County) transfer tax ordinance, the Maryland recor-dation tax statute, and the Maryland statute recognizing mortgages for future advances. Prince George’s County Code (1995 ed.) (the County Code), § 10-188(a) provides in relevant part as follows: “A tax is imposed at the rate of one and four-tenths percent (1.4%) of actual consideration paid or to be paid under every instrument of writing conveying title to real property, or any interest therein, in the County, offered for record and recorded in the County[.J” This ordinance expressly includes mortgages and deeds of trust within the term, “instrument of writing.” County Code § 10-188(d).

Further, “[ujpon any refinancing of property by ⁷¹¹ the original mortgagor or mortgagors, the tax shall apply only to the consideration over and above the amount of the original mortgage or deed of trust.” Id. The County has imposed a transfer tax since 1957. Chapter 784 of the Acts of 1957. The language of tax imposition now found in County Code § 10-188(a) is nearly identical to the original imposition under Chapter 784. 1 The statutes concerning the Maryland recordation tax are codified in Maryland Code (1986, 1994 Repl.Vol.), Title 12 of the Tax-Property Article (TP).

That tax is imposed on an instrument of writing recorded with the clerk of a circuit court or with the State Department of Assessments and Taxation. TP § 12-102. In the recordation tax scheme “instrument of writing” includes mortgages and deeds of trust. TP § 12-101(c)(2)(ii).

The recordation tax makes special provision for mortgages for future advances in TP § 12-105(f). In substance, the tax applies only to the principal amount of debt incurred at the time of recording. TP § 12-105(f)(l). When any additional debt is incurred, the debtor is expected to come forward and pay the recordation tax on the new amount.

TP § 12-105(f)(2). Alternatively, the borrower may pay, upon recording, the tax on the maximum principal amount secured by the instrument, even though that amount has not been advanced at the time of recording. TP § 12-105(f)(4). 2 The ⁷¹² Maryland recordation tax dates to Chapter 11 of the Acts of 1937, and the provision deferring the tax on amounts to be advanced under a mortgage or deed of trust after recordation was added by Chapter 277 of the Acts of 1939. Thus, a model for deferred tax was extant when the public local law of 1957 created a transfer tax in the County.

The third enactment relevant to our analysis is Maryland Code (1974, 1996 Repl.Vol.), § 7-102 of the Real Property Article (RP). This statute recognizes the hen effected by a mortgage for future advances up to “the aggregate principal sum appearing on the face of the mortgage or deed of trust and expressed to be secured by it, without regard to whether or when advanced or readvanced.” RP § 7-102(a)(l). The priority of future advances is governed by § 7-102(b) that provides in relevant part as follows: “If after the date of the mortgage or deed of trust, any sum of money is advanced or readvanced ... priority for such sum of money ... dates from the date of the mortgage or deed of trust as against the rights of intervening purchasers, mortgagees, trustees under deeds of trust, or hen creditors, regardless of whether the advance, readvance, endorsement, or guaranty was obligatory or voluntary under the terms of the mortgage or deed of trust.” RP § 7-102 was part of the revision of the laws relating to real property enacted by Chapter 349 of the Acts of 1972. The 1972 enactment eliminated restrictions on mortgages for future advances which were set forth in Maryland Code ⁷¹³ (1957), Art. 66, § 2.

The restrictions of Art. 66, § 2, however, did not apply in the County (or in Baltimore County). See Maryland Code (1957), Art. 66, § 3; Welsh v. Kuntz, 196 Md. 86, 98 , 75 A.2d 343, 347-48 (1950). Consequently, in 1957, when the County imposed a transfer tax, the legal effect of mortgages or deeds of trust securing future advances that were recorded in the County was substantially that later achieved under the statewide provisions of RP § 7-102(a)(l) and (b). II In the instant matter the taxpayer, Sidney J. Brown (Brown), seems to have had an ongoing business relationship with a banking institution that has undergone a number of acquisitions and that we shall call “Sovran.” In June 1991 Brown was indebted to Sovran for $2,824,102.15 (the Old Debt) on a loan originally in the amount of $5 million that was secured by a deed of trust on, inter alia, real estate in the County.

On June 5, 1991, Sovran issued a commitment to Brown to lend him an additional $2,015,897.85 (the New Debt). Brown’s purpose in obtaining the commitment was to use the New Debt to pay off a loan to another lender. Pursuant to the commitment a “modification agreement-deed of trust and security agreement,” dated June 26, 1991 (the Deed of Trust) in the face amount of $4,840,000 was recorded on June 28, 1991, among the land records of the County. A handwritten insert at the foot of page two of the Deed of Trust advised that “[tjhis Deed of Trust is being modified from $2,824,012.15 to $4,840,000.00 with no funds being advanced at this time.” Upon the recording Brown paid a transfer tax in the amount of $30,238.46 calculated at the then rate of one and one-half percent on the New Debt.

Although the June 5, 1991 commitment is not in evidence, it is undisputed that that commitment was subject to conditions. No funds were ever advanced under the Deed of Trust because Brown had not met one or more conditions of that commitment. On July 14, 1992, Brown and Sovran agreed that his outstanding loan with Sovran would not exceed ⁷¹⁴ $2,781,055, the amount to which the Old Debt had been amortized. On August 6, 1992, Brown and Sovran entered into a “second modification agreement-deed of trust note” providing, inter alia, that Sovran “ ‘shall not be obligated to advance any additional proceeds of the loan evidenced hereby after July 14, 1992.’ ” Consequently, Brown not only had not borrowed any of the New Debt, but he would be unable to borrow any of the New Debt in the future.

Brown thereafter sought, under TP § 14-908, a refund of the transfer tax on the Deed of Trust from the County’s Director of Finance. That statute in relevant part reads: “A person who submits a written refund claim for transfer tax that has been erroneously or mistakenly paid to or illegally or erroneously assessed or wrongfully collected by ... the Director of Finance in Prince George’s County ... is eligible for a refund from the ... Director of Finance .... ” The Director rejected Brown’s refund claim. The Maryland Tax Court affirmed.

That agency found it to be “very clear that at the time that this tax was collected, and Mr. Brown admits the same, that this tax was in fact due.” Consequently, ruled the Tax Court, the tax was not erroneously or mistakenly paid, and Brown was not entitled to a refund. On judicial review of the agency decision the Circuit Court for Prince George’s County affirmed. That court concluded that the “proper measuring time to determine whether consideration is adequate is at the time of recording. Hence, Brown’s expectation satisfies the criteria for ‘consideration to be paid’ utilized at the time of recording.” Accordingly, the circuit court concluded that there was no error or mistake within the meaning of the refund statute.

The Court of Special Appeals reversed. The heart of that court’s analysis is the following passage: “At the time of recording, because [Brown] expected to receive additional funds, he was required to pay the full tax assessment. The record reveals that, at the time the 1991 Modification was recorded, [Brown] did, in fact, expect ‘to ⁷¹⁵ be paid’ by Sovran the consideration for which the additional transfer tax was collected. Sovran, however, never advanced any additional funds beyond those due from prior obligations.

Under these circumstances, (1) [Brown] did not receive actual consideration, (2) the tax was erroneously paid, and therefore (3) he is entitled to a refund.” Brown, 114 Md.App. at 245 , 689 A.2d at 1246 (footnote omitted). Thereafter, we granted the County’s petition for certiorari. The County here argues that under TP § 14-908 Brown was not entitled to a refund because the taxes were not erroneously paid when the Deed of Trust was recorded. Brown argues that there was no consideration to support the payment of the tax and that TP § 14-908 authorizes the refund.

Ill Brown submits that there was no actual consideration for the transfer by him to Sovran of a lien on Brown’s real estate. We have recently reiterated that “[u]nder our decisions ... ‘a benefit to the promisor or a detriment to the promisee’ [is] sufficient to constitute ‘valuable consideration.’ ” Harford County v. Town of Bel Air, 348 Md. 363, 382 , 704 A.2d 421, 430 (1998). The consideration for Brown’s increase of Sovran’s lien was Sovran’s legally enforceable promise to advance the New Debt. See, e.g., Ehlen v. Selden, 99 Md. 699 , 59 A. 120 (1904) (prospective lender under commitment for a construction loan entitled to agreed upon standby fee, although borrower never exercised right to require that loans be made).

Further, the fact that Sovran’s commitment of June 5, 1991, was subject to conditions does not impair the legal efficacy of Sovran’s promise. “A conditional promise may be consideration, and ‘when a man acts in consideration of a conditional promise, if he gets the promise he gets all that he is entitled to by his act, and if, as events turn out, the condition is not satisfied, and the promise calls for no performance, there is no failure of consideration.’ ” 3 S. Williston, A Treatise on the Law of Contracts § 7:18, at 346-47 (R.A. Lord ⁷¹⁶ ed., 4th ed. 1992) (quoting Gutlon v. Marcus, 165 Mass. 335 , 43 N.E. 125 (1896)). Brown emphasizes that the County transfer tax rate is applied to the actual consideration paid or to be paid. In Dean v. Pinder, 312 Md. 154 , 538 A.2d 1184 (1988), we noted that the dictionary definition of “actual” includes “‘existing now; present, current.’ ” Id. at 161-62 , 538 A.2d at 1188 . That case involved a transfer of the fee simple title to realty in Kent County by deed from the shareholders of a corporation to the corporation, after a transfer tax had been paid by the shareholders on their acquisition of the realty from prior ownership.

The Kent County transfer tax applied the rate to the “actual” consideration. The transfer to the corporation was subject to the Kent County transfer tax despite the absence of payment in money or property by the