Hammond v. Philadelphia Elec. Power Co.

• Citation: 63 A.2d 759,192 Md. 179
• Decision Date: 21 January 1949
• Docket Number: 68.
• Parties: HAMMOND, Atty. Gen., et al. v. PHILADELPHIA ELECTRIC POWER CO. et al.
• Court: Court of Appeals of Maryland

63 A.2d 759

192 Md. 179

HAMMOND, Atty. Gen., et al. v. PHILADELPHIA ELECTRIC POWER CO. et al.

No. 68.

Court of Appeals of Maryland

January 21, 1949

Appeal from Baltimore City Court; Joseph Sherbow, Judge.

Appeal by Hall Hammond, Attorney General of the state of Maryland on behalf of the State of Maryland, and by James J. Lacy Comptroller of the Treasury of the State of Maryland, from the action of the State Tax Commission in allowing a refund of recordation taxes paid under protest by Philadelphia Electric Power Company and another. From an order affirming the action of the State Tax Commission, appellants appeal.

Order affirmed.

Hall Hammond, Atty. Gen. and Joseph D. Buscher, Spec. Asst. Atty Gen., for appellants.

William C. Walsh and A. Walter Kraus, Jr., both of Baltimore (Miles, Walsh, O'Brien & Morris, of Baltimore, on the brief), for appellees.

Before MARBURY, C.J., and DELAPLAINE, COLLINS, HENDERSON and EMORY H. NILES of the Supreme Bench of Baltimore City, Specially Assigned, JJ.

MARBURY Chief Judge.

This case involves the construction and application of the recordation tax codified as Sec. 220 of Art. 81 of the Code. This tax was first established by the general taxation act of 1937, Special Session, Chapter 11. Sec. 213 of that act read in part: 'A tax is hereby imposed upon every instrument of writing recorded or offered for record with the Clerks of the Circuit Courts of the respective Counties, or with the Clerk of the Superior Court of Baltimore City, on and after June 1, 1937, to and including September 30th, 1939, including * * * mortgages (except purchase money mortgages), * * * deeds of trust, and any and all other instruments of writing, so recorded or offered for record, which create liens or incumbrances on real or personal property'. There was a proviso that the tax should not apply to assignments of mortgages, purchase money mortgages, absolute or partial releases, or orders of satisfaction. The tax was at the rate of 10¢ for each $100.00 or fractional part thereof of the principal amount of the debt secured, in the case of instruments securing a debt or reserving title as security for a debt.

By Chapter 277 of the Acts of 1939, Sec. 213 was repealed and re-enacted. This act was not limited in time, as was the Act of 1937, and for the first time there were inserted the exceptions which are the basis of the contentions in the case before us. These exceptions are those found in the Code, Sec. 220, Sub-sections (h) and (k). These sub-sections are as follows:

'(h) No tax shall be required for the recordation of any instrument securing a debt that merely confirms, corrects, modifies or supplements an instrument previously recorded, or conveys or pledges property in addition to, or in substitution for the property originally conveyed or pledged, if such supplemental instrument does not increase the amount of the debt secured by the instrument previously recorded.

* * *

* * *

'(k) If the total amount of the debt which may become secured by any instrument securing a debt shall not have been incurred at the time such instrument is offered for record, the tax shall be computed solely on the principal amount of the debt then incurred and secured by such instrument. Before any additional debt is incurred which is to be secured by an instrument previously recorded, the debtor shall file with the Clerks of the Courts with which such instrument has been recorded a duly verified statement showing the amount of such additional debt and shall pay the tax with respect thereto upon, but only upon, the amount of such additional debt so secured which has been incurred after May 31, 1937, and with respect to which such tax shall not theretofore have been paid, less the principal amount of any debt then outstanding and secured by such instrument which is to be paid or refunded out of the proceeds of such additional debt.'

At the time this tax was first imposed there was on record a mortgage indenture, dated February 1, 1926, between the Philadelphia Electric Power Company and the Susquehanna Power Company, appellees here, to the Fidelity Trust Company of Philadelphia to secure $60,000,000.00 of first mortgage gold 5 1/2% interest bonds of the Philadelphia Electric Power Company. The proceeds of the sale of these bonds were to be used to construct a dam across the Susquehanna River and a hydro-electric plant at Conowingo, Maryland. Pursuant to the terms of this indenture, the Companies issued and sold $36,000,000.00 worth of bonds. $2,000,000.00 in addition were issued, but retained by the Trustee, and not offered for sale to the public. The mortgage was duly recorded in Cecil County, Maryland, but as its date was prior to the passage of the recordation tax statutes, no tax was imposed for its recording.

According to the stipulation of facts filed in the case, on June 18, 1946, the Philadelphia Electric Power Company entered into a purchase agreement to sell $30,000,000.00 of its first mortgage bonds bearing interest at 2 5/8%, and on July 1, 1946, these $30,000,000.00 worth of bonds were executed by the Power Company, authenticated by Fidelity-Philadelphia Trust Company, Trustee, and were delivered by the Company to the purchasers. Also on July 1, 1946, the Power Company deposited with the Fidelity-Philadelphia Trust Company $32,183,807.50, this sum being sufficient for the redemption of all the outstanding 5 1/2% bonds issued under the mortgage of February 1, 1926, with accrued interest to August 1, 1946, and a premium of 5 1/2% of the principal amount which was $29,731,000.00. On the same date, and subsequently, the Power Company gave notice of the redemption on August 1, 1946 of all of these 5 1/2% bonds and nearly all of the holders of these bonds presented them for redemption. On March 24, 1948, there remained only $60,000 principal amount of said bonds unredeemed.

On June 26, 1948, a supplemental indenture was entered into between Philadelphia Electric Power Company, Susquehanna Power Company, and Fidelity-Philadelphia Trust Company, successor to Fidelity Trust Company. This instrument was dated as of July 1, 1946, and was offered for recording in the office of the Clerk of the Circuit Court for Cecil County. This supplemental indenture authorized the issuance of the $30,000,000.00 worth of 2 5/8% bonds above mentioned, and, under its terms, the proceeds of the sale of these bonds were to be used, so far as required, to redeem and pay off the bonds outstanding under the mortgage of February 1, 1926. This original mortgage provided that the amount of bonds to be issued thereunder was to be limited to 75% of the cost of the initial project. The supplemental indenture states that the actual cost of this project was $49,047,699.85. The Clerk of the Circuit Court for Cecil County refused to accept the supplemental indenture for recording until a recordation tax was paid under Sec. 220 of Art. 81. It appearing that 86.42% of all the properties subject to the lien of the mortgage of February 1, 1926 and the supplemental indenture of July 1, 1946 were situated within the State of Maryland, the recordation tax was calculated on 86.42% of the $30,000,000.00 securities to be issued under the latter, and amounted to $25,926.00. This amount the Company paid under protest, and subsequently filed with the clerk a claim for refund. This was denied, and on March 20, 1947, the appellees filed a claim for refund of said tax with the State Tax Commission. This refund was allowed in the amount of $25,693.63. The difference is the tax on the proceeds of 86.42% of the additional debt ($269,000), amounting to $232.47, which the appellees admit was due. An appeal was taken by the Attorney- General on behalf of the State and by the Comptroller of the Treasury of the State of Maryland to the Baltimore City Court. The action of the State Tax Commission was affirmed, and the Attorney-General and the Comptroller appealed to this court.

The recordation tax statute has been before this court several times, but the question now before us is only indirectly touched upon in any of the cases. In the case of Pittman v. Housing Authority, 180 Md. 457, 25 A.2d 466, the question was whether the Housing Authority of Baltimore City was exempt from the tax because of a general exemption in the Maryland Housing Authority's law from all taxation and special assessments of the city, the State, or any political subdivision thereof. We held to the firmly established principle that exemptions from taxation are strictly construed in favor of the State and that the exemption in the Housing Authority's law did not apply to taxes imposed upon the enjoyment of a privilege. Our conclusion was that the Housing Authority was not exempt from the recordation tax. In State Tax Commission v. Potomac Electric Power Co., 182 Md. 111, 32 A.2d 382, an original mortgage given by the Power Company had been recorded in Prince George's and Montgomery Counties in 1936, prior to the passage of the recordation statute. In 1939 and 1940, three additional mortgages were recorded in Prince George's County and the recordation tax paid on those mortgages, which secured an additional bond issue. In 1942, a supplemental mortgage reciting after-acquired property was recorded in Prince George's and Montgomery Counties. A counterpart of the first mortgage and the four subsequent mortgages was offered to the Clerk of the Circuit Court for Charles County and he refused to record them unless the recordation tax was paid. This was done under protest, and appropriate action was taken to get a refund. This was allowed by the Circuit Court for Prince George's County, and we affirmed its order. We held in that case that the statute would be construed to effectuate the...