382 Pa. 213 | Pa. | 1955
Lead Opinion
Opinion by
The Commonwealth issued a scire facias sur lien for capital stock and corporate loan taxes settled against the defendant, Hoffman-Henon Company, a Pennsylvania corporation, summoning the substituted executors and trustees of the estate of Eli Kirk Price, deceased, as terre-tenants. The terre-tenants answered that the Commonwealth’s asserted lien was discharged by a judicial sale of the property upon the foreclosure of a mortgage given by a predecessor in title and that the terre-tenants had acquired the mortgaged property at the sheriff’s sale free of the lien of the Commonwealth. The court below gave judgment for the Commonwealth in the aggregate amount of the liened taxes with interest from dates of settlement, and the terre-tenants took this appeal.
The real question involved is whether a straw man, to whom a corporation conveys its property for the purpose of having him mortgage it to secure a loan
The circumstances under which the question arose are as follows. The defendant corporation acquired title to premises at 156-162 North 20th Street, Philadelphia, by four separate conveyances during the period 1926 to 1928. On June 8, 1931, Paul J. Henon, Jr., and Daniel T. Henon, respectively president and secretary of the corporation, made a written application in their individual names to the executors and trustees of the Price Estate for a mortgage loan in the amount of $40,000 on the premises above mentioned, reciting in their application that they would become “bondsmen and future owners in fee” of the property. By deed dated June 17, 1931, the corporation conveyed its realty to the Henons, in fee simple. The corporate acknowledgment of the deed recited that it was executed and delivered “in pursuance of a resolution of said corporation made June 17, 1931.” On the same day the Henons executed a bond to the Price Estate in the sum of $40,000 secured by their mortgage of the premises in question. The Henons at once transferred the proceeds of the loan to the corporation. Approximately three weeks later, viz., on July 11, 1931, the Henons reconveyed the property to the company subject to the mortgage to the Price Estate. Between August 25, 1932, and September 22, 1936, the Commonwealth settled against the defendant corporation the capital stock and corporation loan taxes here involved.
Early in 1935, the mortgage then being in default, the trustees of the Price Estate foreclosed it and
In order not to complicate the broad basic question involved with facts special to the instant case, we shall pass over the evidence which the appellants urge as capable of supporting a finding that the conveyance by the corporation to the Henons was for value and therefore not a straw transaction — a conclusion which the learned hearing judge drew but which the court en banc overruled. Also, we shall assume for present purposes that the representatives of the Price Estate had reason to believe from attendant circumstances that the Henons were straws for the
Section 1401 of The Fiscal Code of 1929, as originally enacted, provided that all State taxes, etc., and all public accounts settled against any corporation should be a first lien upon the property and franchises of such corporation from the date of settlement and that, upon a judicial sale of such corporation’s property, the Commonwealth’s claims should first be allowed and paid out of the proceeds of such sale before any judgment, mortgage or other claim or lien against such corporation. The 1933 amendment of Section 1401 provided, however, that “Where the lien of a ground rent, mortgage, or other lien created by or entered against a predecessor in title to such corporation ... is discharged by a judicial sale, the lien of the Commonwealth shall be transferred from the property sold to the fund realized from the sale, and the purchaser shall take free of the lien of the Commonwealth, notwithstanding that the fund may be insufficient to pay all or part of the same, and, on distribution of the fund, the Commonwealth’s lien shall be postponed in payment to said lien or liens created by or entered against such predecessor in title . . . .”
Why, then, was the mortgage of the Henons to the Price Estate not the mortgage of a predecessor in title to the corporation? Indisputably, they were bona fide holders of the legal title to the property by virtue of the corporation’s deed of June 17, 1931. If they were not, then the mortgage security which they executed and delivered to the Price Estate for full value was a nullity. But, if the title was validly in the Henons, as it undoubtedly was, from June 17, 1931, to the time of their reconveyance of the property to the corpora
In Curran’s Estate, 312 Pa. 416, 421, 167 A. 597, Mr. Justice Linn, speaking for this court, said that the fact that a mortgagor was a straw man for a corporation was immaterial to the validity of the mortgage. The learned justice then went on to say, “The important question is, is there a mortgage of real estate, a real security? Ulrich’s [the straw man’s] mortgage exists. The terms of the mortgage, as well as the obligation in his bonds, are enforcible, the one against the land, the other against him.” Plainly enough, that was so because the straw man was the valid holder of the legal title at the time of the execution and delivery of his mortgage.
In Aronson v. Heymann, 56 Pa. Superior Ct. 501, a conveyance was made to a straw grantee who gave to agents for the grantor his bond for a portion of the purchase price secured by his mortgage of the premises which he then conveyed to the real purchaser “under and subject to the payment of the mortgage debt.” Payment of the principal debt having been defaulted, the mortgage was foreclosed with due notice to the mortgagor’s grantee as terre-tenant and a deficiency judgment was entered against the straw mortgagor on his bond. The straw man paid the judg
There is nothing legally, or even morally, wrong with a straw transaction which is utilized to effectuate a legitimate purpose. Such arrangements are by no means infrequent. In the instant case, it is conceded that there was neither fraudulent intent nor design on the part of anyone to the transaction. The loan applied for by the Henons, if made, was to be made by Pennsylvania fiduciaries from trust funds in their keeping. At the time of this transaction (1931), Article III, Section 22, of the Pennsylvania Constitution prohibited legislative authorization of investments by fiduciaries in the bonds or stock of any private corporation. According to then current opinion, a corporate bond secured by a mortgage to a trustee for the benefit of the bondholders was not considered a legal investment for Pennsylvania trust funds. It was not until the decision of this court in Haroney’s Estate, 311 Pa. 336, 166 A. 914, in 1933 that
For support of its ruling in the instant case, the learned court below relied on the opinion of the Court of Common Pleas of Philadelphia County in Commonwealth v. Corner Realty Co., 41 D. & C. 236, from which it quoted approvingly as had also the Court of Common Pleas of Lackawanna County in Commonwealth v. City Realty Co., 56 D. & C. 156. The Corner Realty Co. case, supra, was the genesis of the idea that a straw grantee of a corporation for the purpose of mortgaging the property for a proper corporate use is not a predecessor in title to the corporation in relation to its reacquisition of the property from the straw. Certain it is that the rationale of that decision did not stem from anything contained in the 1933 amendment of Section 1401 of The Fiscal Code of 1929. A reading of the opinion in the Corner Realty Co. case impresses that it was chiefly an expression of moral indignation that a lien of the Commonwealth for subsequently settled State taxes could be junior to the lien of a prior encumbrance placed by a straw grantee. Thus, the court spoke of the corporation’s conveyance to the straw man as a “device [capable] of evading liability for corporate taxes imposed upon the real and corporate owner.” But, this is not a case of either tax collection or tax evasion. True enough, behind the lien here involved is the Commonwealth’s claim for some unpaid taxes; but, the question with which this case is concerned is the construction of a statute providing for the priority of the Commonwealth’s liens under certain circumstances.
The judgment is reversed and is here entered for the defendant terre-tenants.
By amendment of Article III, Section 22, of the State Constitution, adopted November 7, 1933, tbe General Assembly was authorized to prescribe “tbe nature and kind of investments” of trust funds by fiduciaries.
Dissenting Opinion
Dissenting Opinion by
I am constrained to dissent for the reason that the construction placed by the majority upon the 1933
The exception engrafted upon the Act of 1929 by the amending provision of 1933 was obviously a legislative adoption of the decisional law first promulgated in Sweeney v. Arrowsmith, 43 Pa. Superior Ct. 268, and later followed by this Court in Davis v. Seltzer, 313 Pa. 382, 169 A. 761. Under The Fiscal Code and decisions of this Court, tax claims of the Commonwealth and a lien therefor upon settlement of the taxes due, took priority over the lien of a mortgage upon a judicial sale even though the unpaid taxes accrued after the recording of the mortgage. This was patently unfair to a mortgagee who had loaned money in good faith to a predecessor in title of the corporation, with no knowledge or foreseeability that his mortgagor was not really borrowing for his own benefit but obtaining the loan for a corporation. This was recognized by the Superior Court in Sweeney v. Arrowsmith, supra, which adopted the opinion of the eminent President Judge Endlich of Berks County who held that it would be repugnant to a clear dictate of natural justice to hold a mortgagee responsible for the obligations of one with whom it had no dealings what
In Harper v. Consolidated Rubber Co., 284 Pa. 444, 131 A. 356, the rule laid down in Sweeney v. Arrow-smith, was held inapplicable since the mortgagee in the Harper case was dealing with the corporation. This Court, speaking through Mr. Chief Justice Moschzisker, held that where a purchase money mortgage is taken directly from a corporation, the mortgagee takes it with notice of the Act and knows that the Act in express terms gives preference to the Commonwealth for State taxes which might in the future be assessed against the mortgagor. We must assume in construing that part of Section 1401 in which we are particularly interested that the Legislature had in mind the decisions of the appellate courts and that the purpose of the 1933 amendment was to eliminate the hardship that resulted under a situation similar to that presented in the Sweeney case. See McBride et al. v. Rome Township, 347 Pa. 228, 231, 32 A. 2d 212. Construing the 1933 amendment in the light of these prior decisions, I think it apparent that the
That legal title was in the Henons at the time the loan was given and that they therefore come within the literal meaning of the term “predecessor in title” cannot be questioned. However, the amendment must be construed with reference to the object intended to be accomplished by it in connection with the avowed purpose of the Code, and this is so even to the extent of restraining the meaning of general terms in order to clearly interpret the spirit and reason of the enactment: Null v. Staiger, 333 Pa. 370, 376, 4 A. 2d 883. Since the 1933 amendment had as its purpose the prevention of an injustice, where the loan is made with notice that the corporation is the real mortgagor, the concept of injustice or possible hardship readily disappears, for the party taking the mortgage does so with full knowledge that the property will eventually pass into the hands of the corporation, and that the Commonwealth could in the future settle State taxes against the corporation and thereby completely wipe out the mortgagee’s security if the corporation were unable to pay.
I attach no significance to the fact noted by the
The majority opinion, in referring to the letter from the Secretary of Revenue notifying the sheriff
While it is ordinarily true that where a landowner attempts in good faith to pay taxes but is led to believe that the taxes had been paid through the inadvertence, mistake or neglect of the receiving officer, the attempted payment is equivalent to actual payment, that principle has no application to the facts of this case. In the instant case the Secretary of Rev-ea ue did not certify that the taxes were paid, but on the contrary the letter clearly disclosed that taxes were due. The statement in the letter that the Commonwealth of Pennsylvania would have no claim against the real estate for corporate taxes since the amount bid at the sale was not sufficient to cover the amount of the judgment, was a misapprehension of the law by the Secretary of Revenue which in no way binds the Commonwealth. The Commonwealth’s lien for capital stock taxes against the real estate of a corporation is not divested by a sheriff’s sale, which realizes a sum insufficient to pay any part of, the taxes: Commonwealth v. Lowe Coal Co., 296 Pa. 359, 145 A. 916. A state as the sovereign is not estopped by the errors, misinformation or laches of its officers or agents from collecting taxes legally due. An administrative officer or body exercising discretion conferred by the Legislature is not vested with the power
For the reasons stated, I would affirm the judgment of the court below.