Savings Bank v. State of Michigan , 228 Mich. 316 ( 1924 )

August 15, 1921, a mortgage of real property, situated in Lenawee county, this State, authorizing the issuance, in the State of Ohio, of first mortgage bonds in the sum of $600,000, was executed in Ohio by the National Dairy Company, an Ohio corporation, and delivered to the Commerce-Guardian Trust Savings Bank, also an Ohio corporation. All bonds thereunder have been issued in Ohio to, and are owned and held by residents of the States of Ohio and West Virginia. In March, 1923, the mortgage was presented to the register of deeds for Lenawee county for record, $20.35 fees tendered, and registry refused unless 50 cents on each $100 of the principal debt stated in the mortgage was paid under the provisions of Act No. 91, Pub. Acts 1911 (1 Comp. Laws 1915, § 4268 et seq.), as amended (Comp. Laws Supp. 1922, § 4271 et seq.). Thereupon $3,000 was paid by plaintiff under written protest, setting up the facts relative to the mortgage and bonds and residence of owners thereof, claiming the demand was in violation of the Constitution of the United States and constituted a taking of property without due process of law and demanding return of the money exacted. This action was brought to recover the $3,000 paid to the treasurer for the county of Lenawee and held, one-half by the county of Lenawee and the other one-half by the State of Michigan. On motion of defendants the suit was dismissed and plaintiff prosecutes review by writ of error.

Plaintiff contends the act imposes a specific tax upon credits, founded upon and evidenced by mortgages and liens upon real property, and not upon mortgages, and is in violation of the Constitution of the United States and the Fourteenth Amendment in so far as it purports to tax credits owned and in the possession of nonresidents of the State of Michigan.

Counsel for defendants contend the act does not impose a tax on credits, but imposes a specific tax on mortgages and other instruments creating a lien on real property within this State; that the situs of such instruments is within the State of Michigan and the act is valid.

The act was before this court in Union Trust Co. v. DetroitCommon Council, 170 Mich. 692; Bowen v. Moeller, 171 Mich. 547;Economy Power Co. v. Daskam, 174 Mich. 402. The question here presented seems not to have been decided in this State.

The title to the act is:

"An act to provide for the assessment and the collection of a specific tax upon the class of credits founded upon and evidenced by mortgages and liens upon real property, and to repeal all acts and parts of acts in contravention thereto."

The difficulty we experience in determining the issue at bar is not in considering the power of the legislature to impose a tax for the privilege of registry of mortgages with its accompanying protection of the security and availability of our laws in enforcement thereof, but whether the act admits of such construction, or confines us to a holding that it imposes a specific tax upon credits designated as founded upon and evidenced by mortgages and liens upon real property. The legislative purpose, expressed in the title, is an exercise of unquestioned power over credits evidenced by mortgages and liens upon real property within the State, where the credits so founded and evidenced are owned or held by residents of the State. But such is not the case here presented. Has the legislature, by the enactment, imposed the specific tax upon credits, identified as founded upon and evidenced by mortgage liens upon real property in this State, even in cases where the mortgage is given without this State, by one nonresident to another, to secure a principal indebtedness due upon bonds owned by nonresidents and never within this State? If the act is held to do this, then does it overreach legitimate bounds?

It is contended the tax is not upon credits but upon mortgages. We must accept the language of the act upon this. The title to the act must be considered as truly indicative of the legislative purpose under the mandate of the Constitution. The title to the act clearly limits the specific tax to an assessment upon and collection from the class of credits founded upon and evidenced by mortgages and liens upon real property. To say this imposes a tax upon the collateral security, and not upon the class of credits evidenced by mortgages, is to read the title without considering the meaning of legal terms therein employed.

The debt of a mortgagor is the credit held by a mortgagee and usually evidenced by note or bond to which the mortgage lien is collateral security only. Notes and bonds, secured by mortgage, constitute no interest in the mortgaged premises in the nature of real property.

Section 1 of the act provides:

"For the purposes of this act all indebtedness secured by liens upon real property shall constitute that class of credit upon which this act imposes a specific tax. The word 'mortgage' as used herein shall include every mortgage or other instrument by which a lien is created over or imposed upon real property, notwithstanding it may also be a lien upon other property, or there may be other security for the debt, and shall also include executory contracts for the sale of real property, and deeds or other instruments that are given to secure debts."

Section 2 provides:

"A tax of fifty cents for each one hundred dollars and each remaining major fraction thereof of the principal debt or obligation which is, or under any contingency may be, secured by a mortgage upon real property situated within this State recorded on or after the first day of January, nineteen hundred twelve, is hereby imposed on each such mortgage, and shall be collected and paid as hereinafter provided." * * *

Does this law undertake to assess the creditor upon credits secured by mortgage? It contains definitions and provisions clearly demonstrating such purpose or at least result; whether so by intention or inadvertence is immaterial. While the act, in the main, speaks of the principal indebtedness as the basis for assessing the tax, it must be remembered that the tax is exacted of the mortgagee on the credit he holds when he seeks registry of the security collateral thereto.

Section 1 of the act imposes the specific tax upon a class of credit. To state it by question and answer: Upon what class of credit is the specific tax imposed? Upon all indebtedness secured by liens upon real property.

The act runs true to its title, and credits founded upon and evidenced by mortgages, and liens upon real property, constitute the basis for the assessment and collection of the specific tax. This is manifested by the provision in section 4 of the act, which in substance provides, that if the mortgage covers real property, situated partly within and partly without this State, then the tax commission is to determine the relative value of the mortgaged property within this State as compared with the total value of the entire mortgaged property, and determine the proportion of the principal indebtedness secured by the mortgage on property within the State and use the same to measure the tax.

Section 5 provides, in substance, that if the mortgage is made in trust to secure payment of bonds, and only a partial amount of the "indebtedness" has been advanced when the mortgage is presented for record, the tax is to be computed only upon the amounts advanced thereon and secured thereby, and, when further amounts are advanced the tax is imposed thereon. It is apparent all through the act that the credit extended measures the tax. It is true section 6 permits the owner of any mortgage, recorded before the act, to show the amount of the principal unpaid thereon, pay the specific tax on such amount, and thereafter, the mortgage, for the purpose of taxation, is treated the same as other mortgages under the act. And

"Mortgages given prior to January first, nineteen hundred twelve, and on which the registry tax provided for in this act shall not be paid, shall remain under the present ad valorem system of taxation and shall be assessed and taxed under the present law."

If it be considered that this constitutes the tax one for the privilege of registry of mortgages and not one upon credits evidenced by mortgages, then the title will have to be extended to say so. The only place in the whole act where the tax is designated as a "registry tax" is the one just mentioned.

Section 10 provides:

"That class of credits other than the mortgages given prior to January first, nineteen hundred twelve, upon which this act imposes a specific tax shall be exempt from further general taxes under the laws of this State."

Counsel for defendants state:

"While the title to the act is somewhat ambiguous and might be open to the interpretation which counsel for plaintiff places upon it, nevertheless when read in connection with the body of the act and in view of the fact that a mortgage in this State is not an evidence of indebtedness but merely a security for a debt and the credit is evidenced by the note or bonds secured thereby, any ambiguity in the title disappears and the legislative intent both as expressed in the title and the body of the act itself is to impose a specific tax on the security which is the mortgage and does not attempt to tax the credit which is secured by said mortgage."

We cannot accept this reasoning. The title to the act is not to be amplified by the enactment. The title declares the object and limits the enactment thereto.

It is claimed the mortgage is the subject of the specific tax and its situs is in this State, and Detroit Common Council v.Board of Assessors, 91 Mich. 78 (16 L.R.A. 59); Mumford v.Sewall, 11 Or. 67 (50 Am.Rep. 462); and Savings Loan Society v. Multnomah County,169 U.S. 421 (18 Sup. Ct. 392), are cited. The case of DetroitCommon Council v. Board of Assessors is not in point. That case arose under the general tax law which declared a mortgage, for the purpose of assessment and taxation, was to be deemed and treated as an interest in the land pledged and the assessment to the owner of the land reduced thereby. This, for the purpose of taxation, changed the equitable doctrine otherwise prevailing in this State, that a mortgage conveys only a lien. What we have just said applies to the other cases cited. The law in question does not declare that mortgages, for the purpose of the specific tax assessment, shall be deemed and treated as an interest in the land pledged.

In People v. Trust Co., 205 N.Y. 74, 78 (98 N.E. 207), the court stated:

"It is to be observed that though the Supreme Court of the United States has upheld the right of a State to tax a mortgage on real estate within its limits held by a nonresident (Savings Loan Society v. Multnomah County, 169 U.S. 421 [18 Sup. Ct. 392]), it seems still to adhere to the doctrine declared in the case of State Tax on Foreign-Held Bonds, 15 Wall. (U.S.) 300, that negotiable bonds issued by a corporation and secured by a mortgage on property within a State are not subject to taxation by that State. Blackstone v. Miller,188 U.S. 189, at p. 206 (23 Sup. Ct. 277). Many and possibly all of these bonds may be held without the State and, under the doctrine cited, might be immune from the taxing power of this State."

It should be kept in mind that the cases upholding the right of a State to tax a mortgage, held by a nonresident, on real property within its limits, are based on legislative declarations constituting the mortgages an interest in real property and situs thereof in the State and, in most instances, reducing the assessment to the owner by the amount of the mortgage. The underlying purpose in substituting a registry tax for an ad valorem is to place foreign and resident lenders of money on a parity.

Our attention has been directed to Mutual Benefit Life Ins.Co. v. Martin County, 104 Minn. 179 (116 N.W. 572), upholding the mortgage registry tax in Minnesota. Let it be understood we do not hold such a tax invalid. The Minnesota law is entitled "An act to provide for the taxation of mortgages of real property." The word "mortgage" is defined in the act as "any instrument creating or evidencing a lien of any kind" on real property. Laws of Minnesota 1907, p. 448. That law imposes a registry tax upon "the principal debt or obligation which is, or in any contingency may be, secured by any mortgage." This, of course, may be done, as a method of determining the amount of the registry tax on the mortgage, and is a far different thing than placing a specific tax upon credits founded upon and evidenced by mortgages.

"Mortgages are 'property' so as to be taxable. They are personal property taxable as credits, except where a statute makes real estate mortgages taxable as an interest in real property or where some other form of taxation is provided for. * * * In probably a majority of the States real estate mortgages are taxed as personal property; in some they are taxed as an interest in real estate; in others a recording tax is imposed which takes the place of all other taxes; and in still other States they are exempt." 2 Cooley on Taxation (4th Ed.), § 581.

In Capital Trust Savings Bank v. Wallace, 45 N.D. 182 (177 N.W. 440), what was there said upon the subject of taxing credits applies to the case at bar.

"The fiction of mobilia sequuntur personam is responsible for a broad assertion of the lack of jurisdiction to tax a credit in the State of a debtor's domicile. SeeState Tax on Foreign-Held Bonds, 15 Wall. (U.S.) 300. But while this fiction has been compelled to yield to facts pointing to the necessity of equal taxation of those engaged in business within a sovereign State, the principle has never been so completely reversed as to authorize the State to seize upon the sole fact of the residence of the debtor and the presence of his mortgaged property within it as determining the taxing jurisdiction of the State. We are satisfied that this cannot be done where it would render negotiable instruments in the hands of nonresident owners subject to tax in this State."

As stated in 37 Cyc. p. 804:

"A mortgage on land so far partakes of the character of realty that it is competent for a legislature to provide that it shall be taxable in the county where the land lies, without regard to the domicile of the mortgagee. But regarded as an investment or security, a mortgage is personal property of an intangible character, and hence follows the person of its owner and is taxable only where he resides. Therefore, in the absence of a statute establishing a different rule, a mortgage on land situated within a particular State is not taxable by that State or by its authority when the owner and holder of the mortgage is a nonresident."

The legislature has power to establish a situs, independent of the domicile of the owner, in cases where bonds and mortgages are in the State, even though the owner is a nonresident, but not when such evidences are in the possession of the nonresident owner without and never within the State.New Orleans v. Stempel, 175 U.S. 309 (20 Sup. Ct. 110). It should be kept in mind that the law of situs is not involved when the specific tax is for registry privilege.

Decisions under the inheritance and succession tax laws are called to our attention and their analogy urged by counsel for defendants. This claimed analogy was urged in Buck v. Beach,206 U.S. 392, 408 (27 Sup. Ct. 712), involving a tax on notes, and rejected in the following language:

"Cases arising under collateral inheritance tax or succession acts have been cited as affording foundation for the right to tax as herein asserted. The foundation upon which such acts rest is different from that which exists where the assessment is levied upon property. The succession or inheritance tax is not a tax on property, as has been frequently held by this court (Knowlton v. Moore, 178 U.S. 41 [20 Sup. Ct. 747], andBlackstone v. Miller, 188 U.S. 189 [23 Sup. Ct. 277]), and therefore the decisions arising under such inheritance tax cases are not in point."

The title to this act does not admit of an enactment justifying the imposition of a specific tax for the privilege of recording a mortgage given by one nonresident to another, executed without the State, with bonds issued thereunder owned and held wholly by nonresidents of the State. The presence of the mortgage within the State for the sole purpose of being recorded does not make its situs here independent of the domicile of its nonresident holder. Buck v. Beach, supra. While the body of the enactment might, by considerable stretch, be held inclusive of a registration tax, the title to the act indicates no such thing. A mortgage registration privilege tax may be enacted without offending any constitutional provision, State or Federal.

In Trustees, Executors Securities Ins. Corp. v. Hooton,53 Okla. 530 (157 P. 293, L.R.A. 1916E, 602), a mortgage registry privilege tax case, it was said:

"The final objection to the act is that the State has no power to tax a mortgage, or the indebtedness it secures, owned by a nonresident of the State. It is sufficient answer to this objection to say that the tax in question is not a tax upon the mortgage, but, as already determined, is a tax upon the civil privilege of having such mortgage recorded, so as to be entitled to the benefits and exemptions of the laws of this State." * * *

The Oklahoma statute is entitled:

"An act providing for exemption from ad valorem tax of mortgages on real estate and the indebtedness thereby secured; the payment of a registration tax when filing a mortgage for record," etc.

This denominated the tax a registry tax.

The order dismissing the case should be reversed and a trial granted, with costs against the county of Lenawee.

BIRD and FELLOWS, JJ., concurred with WIEST, J.