Bean v. . Flint

97 N.E. 490, 204 N.Y. 153, 1912 N.Y. LEXIS 750

• Court: New York Court of Appeals
• Decided: January 16, 1912
• Status: Published

Opinions

Hiscock, J.

The questions presented on this appeal spring out of the failure of the respondent to comply with the Tax Law by paying the tax on a sale and transfer of stock as required by sections 270-278 of that law.

The facts which present these questions and which are material in their determination are as follows:

Respondent and appellant made a contract in writing whereby the former agreed to sell and deliver to the latter certain shares of stock, and the latter agreed to pay therefor the sum of $30,000 in installments. Subsequent to the execution of this agreement respondent executed a blank assignment on the back of the certificate representing the shares in question and delivered the certificate and assignment to the appellant. He did not pay in any manner the tax on such transfer which the statute required. The appellant having made default in the payment of a balance of the purchase price, respondent brought this action to recover the same. In his complaint he alleged “ that * * * the plaintiff, in full performance of said contract on his part, delivered to the defendant said forty-three (43) shares of the capital stock -x- -x- -x- an¿ the defendant accepted the same, and that the plaintiff has fully performed each and every part of said contract on his part to be performed.” His complaint did not disclose on its face the failure to pay said tax. The appellant set up various defenses in his answer, hut did not in any manner allege or plead the failure to comply with the provisions of the Tax Law. On the trial respondent without objection introduced in evidence the contract and the stock certificate including the transfer. Subsequent to the introduction and reception of the latter, appellant’s counsel moved to strike out all the testimony in respect to the contract between the parties “ upon the ground that under the Act of 1905, requiring transfer stamps to be placed upon either the memorandum or agreement for sale, or certificate of stock, that no proof whatever is allowed under the law of that contract. ” This motion was denied and later motions for a nonsuit were made on the general ground that the plaintiff had failed to prove facts sufficient to constitute a cause of action, and that “the contract upon which this action is brought and the transfer of the certificate of stock will not permit the action to be maintained for the reason that chapter 241 of the Laws of 1905 was not complied with,” etc.

By these motions we assume that there was raised the question whether under the statute it was incumbent on the respondent to allege and prove as part of his cause of action that he had complied with the statute or whether the burden rested on the appellant to plead noncompliance with the statute as a defense. If the former he the law, we are all agreed that the judgment appealed from must he reversed. If the latter he the law, it must he affirmed, and the solution of this question now leads us to a consideration of the statutory provisions.

Section 270 provides: “There is hereby imposed and there shall immediately accrue and he collected a tax, as herein provided, on all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfers, of shares or certificates of stock * * * whether made upon or shown by the books of the association, company or corporation, or by any assignment in blank, or by any delivery, or by any paper or agreement or memorandum or other evidence of transfer or sale whether entitling the holder in any manner to the benefit of such stock, or to secure the future payment of money or the future transfer of any stock, on each share of one hundred dollars of face value or fraction thereof, two cents. * * * The payment of such" tax shall be denoted by an adhesive stamp or stamps affixed as follows: In a case where the evidence of transfer is shown only by the books of the company the stamp shall be placed upon such books; and where the change of ownership is by transfer of a certificate the stamp shall be placed upon the certificate; and in cases of an agreement to sell or where the transfer is by delivery of the certificate assigned in blank there shall be made and delivered by the seller to the buyer a bill or memorandum of such sale to which the stamp provided for by this article shall be affixed; and every bill or memorandum of sale or agreement to sell before mentioned shall, show the date thereof,” etc.

Section 272 makes guilty of a misdemeanor “ any person or persons who shall make any sale or transfer without paying the tax * * * or who shall in pursuance of any sale or agreement deliver any stock, or evidence of the sale of or agreement to sell any stock or bill or memorandum thereof, without having the stamps provided for in this article affixed thereto. ”

Section 277 provides civil penalties for a violation of the law.

Section 278, which 'is especially important, provides: “Ho transfer of stock * * * on which a tax is imposed by this article, and which tax is not paid at the time of such transfer, shall he made the basis of any action or legal proceedings, nor shall proof thereof be offered or received in evidence in any court in this state.”

It will at once be observed that the provisions quoted in one respect are not very harmonious or clear. It is difficult to determine whether in such a case as this the statute requires the stamps in payment of the tax to be affixed to the agreement to sell, to a memorandum or bill to be made and delivered at the time of the transfer, or to the stock certificates themselves when actually transferred-. The latter has been assumed to be the law and I shall follow that assumption. It thus comes about that after the parties had made a valid agreement for the future sale and delivery of stock the seller was required at the time of actual transfer of the certificates to place stamps thereon in order to make a wholly effective delivery in fulfillment of his prior contract.

The discussion of the question whether respondent was bound to plead fulfillment or the appellant non-fulfillment has been conducted largely in terms of conditions precedent and conditions subsequent. If the statute is to be considered as requiring respondent to pay the tax in order to make a valid contract, or in order to bring an action for the enforcement thereof, then of course it prescribed a condition precedent and he was compelled to allege compliance. I am, however, unable to find in all of the provisions considered together any warrant for such a construction thereof. It certainly does not provide in terms that a person must pay this tax before he can make or enforce a contract for the transfer of stock. It does not create a new form of contract which involves prior payment of the tax as a necessary requisite to validity, for contracts in transfer of stock were made and recognized before the statute was passed. It does not inject such prepayment as an essential element into the execution of old contracts and declare invalid those not embracing it. It does not prescribe such prior payment as necessary to qualify one to make or enforce such a contract. Under the construction assumed for it in this case it requires payment after the contract for the sale of the stock has been executed and in order to effect a completely effective performance thereof, and for failure to' make this it does not declare that even at this subsequent time a contract valid in its inception shall become invalid and void. In these respects it differs widely from the statutes which have been held to create a condition precedent, and in no manner is this made plainer than by an examination of the cases relied on by the appellant where it was held that statutes then under review did create conditions precedent, compliance wherewith must be pleaded and proved by the plaintiff.

The first class of these cases is composed of those holding that in actions against municipalities it is necessary for a complainant to allege compliance with statutory provisions requiring the service of notice of claim, etc., before commencement of action. These statutes in varying form provide that a notice must be served within a given time after accruing of the alleged cause of action and that no action shall be commenced until a certain period has elapsed from the service of such notice. It is perfectly plain that they require service of notice as a condition precedent to the commencement of the action. Their language makes this so plain that there is no opportunity for debate. As was well said by Judge Gray in the case of one of these statutes requiring notice to be served within thirty days after the occurrence causing the damages and providing that no action shall be brought until after the expiration of forty days after the claim has been presented: “The statute requires the presentation of a claim to be made within thirty days of the occurrence causing the damage and it bars an action against the city in the case of an omission to do so. The provision, therefore, became an essential part of a complainant’s cause of action and compliance with its requirement was a fact to be alleged and proved, like any other condition precedent to the existence of an obligation.” (Winter v. City of Niagara Falls, 190 N. Y. 198-202.)

The other cases which more than any others are the reliance of appellant are those of Welsbach Co. v. Norwich Gas & El. Co. (180 N.Y. 533) and Wood & Selick v. Ball (190 N. Y. 217).

Both of these cases involved a construction of those provisions of the General Corporation Law that “No foreign stock corporation other than a monied corporation, shall do business in this state without having first procured from the secretary of state a certificate that it has complied with all the requirements of law to authorize it to do business in this state, and that the business of the corporation to be carried on in this state is such as may be lawfully carried on by a corporation incorporated under the laws of this state for such or similar business. * * * No such corporation now doing business in this state shall do business herein after December 31, 1892, without having procured such certificate from the secretary of state. * * * No foreign stock corporation doing business in this state shall maintain any action in this state upon any contract made by it in this state unless prior to the making of such contract it shall have procured such certificate.” (Laws 1890, ch. 563, sec. 15, as amended.)

Here again the provisions of the statute so plainly make the procurement of a certificate a condition precedent to the transaction of any business, which of course includes the making of contracts, that no one can doubt their intent and effect. It will be noted that the provision against maintenance of an action upon any contract unless prior to the making of such contract a certificate has been procured is really a minor one. The broad and important provisions are those which in effect provide that a foreign corporation can only become qualified to do business and make contracts by procuring a certificate such as is mentioned. This statute was one, not merely seeking to raise revenues, but, as stated by Judge Vann in the Wood & Selick case, there having been no opinion in the Welsbcich case, it was one “ designed to regulate domestic corporations of all kinds and to prescribe the conditions upon which foreign stock corporations may do business in this state,” and he further wrote, “ the requirement of section 15 of the General Corporation Law, which led to the result in the Welsbcich case, is a condition precedent to the right of a foreign stock corporation to lawfully do business in this state. The procuring of a license must precede the transaction of business or the contracts of the corporation are not lawful.. Aside from the provision withholding legal remedies, no such corporation can lawfully make contracts in this state without obtaining the certificate in advance. The object of this statute is not to raise revenue, but to require certain foreign corporations, once for all time, to comply with such conditions as the legislature deemed necessary for the protection of our own citizens.” (pp. 222, 223.)

Having enmnerated characteristics which the statute now before us does not possess, let us examine some of the features which it does display.

It is purely a revenue law. Having required the payment of a tax to “accrue and be collected” on all sales and agreements to sell stock, and which language savors more of a condition subsequent than one precedent, it attempts to secure compliance by various penalties for non-observance. The first one is of a criminal nature, and renders any person making a sale or transfer without paying the tax guilty of a misdemeanor. The second one provides what is defined as a civil penalty, and makes any person violating the provisions of the article subject to a fine. Then, in addition to these direct punishments, it prescribes by the section especially under review a further one for delinquency, which apparently affects and, therefore, interests not only the vendor, but also the vendee in an observance of the statute. It provides that “Ho .transfer of stock * * * on which a tax is imposed by this article, and which tax is not paid at the time of such transfer, shall be made the basis of any action or legal proceedings, nor shall proof thereof be offered or received,” etc.

It does not say that the purported transfer shall be void and utterly ineffective, for clearly it is not. But it provides that this failure shall be a bar to an attempt to enforce by legal proceedings any rights “based on such a transfer.” Assuming that under the language used this action brought to enforce the agreement to make a sale of stock can be said to be “based” on the subsequent transfer, the statute interposes a prohibition against the maintenance of such an action. As was said by Judge Vann, in the Wood & Selick case, it is a provision “withholding legal remedies,” and this within what I regard as controlling authorities amounts to the creation of a bar or defense which must be pleaded by the defendant.

The Personal Property Law (Cons. Laws, ch. 41, sec. 31) embraces what has been commonly known as the Statute of Frauds, and provides: “Every agreement, promise- or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, ” etc.

For the purpose of displaying the similarity between the statute before us and the Statute of Frauds, the latter may properly be paraphrased so as to read, no agreement, promise or undertaking shall be valid unless it or some note or memorandum thereof be in writing, etc. It then appears that of the two statutes the one last quoted is the more far-reaching in its condemnation, because it makes an agreement of which it is speaking absolutely void unless a certain act is performed, whereas the statute before us simply provides that a transfer on which a tax has not been properly paid shall not be made the basis of an action or of evidence.

After much discussion and consideration it is, of course, well settled that one seeking to enforce a contract of the classes prescribed by the Statute of Frauds need not allege compliance with the statute but that the defendant must plead non-compliance therewith as a matter of defense.

In Crane v. Powell (139 N. Y. 319, 383), which, perhaps, may be regarded as a leading case in settling the doctrine, it was said: “ But the learned judge distinctly ruled and charged the jury that the defendant was in no position to urge the invalidity of the contract under the Statute of Frauds, by reason of his omission to plead that defense, and to the ruling and the charge to the same effect there was an exception. The result in the courts below thus turned upon the omission of the defendant to plead the statute, and the first and perhaps only question presented by the appeal is one of pleading. Preliminary to that question it should be observed that contracts that by their terms are not to be performed within one year were valid at common law, though not in writing, but the statute enacted that thereafter such agreements should be void unless reduced to writing, and, therefore, a new defense was created with respect to such agreements as were within the statute. The Statute of Frauds does not prohibit the making of any agreement in any way that the parties may see fit nor render them illegal or immoral if not made in some particular way. It simply requires that certain agreements must be proved by a writing. It introduced a new rule of evidence in certain cases without condemning as illegal any contract that was legal before.”

In Matthews v. Matthews (154 N. Y. 288, 291) it was said: “It is plain, upon the view that the Statute of Frauds does not make an oral contract within its terms illegal, but only voidable at the election of the party sought to he charged, that such election must be manifested in some affirmative way. The mere denial in the answer of the contract alleged in the complaint, when the character of the contract is not disclosed, is quite consistent with an intention to put in issue simply the fact whether any agreement was entered into, either oral or written.”

In like manner it is so well settled as not to require citation of authorities, that the Statute of Limitations providing that actions must be commenced within certain periods, throws upon the defendant the necessity of pleading non-compliance as a defense.

Another statute with provisions and purpose much akin to those here involved has recently been considered.

In Parmele Company v. Haas (171 N. Y. 579) the court had before it a provision of the Tax Law that “ Every foreign corporation * * * authorized to do business under the General Corporation Law, shall pay * * * a license fee * * * for the privilege of exercising its corporate franchises or the carrying on of its business,” etc. (Cons. Laws, c-h. 60, sec. 181.) And then it was further provided that no action should be maintained or recovery had by such corporation without obtaining a receipt for the license fee so imposed within thirteen months after the beginning of such business within the state.

The complaint in that action did not allege compliance with the statute, and the question was whether for this reason it was defective. It was held that it was not, and Judge O’Brien, writing for the court, gave expression to viewrs which are very pertinent here. He said: “The statutes in themselves give no right of action, and are not essential elements of the cause of action stated in the complaint. They are mere revenue regulations, compliance with which is made necessary in order to acquire the right to do business here and to enforce causes of action in our courts. They may possibly be matters of defense, but not essential to be stated as part of the cause of action or right to sue. When a foreign corporation brings a suit in the courts of this state and states a good cause of action in the complaint, it will be assumed that it is rightfully in the state and properly in court until the contrary is made to appear. The question is one merely of pleading or procedure, and it does not go to the substance of the plaintiff’s claim. Compliance with this statute was no part of the plaintiff’s case, which was to be affirmatively stated. It has been generally held that such conditions are the same and fulfill the same office as a proviso in a statute, the enacting clause of which gives the right of action and the subsequent provisions modify or limit that right. The plaintiff in such a case may rely upon the enacting clause and leave it to the defendant to plead the proviso or exception.” (p. 583.)

These decisions, including that in the Wood & Selick case and the reasons given for them, seem to me to make it clear that the failure to pay the transfer tax was matter to be pleaded as a defense, and that this not having been done the judgment appealed from was right and should be affirmed, with costs.