192 A.D. 16 | N.Y. App. Div. | 1920
This is a submission of a controversy pursuant to the provisions of sections 1279-1281 of the Code of Civil Procedure. The plaintiff sues as Comptroller of the State of New York. The defendant American Cities Company is a foreign corporation organized and existing under and by virtue of the laws of the State of New Jersey, having its principal office and place of business at the city of Jersey City, N. J. Its business consists of the purchase, ownership and disposition of stocks and securities of .other companies. The defendant The United Gas and Electric Corporation is a foreign corporation organized and existing under and by virtue of the laws of the State of Connecticut, and having its principal office and place of
In the year 1915 the defendant The United Gas and Electric Corporation desired to issue $15,000,000 of coupon bonds, and under date of April first of that year the said defendant executed to the Guaranty Trust Company of New York an indenture in writing describing said issue of bonds of said company limited in the aggregate sum of $15,000,000. By the terms of said indenture it was provided, among other things, for the deposit and pledge with and transfer, upon the terms and conditions therein mentioned, to the defendant Guaranty Trust Company of New York, as trustee, by the said The United Gas and Electric Corporation, shares of the capital stock of various named corporations, including 155,260 shares of the common stock of the defendant American Cities Company, said last-mentioned company having a transfer agent in the' city of New York where the stock of said company might be transferred. Such deposit, pledge and transfer of said shares of stock of the defendant American Cities Company was made by the defendant The United Gas and Electric Corporation as security for the payment of the principal and interest of the bonds at any time issued and outstanding under said indenture and to insure the faithful performance and observance of the covenants, agreements, stipulations and conditions contained in said indenture for the protection and security of the agreements contained in the bonds issued thereunder.
Pursuant to said indenture the defendant The United Gas and Electric Corporation delivered to the defendant Guaranty Trust Company of New York the said 155,260 shares of the common stock of the defendant American Cities Company to be held by the said trust company as provided by said indenture. Thereafter, and as a part of and incident to such deposit of said security, the defendant Guaranty Trust Com
From the above-quoted clause the nature of the transaction is clearly revealed. The indenture does not disclose any intent or purpose to transfer to the defendant Guaranty Trust Company said shares of stock other than as collateral security for the payment to the purchasers of the bonds of the moneys loaned to the said The United Gas and Electric Corporation thereunder. Nowhere in said indenture is there revealed any purpose or intention to confer upon the Guaranty Trust Company of New York any beneficial or equitable interest or ownership in the said shares of stock of the American Cities Company held by said trust company pursuant to the terms of said indenture. Throughout the indenture the plain purpose and intent of the parties was tha*t the pledgor of the shares of stock in question should at all times remain and be the beneficial owner of said stock, subject to its deposit and transfer with the defendant Guaranty Trust Company of New York for the protection of the purchasers of the bonds of the pledgor. The indenture is replete with evidences of the intention of the parties that The United Gas and Electric Corporation, the pledgor of said shares, was to retain the beneficial ownership thereof. It was provided that sufficient shares of each of the underlying companies whose stock was pledged to the trust company under said indenture as might be required to qualify directors in each of said underlying
The question presented by the submission of the parties is whether the transfer by the defendant The United Gas and Electric Corporation to the defendant Guaranty Trust Company of New York of the 155,260 shares of the common stock of the American Cities Company, under the terms of the said indenture, is a taxable stock transfer within the provisions of section 270 of the Tax Law of the State of New York. Said section 270 (added by Laws of 1910, chap. 38, as amd. by Laws of 1911, chap. 352; Laws of 1912, chap. 292, and Laws of 1913, chap. 779) provides as follows:
“ § 270. Amount of tax. There is hereby imposed and shall immediately accrue and be collected a tax, as herein provided, on all sales, or agreements to sell, or memoranda of sales of stock, and upon any and all deliveries or transfers of shares or certificates of stock, in any domestic or foreign association, company or corporation, made after the first day of June, nineteen hundred and five, 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 sale or transfer, whether intermediate or final, and whether investing the holder with the beneficial interest in or legal title to said stock, or merely with the possession or use thereof for any purpose, or to secure the future payment of money, or the future transfer of any stock, on each hundred dollars of face value or fraction thereof, two cents, except in cases where the shares or certificates of stock are issued without designated monetary value, in which cases the tax shall be
It is the contention of the Comptroller that the transfer by the defendant The United Gas and Electric Corporation to the defendant Guaranty Trust Company of New York of the 155,260 shares of the common stock of the American Cities Company was a transfer within the contemplation of said section 270 of the Tax Law as requiring the payment to the State of the tax provided by said law. It is claimed by the Comptroller that the transfer of the said shares invested the Guaranty Trust Company at least with the possession and use of said stock for some purpose. As before stated, I do not think such transfer invested the holder with any beneficial interest in or legal title to said stock. It might perhaps be said that nevertheless possession of said shares was delivered to the trust company for some purpose within the contemplation of the statute above quoted, were it not for the further provision of said law limiting its application in the following terms: “It is not intended by this act to impose a tax upon an agreement evidencing the deposit of stock certificates as collateral security for money loaned thereon, which stock certificates are not actually sold, nor upon such stock certificates so deposited, nor upon mere loans of stock or the return thereof.”
It is not unusual for long-time loans to be effected through bond issues secured by trust mortgages as in the case at bar. Such indentures or mortgages necessarily are to secure the future payment of money, but under the provision of the statute last above quoted no tax is due under an agreement evidencing the deposit of stock certificates as collateral security for money loaned thereon, which stock certificates are not actually sold, nor upon such stock certificates so deposited. It seems to me that the transaction between the United Gas and Electric Corporation and the Guaranty Trust Company of New York was clearly one contemplated by the Legislature, and that upon such a transfer no tax is to be imposed. The stock certificates delivered to the trustee under said indenture were “ for the deposit and pledge with ” the trustee. Undoubtedly the actual deposit and pledge with the trustee of said shares of stock as collateral security would
Under the terms of the indenture herein The United Gas and Electric Corporation desired to borrow $15,000,000. For this purpose it purposed to issue its coupon bonds not exceeding that amount. The Guaranty Trust Company of New York agreed to serve as trustee, and to secure the payment of the said bonds and obligations of the gas and electric corporation, the latter deposited with its said trustee various securities, including the said shares of stock of the American Cities Company. Such deposit was clearly for the purpose of furnishing collateral security for money loaned the said gas and electric corporation by the purchasers of said bonds. Under the terms of the indenture the trustee, in case of
The Comptroller contends that a stock transfer tax became due on the transfer of the legal title of the shares in question to the Guaranty Trust Company, but the Legislature in the exemption clause does not use the term “ transfer.” Therefore, it is apparent that “ sale ” and “ transfer ” must be taken to mean different things. There can be no question as to the precise meaning of the word “ sale,” which imports not only transfer of title, but also the passage of property rights and the severance of all right and control thereof on the part of the seller. In Jones on Collateral Securities (3d ed. § 153) it is said: “ A transfer of the legal title is not inconsistent with the existence of a pledge. On the contrary, it is true that incorporeal property, being incapable of manual delivery, cannot generally be pledged without a written transfer of title. Collateral securities, such as negotiable
It would, therefore, seem that the transfer of title to the shares of stock in question was not inconsistent with their pledge, as collateral security. There are many decisions of our courts that although a transfer of corporate stock be made, absolute in form, nevertheless the transaction amounted merely to a pledge of the stock in case the stock was to be held as collateral security. (Wilson v. Little, 2 N. Y. 443; McMahon v. Macy, 51 id. 155; Town of Mt. Morris v. Thomas, 158 id. 450.)
Under the indenture between the parties, it seems to me clear that there was no actual sale or intention to sell or transfer any beneficial interest in the shares in question to the trustee, and that the beneficial and equitable title to said shares at all times remained in the pledgor, subject, however, to the latter’s being foreclosed of such title in case of default in performance of its agreement.
Much light is thrown upon the legislative intent in the enactment and continuance upon the statute books of the exemption provision of said law by an attempt in the year 1913 to amend the same. A bill was introduced in the Legislature of that year to amend said section 270 by inserting therein in the exemption clause after the words, “ which stock certificates are not actually sold,” the words, “ or transferred.” Had the amendment become a law the exemption clause of the section would have read as follows: “It is not intended by this act to impose a tax upon an agreement evidencing the deposit of stock certificates as collateral security for money loaned thereon, which stock certificates are not actually sold or transferred, nor upon such stock certificates so deposited nor upon mere loans of stock or the return thereof.” (See N. Y. Assembly Bills, 1913, Vols. 9, 13, Nos. 2230, 2767; N. Y. Senate Bills, 1913, Vols. 8-11, Nos. 1800, 2150, 2244, 2441, 2525.)
There was opposition to the proposed amendment, and to the insertion in the statute of the words “ or transferred,” and a letter, a copy of which is annexed to the submission herein, was addressed to the Comptroller of the State of New York, protesting against said amendment upon the ground that it was the frequent practice of banks and trust
The intent of the Legislature should control, even though the letter of the statute may be contrary to such intent. As was said by Earl, J., in Riggs v. Palmer (115 N. Y. 506, 509): “ It is a familiar canon of construction that a thing which is within the intention of the makers of a statute is as much within the statute as if it were within the letter; and a thing which is within the letter of the statute is not within the statute, unless it be within the intention of the makers.” (See, also, Matter of Meyer, 209 N. Y. 386; Archer v. Equitable Life Assurance Society, 218 id. 18.)
Similar statutes are in force in other jurisdictions and the construction placed thereon by those charged with their enforcement supports the contention of the defendants herein that the transfer of the shares of stock in the case at bar was not subject to a tax. On October 22, 1914, there was approved by the President the Emergency Internal Revenue Law, enacted by Congress, which law provided for a tax “ on all sales, or agreements to sell, or memoranda of sales or deliveries or transfers of shares or certificates of stock in any association, company, or corporation * * * Provided, That it is not intended by this Act to impose a tax upon an agreement evidencing a deposit of stock certificates as collateral security for money loaned thereon, which stock certificates are not actually sold, nor upon such stock certificates so deposited; * * (38 U. S. Stat. at Large, 753, §5; Id. 759, Schedule A.) The Commissioner of Internal
In Massachusetts, by chapter 770 of the Acts of 1914, as amended by chapter 238 of the General Acts of 1915, the Legislature of that State imposed a tax “ on all sales or agreements to sell or memoranda of sales or deliveries or transfers of shares or certificates of stock in any domestic or foreign corporation,” providing, however, that “it is not intended by this act to impose an excise upon an agreement evidencing the deposit of stock certificates as collateral security for money loaned thereon, which stock certificates are not actually sold, nor upon such stock certificates so deposited; * * On December 4 and 12, 1917, the Department of the Tax Commissioner of the Commonwealth of Massachusets ruled that no authority existed under the statute to impose an excise upon such a deposit and transfer.
As before stated, it -seems to us that the spirit of the statute was to tax only actual sales and transfers of shares of stock, and that the Legislature in its qualifying clause stating that “ it is not intended by this act to impose a tax upon an agreement evidencing the deposit of stock certificates as collateral security for money loaned thereon, which stock certificates are not actually sold, * * * ” clearly evidenced an intention not to impose a tax upon transfers of stock made in the form involved upon this submission. By such expression the Legislature left no room for doubt as to its intention.
It seems to me that if the plaintiff herein were granted the judgment which he asks the result would be to place the trust companies of New York State under undue disadvantage with similar institutions in other jurisdictions. There would surely result a loss of business as the result of the imposition of taxes in excess of those imposed under the laws of other
A further ground for denying the right to impose a tax under said statute lies in the well-established principle that laws relating to taxable transfers must show a clear legislative intention to tax. (Matter of Saunders, 77 Misc. Rep. 54; affd., 156 App. Div. 891; affd., 211 N. Y. 541.) A statute levying a tax should be construed most favorably to the taxpayer, the government being entitled to no rights thereunder, except those clearly given by its language. (People ex rel. New York Mail & Newspaper Transportation Co. v. Gaus, 198 N. Y. 250; People ex rel. Mutual Trust Co. v. Miller, 177 id. 51; People ex rel. Fifth Avenue B. Co. v. Williams, 198 id. 238; City of Rochester v. Fourteenth Ward Assn., 183 id. 23.)
A careful examination of the statute leads me to the conclusion that the Legislature did not intend that transfers of stock under the circumstances of the case presented here were subject to tax.
I am, therefore, of the opinion that judgment should be rendered herein in defendants’ favor, with costs.
Clarke, P. J., Dowling, Smith and Greenbaum, JJ., concur.
Judgment ordered in favor of defendants, with costs. Settle order on notice.