Court Opinion

ID: 5380526
Source: CourtListenerOpinion
Date Created: 2022-01-08 08:57:32.346976+00
Date Added: 2024-06-11T08:30:07.342770
License: Public Domain

Hill, P. J.
(dissenting). Review under article 78 of the Civil Practice Act of a determination made by the State Tax Commission imposing a tax of $5,375 in connection with the recording of the 11 Third Supplemental Indenture ” (two earlier supplemental indentures are not involved) executed by the petitioner. The tax was paid under protest, and a refund is asked.
The essential facts are that petitioner, Park and 46th Street Corporation, on July 15,1935, executed a mortgage to the Chase National Bank as trustee, to secure the payment of $1,800,000 to the Metropolitan Life insurance Company. The recording mortgage tax was paid. Five per cent bonds were issued, which were delivered to, and have since been held by, the insurance company. On November 15, 1943, the indenture, the tax for the recording of which is involved herein, was made and executed. At that time $1,075,000 of the original debt was unpaid. Nine hundred and fifteen thousand dollars of the bonds drew interest at 5%, and $160,000 at 4% maturing $160,000 each year until 1947 when the balance of $595,000 became due. The Third Supplemental Indenture, besides securing the bonds which were to be exchanged for those unpaid, was security for a new loan of $125,000. The entire $1,200,000 was to be represented by 4%% bonds maturing $60,000 annually until November 15, 1963. Petitioner recognizes its obligation to pay the recording tax on the new debt of $125,000. The insurance company, owner of all the old bonds, consented to the execution of the Third Supplemental Indenture and agreed to surrender the old bonds and receive the new ones in exchange. There was no cash transaction.
The facts in Matter of New York State Gas & El. Corp. v. Gilchrist (209 App. Div. 771, affd. 240 N. Y. 552, on the opinion by Kellogg, J., in the Appellate Division) made it an authority as indicated by the following from the opinion: “ * * * the new bonds were delivered directly into the hands of the old bondholders who thereupon canceled prior bonds to the extent of an aggregate principal sum equaling that of the new bonds. The new bonds were issued for the purpose, not of sale, but of direct substitution. The mortgagor, by an agreement made in advance of the issue, was obliged to give new bonds for old, while the mortgagee was obliged to make the exchange. It is true that *14by the new bonds the mortgagor promised to pay in 1962 what it had previously agreed to pay in 1947 and 1952. It is also true that it promised to pay interest at five and one-half per cent whereas it had previously agreed to pay interest at five and six per cent. * 8 * There was here the creation of no new relationship; there was no new creditor, no new debtor, no new loan. It must be remembered that it is the principal sum of a loan, not the interest to be paid thereupon, which measures a mortgage tax. Here there was no new principal sum although there was a new interest rate and a new date of payment. ’ ’
In People v. Boston & Maine Railroad (202 App. Div. 54, affd. 234 N. Y. 629) the new bonds were sold and the proceeds used to discharge the old bonds, so that a new indebtedness was created. A discussion of the distinction between this and the Gas & Electric case (supra) is contained in People ex rel. B. & M. R. R. v. Loughman (227 App. Div. 361, affd. 254 N. Y. 513, without opinion). The Gas & Electric case (supra) has also been cited with approval in People ex rel. Banner L. Co. v. State Tax Comm. (244 N. Y. 159, 164) in the following language: “ In that case after bonds secured by a mortgage upon which a tax had been duly paid were issued, the relator made a new issue of bonds for the purpose of replacing the issue theretofore made and secured by a mortgage. These new bonds were delivered to the holders of the old bonds for the purpose of retiring the latter and were secured by a new mortgage, and the question arose whether a mortgage tax could be imposed because of this later issue.” The tax which had been imposed by the Commission in the Banner Land case (supra) and affirmed by the Appellate Division (216 App. Div. 775), was annulled and refunded. The above authorities and others have been considered quite recently by this court in Matter of Erie R. R. Co. v. State Tax Commission (260 App. Div. 268, affd. without opinion, 284 N. Y. 673).
The State relies upon People ex rel. Jewelers B. Corp. v. State Tax Comm. (214 App. Div. 99, affd. without opinion 241 N. Y. 524). The opinion in the Appellate Division was written by the same justice who wrote in the Gas & Electric case (supra). In the Jeivelers case (supra) the earlier mortgage was superseded by a new one, and the old debt and obligation was discharged and a new one created. These facts distinguish it from the present case, and from those earlier cited herein.
The only recording tax which accrued in connection with the Third Supplemental Indenture in this case is upon the new *15loan of $125,000. The tax has earlier been paid upon the remain, ing $1,075,000, and petitioner is entitled to a refund of the $5,375 erroneously taxed and which it has paid under protest.
The decision of the State Tax Commission insofar as it determined that a recording tax of $5,375 became due and payable upon the recording of the Third Supplemental Indenture herein should be annulled, with costs, and a refund of $5,375 directed.
Brewster and Lawrence, JJ., concur with Heffernan, J.; Hill, P. J., dissents in an opinion in which Poster, J., concurs.
Determination confirmed, with fifty dollars costs and disbursements.