Court Opinion

ID: 3597782
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:44:42.798706+00
Date Added: 2024-06-11T14:18:40.035560
License: Public Domain

On the 8th of September, 1906, the parties to this action entered into a written agreement whereby the plaintiff agreed to sell and deliver to the defendant forty-three shares of stock in a manufacturing corporation and the defendant agreed to accept the same and to pay the plaintiff the sum of $30,000 therefor in certain installments. Although all the installments were due when the action was commenced, none had been paid except the first amounting to $5,000. This action was brought to recover the balance and to a complaint alleging these facts, among others including performance on the part of the plaintiff, an answer was interposed, which, after making certain admissions and denials, but without denying that the contract to sell was made, *Page 165 
pleaded several separate defenses none of which raised the point now relied upon by the appellant to reverse the judgment against him.
Upon the trial before a referee the plaintiff was sworn and while he was upon the stand the contract was read in evidence without objection. He then testified that in due time he delivered a certificate for the forty-three shares to the defendant, but that no part of the purchase price had been paid except the first installment. When the certificate for the forty-three shares with an assignment of the same to the defendant indorsed upon the back in the usual form was offered in evidence the defendant objected on the ground that the certificate did not bear the seal of the corporation and that the stock did not appear to have been transferred to the defendant on the books of the corporation. No other ground was stated, the objection was overruled and the certificate and assignment were read in evidence. When thus received neither had any revenue stamp attached thereto as required by the Transfer Tax Act (L. 1905, ch. 241, §§ 315, 317 and 318; L. 1906, ch. 414, §§ 1 and 2). Nothing was said upon the subject, however, until at a later stage of the trial when it appeared on the cross-examination of the plaintiff that no stamp had been attached to either the contract or the assignment at any time. The defendant then moved "to strike out all the testimony of Mr. Bean in respect to the contract between him and Mr. Flint * * * dated Sept. 8, 1906, 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, no proof whatever is allowed under the law of that contract." The motion was denied and an exception taken. Thereupon the defendant offered in open court to return the forty-three shares of stock to the plaintiff without any condition, but the offer was declined. At a still later stage of the trial the plaintiff, in the presence of the referee and against the protest and *Page 166 
objection of the counsel for the defendant, produced revenue stamps of the kind and value required by the statute and attached them to the certificate. There was no motion to dismiss the complaint on the ground that it failed to set forth a cause of action, because it did not allege that stamps were affixed at the time of the transfer.
The referee reported in favor of the plaintiff for the whole amount claimed, finding the facts as stated, and, as a conclusion of law, that the omission to affix stamps as required by statute was waived by the failure to plead the omission in the answer. The defendant excepted to this ruling as well as to the conclusion of law that the plaintiff was entitled to judgment.
The question presented for decision is whether the failure to attach the requisite amount of revenue stamps to the contract of September 8, 1906, or to the assignment of the certificate at the time of the transfer should prevent a recovery under the circumstances stated.
The Transfer Tax Act imposes a tax upon all transfers or agreements to transfer shares or certificates of stock in any domestic or foreign corporation. The payment of the tax, as the statute further requires, "shall be denoted by an adhesive stamp or stamps affixed" in the manner provided or so far as is now material to the certificate or other written evidence of transfer or written agreement to transfer. (§ 315.) The comptroller is required to prepare stamps for the purpose and to sell them "to the person or persons desiring to purchase the same." (§ 316.) It is the duty of the one who makes the transfer to affix the stamps. (§ 317.) Any person making a sale or delivery pursuant to any sale without affixing stamps as required is guilty of a misdemeanor and punishable by fine or imprisonment or both. (§ 317.) A further effect of a transfer without paying the tax is provided by section 323, which is as follows: "No transfer of stock made after June first, 1905, on which a tax is imposed by *Page 167 
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 in evidence in any court in this state." This act is a valid exercise of its power by the legislature, as held by the Supreme Court of the United States as well as by ourselves. (People exrel. Hatch v. Reardon, 184 N.Y. 431; affirmed, 204 U.S. 152;People ex rel. Farrington v. Mensching, 187 N.Y. 8.)
The Appellate Division held that "an inadvertent failure to pay the tax does not defeat a recovery by the seller unless it be pleaded as a defense" and that "the payment of the tax is not a condition precedent to a right to transfer the stock." (138 App. Div. 846. )
The plaintiff can take nothing from the fact that stamps were attached to the certificate during the trial, or about twenty months after the transfer, for section 323 provides in effect that the tax must be paid "at the time of such transfer." Nor is the plaintiff relieved by the fact that his failure to attach stamps to either instrument was, as the referee found, entirely inadvertent and with no intent to evade the law, because the command of an excise act in reference to the payment of a tax by affixing stamps at the time of the transfer, unless obeyed as it is written, can be so easily violated or evaded as to largely defeat its purpose. It is hard to discover violations, because the person making the transfer cannot be compelled to produce his books and papers, as that would require him to be a witness against himself. (People ex rel. Ferguson v. Reardon,197 N.Y. 236.)
It is not without significance that no provision is made in this act, such as appears in most other revenue acts, to cure an accidental or inadvertent omission. The cases mainly relied upon by the respondent in his points arose under statutes containing curative provisions.
The transfer, however, was valid, for the right to make it existed before the statute was passed and it is *Page 168 
not taken away by the statute, which makes no provision on the subject in specifying the effect of an omission to pay the tax. Moreover the statute makes it the duty of the seller, not the purchaser, to affix the stamps. While a penalty of fine or imprisonment is imposed for making the transfer without affixing stamps, no other effect is given to the failure except that the transfer cannot be made the basis of an action, or proof thereof be received in evidence. The plaintiff insists that while the criminal effect cannot be waived by the parties, the civil effect may be and that it was waived in this action by the failure of the defendant to plead the omission, just as the defense of usury to a promissory note, void by express declaration of statute, is waived unless duly pleaded.
Light is thrown upon the subject by several recent decisions of this court. (Parmele Co. v. Haas, 171 N.Y. 579; WelsbachCo. v. Norwich Gas  Electric Co., 180 N.Y. 533; Wood Selick v. Ball, 190 N.Y. 217.)
In the Parmele case a provision of the Tax Law was involved which required certain foreign corporations to pay a license fee for the privilege of carrying on business in this state and provided that no action should be maintained or recovery had by such corporation in this state unless the tax, as fixed by the comptroller, was paid within thirty days after it became due.
In the Welsbach case a provision of the General Corporation Law was involved, which prohibited certain foreign stock corporations from doing business in this state without "having first procured" from the secretary of state a certificate of conformity to various requirements of the statute. It further provided that "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." (Section 15.) *Page 169 
In Wood  Selick v. Ball the same question was involved as in the Welsbach case but an opinion was written to remove the doubt which had arisen because the failure to allege compliance with the General Corporation Law rendered a complaint demurrable, as held in the Welsbach case, while the failure to allege compliance with the Tax Law did not render a compliance demurrable, as held in the Parmele case. An opinion was written in the latter case but not in the former, and while the answers to the certified questions made the result clear, the ground upon which the result was reached was not stated.
The requirement of the Tax Law involved in the Parmele case was held to be a condition subsequent, which was waived by the omission to raise the question by demurrer or answer. Commenting on that case in Wood  Selick v. Ball, we said: "There is a command to pay a license fee for the privilege of carrying on business in this state, but not until business has been carried on for a longer or shorter period, varying according to circumstances. The amount is to be fixed by the Comptroller, who is authorized to examine books, records and employees for that purpose. (L. 1895, ch. 240.) It cannot be paid in advance, for it must first be computed and the computation is made on the basis of the capital stock employed in this state, which cannot be known in advance. When computed on that basis it is to be paid `within thirty days after such tax is due' * * * There is no express prohibition against doing business without a license, but a penalty is imposed through the withholding of the right to sue, unless a license fee is paid within the period prescribed. We, therefore, held that a complaint which did not allege compliance with this section was not defective for that reason, but that non-compliance was a matter of defense, to be availed of by answer. This is in accordance with the general rule that performance of a condition subsequent, which continues in force a *Page 170 
right already acquired, need not be pleaded, while performance of a condition precedent, by which the right itself is acquired in the first instance, must be pleaded." (p. 223.)
The requirement of the General Corporation Law involved in theWelsbach case was held to be a condition precedent to the right of a foreign stock corporation to lawfully do business in this state and, hence, that it was necessary to allege in the complaint that the condition had been performed in order to set forth a cause of action. Commenting upon that case in Wood Selick v. Ball, we said: "The Welsbach case came before us upon a certificate of the Appellate Division, presenting the following questions for decision: `1. Was the complaint demurrable upon the ground that it appears upon the face thereof that the plaintiff did not have legal capacity to sue? 2. Was the complaint demurrable on the ground that facts are not therein stated sufficient to constitute a cause of action?' We affirmed the order appealed from and answered both questions in the affirmative. The only defect claimed to exist in the complaint in that case was the omission to allege compliance with section 15 of the General Corporation Law. The same defect exists in the complaint now before us. There is no allegation, either general or specific, that the condition precedent in the statute has been performed. (Code Civ. Pro. § 533.) Such an allegation is essential in order to set forth a cause of action, and the objection that the complaint does not state facts sufficient to constitute a cause of action is not waived by the failure to raise it by demurrer or answer." (p. 225.) (See, also, South BayCompany v. Howey, 190 N.Y. 240.)
The real question, therefore, is whether the requirement of section 323 is a condition subsequent, which is waived if not pleaded by answer or demurrer or a condition precedent, performance of which must be alleged by the plaintiff in his complaint as part of the cause of action. *Page 171 
A provision that something must be done before a right can accrue is a condition precedent, while a provision that unless something is done a right already accrued shall fail is a condition subsequent. The one brings the right into existence while the other defeats a right which had previously existed. The distinction lies between a right which becomes vested only by performance and a right already vested which is defeated by non-performance. As the one precedes liability, performance must be pleaded in the complaint. As the other succeeds liability, non-performance must be pleaded in the answer.
The command of section 323 of the Transfer Tax Act that no transfer "shall be made the basis of any action" is the same in effect as the command that no action shall be maintained, which is the form of expression used in section 15 of the General Corporation Law. Both commands mean that there can be no cause of action until something is done and unless it is done at the time specified. The facts which before the statute constituted a cause of action constitute one no longer, for the legislature under its broad power of taxation has prescribed that another fact must exist before the cause of action is complete. The time to comply with the condition in the Transfer Tax Act is "at the time of the transfer," while the time to comply under the General Corporation Law is "prior to the making of such contract." In either case the condition must be performed before a cause of action can accrue, because in the absence of prior performance, by direct command of the statute, no action can be maintained. The right to maintain an action is dependent upon the previous performance of the condition. The condition was not subsequent, because the right had not already accrued subject to defeat if the condition was not performed. It was a condition precedent, because performance thereof was required before the right could come into existence. In this respect the case before us is like the Welsbach andSelick  Ball cases, as well as *Page 172 
those arising under statutes requiring a verified notice of claim to be served within a given period before an action can be maintained against a municipal corporation for negligence resulting in personal injury. (Reining v. City of Buffalo,102 N.Y. 308; Curry v. City of Buffalo, 135 N.Y. 366;MacMullen v. City of Middletown, 187 N.Y. 37; Winter v.City of Niagara Falls, 190 N.Y. 198.) Thus, in Reining v.City of Buffalo (supra), Chief Judge RUGER said, all the judges concurring: "The inquiry is whether this provision was intended to operate as a condition precedent to the commencement of an action, or simply to furnish a defense to the city in case of an omission to make such demand. We think the plain language of the statute excludes any doubt on the subject. * * * It is not in such a case necessary that the thing required should constitute one of the elements of a common-law action, for if the legislature have made even a step in their remedy a condition of its prosecution, it is essential not only that it should be taken, but that it should be affirmatively alleged and proved by the plaintiff. It is competent for them to attach a condition to the maintenance of a common-law action as well as one created by statute, and, when they have done so, its averment and proof cannot safely be omitted. * * * The language is `that no action shall be brought' until, etc., and constitutes an express prohibition against the action, until performance of the condition. A non-compliance with this requirement can be raised by the defendant, at any stage of the action, when it is called upon to act in the case." (p. 310.)
In Winter v. City of Niagara Falls, Judge GRAY said: "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 *Page 173 
and proved, like any other condition precedent to the existence of an obligation." (p. 202.)
If in those cases the condition was precedent and the law required performance to be pleaded in the complaint, the same rule should be applied in this case, or precedents founded on principle will be abandoned and the law left in confusion.
This is a case of extreme hardship, but the command of the statute should be obeyed as it is written. Even if the plaintiff has made but one transfer of stock during his entire experience in business, he stands before the law in the same attitude as those who make many transfers every business day in the year. It may be that only a severe example will prevent evasions of the statute, currently reported to be frequent, whereby the state is deprived of the revenue to which it is entitled and those who pay the tax are injured by those who do not. While the statute imposes a harsh penalty, the remedy for the alleged injustice must be sought from the legislature and not from the courts. Care should always be taken that hard cases should not make bad law.
I think that the requirement of section 323 was not waived by the failure of the defendant to plead the omission in his answer, or to object to evidence relating to the transfer, and the judgment appealed from should, therefore, be reversed and a new trial granted, with costs to abide the event.
GRAY, HAIGHT and WILLARD BARTLETT, JJ., concur with HISCOCK, J.; CULLEN, Ch. J., and COLLIN, J., concur with VANN, J.
Judgment affirmed. *Page 174