Home Title Ins. Co. of New York v. Keith

• Decision Date: 03 March 1916
• Citation: 230 F. 905
• Parties: HOME TITLE INS. CO. OF NEW YORK v. KEITH.
• Court: U.S. District Court — Eastern District of New York

230 F. 905

HOME TITLE INS. CO. OF NEW YORK v. KEITH.

United States District Court, E.D. New York.

March 3, 1916

Harry Percy David, of Brooklyn, for plaintiff.

Melville J. France, U.S. Atty., of Brooklyn, for defendant.

CHATFIELD District Judge.

The plaintiff brings the present action in order to raise the question so frequently presented in the course of the business conducted by the various title companies in this city, when deeds conveying the title to property bought in upon a sale in foreclosure must be executed and delivered by a referee who acts by appointment of the court and under authority of the statutes of the state, in selling the property, receiving the consideration therefor, and delivering the deed as a part of the foreclosure action through which the mortgagor is divested of his title to the property mortgaged, and through which that title is thereupon vested in the purchaser free and clear of the lien in process of foreclosure.

The question has been presented in the case of Farmers' Loan & Trust Co. v. Council Bluffs Gas & Electric L. Co (C.C.) 90 F. 806, under the Stamp Tax Law of 1898 (Act June 13, 1898, c. 448, 30 Stat. 448), and in Crawford v New South Farm & Home Co., 231 F. 999 (So. Dist. of Fla., Oct. 7, 1915) under the present statute (38 Stat.at Large, p. 745). In each of these cases it was held that the property actually passed from the defendant or the mortgagor to the purchaser by means of the court procedure, and that the tax was upon the business as evidenced by the paper with which that title was transferred. It was held that the tax was not upon the court process not upon the officer of the court, and that the duties of the officer of the court were not interfered with except as he in his ministerial capacity was required to do something in addition to the requirements of the foreclosure proceeding. In other words, in each of these cases the tax was held valid, as it was in the case of Stirneman v. Smith, 100 F. 600, 40 C.C.A. 581, but in which the certificate of a notary was held not to require a stamp, where he was performing the work of a referee or examiner in the taking of depositions for use in court.

The plaintiff has brought an action against the Collector of Internal Revenue in this district, to recover the amount paid for certain revenue stamps affixed by the plaintiff to a deed given to it by a referee in foreclosure, in an action in the Supreme Court of the state of New York, in the county of Kings. The plaintiff was not a party to that foreclosure action, but purchased the property on the sale. The referee did not affix the stamps required by the law (Act of Congress of October 22, 1914, Sec. 5), nor did he deduct any amount as a part of the expenses of the sale for the purchase of these stamps, and the plaintiff under protest procured the stamps and affixed them before recording this deed. It then brought an action to recover the amount so paid, and the United States by demurrer has admitted the allegations of the complaint, and raised the question of the right in law of the plaintiff to recover if the facts be as alleged by it.

The plaintiff urges two propositions in support of its right to recover: First, that the act in question does not make any provision requiring the vendee or grantee to pay a stamp tax. Second, that the act is unconstitutional and void, if it imposes a tax of any kind upon the deed given by a referee in pursuance to the order and as a part of the procedure by the state court.

Section 5 provides that there shall be levied, collected, and paid for and in respect of the documents mentioned and described in Schedule A, or for or in respect of the paper upon which such instrument shall be written, by any person who shall make, sign, or issue the same, or for whose use or benefit the same shall be made, signed, or issued, the several taxes, etc.

Section 6 imposes a penalty if a person makes, signs, issues, or causes to be made, signed, or issued any such document or paper without the stamp denoting the payment of the tax.

Section 11 provides that any person who shall register, issue, or transfer, or who shall cause to be issued, sold, or transferred, any instrument, document, or paper without the tax, shall be guilty of a misdemeanor, etc.

The plaintiff argues that a person buying at a judicial sale is neither the party for whose use or benefit the instrument is issued, nor the party who causes it to be issued, nor is he the party signing or issuing the same. The penalty against failure to attach the stamp is directed, first, to the person who fails to duly stamp, as required, the paper which must bear a stamp before it can be recorded.

Section 6 of the law imposes the penalty upon any one who makes, signs, or issues (that is, uses or delivers) the deed. But this does not mean that the stamp must be attached to the paper before the paper can be signed at all. It simply places upon each of these individuals the responsibility of being charged with a misdemeanor if the paper is not duly stamped before its actual issuance or use, and of course the lack of the stamp must be rectified before recording. The 'or' is disjunctive as to persons but conjunctive as to a complete act of making, signing, and using.

Under section 8, the initials of the person using or affixing the stamp and the date must be placed upon the stamp as a cancellation. It would not be held that a signature or partial execution of the paper, followed by a subsequent affixing of the stamp, was a failure to comply with section 6, if the stamp was properly affixed and canceled before the paper was issued. But all persons sharing in the transaction, if the paper is not properly stamped in time, are liable. Hence a grantee or vendee who participates in the making or issuing of a paper without the proper stamp could be charged in the criminal sense with acts equivalent to 'causing' it to be issued without a stamp, and section 6 is not governed by the meaning of the words 'caused to be issued,' as viewed from the steps in the foreclosure suit, in order to determine upon whose motion or by whose application the deed was issued.

The transfer of title and the paper evidencing that transfer is issued for the use and benefit of the person who gets the title. It is issued, so far as the foreclosure suit is concerned, because the statute requires it and as evidence of the performance of the necessary steps in the action. But its delivery as a deed is solely for the purpose of placing a marketable title in the vendee's name, and that title and its record are for the use of the vendee within the meaning of the tax law. If any expense is rendered necessary in the purchase or use of such stamps, that could be included by the referee in the same way that, if the referee found it necessary to use postage stamps for the conveyance of some document by mail, he could include the purchase of these stamps. His so doing would not impugn or impair the validity of the law requiring the use of postage stamps. Nor does the fact that the government requires the use of postage stamps on mail matter show that their purchase and use by a referee would be taxable as a disbursement.

The first point must therefore be decided against the plaintiff and it throws no light upon the constitutional question raised under the second point. Under point 2, the plaintiff seeks to show that the statutes relating to foreclosure procedure in a state court in conducting a foreclosure, and the actions of the officer of the state court in carrying on...