Mercury Mach. Importing Corp. v. City of New York

• Citation: 165 N.Y.S.2d 517,3 N.Y.2d 418,144 N.E.2d 400
• Parties: , 144 N.E.2d 400 MERCURY MACHINE IMPORTING CORP., Respondent, v. CITY OF NEW YORK, Appellant. UNITED STATES ENVELOPE COMPANY, Appellant, v. CITY OF NEW YORK et al., Respondents. BERKSHIRE KNITTING MILLS, Appellant, v. CITY OF NEW YORK et al., Respondents.
• Decision Date: 03 July 1957
• Court: New York Court of Appeals

Page 517

165 N.Y.S.2d 517

3 N.Y.2d 418, 144 N.E.2d 400

MERCURY MACHINE IMPORTING CORP., Respondent, v. CITY OF NEW YORK, Appellant.

UNITED STATES ENVELOPE COMPANY, Appellant, v. CITY OF NEW YORK et al., Respondents.

BERKSHIRE KNITTING MILLS, Appellant, v. CITY OF NEW YORK et al., Respondents.

Court of Appeals of New York.

July 3, 1957.

Peter Campbell Brown, Corp. Counsel (Stanley Buchsbaum, New York City, Herbert S. Taten, Ozone Park, and Isidore Friedman, Douglaston, of counsel), for appellant in first above-entitled action.

Isaac Anolic, New York City, for respondent in first above-entitled action.

Ralph Stout, Almet R. Latson and William T. Condon, New York City, for appellant in second above-entitled action.

Peter Campbell Brown, Corp. Counsel, New York City (Stanley Buchsbaum, Morris L. Heath, New York City, and Jacob Friedes, Brooklyn, of counsel), for respondents in second above-entitled action.

Francis S. Bensel, J. Quincy Hunsicker, III, Hancock Griffin, Jr., and W. Frederick Knecht, New York City, for appellant in third above-entitled action.

Peter Campbell Brown, Corp. Counsel, New York City (Stanley Buchsbaum, Bernard H. Sherris and John J. Lyden, New York City, of counsel), for respondents in third above-entitled action.

VAN VOORHIS, Judge.

Each of these three appeals involves the right of taxpayers to reimbursement on account of taxes illegally levied under the New York City General Business and Financial Tax Law Administrative Code, § B46-1.0 et seq. This local law has been held to be unconstitutional when applied to interstate business (United Piece Dye Works v. Joseph, 282 App.Div. 60, 121 N.Y.S.2d 683, affirmed 307 N.Y. 780, 121 N.E.2d 617, certiorari denied United Piece Dye Works v. Gerosa, 1955, 348 U.S. 916, 75 S.Ct. 298, 99 L.Ed. 718). The city objects to refunding the money on the principal ground that these taxes were paid without protest. Voluntary payments cannot be recovered. Payment under protest is an indication that a tax is not paid voluntarily. Protest is not necessary to dispel the implication of voluntariness in event of duress, where present liberty of person or immediate possession of needful goods is threatened by nonpayment of the money exacted (Peyser v. Mayor of City of N. Y., 70 N.Y. 497; Adrico Realty Corp. v. City of New York, 250 N.Y. 29, 164 N.E. 732, 64 A.L.R. 1). Payment after a tax has become a lien 'is not voluntary, for the menace of the lien with penalties added for delay * * * has the effect of rendering it compulsory' (People ex rel. Wessell, Nickel & Gross v. Craig, 236 N.Y. 100, 104, 140 N.E. 209, 210, and cases cited). In the present instance, this tax had not become a lien, and neither liberty of the person nor immediate possession of needful goods was threatened when these payments were made. Plaintiffs were not under any recognized form of duress (Tripler v. Mayor of City of N. Y., 125 N.Y. 617, 626-627, 26 N.E. 721, 723), consequently lack of protest is not excused on that ground (Title Guarantee & Trust Co. v. City of New York, 265 App.Div. 304, 38 N.Y.S.2d 715, affirmed 290 N.Y. 910, 50 N.E.2d 301; Sloane Estate v. City of New York, 175 Misc. 674, 24 N.Y.S.2d 911, affirmed 262 App.Div. 722, 28 N.Y.S.2d 709, affirmed 287 N.Y. 818, 41 N.E.2d 95).

It remains to be considered whether protest may be excused upon the basis that these taxes were paid under mistake of law. It is not claimed that there was any mistake of fact. Recovery may be had without protest where the tax has been paid due to material mistake of fact (Adrico Realty Corp. v. City of New York, supra). The court was careful in deciding that case to limit the effect of the decision by stating: 'The principle is well established that a voluntary payment of a tax made under a mistake of law, but with a full knowledge of all the facts, cannot be recovered' (250 N.Y. at page 32, 164 N.E. at page 732, citing Matter of Trustees of Village of Delhi, 201 N.Y. 408, 94 N.E. 874).

The appellate Division held in the Mercury case, now on appeal, that the distinction between mistakes of law and mistakes of fact was abolished by the enactment in 1942 of section 112-f of the Civil Practice Act, which states: 'When relief against mistake is sought in an action or proceeding or by way of defense or counterclaim, relief shall not be denied merely because the mistake is one of law rather than one of fact.'

The Appellate Division held that this section now places mistakes of law on an equality with mistakes of fact, and commented: 'No exception is made for tax payments sought to be recovered for a mistake of law.' (1 A.D.2d 337, 149 N.Y.S.2d 906.)

Under this reasoning, the Appellate Division ordered these taxes to be refunded in the Mercury case, holding that Mercury was mistaken concerning the law, but denied refunds in the Berkshire Knitting Mills and United States Envelope cases upon the ground that their tax payments 'were made voluntarily and knowledgeably'.

We thus reach the decisive question. Voluntary payments cannot be recovered. These payments were voluntary (not being under duress) unless rendered involuntary as a consequence of having been made under mistake of law. The Appellate Division has held that a mistake of law causing payment of a tax is now equivalent to a mistake of fact, and that it renders tax payments involuntary even in the absence of protest. It further held that one of these plaintiffs was mistaken concerning the law applicable to its tax payments, but that the other two plaintiffs were not mistaken. Accordingly judgment has gone in favor of one plaintiff, and against the other two plaintiffs.

Regardless of whether some or all of these plaintiffs anticipated or failed to anticipate the decision in United Piece Dye Works v. Joseph, 282 App.Div. 60, 121 N.Y.S.2d 683, affirmed 307 N.Y. 780, 121 N.E.2d 617, certiorari denied United Piece Dye Works v. Gerosa, 348 U.S. 916, 75 S.Ct. 298, 99 L.Ed. 718, supra, we think that the Appellate Division erred in holding that section 112-f of the Civil Practice Act requires refunding of taxes on the ground of mistake of law in instances such as the present, where there has been neither protest nor duress. Under established traditional rules, which have been previously discussed, duress was not present in any of these cases. The practical reason for holding payments of illegal taxes without protest to be voluntary, in instances other than duress or mistake of fact, stems from problems of municipal finance. Where protest has been interposed, the municipality is notified that it may be obliged to refund the taxes and is required to be prepared to meet that contingency. If no protest has been lodged, it is generally assumed that taxes paid can be retained to meet authorized public expenditures, and financial provision is not made for contingent refunds. Such amounts may be considerable in case of highly productive taxes, paid without protest, that are eventually held to have been levied illegally. That is the basic reason for the long-standing rule that taxes paid without protest cannot be recovered merely for mistake of law (Adrico Realty Corp. v. City of New York, supra; 5 Williston on Contracts, § 1582; Field: The Recovery of Illegal and Unconstitutional Taxes, 45 Harv.L.Rev. 501, 516).

In this context, it is important to note that section 112-f of the Civil Practice Act, introducing relief against mistakes of law, is not drafted in such manner as to place mistakes of law in all respects upon a parity with mistakes of fact. It contains no reference to tax law. It removes technical objections in instances where recoveries can otherwise be justified by analogy with mistakes of fact. It says that 'When relief against mistake is sought in an action or proceding or by way of defense or counterclaim, relief shall not be denied merely because the mistake is one of law rather than one of fact.' A note printed upon the Senate and Assembly bills which were before the legislators when this section was enacted in 1942 quotes this phraseology, and adds: 'Its purpose is not to grant relief in every case of mistake of law or to make the same rules applicable as in the case of mistake of fact. It does afford to the court, however, the power to act in appropriate cases involving a mistake of law' (see annotation under Civ.Prac.Act, § 112-f (Gilbert-Bliss ed.)).

The statute goes no farther than to state that when relief against mistake is sought, it shall not be denied merely because the mistake is one of law rather than one of fact. The court is empowered to act only in appropriate cases involving a mistake of law. This language in no manner inhibits a decision against recovery of illegal taxes paid without protest, merely for the reason that the taxpayer was mistaken in his understanding of the law when he paid his tax. This statement does not apply, of course, where a statutory procedure has been provided for the recovery of taxes erroneously paid, containing different provisions.

It is significant that in the report of the Law Revision Commission on which section 112-f was adopted (1942 Report of N. Y. Law Rev. Comm., pp. 27-67, comprising N. Y. Legis. Doc., 1942, No. 65 (B)) it was recommended that New York adopt by statute the rule of Connecticut and Kentucky relative to mistakes of law (p. 54 et seq.). When one examines the decisions of the courts of last resort in Connecticut and Kentucky, it appears that notwithstanding the general policy of those States in giving effect to mistakes of law, an exception is made where a taxpayer sues to recover taxes erroneously paid for that reason. In those very States refund of taxes on this ground is denied (Morris v. City of New Haven, 78 Conn. 673, 63 A. 123; Verran Co. v. Town of Stamford, 108 Conn. 47, 142 A. 578; Pitt v. Town of Stamford, 117 Conn. 388, 167 A. 919; Louisville & Nashville R. Co. v. Hopkins County, 87 Ky. 605, 9 S.W. 497; Coleman v. Inland Gas Corp., 231 Ky. 637, ...