
    William C. Van Antwerp and Others, Composing the Firm of Van Antwerp, Bishop & Company, Appellants, Respondents, v. The State of New York, Respondent, Appellant.
    Third Department,
    November 10, 1915.
    Tax — Refunding Act construed — illegal tax on transfers of stock — action by broker.
    Under the Refunding Act (Chap. 186 of the Laws of 1910) providing for the recovery of stamp taxes paid on sales of stock under an unconstitutional statute, an action for a refund may be maintained by a broker although he affixed the stamps for the benefit of a customer. The remedy is not for the benefit of the customer alone.
    Howard, J., dissented.
    ' Cross-appeals by the claimants, William C. Van Antwerp and others, and by The State of New York, from a judgment, order or determination of the Board of Claims in favor of the claimants, entered in the office of the clerk of said Board on the 17th day of May, 1915.
    The claimants appeal from said judgment as insufficient.
    
      Goldman, Heide &, Unger [Alton B. Parker, Samuel P. Goldman and William F. Unger of counsel], for the claimants.
    
      Egburt E. Woodbury, Attorney-General [Wilber W. Chambers, Joseph P. Coughlin and Carey D. Davie, Deputy Attorneys-General, of counsel], for the State of New York.
   Smith, P. J.:

The Tax Law as it existed in 1905 provided for a tax of two cents on each $100 of face value, or fraction thereof, of sales of shares of stock. In 1906 the law was amended so as to levy the tax upon each share of $100 of face value, or fraction thereof. (See Gen. Laws, chap. 24 [Laws of 1896, chap. 908], § 315, added by Laws of 1905, chap. 241, as amd. by Laws of 1906, chap. 414.) This amendment was held unconstitutional in People ex rel. Farrington v. Mensching (187 N. Y. 8). Thereafter the brokers .who had affixed the tax which had been illegally demanded made claim for a refund of the same. This claim was denied by the Court of Claims, upon the ground that the court had no jurisdiction. To remedy this defect a special Refunding Act was passed, to wit, chapter 186 of the Laws of 1910 (adding to Tax Law [Consol. Laws, chap. 60; Laws of 1909, chap. 62], § 280), and under this special Refunding Act the claimants now before the court have brought this case.

The plaintiffs’ claim may be divided into three classes: First, the excess stamps used on sales by the firm for the firm, or for a member or members of the firm. This claim was allowed by the Court of Claims, and of such allowance the State makes no complaint. The second class included stamps used on sales by the firm for customers who were indebted to the firm. These claims were allowed by the Board of Claims, and of such allowance the State complains by its appeal here taken. The third class includes stamps used on sales by the firm for customers who were not indebted to the firm,- that is, where the stamp had been charged to the customer and accounts rendered upon which the charge was made, and such charge assented to by the customer. This class of claims was not allowed, and for the failure to make such allowance the claimants have appealed.

The State does not question the amounts in these various classes, nor does it question its liability to refund the same. It challenges, however, the rights of these brokers to collect the same under the terms of the Refunding Act. That act provides that the Comptroller may make the refund upon proof that the stamps were “erroneously affixed so as to cause loss to the person or persons making such claim.” The contention of the State is that the loss is a loss to the customer and not to the broker, and that the customer alone can make claim under the Refunding Act.

In People ex rel. American Exchange National Bank v. Purdy (196 N. Y. 270) the bank sought to recover for its stockholders taxes illegally collected upon their stock. Twenty-three stockholders of the hank had instituted similar proceedings in their own behalf, which proceedings were pending. The bank brought the proceedings under section 250 of the Tax Law of 1896 (section 290 of the present Tax Law), which provided that the claim should he made by the person " aggrieved ” and “injured.” The Court of Appeals held that the proceeding was properly brought by the bank, on the ground that the bank was aggrieved and injured by the assessment. Judge Vann, in considering the question whether the bank had a right to institute a proceeding in its own name, or whether the stockholders should have brought separate actions in their own name, says:

“ Several preliminary questions should be considered before the main controversy is passed upon.
“1. Had the relator the right to institute this proceeding in its own name, or should it have been commenced by some shareholder claiming to be aggrieved ?
“We do not regard this question as open. (Matter of First National Bank of Ossining, 182 N. Y. 460, 462.) In the case cited the proceeding was commenced by the bank alone, no shareholder having joined therein, and it was contended, both at Special Term and in this court, that the relator was not injured by the assessments because they were not made against it or its property but against the shareholders upon their shares of stock. Judge Gray, speaking for all the judges, answered this contention as follows: ‘That the bank was aggrieved within the meaning of section 250 of the Tax Law, and, therefore, was entitled to sue out the writ of certiorari, is, in my opinion, beyond question. The Tax Law makes the bank the agent for the collection of the tax and subjects it to a penalty for failure to pay over the same to the county treasurer, or, in the city of New York, to the receiver of taxes. ’ ”

Judge Vann further quoted from Judge Gray as follows: “The representative capacity of a bank to maintain a suit in behalf of its stockholders, in relation to the assessment and taxation of its shares of stock, was sufficiently declared in the recent case of Mercantile National Bank v. Mayor, etc., of New York (172 N. Y. 35, 45), and it can, undoubtedly, institute such a proceeding as this. Such was the procedure as far back as the case of People ex rel. Gallatin National Bank v. Commissioners of Taxes (67 N. Y. 516).”

That case was followed and approved in People ex rel. American Exchange National Bank v. Purdy (199 N. Y. 51) and also in Second National Bank v. City of New York (213 id. 457, 462).

In Mercantile National Bank v. Mayor, etc. (172 N. Y. 35), the bank brought an action in equity to restrain the city of New York from collecting a portion of the taxes imposed upon the bank’s stockholders. The court held that the action was properly brought by the bank. Judge Gray wrote (at p. 44): “That power [equitable power of the court] remains, as it always must remain, inherent in the court, to be exercised in proper cases. That the plaintiff would have the right to invoke its exercise in behalf of its stockholders, I consider to be settled, upon reason, as upon authority. The provisions of the Tax Law, with respect to the collection of taxes assessed against stockholders of banks, in their requirement of the bank to retain, and to pay, from any dividend the tax upon the stock, and the responsible relations thereby created, seem to warrant the maintenance óf a suit by the banking corporation in its representative capacity. But its right to do so has been distinctly held by the Supreme Court of the United States, in Hills v. Exchange Bank (105 U. S. 319) and in Cummings v. National Bank (101 ib. 153). In the latter case it was held, in language appropriate to the present plaintiff, that ' in paying the money it is acting in a fiduciary capacity as the agent of the stockholders, an agency created by the statute of the State. If it pays an unlawful tax assessed against its stockholders, they may resist the right of the bank to collect it from them. The bank, as a corporation, is not liable for the tax and occupies the position of a stakeholder, on whom the cost and trouble of the litigation should not fall. If it pays, it may be subjected to a separate suit by each shareholder. If it refuses, it must either withhold dividends and subject itself to litigation by doing so, or refuse to obey the laws and subject itself to suit by the State.’ ”

In Bank v. Memphis (116 Term. 641), where a similar situation existed, the court used the very significant words (p. 647), “the tax was the debt of the stockholders, * * * and not of the bank itself,” but nevertheless held that the bank could sue and that “ its recovery would be for the benefit of its stockholders. ”

The position of the bank is similar to that of the claimants here ih that:

(1) Both were obliged to pay the tax to the State.

(2) Both would have been penalized if they had not paid the tax.

(3) Both were liable to their respective shareholders and customers for making an erroneous payment, and

(4) Both had to run the chance of either paying the tax to the State and being sued by their respective shareholders and customers, or of failing to pay the tax and of incurring the penalties therefor.

These cases, in my judgment, are decisive of the question here raised. It could not result in double recovery, because a recovery by the broker would be for the benefit of its customer. (Dix v. Jaquay, 94 App. Div. 554; Rogers v. Atlantic, Gulf & Pacific Co., 213 N. Y. 258; First Commercial Bank v. Valentine, 209 id. 145, 150; Matthews v. Smith’s Express Co., 1 Misc. Rep. 238.)

I recommend that the judgment of the Court of Claims, so far as appealed from by claimants, be reversed on law and facts, with costs, and judgment directed for the claimants for the full amount claimed, with costs, with appropriate disapproval of the findings of fact made by the Board of Claims, and appropriate findings to sustain such judgment, which may be settled upon notice if not agreed upon. The judgment so far as appealed from by the State, should be affirmed.

All concurred, except Howard, J., dissenting.

Determination and judgment, so far as appealed from by claimant, reversed on law and facts, with costs, and judgment directed for the claimants for the full amount of the claim, with costs, with appropriate disapproval of the findings of fact made by the Board of Claims, and appropriate findings to sustain such judgment, which may be settled upon notice if not agreed upon. Determination and judgment so far as appealed from by the State affirmed, Judgment to be settled by Lyon, J.  