APPEAL by the defendant, The Jennie Clarkson Home for Children, and the claimants, Lillie McGovern and another, from an order of the Supreme Court, made at the New York Special
Term and entered in the office of the clerk of the county of New York on the 1st day of November, 1910, confirming the report of a referee and directing a distribution of surplus moneys realized on a foreclosure sale.
Edward E. Sprague, for the appellants McGovern and Dugan.
George H. Turner, for the appellant Jennie Clarkson Home.
David Gerber, for the respondents.
On the 22d of December, 1908, George Nicholas borrowed $30,000 from the Lincoln National Bank, and to secure the payment of it executed and delivered a deed to Charles E. Warren, who was then cashier of the bank, and who gave back a letter, stating that the deed was to be held in escrow for the protection of a certain number of notes of the grantor amounting to $30,000, and that on the settlement of said obligation in full, he, Warren, would redeed the property. The premises in question were sold on the foreclosure of a prior mortgage, and this is a contest over the surplus between Warren and the bank on the one hand, and subsequent judgment creditors on the other hand. The said instrument was recorded as a deed without recording the defeasance clause. The subsequent judgment creditors assert that the conveyance, though in form a deed, was in fact a mortgage, and that it is unenforcible because the mortgage tax has not been paid; that the bank, the real party in interest, cannot maintain a suit on it as it is a sealed instrument, and that Warren cannot maintain a suit on it, because as to him there was no consideration.
Certain propositions involved in this case are so plain that the bare statement of them suffices. The instrument in question was a mortgage. The recording of it as a deed without the defeasance clause gave the mortgagee no benefit of the recording act. It was valid, however, as against the subsequent judgment creditors unless rendered invalid by the failure to pay the mortgage tax. When the instrument was offered in evidence before the referee no objection was made; but, when it appeared what the actual transaction was, a motion was made to strike it out.
Section 253 of the Tax Law (Consol. Laws, chap. 60; Laws of 1909, chap. 62) provides: 'Recording tax.--A tax of fifty cents for each one hundred dollars and each remaining major fraction thereof of principal debt or obligation, which is or under any contingency may be secured at the date of the execution thereof or at any time thereafter by mortgage on real property situated within the State, recorded on or after the first day of July, nineteen hundred and six, is hereby imposed on each such mortgage, and shall be collected and paid as provided in this article.' Apart from its context that might be construed, as the respondents construe it, to mean that the tax was imposed not on the mortgage itself but on the right to record it, and that as between the parties an unrecorded mortgage might be enforced, although the tax had not been paid. But an examination of the entire article shows that that construction is not permissible. Section 252 provides: 'No mortgage of real property situated within this State shall be exempt * * * from the taxes imposed by this article by reason of anything contained in any other statute,' etc., indicating a purpose to subject every mortgage to the tax. Section 257 provides: 'The taxes imposed by this article shall be payable on the recording of each mortgage of real property subject to taxes thereunder.' That was a convenient way to provide for, and the one most likely to insure, the collection of the tax. Sections 251 and 254, with reference to exemption from local taxation and with reference to mortgages executed prior to the passage of the act, were doubtless intended to induce the holders of such mortgages to avail themselves of the provisions of the act, and by the payment of a single tax to secure exemption from local taxation. Section 258 provides: 'No mortgage of real property shall be recorded by any county clerk or register unless there shall be paid the tax imposed by and as in this article provided. No mortgage of real property which is subject to the taxes imposed by this article shall be released, discharged of record or received in evidence in any action or proceeding, nor shall any assignment of or agreement extending any such mortgage be recorded unless the taxes imposed thereon by this article shall have been paid as provided in
this article. No judgment or final order in any action or proceeding shall be made for the foreclosure or enforcement of any mortgage which is subject to the taxes imposed by this article or of any debt or obligation secured by or which secures any such mortgage, unless the taxes imposed by this article shall have been paid as provided in this article.' Section 265 (added by Laws of 1909, chap. 412) provides that the tax shall be a lien upon the mortgage upon which it is imposed and upon the debt or obligation secured thereby, and section 266 (added by Laws of 1909, chap. 412) provides for the enforcement of that lien. It thus plainly appears that the purpose of the act was to impose a tax upon all mortgages after a certain date and, in order to insure the collection thereof, to require payment upon the recording of the mortgage and to make the mortgage unenforcible unless the tax was paid. No mortgage can be received in evidence in any action or proceeding unless the taxes imposed thereon shall have been paid 'as provided in this article.' We think the language is too plain for construction and that when it appeared that the instrument received in evidence was in fact a mortgage, it was the duty of the referee upon the motion of the appellant to strike it out. We have recently considered the effect of the failure to pay the transfer tax on a sale of stock, in an opinion ( Bean v. Flint, 138 A.D. 846), wherein the distinction was pointed out between the statute imposing that tax and other stamp tax acts, which expressly provided that the instrument not stamped should be void only when the omission to affix the stamp was with intent to evade the provisions of the act and which also provided for subsequently affixing the stamps. (For example see Tobey v. Chippman, 13 Allen, 123.) We conclude, therefore, that no mortgage executed after the 1st day of July, 1906, can be received in evidence in any action or proceeding in this State unless the mortgage tax has been paid.
However, the statute does not make it the duty of the mortgagee to record the mortgage forthwith, or provide that his failure to do so and to pay the tax shall render the mortgage void. The tax is payable when the mortgage is recorded. Unless the tax is paid the mortgage cannot ...