United States Radiator Corp. v. State

Houghton, J. (dissenting):

I do not think the transaction had with the trust company amounted to a sale or an agreement to sell or transfer stock within the meaning of section 270 of the Tax Law.

It is conceded that if the 52,100 shares had been issued direct by the United States Radiator Company to the four corporations which it was organized to absorb, or their respective stockholders, in payment of the agreed purchase price no transfer tax would have been payable. Such a transaction would constitute an original issuance of stock which, under the holding in People v. Duffy-MeInnerney Co. (122 App. Div. 336; affd., 193 N. Y. 636), would not be taxable. Instead of issuing such stock directly to the vendors it was placed in the hands of the trust company for the period of five years, and then to be passed over to the vendors in such proportion as they were entitled. Each vendor received a certificate showing the number of shares held for him, with a statement that all dividends declared would be paid to him, and that at the termination of the period upon surrender of the certificate he should receive the stated number of shares of stock unless he had transferred his right thereto.

The trust company was not the owner and did not claim to be the owner of the stock. The original vendors owned the stock, which was temporarily in the custody of the trust company, and which at the end of the stipulated period they were entitled to personally receive. The certificate is a mere receipt executed by the trust company, stating that it holds so much stock belonging to the owner which it will turn over to him at a certain time. The issuing of the certificate was not a sale of the stock or an agreement to sell it, because the trust company did not own it and did not pretend to own or sell it, and the certificate was issued only to the owner himself. An agreement by a bailee to give back to a man his own stock is neither a sale nor a transfer of the stock. Except for convenience, and as evidence of the amount of stock which each vendor owned and was entitled to have turned over to him, there was no occasion for any certificate at all. If the owner and holder of the certificate should transfer it, then of course there would be a transfer of the stock, and the right to its delivery, and such transfer of the certificate would be taxable. That question, however, is not involved. Nor is the future question, which may arise, as to whether or not the stock will be taxable when finally passed over to the owners by the trust company at the end of the five-year period. The sole question here is whether the issuing of the certificate by the trust company, which amounted to a mere receipt showing the rights of the parties, was in any sense a sale or transfer of stock within the meaning of the Tax Law. I think it was not, and that the judgment should be reversed, with costs.

Judgment affirmed, without costs.