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Promissory Notes And Florida’s Documentary Stamp Tax: The Failure To Pay Can Delay Enforcement

Published June 26th, 2018 by Kai Jacobs

Promissory notes are a long-standing and accepted way of acknowledging and memorializing a loan obligation.  Banks and private parties use them regularly and the law that has grown up around them is well-developed.

Oddly, though, a common stumbling block to the enforcement of promissory notes has been the failure to pay the documentary stamp taxes levied on all negotiable instruments.  Florida has long had in place an excise tax scheme that regulates the obligation for the payment of taxes on all promissory notes.  Section 201.08(1)(a), Florida Statutes, provides:

On promissory notes, nonnegotiable notes, written obligations to pay money, or assignments of salaries, wages, or other compensation made, executed, delivered, sold, transferred, or assigned in the state, and for each renewal of the same, the tax shall be 35 cents on each $100 or fraction thereof of the indebtedness or obligation evidenced thereby. The tax on any document described in this paragraph may not exceed $2,450.

This statute, in one form or another, has been on the books since 1931.Parties to a loan transaction, however, often fail or elect not to pay the excise taxes levied against promissory notes.  

The implications of this failure or election are most notably brought home when the lender seeks to enforce the note obligation and sues to recover the unpaid balance.  In some parts of Florida, the law is that “[i]n an action to enforce a promissory note, when the trial court discovers that the documentary taxes have not been paid, the trial court must either dismiss the action without prejudice, or, upon motion, may abate the action to enable the party to purchase and affix the documentary stamps.”  Solis v. Lacayo, 86 So. 3d 1147, 1149 n. 1 (Fla. 3d DCA 2012) (citing Somma v. Metra Elecs. Corp., 727 So. 2d 302 (Fla. 5th DCA 1999)).  The consequences are relatively clear- delay and increased expense.  A delayed or, worse, dismissed lawsuit runs the risk that a limitations period for enforcement may lapse, attorneys’ fees may be duplicated, there may be administrative fees payable to the clerk, and more time will go by without a resolution or judgment.

Not all courts, however, unequivocally mandate that an action to enforce has to be halted or dismissed.  In the Second District of Florida, it has been determined that “[n]othing in Florida law would deny enforceability of promissory notes merely because documentary stamps have been belatedly affixed.”  Owens v. Blitch, 443 So. 2d 140, 141 (Fla. 2d DCA 1983).  Here, the appellate court reversed the lower court’s refusal to allow the promissory note into evidence because the documentary stamps were not affixed at the time the lawsuit was filed but, instead, in the course of litigation.  

In Silber v. Cn’R Industries of Jacksonville, Inc., the failure to pay the tax prior to the initiation of litigation proved troublesome and problematic for all involved.  As best summarized by the court in Somma v. Metra Electronics Corp.:

At trial, after the close of the plaintiff’s case, the trial court allowed the plaintiff to reopen its case, remove the note from evidence, and affix the requisite documentary tax stamps in order “to correct [the] legal impediment to enforcement of the note.”  On appeal, the defendants argued that the trial court erred in so ruling and should have instead granted their motion to dismiss the action without prejudice to refiling after payment of the tax due.  The first district found the trial court’s ruling “troublesome” primarily because the court had permitted the plaintiff “to reopen its case, change the evidence to alter existing facts, and then adduce proof of the new facts as altered by using the evidence of such changes.”  By so ruling, the trial court not only allowed the plaintiff to prevail on the substantive claim but also subjected the defendant to the payment of prevailing party attorney’s fees.  Such fees would not have been incurred had the court dismissed the action.  In reviewing the matter, the first district refused to dismiss the action since all of the issues “were fully and fairly tried free of error.”  However, the court vacated the prevailing party attorney’s fee award and remanded the matter to the trial court with instructions to either allow the plaintiff the option of waiving the fees incurred prior to the purchase of the stamps, or having the case dismissed without prejudice.

Id., 727 So. 2d at 304 (internal citations omitted) (emphasis original).

            In the day to day world of the trial courts, judges use their discretion to, among other things, best manage their caseload in accordance with both justice and the resources available to them.  So, while a case brought in those districts where the appellate courts have determined that there is no unequivocal bar to enforceability stemming from a lender’s failure to pay the documentary stamp tax, it could be costly to run the risk that a trial judge may not follow that disputed point or see the distinguishable circumstance at hand.

            One of the best ways to eliminate the entirely avoidable and known basis for the delay of a promissory note enforcement action, then, is to pay the documentary stamp tax up front.  Even if not done at the time of the note’s making, parties are entirely within their rights to pay at any time but doing so before litigation shores up the action for a more streamlined trip through the courts and can preserve any entitlement to the recovery of attorneys’ fees incurred in seeking the note’s enforcement.


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