147 Misc. 374 | N.Y. Sup. Ct. | 1933
In normal times the questions proposed would occasion little difficulty and would evoke instant response. But in this hour of grave economic distress a new element obtrudes itself, bringing forth a situation embarrassing not so much in the legalistic as from the practical aspect. While no system of jurisprudence has viewed with greater abhorrence, abrogation, direct or indirect, of contractual responsibility, and has more strenuously resisted interference with the natural intendment of the contract than the code of Anglo-Saxon, still the unprecedented situation now confronting the world has caused the law to seek to ameliorate obligations ordinarily unhesitatingly enforced, but which under existing conditions undeniably result in uncontemplated disaster if not destruction. In no phase of human endeavor is this more emphasized than in realty investments. Throughout the land the tribunals of the American commonwealths are straining to the utmost to alleviate the force and effect of bond and mortgage. Regardless of whether the property be rural or urban the courts are seeking to circumscribe the effect of foreclosure. In recognition of the change which has made security insecurity, and prosperity, indigence, the result usually following a foreclosure suit is now regarded askance and sought to be avoided. Although no pronouncement has yet been made banning litigation of this character, yet recent declarations warrant considerable limitation of what heretofore was deemed the inalienable right of a mortgagee. Particularly has equity exercised a somewhat dictatorial supervision and in many instances imposed conditions heretofore unthought of. In Wisconsin, the Supreme Court announced what to many must appear revolutionary and is yet unassailable in logic and justice,
We, therefore, approach these suits for the foreclosure of the mortgage or deed of trust, and particularly the one for the removal of the Commonwealth Bond Corporation as committee and its substitution by a committee to be appointed by the court or selected by the bondholders in order that a fair plan of reorganization may be adopted with a considerably enlarged conception of the duty imposed upon the court to see that justice is done to all who are even remotely interested. A precis of the evidence indicates that in 1925 the Elida Corporation, in order to finance the construction of an apartment hotel on premises known as No. 56 East Fifty-fourth street, made a mortgage or deed of trust to the American Trust Company, plaintiff’s predecessor, as trustee. The latter issued participation certificates in said bond and mortgage which the Commonwealth Bond Corporation underwrote and for the sale of which it acted as issuing agent. Before the completion of the structure in 1925 the Elida Corporation leased the premises to Max Haering, who assigned his twenty-one-year lease to Elysee Company, Inc. As security and in accordance with the terms of the lease the Elysee delivered to the Elida a chattel mortgage upon the furniture and furnishings of the hotel. Evil days came to the Elysee, and in 1927 it was dispossessed and the chattel mortgage was foreclosed. At the resultant sale the Elida bought the furniture and furnishings. Within a fortnight after the sale the Elida negotiated a lease of the premises to the L. E. C. Corporation and sold to it the furniture and property obtained at the sale. For security a chattel mortgage was given the Elida by the L. E. C.
The universal disturbance in economics did not neglect this venture, and in 1931 the Commonwealth, aware of the handwriting on the wall, sent forth to the participation certificate holders a distress signal and asked the deposit of certificates with the Harriman National Bank and Trust Company, succeeded by the Underwriters Trust Company, thus acquiescing in the Commonwealth’s acting as a protective committee for them. True to this prophecy, some five months thereafter the plaintiff, as trustee, in pursuance of the powers vested in it by the trust mortgage, began its action to foreclose the mortgage. In the beginning the necessary parties consisted only of the Ellda, L. E. C. Corporation, the Commonwealth Bond Corporation, No. 70 East Seventy-seventh Street Co., Inc., and the State of New York. None of these seriously opposed the action, appearing only for the purpose of being informed of the progress of the proceedings. But before judgment could be perfected the situation grew complicated and necessitated not only amendment of the pleadings but also the bringing in of additional parties. The defendant May, not only suspicious but doubtful of the sincerity of the Commonwealth, as a certificate holder craved and was granted permission to be a party to the action. The Continental Bank and Trust Company, as holder of a chattel mortgage on the furnishings, made by the Commonwealth, which had become the owner thereof by virtue of a sale to it by the L. E. C., sought and was permitted to intervene, as having an interest which would be directly affected by any judgment obtained. For safety and in order to preclude any future assault on the title to be conveyed by the foreclosure, all the others were subsequently joined. Although independent in theory, yet ultimately closely allied in relief sought and because it also affected ownership, the Hartford action was consolidated with the foreclosure action in order that each and every individual, right or claim concerning the premises might be fully and adequately determined. The problem thus presented thus resolves itself into the following questions.
The paramount question is whether or not the furniture and furnishings claimed by the Commonwealth as owner and mortgaged to the Continental Bank and Trust Company, are covered by the trust mortgage now sought to be foreclosed. Of lesser importance, yet part of the issue, is the question of the successful operation of the hotel by the Commonwealth, for if profit was realized, the mortgagor may be entitled to the credit thereof. Another question, important only because of its effect upon the money aspect, is the value of the services rendered by the trustee and the allowances
It is useless to deny or seek to minimize the seriousness of the incriminations made by the plaintiff Hartford against the Commonwealth. No matter how tolerant the view, the charge of fraud, incompetence, misrepresentation and betrayal of trust stands out clear. If any charges are established, the commiittee must be removed and the certificate holders directed to elect a substitute. A basis for the dissatisfaction of the certificate holders may well be discovered in the original plan of reorganization proposed by the Commonwealth. The objections raised against it not only by non-depositing, but likewise by depositing holders and the promptness with which the plan was changed, lend color to the indictment of self-seeking. But as that plan is not before the court, consideration can be given only to the amended or substituted plan now presented for judicial favor and which alone can be examined to determine the justness and practicability of the proposal to lift the venture out of the slough of misadventure.
Determined to aid the certificate holders if possible, a critical survey has been made of the new plan. Even when viewed with eyes prejudiced against the introduction of high finance in real estate no substantial fault can be found. Their original rights remain unimpaired. All that was gained by the investment was an interest in the mortgage. Under the proposed scheme this right is in no wise infringed. The stock of the corporation to be formed is to be allocated to the certificate holders subject to a voting trust to secure rational management of the hotel and to safeguard against interference by a self-willed and unreasonable minority. Furthermore, no certificate holder is jeopardized in his, her or its position. No compulsion is suggested to force them to accept or reject. They may at their election abide by their present position. If they deposited their certificates and the plan does not appeal, they may withdraw. If they did not deposit, no interference with their right is sought. In consequence a non-depositor cannot be heard to complain, for, not being a party, he is not bound thereby or interested therein. (Thornton v. Wabash Ry. Co., 81 N. Y. 462.) If a depositor and dissatisfied, he can withdraw and thus become a non-depositor free to assert whatever right he originally
Despite the desire to stretch every principle of law to the utmost to protect and especially to preserve in these parlous and dark days of tribulation, the rights of the certificate holders for the reasons hereinbefore assigned, the complaint in Hartford v. Commonwealth Bond Corporation must be dismissed, but without costs. The pleas of Peter Grimm and Herbert U. Silleck, who were permitted to intervene at the trial, are similarly disposed of. We are now at liberty to discuss and determine the issues raised by the foreclosure action, for the issues raised by the Hartford case, while practically allied, are not pertinent to and cannot control the right of foreclosure. From an inspection of the pleadings it is instantly apparent that plaintiff cannot be denied the relief sought, for a default was suffered in the payment of interest and principal and taxes were not paid when due. According to the terms of the trust mortgage such contingency expressly empowered the trustee to foreclose. In exact fulfillment of its duty the Bank of Manhattan Trust Company initiated these proceedings, and were it not for the controversy concerning the furnishings and the demand of the defendant May for an interpretation of the provisions of the mortgage regarding the same, unquestionably would have judgment of foreclosure and sale long since. The construction of these provisions of the mortgage is the vital issue of this litigation and a careful consideration of them is necessitated. They provide that “ The
Submit findings and judgment accordingly.
— Wis.-; 246 N. W. 556.