59 Misc. 2d 704 | N.Y. Sup. Ct. | 1969
In this action to foreclose a mortgage, a judgment of foreclosure and sale has been presented to me for signature. Annexed to the judgment is the report of the Beferee to ascertain and compute the amount due to the plaintiff for principal and interest. In computing interest, the Beferee has allowed the plaintiff interest at a rate of 7.25% from the date of default, November 1, 1968, to February 17, 1969, and at a rate of 7:5% from February 17, 1969 to the date of the report. Since the interest specified in the mortgage was at a rate of 6%, the allowance of interest at the stated higher rates is obviously predicated upon the Beferee’s conclusion that the legal rate of interest for the periods in question was 7.25% and 7.5% respectively. The issue, then, is whether the Beferee’s conclusion concerning the legal rate of interest is correct. For reasons to be stated below, I hold that it is.
It is well established that where an instrument requires the payment of a principal sum at a future date with interest at a specific rate and the obligor defaults, the interest payable after the default is then payable as damages, no longer as
CPLR 5004 provides: ‘ ‘ Interest shall be at the legal rate, except where otherwise prescribed by statute.” The definition of what is the ‘ ‘ legal rate of interest ’ ’ has always been supplied, by judicial construction, from what may be called the “usury statute ”, General Obligations Law (§ 5-501) and its predecessor statutes. (Taylor v. Wing, 84 N. Y. 471; Collier v. Granger, 258 F. Supp. 717, 719; see 5 Weinstein-Korn-Miller, par. 5004.01 and the cases cited therein.) Thus, until the amendment of section 5-501 of the General Obligations Law by chapter 349 of the Laws of 1968, there was no question but that the legal rate of interest was 6%, as provided in that statute.
By virtue of the amendment, however, .subdivision 1 of section 5-501 of the General Obligations Law now provides that: “ The rate of interest as computed pursuant to this title upon the loan or forbearance of any money, goods, or things in action, except as otherwise provided by law, shall be the rate prescribed by the banking board pursuant to section fourteen-a of' the banking law, or if no rate has been so prescribed, six per centum per annum.”
Section 14-a of the Banking Law, added by chapter 349 of the Laws of 1968, .states that it is the policy of the State of New York that the rate of interest provided in section 5-501 of the General Obligations Law shall be adjusted by the Banking Board in response to changed economic conditions, so as to insure the availability of credit at reasonable rates, while affording a competitive return to creditors. It then states that in order to effectuate this policy, the Banking Board shall have power ‘ ‘ from time to time, but not more often than quarterly, to prescribe by regulation a rate of interest not less than five
Thereafter, the Banking Board, pursuant to section 14-a, adopted General Regulation 37, which provides in pertinent part that: ‘ ‘ For the purpose of sections 5-501 and 5-524 of the General Obligations Law and sections 108(1), 173(1), 202(1), 235-b, 293-a(1), 380-e, 454(12) (a) (6), 510-a(l) and 577(1) of the Banking Law and except as otherwise provided by law, the maximum rate of interest to be charged, taken or received, upon a loan or forbearance of any money, goods, or things in action, made on or after July 1, 1968 and before the earlier of (a) the effective date of an amendment to this regulation fixing a new maximum rate of interest or (b) September 2, 1971, shall be 7.25% per annum.” (3 NYCRR 34.1.)
Thus, the Banking Board having prescribed a rate of interest pursuant to section 14-a of the Banking Law, the new rate of interest fixed by section 5-501 of the General Obligations Law, effective July 1, 1968, was 7.25%. In February, 1969 the Board adopted a regulation (General Regulations of Banking Board, 3 NYCRR 4.1) raising the maximum rate of interest to 7.5% effective February 16, 1969, and so, the rate fixed by section 5-501 changed accordingly. On January 16, 1969, there appeared on the first page of the New York Law Journal, under the heading ‘ ‘ State Law Ruling ’ ’ an opinion by the Attorney-General of the State of New York. The burden of that opinion was that the changes in the General Obligations Law, the amendment of the Banking Law, and the regulation of the Banking Board, did not change the interest rate on money judgments. The Attorney-General concluded that ‘ ‘ presently the legal rate of interest upon a money judgment is 6 per centum per annum, except where otherwise prescribed by statute.” (N. Y. L. J., Jan. 16, 1969, pp. 1 and 4.) By what apparently was sheer coincidence, there appeared in the New York Law Journal of January 16, 1969 a decision dealing with the same issue, by Mr. Justice Ritchie of the Supreme Court, Suffolk County (Dime Sav. Bank of Brooklyn v. Carlozzo,
Thus, the only reported decision on this issue is at odds with the stated opinion of the Attorney-General of this State. The only other statement of a point of view on this issue which the court has been able to find is in a two-part article entitled “ New York’s New Legal Rate of Interest; Law of Damages ” (N. Y. L. J., March 13 and March 14, 1969, p. 4 of each issue). The author, George H. Sintenis, Esq., a vice-president of the winning plaintiff bank in Dime Sav. Bank v. Carlozzo (supra), takes the position that the decision of Mr. Justice Ritchie is correct, and the opinion of the Attorney-General in error. Despite the fact that the author must be counted as a partisan on this issue, the articles in question are scholarly and comprehensive in their coverage of the law and helpful to anyone interested in this .subject. Finally, the court has had the benefit of the Attorney-General’s response to the Sintenis articles, contained in a letter to the Editor of the New York Law Journal on March 24,1969.
The bases for the opinion of the Attorney-General may be summarized as follows:
(1) None of the statutes specifically referred to in section 13 of chapter 349 of the Laws of 1968, or in General Regulation No. 37, relates to fixing the rate of interest on judgments. Moreover, the Legislature did not see fit to amend the sections of the OPLR relating to judgments.
(2) The statement of policy contained in section 14-a does not relate to judgments, merely to insuring availability of credit while affording creditors a proper return on their money.
(3) The decision in Mandelino v. Fribourg (23 N Y 2d 145), in which the Court of Appeals held that the prescription of interest rates upon any loan or forbearance of any money, goods or things in action in sections 370 and 371 of the General Business Law (the predecesssor usury statute to General Obligations Law, § 5-501) did not apply to interest stated in a purchase-money mortgage. The Attorney-General interprets the same statutory language as not being applicable to interest on money judgments.
I conclude that the rates of interest prescribed by the Banking Board pursuant to section 14-a of the Banking Law do constitute the ‘ ‘ legal rate of interest ’ ’ as used in OPLR 5004 and, therefore, that the legal rate of interest on money judg
Nor is there anything in this holding which is inconsistent with the expressed intent of the Legislature. The fact that prior to these statutory changes, the legal rate of interest was on parity with the maximum rate of interest on a loan or forbearance would seem to indicate that it was always the policy of the law to afford the same competitive rate of return to judgment creditors as to other creditors. “ The award of interest [on a judgment] is founded .solely on the theory that there has been a deprivation of the use of money or its equivalent, and that unless interest be added, the party aggrieved is not made whole. Interest is compensation for the use of money.” (Lesjac Realty Corp. v. Mulhauser, 43 Misc 2d 439, 440.) It hardly requires extensive discussion to establish that the cost of money has risen substantially in recent years and
Finally, the court believes that the decision in Mandelino v. Fribourg (23 N Y 2d 145, supra) is inapposite to the matter at issue here. In that case, it was held that a purchase-money mortgage is not a ‘‘ loan ’ ’ within the terms of the usury statute and, therefore, is not void for usury because it states a rate of interest higher than the maximum rate permitted by that statute. As was previously pointed out, the applicability of section 5-501 of the General Obligations Law to interest on money judgments has long been established. Nothing in Mandelino v. Fribourg (supra) either changes or weakens this principle.
For the foregoing reasons, the court approves the Referee’s computation of interest at 7.25% and 7.5% for the periods stated in his report and the judgment of foreclosure and sale is signed.