In re New York Title & Mortg. Co.

Decision Date25 January 1938
Citation277 N.Y. 66,13 N.E.2d 41
CourtNew York Court of Appeals Court of Appeals
PartiesIn re NEW YORK TITLE & MORTGAGE CO.
OPINION TEXT STARTS HERE

Proceeding in the matter of the liquidation of the New York Title & Mortgage Company. A report of the Superintendent of Insurance as liquidator of the company was confirmed by the Additional Special Term, 160 Misc. 67, 289 N.Y.S. 771; 161 Misc. 564, 292 N.Y.S. 643; 161 Misc. 568, 292 N.Y.S. 685, and from an order of the Appellate Division, 251 App.Div. 415, 297 N.Y.S. 52, affirming an order of the Additional Special Term confirming the allowance of the claims of four holders of so-called mortgage guaranties, certain stockholders of the company, including William P. Clark and others, appeal on certified questions, by permission of the Appellate Division, and appeals were also taken as of right.

Appeals taken as of right dismissed, questions answered, orders reversed, and matter remitted.

The following questions were certified:

‘1. On the facts appearing in the Record, was claim I (the Ryder claim) properly allowed in the sum of $913.44?

‘2. On the facts appearing in the Record, was claim II (the Martin claim) properly allowed in the sum of $6,547.03?

‘3. On the facts appearing in the Record, was claim III (the Schwer claim) properly allowed in the sum of $1,875.96?

‘4. On the facts appearing in the Record, was claim IV (the Berlenbach claim) properly allowed in the sum of $6,448.42?’ Appeal from Supreme Court, Appellate Division, First Department.

Joseph M. Proskauer and William A. Barber, both of New York City, for appellants.

Harry Rodwin and Michael F. Dee, both of New York City, for respondents.

LOUGHRAN, Judge.

In this proceeding for the liquidation of New York Title & Mortgage Company under article 11 of the Insurance Law, Consol. Laws, c. 28, § 400 et seq., the Additional Special Term for the county of New York confirmed the allowance by the superintendent of insurance, as liquidator, of the claims of four holders of the company's so-called mortgage guaranties. The Appellate Division affirmed and permitted this appeal by certain stockholders of the company. The issue certified to us for review is whether, upon the record, any of the claims were properly allowed in the sum found by the superintendent to be the amount of the claimant's loss.

It is in order first to notice large elements of the case as to which there is no controversy. The stockholders concede that the undertakings of the company ‘were absolute obligations, as distinguished from contingent obligations, and were therefore provable under the statute.’ See Insurance Law, § 425, subd. 3; Matter of People, by Van Schaick, In re Bond & Mortgage Guarantee Co., 267 N.Y. 419, 196 N.E. 313. The respective rights and obligations of the several parties in interest are to be fixed as of July 15, 1935, the date of the entry of the order of liquidation. Insurance Law, § 404, subd. 2; Matter of Empire State Surety Co., 214 N.Y. 553, 108 N.E. 825. ‘The fundamental basis underlying the standard or method for the determination of claims on guaranties is [the words are the liquidator's] that the creditor-claimant shall receive such allowance as will measure his actual loss.’ This loss is to be determined in accordance with the following provision of the statute: ‘No claim of any secured claimant shall be allowed at a sum greater than the difference between the value of the security and the amount for which the claim is allowed, unless the claimant shall surrender his security to the superintendent in which event the claim shall be allowed in the full amount for which it is valued.’ Insurance Law, § 425, subd. 5. Each of the present claimants holds a mortgage or an interest in a mortgage. In no instance has the underlying real estate been acquired by any claimant through foreclosure or otherwise. From this statement of matters upon which the parties are in agreement we pass to the questions upon which our decision is sought.

1. What is the meaning of the word ‘security’ as used in subdivision 5 of section 425 of the statute? The superintendent and the claimants contend that the security for a claim is the claimant's mortgage-as a mortgage-and that the value of the mortgage qua mortgage should be deducted from or set off against the face amount of the claim. The stockholders stand upon the position that the mortgaged real estate (and not the mortgage as such) is the security of the claimant and that the value of the real estate should be so set off or deducted. This question of construction has been decided against the stockholders by the courts below. In our opinion that ruling was right and effectuates the aim of the statute.

We quote again the words to be interpreted, stressing this time the phrases which to our minds make clear the idea of the Legislature. ‘No claim of any secured claimant shall be allowed at a sum greater than the difference between the value of the security and the amount for which the claim is allowed, unless the claimant shall surrender his security to the superintendent in which even the claim shall be allowed in the full amount for which it is valued.’ These words plainly contemplate that ‘the security’ of which they speak is in any case to be an interest that can be surrendered by a claimant to the superintendent. Surrender thereof is in so many words made the prime condition of full allowance of a secured claim. A claimant, of course, can surrender only the thing that he has in his possession. So far, then, as the statute in itself is our guide, it must follow that the value to be credited on a claim is the value of the mortgage (or share therein) or is the value of the realty if acquired, accordingly as the one asset or the other is in the possession of the claimant or claimants. Inasmuch as no interest in land is held by any of these claimants there is now no occasion to consider under what circumstances or within what limits realty reduced to a claimant's possession may be surrendered to the superintendent.

2. Next in appropriate sequence is our commentary on arguments addressed to us by the stockholders as reasons why we should not thus take the foregoing provision of the statute as we find it.

They say that there is not, and that there never has been, a mortgage market in this community; that the liquidator cannot value a mortgage qua mortgage without inventing such a market; and that the Legislature could never have intended to set up so fictitious a process for the determination of secured claims against the assets of the company. We suppose it is true that there never has been any market place for mortgages in the sense of a counter over which they could be exchanged for cash or its equivalent at prices publicly quoted currently. But everybody knows (and this record demonstrates the fact) that heretofore in times of good business there was a truly enormous trade in mortgages. Purchasers in that market had to determine whether to buy or not to buy the security and so must have had resort to some general tests of value. Indeed fractional shares in mortgages were in fact bought and sold for a price even in situations where (as in the case of a group series of mortgages) there could have been no definite identification of land that might ultimately be involved in the transaction. See Matter of Stupack, 274 N.Y. 198, 8 N.E.2d 485, 110 A.L.R. 1158.

It is general knowledge, too, that a landowner as often as not will protect his equity by keeping a mortgage good, even when he believes that the land on forced sale would produce less than the face amount of the lien. Again, the financial responsibility of the obligor on the mortgage bond affects the question of the value of the security.

In short, it will not do to say that the mere value of the underlying land (though a factor of major weight) is the sole index of the worth of a mortgage.

Nor is the contrary proved for the purpose of this case by the fact that sale of a mortgage on July 15, 1935, would have been so much a sacrifice that any sales price now deemed to have been then obtainable must be so theoretical as to be irrelevant to the issue of value. We have held that it is not necessarily impossible to determine the value of mortgaged premises as of the date of a foreclosure sale held when there was no market for real estate such as exists under ordinary conditions. Heiman v. Bishop, 272 N.Y. 83, 4 N.E.2d 944. It must be no less a possibility that the value of a mortgage as such can be ascertained as of a time when the ordinary trade in mortgages had stopped.

Arguendo, the stockholders also say that, even if the mortgage is to be valued as a mortgage, nevertheless the valuation as matter of law is determined by deducting from the value of the realty the cost of foreclosing it. For the reasons already stated, we think the ascertainment of the mortgage value is not to be confined to that or any other set form. The process is a factual affair-a matter of the exercise of reasonable judgment after an...

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