Andy Associates, Inc. v. Bankers Trust Co.
| Decision Date | 13 December 1979 |
| Citation | 424 N.Y.S.2d 139,399 N.E.2d 1160,49 N.Y.2d 13 |
| Parties | , 399 N.E.2d 1160 ANDY ASSOCIATES, INC., Respondent, v. BANKERS TRUST COMPANY, Appellant, et al., Defendants. |
| Court | New York Court of Appeals Court of Appeals |
Plaintiff Andy Associates, Inc., commenced this action to foreclose a second mortgage on premises located at 240 West 103rd Street, New York, New York. Defendant Bankers Trust Co., holder of a junior mortgage interest in the same premises, challenged Andy Associates' claim of priority on the ground that Andy Associates' predecessor in interest had failed to record its lien in the office of the county clerk as required by section 291 of the Real Property Law. Under that provision, an unrecorded conveyance 1 of an interest in real property is deemed void as against a subsequent good faith purchaser for value who acquires his interest without actual or constructive notice of the prior conveyance. The sole question presented on this appeal is whether Bankers Trust qualifies as a "good faith" purchaser without notice, so that it is entitled to the protections afforded by section 291. Having examined the recorded state of title as it existed at the time Bankers Trust acquired its mortgage, we conclude that Bankers Trust is chargeable with having had constructive notice of Andy Associates' prior claim. Accordingly, we hold that Bankers Trust may not invoke section 291 of the Real Property Law to defeat Andy Associates' right of priority, notwithstanding that such right was derived from an earlier unrecorded conveyance.
To place the case in proper perspective, it is required that the entire seemingly involved background be described as succinctly as possible to facilitate an understanding of the rights of the parties to this action.
The events which gave rise to the present controversy may be traced to July 2, 1951, when the owner of the property located at 240 West 103rd Street, Marseilles Associates, leased the premises to Marseilles Management, a separate corporation, for a term of 21 years. Simultaneous with the execution of the lease, the tenant paid the landlord, Marseilles Associates, a lump sum of $62,500, which represented a security deposit to insure the tenant's faithful performance of its obligations under the lease. In return, and in order to insure the eventual repayment of this sum, Marseilles Associates gave its tenant, Marseilles Management, a promissory note and a mortgage on the leased premises. This mortgage contained a separate, specific clause which prohibited the tenant from assigning its rights under it, except where the assignment was made in connection with a simultaneous assignment of the lease or, in the alternative, where the assignment was made to the owner of the premises "as security for the faithful performance by the tenant of the terms, covenants and conditions" set forth in the lease. Presumably, the purpose of the latter assignability provision was to enable the landlord to take back an assignment of its own mortgage as a means of protecting its right to retain the tenant's security deposit in the event of the tenant's failure to meet the obligations imposed by the lease.
Pursuant to this clause, Marseilles Management, the tenant, completed the leasing arrangements by executing an assignment, outright on its face, of the mortgage to Marseilles Associates, the landlord and mortgagor. Thus, when the transaction was finally closed, the landlord held both the tenant's $62,500 cash payment And the mortgage on the leased premises for the limited purpose of securing the tenant's faithful performance of the terms of the lease. If the tenant fulfilled its obligations, it would immediately become entitled to the return of its security deposit and would, as well, become entitled to exercise its rights as mortgagee, including its right of foreclosure. Only if the tenant defaulted on some aspect of the lease would the landlord gain the unconditional right to retain the $62,500 security deposit and to consider its obligations under the mortgage canceled. All of the documents which comprised the 1951 transaction between Marseilles Associates and Marseilles Management, including the lease, the mortgage and the assignment of the mortgage, were subsequently recorded in the office of the county clerk as required by section 291 of the Real Property Law.
The next transaction in the sequence of developments leading to the present litigation occurred in 1954, when the tenant, Marseilles Management, assigned its lease along with its conditional rights under the 1951 mortgage to an organization called Marseilles Hotel Corp. Under this assignment, Marseilles Hotel stepped into the shoes of the former tenant and thus became entitled to the return of the $62,500 security deposit as well as to the rights conferred by the mortgage upon full compliance with the terms of the lease. Andy Associates, the plaintiff in this case, ultimately succeeded to the tenant's rights in the mortgage as a result of a further assignment to it by Marseilles Hotel. Unfortunately, although Marseilles Hotel did record its acquisition of the leasehold interest in the premises, it never recorded its acquisition of Marseilles Management's interest in the 1951 mortgage in the office of the county clerk. Thus, despite the fact that Andy Associates eventually recorded the assignment made to it by Marseilles Hotel, there remained a "gap" in the recorded "chain of title" leading to Andy Associates' interest in the mortgage.
Several years after Andy Associates acquired its interest in the 1951 mortgage, changes began to occur in the ownership of the property at 240 West 103rd Street. First, in 1968, Marseilles Associates, the original owner and landlord, transferred the property to another corporation, Broadway-Marseilles Corp. In conjunction with this transfer, Marseilles Associates assigned to Broadway-Marseilles its right to hold the 1951 mortgage as collateral security for the tenant's faithful performance of the terms of the outstanding lease. In form, this assignment was outright. Broadway-Marseilles' interests were in turn transferred to a third party, Bonjay East, Inc., in 1972 and 1973 respectively. Finally, in March of 1973, for reasons which remain unclear, Bonjay East recorded an instrument which purported to represent a "satisfaction" of the 1951 mortgage.
Approximately 10 months later, defendant Bankers Trust became embroiled in this complex chain of transactions when it made a loan to Bonjay East in exchange for Bonjay East's execution of a new mortgage on the premises at 240 West 103rd Street. It appears that Bankers Trust entered into this transaction on the strength of the recorded satisfaction and on the unwarranted assumption that the property was no longer encumbered by the 1951 mortgage.
The various interests that were created by the foregoing series of events clashed for the first time in 1976, when Andy Associates commenced this action to foreclose on the property pursuant to the 1951 mortgage. By that time, the 21-year leasehold interest that had been established in 1951 had run its course, and the tenant or its successor in interest had become entitled to the return of that part of the original $62,500 security deposit that had not yet been repaid. Moreover, with the termination of the tenancy, the landlord's right to hold the 1951 mortgage as collateral security was extinguished, and all of the rights conferred by the mortgage presumably had reverted to Andy Associates, the tenant's assignee. 2 Hence, by 1976 Andy Associates had a right to foreclose against the property as a means of recovering the outstanding portion of the security deposit.
Nonetheless, Bankers Trust opposes the attempted foreclosure, contending that its later mortgage should not be held subordinate to Andy Associates' rights. It is Bankers Trust's position that, under section 291 of the Real Property Law, Andy Associates' interest should be deemed void as against Bankers Trust, because Andy Associates' interest was derived from an unrecorded instrument, the assignment made by Marseilles Management to Marseilles Hotel. Both the trial court and the Appellate Division rejected Bankers Trust's contention, however, finding that the records filed in the county clerk's office at the time Bankers Trust acquired its mortgage contained sufficient evidence of Andy Associates' prior claim to put Bankers Trust on "constructive notice" that the property had been and continued to be encumbered. Thus, the lower courts held, Bankers Trust could not defeat Andy Associates' right of priority, despite the fact that Andy Associates' predecessor in interest had failed to record.
In upholding the determinations made below, we proceed from the premise that the recording act, which is embodied in article 9 of the Real Property Law, was enacted to accomplish a twofold purpose. First, it was intended to protect the rights of innocent purchasers who acquire an interest in property without knowledge of prior encumbrances (see Jackson v. Post, 15 Wend. 588; Hall v. Nelson, 23 Barb. 88; Fox v. Sizeland, 170 Misc. 390, 9 N.Y.S.2d 350; see, generally, Powell & Rohan, Powell, Real Property, par. 912; 4A Warren's Weed New York Real Property, Recording, § 1.02). Second, the statute was designed to establish a public record which would furnish potential purchasers with notice, or at least "constructive notice", of previous conveyances and encumbrances that might affect their interests (see Jackson v. Post, 15 Wend. 588, Supra ). Given these statutory purposes, it follows that a purchaser of an interest in land such as Bankers Trust has no cause for complaint under the statute when its interest is upset as a result of a prior claim against the land the existence of which was...
To continue reading
Request your trial
-
In re Euro-Swiss Intern. Corp.
...consist of constructive notice of what may be revealed by: (i) an examination of the record, e.g., Andy Associates v. Bankers Trust Co., 49 N.Y.2d 13, 424 N.Y.S.2d 139, 399 N.E.2d 1160 (1979), (ii) reasonable inquiry of those in actual possession, see Wardell v. Older, 70 A.D.2d 1008, 418 N......
-
US v. McCombs-Ellison, 87-CV-1475L.
...purported assignee actually possessed the authority" to assign his interest in the property. Andy Association v. Bankers Trust, 49 N.Y.2d 13, 22, 424 N.Y.S.2d 139, 144, 399 N.E.2d 1160, 1165 (1979). The general rule in New York, therefore, is that "a purchaser is not normally required to se......
-
Stern v. Am. Home Mortg. Servicing, Inc. (In re Asher), Bankruptcy No. 8–11–78837–reg.
...e.g., MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 828 N.Y.S.2d 266, 861 N.E.2d 81, 82 (2006); Andy Assocs., Inc. v. Bankers Trust Co., 49 N.Y.2d 13, 424 N.Y.S.2d 139, 399 N.E.2d 1160, 1166 (1979), and to require that a purchaser prove an absence of “actual or constructive notice” as an implied ......
-
Stern v. Am. Home Mortg. Servicing, Inc. (In re Asher)
...to encompass assignments of mortgages, e.g., Merscorp, Inc. v. Romaine, 861 N.E.2d 81, 82 (N.Y. 2006); Andy Assocs., Inc. v. Bankers Trust Co., 399 N.E.2d 1160, 1166 (N.Y. 1979), and to require that a purchaser prove an absence of "actual or constructive notice" as an implied component of "......