Briarwood Towers 85th Co. v. Guterman

• Decision Date: 05 January 1988
• Citation: 523 N.Y.S.2d 98,136 A.D.2d 456
• Parties: BRIARWOOD TOWERS 85TH COMPANY, Plaintiff-Respondent, v. Gerald GUTERMAN, etc., et al., Defendants, and Briarwood Associates, etc., et al., Defendants-Appellants.
• Court: New York Supreme Court — Appellate Division

Page 98

523 N.Y.S.2d 98

136 A.D.2d 456

BRIARWOOD TOWERS 85TH COMPANY, Plaintiff-Respondent, v. Gerald GUTERMAN, etc., et al., Defendants, and Briarwood Associates, etc., et al., Defendants-Appellants.

Supreme Court, Appellate Division,

First Department.

Jan. 5, 1988.

D.J. Sutton, Mineola, for plaintiff-respondent.

Z. Shimer, J.W. Schryber, New York City, for defendants-appellants.

Before SULLIVAN, J.P., and ROSS, MILONAS and ROSENBERGER, JJ.

MEMORANDUM DECISION.

Order, Supreme Court, New York County (Irma Vidal Santaella, J.), entered June 22, 1987, which, inter alia, denied the motions by defendants-appellants Briarwood Associates, Jeffrey Moskin, Citicorp Community Development, Inc., and East New York Savings Bank for summary judgment dismissing the fifth, seventh, ninth and tenth causes of action, unanimously modified, on the law, to grant summary judgment to appellants Citicorp Community Development, Inc. and East New York Savings Bank dismissing the ninth and tenth causes of action as against them, and otherwise affirmed without costs.

We modify the order of Supreme Court which found that there was a triable issue of fact as to whether appellant Citicorp Community Development, Inc. ("Citicorp") was contractually obligated to make advances to appellant Briarwood Associates, and its principal Jeffrey Moskin, under the Building Loan Agreement after Citicorp had notice of plaintiff-respondent's prior, unrecorded collateral deed securing payment of a $5,500,000 "wrap-around" note. The court also found there was an issue as to whether appellant East New York Savings Bank ("East New York") had actual or constructive notice of respondent's security interest in the property prior to October 30, 1980, when East New York and Citicorp entered into certain agreements creating a consolidated first mortgage in the amount of $6,800,000.

In June 1976, when respondent sold the Briarwood Apartment complex, East New York held a $4,400,000 first mortgage on the property. Respondent transferred title to the property to a corporation controlled by defendant Gerald Guterman, and received the wrap-around note secured by the collateral deed, which was held in escrow. Thereafter the subject property was transferred, without notice to respondent and in violation of the note, to other Guterman-controlled companies and, on October 30, 1980, it was sold to appellant Briarwood Associates. This last sale and the cost of necessary improvements to the property were financed jointly by the City of New York and Citicorp, which provided a $2,800,000 construction loan, and East New York, which agreed to a $400,000 reduction of its mortgage. In addition, East New York consented to the consolidation of its mortgage with the Citicorp construction mortgage, which was to be assigned to East New York after the property had been rehabilitated, and all three lenders were to have participating interests in the consolidated $6,800,000 first mortgage.

Respondent was not notified of these transactions affecting its interest in the subject property. Upon learning of the transfer of the property and of the construction mortgage given to Citicorp, respondent notified defendants and appellants, by letter dated December 5, 1980, of its interest in the property and that these transactions constituted defaults under the wrap-around note.

Respondent alleges that appellants knowingly and intentionally interfered with its security interest in the property, for which it seeks monetary damages and a judgment declaring that its security interest has priority over the $2,800,000 construction mortgage or that portion of said mortgage which was advanced after Citicorp had notice of respondent's unrecorded security interest.

The rule for determining the priority of a mortgage securing future advances depends on the character of the liability assumed by the mortgagee. Only if the mortgagee is contractually bound to make the advances after it learns of the existence of a prior lien or encumbrance, will the mortgagee be fully protected and its mortgage given priority over the prior liens. However, if the mortgagee is free to refuse further advances, then its mortgage will secure only those advances made before it had knowledge of the prior lien. ( Hyman v. Hauff, 138 N.Y. 48, 54-55, 33 N.E. 735 [1983]; Roslyn Savings Bank v. Merz, 13 A.D.2d 550, 551, 213 N.Y.S.2d 218 [2d Dept.1961], affirmed, 11 N.Y.2d 832, 227 N.Y.S.2d 445, 182 N.E.2d 117 [1962]; First Federal Savings & Loan Assoc. of Rochester v. Green-Acres Building Corp., 38 Misc.2d 149, 150, 236 N.Y.S.2d 1009 [Sup.Ct.Monroe County 1963].)

Under the terms of the Building Loan Agreement, Citicorp was obligated to make advances upon the borrower's compliance with certain conditions specified in that agreement, among them:...