Delatour v. Prudence Realization Corporation

• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Citation: 167 F.2d 621
• Parties: DELATOUR et al. v. PRUDENCE REALIZATION CORPORATION.
• Decision Date: 05 April 1948

167 F.2d 621 (1948)

DELATOUR et al.
v.
PRUDENCE REALIZATION CORPORATION.

No. 5, Docket 20434, October Term, 1947.

Circuit Court of Appeals, Second Circuit.

April 5, 1948.

167 F.2d 622

Halpin, Keogh & St. John, of New York City (Edward S. St. John, of New York City, of counsel), for Hunter L. Delatour and Raymond Reisler, Trustees of Espade Realty Corporation.

Irving L. Schanzer, of New York City, for Prudence Realization Corporation, appellant.

Delafield, Marsh & Hope, of New York City (Eugene Blanc, Jr., of New York City, of counsel), for appellee City Bank Farmers Trust Co.

Newman & Bisco, of New York City (David Barnett, of New York City, of counsel), for appellees Manufacturers Trust Co. as depositary and parties in the armed services.

Roger S. Foster, Sol., and Sidney H. Willner, Associate Sol., both of Philadelphia, Pa., and George Zolotar, Special Counsel, of New York City (Alexander Cohen, of Philadelphia, Pa., Ezra Weiss and Kiva Berke, both of New York City, of counsel), for Securities and Exchange Commission.

Before AUGUSTUS N. HAND, CHASE, and CLARK, Circuit Judges.

CHASE, Circuit Judge.

The appeal is from an order entered in the proceedings, commenced on March 20, 1944, for the reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq., of Espade Realty Corporation. The sole issue is whether certain holders of defaulted certificates of participation in a single mortgage on real estate of the debtor are entitled to interest at 6%, which is both the rate the mortgage bore and the legal rate of interest on debts overdue in New York, or only to interest at 5½%, the rate provided for in the certificates.

167 F.2d 623

The only asset of the debtor at the time the petition for reorganization was filed was a parcel of real estate in Mount Vernon, N. Y., on which there was an apartment building. It had acquired this property in 1936 subject to an outstanding mortgage to secure a bond on which the principal sum of $577,500 was then unpaid. The mortgage had been executed in 1927 by the then owner of the property to secure a debt of $700,000, which was payable, in accordance with the terms of the bond and mortgage, with interest at 6%. In 1927, the mortgage was assigned to Prudence-Bonds Corporation. It issued certificates of participation bearing interest at 5½%. These were guaranteed by the Prudence Company, Inc., as to the payment both of interest when due and of principal when due or within a reserved grace period during which the mortgagor's default might be cured. Both the assignee and the guarantor have been reorganized in separate proceedings in the district court and, to those who are familiar with the various appeals which have been decided by this court in those proceedings, the fact that Prudence Company, Inc., completely dominated Prudence-Bonds Corporation will be well known. The appellant, Prudence Realization Corporation, is the successor of The Prudence Company, Inc. as the result of the latter's reorganization and for present purposes has all and only the interest of its predecessor.

The participation certificates were issued in accordance with an agreement of deposit made with the Chatham-Phoenix National Bank to which the mortgage was assigned as depositary.¹ The Prudence Company, Inc. then sold the certificates to the public and credited the proceeds upon the debt of Prudence-Bonds Corporation to it on account of the guaranty. Each certificate in terms assigned to the purchaser an undivided share or part of the bond and mortgage equal to the face amount of the certificate and bore interest at 5½%, payable semi-annually. Prudence-Bonds Corporation assumed no liability on the certificates² but it and the guarantor were, inter alia, each "authorized to collect all moneys payable under the terms of said mortgage; * * * and account to the holder of this certificate for his share of the principal and for interest at the rate of 5½% per annum thereon, payable under the terms of this certificate and to retain any balance of moneys collected * * *" Each certificate bore the endorsement of The Prudence Company, Inc., which so far as is now material read as follows: "The Prudence Company, Inc. hereby certifies to the holder of the within certificate, that by the guarantee therein mentioned and now in the possession of the depositary named in the Deposit Agreement referred to in said certificate, it has guaranteed payment of the interest on said certificate when due, and the payment of principal thereof when due, or within eighteen months thereafter, together with interest thereon after maturity at the rate specified in said certificate, until payment is effected or offered, as provided in said certificate."

On October 1, 1932, the mortgagor defaulted in the payment of an interest installment and the mortgage by its terms then became due. None of the principal was ever paid until after the present proceedings were begun. Interest...