Flushing Nat. Bank v. Municipal Assistance Corp. For City of New York

• Decision Date: 30 June 1976
• Citation: 88 Misc.2d 1047,391 N.Y.S.2d 969
• Parties: FLUSHING NATIONAL BANK, on behalf of itself and all other holders of notes of the City of New York maturing on or before
• Court: New York Supreme Court

Page 969

391 N.Y.S.2d 969

88 Misc.2d 1047

FLUSHING NATIONAL BANK, on behalf of itself and all other holders of notes of the City of New York maturing on or before June 30, 1976, Plaintiff, v. MUNICIPAL ASSISTANCE CORPORATION FOR the CITY OF NEW YORK et al., Defendants.

Supreme Court, Special Trial Term, New York County, Part 28.

Feb. 23, 1977.

Richenthal, Abrams & Moss, New York City, for Flushing Nat. bank.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for Municipal Assistance Corp.

Louis J. Lefkowitz, Atty. Gen. of the State of New York, for New York State Emergency Financial Control Bd.

W. Bernard Richland, Corp. Counsel, New York City, for the City of New York.

Earle C. Bastow, amicus curiae, Utica.

DECISION OF INTEREST RATE ISSUE DIRECTED BY REMITTITUR

JAMES GIBSON, Justice:

Upon plaintiff's appeal to the Court of Appeals, that court found (40 N.Y.2d 731, 390 N.Y.S.2d 22, 358 N.E.2d 848) that the New York State Emergency Moratorium Act for the City of New York (L.1975, ch. 874, as amd. by ch. 875) is violative of the State Constitution in denying 'faith and credit' to the short-term anticipation notes of the city (N.Y.Const., art. VIII, § 2) and is therefore invalid. The court's remittitur to the Supreme Court, New York County, directed, among other things, that the Supreme Court hear and determine with dispatch:

3. Whether, in any orders or judgments entered, the payment of interest on the principal of the municipal notes shall be directed at the face rate prior to maturity and at the rate of six percent as provided in chapters 874 and 875 of the Laws of 1975 from the date of maturity to the date of payment.

The six percent rate thus referred to is that provided for in the Act requiring that interest be paid at the face rate fixed in each obligation until maturity and thereafter at not less than six percent 'until the principal * * * is paid or otherwise discharged' (Emergency Moratorium Act, § 5, subd. (B); L.1975, ch. 874, § 2, as amd. by L.1975, ch. 875, § 1). In addition, the Act suspended the enforcement of the city's short-term obligations for the 'moratorium period' of three years (L.1975, ch. 874, §§ 2(3); 3, 4). Upon the issue of interest, as delineated by the remittitur, the plaintiff noteholder and the defendant City have submitted memorandums of law. The defendant Municipal Assistance Corporation for the City of New York (MAC) has stated that it takes no position with respect to the issue of interest.

The notes held by plaintiff, and the other notes referred to and categorized in the remittitur, provided for payment of interest at various rates, all substantially in excess of the six percent rate, as provided by the Act and referred to in the remittitur. Plaintiff claims to be entitled to the face rate to the date of maturity and thereafter at that same rate to the date of payment of the particular obligation, whether payment be made before or after the entry of judgment. The city contends that there is 'significant support' for a requirement that interest be paid at six percent 'from the time of maturity until the time of ultimate payment' and, indeed, adheres to this conclusion and suggests no alternative. The result, of course, is to override the provisions of section 3--a(1) of the General Municipal Law, which in general imposes a three percent rate upon 'any judgment or accrued claim' against a municipality.

The Court of Appeals did not explicitly strike down the provision for a six percent rate, and, from the direction in the remittitur that this court hear and determine whether the six percent rate shall be paid from the date of maturity to the date of payment 'as provided' in the Act, it is clear that the Court of Appeals decision is not to be read as necessarily applying its declaration of unconstitutionality to the interest rate provision by implication.

The plaintiff submits no convincing contention or sound basis for maintaining the face rate beyond the date of maturity and cites no persuasive authority supportive of its position. The six percent rate envisioned by the Act is substantially lower than the lowest of the face rates in question; but it is substantially higher than the three percent rate contemplated by section 3--a(1) and, of course, the zero rate which might well have obtained for a long period of time, had default not been averted. As an integral part of the overall plan, the six percent rate from the date of maturity forward, which the city assumed and paid, has gained for it forbearance for a considerable part of the period deemed vital to the rehabilitation of its critical fiscal situation. To deprive the noteholders of their relatively meager quid pro quo would be unthinkable. Authority interdicting so unjust a result is not lacking.

The 'void Ab initio doctrine' rendering wholly ineffective every part of a statute found unconstitutional is...