In re Bond & Mortg. Guarantee Co.

• Decision Date: 21 May 1935
• Court: New York Court of Appeals Court of Appeals
• Parties: In re BOND & MORTGAGE GUARANTEE CO. In re CITY BANK FARMERS' TRUST CO.

267 N.Y. 419

196 N.E. 313

In re BOND & MORTGAGE GUARANTEE CO. In re CITY BANK FARMERS' TRUST CO.

Court of Appeals of New York.

May 21, 1935.

In the matter of the application of the People, by George S. Van Schaick, as state superintendent of insurance, for an order to take possession of the property of the Bond & Mortgage Guarantee Company. In the matter of the application of the City Bank Farmers' Trust Company for certain relief against the state insurance superintendent as rehabilitator of the Bond & Mortgage Guarantee Company respecting bond and mortgage of Henry M. Hahn, guaranteed by such company. Submission of a controversy between the City Bank Farmers' Trust Company, petitioner, and the state insurance superintendent as rehabilitator of the Bond & Mortgage Guarantee Company, respondent, under the Civil Practice Act, § 546. From a judgment (243 App. Div. 719, 277 N. Y. S. 225), for the guarantee company and its rehabilitator, petitioner appeals.

Reversed, and judgment directed for petitioner.

Appeal from Supreme Court, Appellate Division, Second Department.

Edwin W. Cooney and Edward L. Hunt, Jr., both of New York City, for appellant.

Louis M. Fribourg and Albert W. Fribourg, both of New York City, for Herbert E. Merseles and others, amici curiae.

John Fletcher Caskey and James B. McDonough, Jr., both of New York City, for respondents.

LOUGHRAN, Judge.

In this controversy, submitted to the Appellate Division upon an agreed statement of facts, the parties are City Bank Farmers' Trust Company (called the bank), and the superintendent of insurance, as rehabilitator of Bond & Mortgage Guarantee Company (called the guarantee company).

On May 25, 1931, the bank became owner of a bond and mortgage to secure the payment on May 14, 1934, of $5,000, with interest at 6 per cent. to be paid on November 1, 1931, and semiannually thereafter. Thereupon the guarantee company delivered to the bank a ‘guarantee policy’ covering the bond and mortgage, whereby the guarantee company guaranteed to the bank: ‘First. Payment at the rate of five and one-half per cent per annum, from May 25th, 1931, out of every installment of interest falling due on the bond and mortgage * * *, within five days after same has become due; Second. Payment of the principal * * * as soon as collected, but in no event later than eighteen months after it shall have become due and payment thereof shall have been demanded in writing by the insured [the Bank], with regular payment meantime of interest at the rate guaranteed.’ The policy also provided: ‘By the acceptance of this guarantee this [Guarantee] Company is made irrevocably the agent of the insured [the Bank], until the bond and mortgage be paid, with the exclusive right, but at its own expense, * * * to collect the interest as it falls due on the bond and mortgage hereby guaranteed. Out of the interest so collected this [Guarantee] Company is authorized to retain as its premium for this guarantee the excess [one-half of one per cent] over the guaranteed rate named above.’

Appended to the policy are two classes of conditions. (A) ‘This [Guarantee] Company is bound: * * * 2. To continue this guarantee on the extension of the mortgage on payment of the same premium per annum as is charged for this guarantee, unless this [Guarantee] Company shall elect to collect said mortgage.’ (B) ‘The insured [the Bank] is bound: 1. To permit this [Guarantee] Company to collect all interest and the principal secured by said bond and mortgage, and to refrain from collecting any part of the interest or principal secured by said bond and mortgage except through this [Guarantee] Company. * * * 4. To allow this [Guarantee] Company, in the name of the insured [the Bank], to exercise any right or option secured to the insured [the Bank] by said bond or mortgage, and to refrain from exercising any such right without the consent of this [Guarantee] Company. Without further action on the part of the insured [the Bank], this [Guarantee] Company is authorized to enforce payment in the name of the insured [the Bank], from time to time, of any sums which may be or become due under said bond and mortgage. * * * 5. To assign said bond and mortgage to this [Guarantee] Company, if requested so to do, upon receipt from it [the Guarantee Company] of the amount due the insured [the Bank], whenever the insured is entitled to require payment of the amount secured.’

In a proceeding under article 11 (section 400 et seq.) of the Insurance Law (Consol. Laws, c. 28), the Supreme Court, on August 2, 1933, made an order under which the superintendent of insurance is administering the business and property of guarantee company as its rehabilitator.

The bond and mortgage matured on May 14, 1934. The principal is unpaid. Payment thereof by the guarantee company has not been demanded by the bank. Interest to May 1, 1934, has been paid by the mortgagor to the guarantee company and (less the policy premium) by that company to the bank. There are no arrears of taxes on the mortgaged premises.

The question in difference is stated as follows:

‘The Bank claims that it is entitled to terminate its agreement with the Guarantee company upon the maturity of the mortgage, provided the Bank * * * makes no demand for performance of the obligations of the Guarantee Company with respect to payment of principal. The Bank admits that the Guarantee Company has duly performed all of the other obligations of its contract, and is prepared to deliver an appropriate...