In re Bond & Mortg. Guarantee Co.

• Decision Date: 04 June 1942
• Citation: 288 N.Y. 270,43 N.E.2d 38
• Parties: In re BOND & MORTGAGE GUARANTEE CO.
• Court: New York Court of Appeals Court of Appeals

288 N.Y. 270

43 N.E.2d 38

In re BOND & MORTGAGE GUARANTEE CO.

Court of Appeals of New York.

June 4, 1942.

Appeal from Supreme Court, Appellate Division, Second Department.

Proceeding in the matter of the rehabilitation of the Bond & Mortgage Guarantee Company wherein a plan for the readjustment of the rights of holders of guaranteed certificates of participation in a real estate mortgage guaranteed by the Bond & Mortgage Guarantee Company was approved and trustees appointed. A contract for the sale to Paragon Land Corporation of the mortgaged realty purchased by the trustees at foreclosure sale was approved by the court. From an order of the Appellate Division, 262 App.Div. 587,28 N.Y.S.2d 776, affirming an order of the court at Special Term, Wilson, J., presiding, granting motion of Joseph P. Day and others, trustees, for an order directing the Paragon Land Corporation to carry out the contract for purchase of the realty and directing Morris Walzer, Louis Weinstock and Harold J. Weinstock to furnish the funds necessary to consummate such contract, and from an order of the Appellate Division affirming an order of the court at Special Term, Wilson, J., presiding, denying motion to vacate order to show cause why orders respecting the performance of the contract should not be made, leave to appeal having been denied by the Appellate Division, 262 App.Div. 963, 30 N.Y.S.2d 496, the respondents appeal by permission of the Court of Appeals, 287 N.Y. 659, 39 N.E.2d 284, which dismissed the appeal taken as of right.

Orders affirmed in part and reversed in part.

See, also, 262 App.Div. 857, 29 N.Y.S.2d 714.

DESMOND and CONWAY, JJ., dissenting. Samuel Okin, of New York City, appearing specially, for appellants.

Fred L. Gross, of Brooklyn, for respondents.

LEHMAN, Chief Judge.

The owner of property at East Meadow, Nassau county, Long Island, executed and delivered to Title Guarantee and Trust Company a mortgage for the principal amount of $600,000. Certificates of participation were issued by Title Guarantee and Trust Company and sold to investors. These certificates were guaranteed by Bond and Mortgage Guarantee Company. Defaults occurred in payment of interest and the Mortgage Commission of the State of New York, pursuant to the provisions of chapter 745 of the Laws of 1933, as thereafter amended, Unconsol. Laws, s 4871 et seq. (commonly known as the Schackno Act), and chapter 19 of the Laws of 1935 as amended, Unconsol. Laws, s 4801 et seq. (commonly known as the Mortgage Commission Act), promulgated a plan for the readjustment and reorganization of the rights of the holders of the guaranteed certificates of participation in the mortgage. The plan for readjustment and reorganization was approved by the court and trustees were appointed in accordance therewith in 1936.

Foreclosure proceedings were thereafter brought by the trustees and, pursuant to a judgment of foreclosure and sale, the property was sold to the trustees, and the referee in the foreclosure action executed and delivered a deed of the mortgaged premises to the trustees on June 24, 1938.

Prior to the appointment of the trustees the mortgaged property had been sold for non-payment of taxes. Deeds to the property, under the tax sale, had not been delivered and the owner of the property still had a right of redemption. There was some controversy between the trustees and the county of Nassau concerning the extent of the rights of the trustees. To determine these rights the trustees began an action against the county of Nassau. While that action was pending the tax deeds were delivered. The trustees initiated negotiations with representatives of the county for the settlement of the controversy, with the expectation that the county, would cooperate with the trustees in a sale of the mortgaged property for the benefit of the owners of the participation certificates.

In November, 1939, the trustees received a written proposal or offer for the purchase of the mortgaged premises. It was addressed to a broker and signed by a lawyer as ‘attorney representing syndicate of purchasers,’ and it stated that the broker was authorized to offer to purchase the mortgaged property for $300,000 ‘on behalf of a syndicate represented by me.’ Though the letter does not disclose the names of the members of the ‘syndicate of purchasers,’ there can be no doubt that the lawyer, in writing this letter, represented the individual appellants, Morris Walzer, Louis Weinstock and Harold J. Weinstock, and the proposal was accompanied by a check for $2,000 signed by Louis Weinstock.

The trustees had also received another offer for part of the mortgaged premises. After some negotiations the offer was submitted for approval to the court at Special Term and in January, 1940, the court informally approved the offer and directed the trustees to enter into a contract and submit the same to the court for formal approval. As a result of negotiations between the trustees, representatives of the ‘syndicate’ an whose behalf the offer had been made, and representatives of the county of Nassau, agreement was reached upon the terms of a contract for sale by the trustees of the mortgaged property and the conditions upon which the county would cooperate with the trustees. The proposed contract was entered into on March 18, 1938, between the trustees, described in the contract ‘as seller,’ and ‘Paragon Land Corp., a domestic corporation with offices at No. 16 Court Street, Borough of Brooklyn, City and State of New York, hereinafter described as the Purchaser.’ The purchase price under the contract was $300,000, payable as follows: $15,000 on the signing of the contract; $75,000 in cash or by certified check on the delivery of the deed; and $210,000 by the execution of mortgages for that amount. Before the contract was made, the trustees and representatives of the county of Nassau and the holders of tax deeds on the mortgaged premises had entered into a stipulation which, however, was subject to ratification by the Board of Supervisors of the county, by which the pending litigation was settled and the county of Nassau agreed that upon payment of a stipulated amount the county of Nassau would execute and deliver to the trustees a bargain and sale deed of the property. This stipulation was incorporated in the contract of sale made with the Paragon Land Corporation, and a copy was annexed to that contract. The court at Special Term thereafter, on March 21, 1940, made a formal order approving the contract and authorizing the trustees to carry it out. The trustees returned the check for $2,000 which had accompanied the original offer and thereafter acknowledged receipt of $15,000 as the initial payment under the contract of sale.

The contract provided that the deed should be delivered on April 15, 1940, or sooner at the option of the purchaser. On the date set for the closing the parties met, but the Board of Supervisors of the county had not at that time met to ratify the stipulation and in consequence the trustees could not then convey a marketable title. Exactly what occurred at that time and whether at that time the purchaser would have been ready and able to complete the purchase, if a marketable title had been tendered, are matters of dispute. When the parties separated no date was set for closing. On May 2d the trustees notified the attorneys for the purchaser that they would be ready to deliver the deeds on May 6th. The purchaser refused to proceed further with the contract, claiming that its obligations were at an end because of default by the trustees on the day set for the closing of the contract.

The trustees then procured an order directing the appellants, the Paragon Land Corporation, Morris Walzer, Louis Weinstock and Harold J. Weinstock, to show cause ‘Why an order should not be made requiring Paragon Land Corp. to carry out and perform the contract, a copy of which is annexed to said affidavits, and to complete the purchase thereunder, and why it should not be decreed that Paragon Land Corp. was organized solely for the purpose of acting as a mere agency or instrumentality of Morris Walzer, Louis Weinstock and Harold J. Weinstock, or either of them, that the corporate identity of Paragon Land Corp. be disregarded in order to prevent loss to the certificate holders mentioned in the annexed affidavits and so that the rights and interests of such certificate holders may be protected, and in the interests of justice, and why it should not be decreed that Morris Walzer, Louis Weinstock and Harold J. Weinstock, or any of them, are the real parties in making the aforesaid purchase, that t...