King v. Pelkofski
| Decision Date | 07 July 1967 |
| Citation | 229 N.E.2d 435,20 N.Y.2d 326,282 N.Y.S.2d 753 |
| Parties | , 229 N.E.2d 435 Rose KING, Appellant-Respondent, v. Joseph PELKOFSKI, Defendant, and Genevieve Pelkofski, Respondent-Appellant, and Elwood's Lawn & Garden Center, Inc., Respondent. |
| Court | New York Court of Appeals Court of Appeals |
John J. Boyle, New York City, James J. Weissman, Huntington, and John C. O'Malley, New York City, for appellant-respondent.
Richard W. Walser and Howard J. Grace, Bay Shore, for respondent-appellant.
Plaintiff Rose King, the mortgagee of a bowling alley, and defendant Genevieve Pelkofski, the beneficiary of an Inter vivos trust agreement covering the same property, cross-appeal from a judgment entered upon an order of the Appellate Division, Second Department. Plaintiff instituted this action to foreclose her mortgage which secured a loan by plaintiff to defendant Joseph Pelkofski, the owner of the legal fee, in the amount of $75,000 none of which has been paid, as well as a chattel mortgage covering certain chattels in the bowling alley. Defendant Genevieve answered that the mortgages were void in that her husband, Joseph, the owner of the business, had previously conveyed the beneficial interest in the property to her by an Inter vivos trust agreement. After a trial without a jury in the Supreme Court, Suffolk County, the Trial Justice dismissed the complaint in an opinion.
The Appellate Division reversed in a memorandum opinion, holding that, even though plaintiff's mortgage was invalid, the property should be sold and plaintiff mortgagee subrogated out of the proceeds to the extent that liens of certain prior creditors were discharged out of the funds lent by plaintiff to defendant Joseph Pelkofski. Two Justices concurred in this holding but dissented from the refusal of the majority to grant a similar priority to plaintiff mortgagee with respect to two personal loans to the Pelkofskis which had also been satisfied out of the proceeds of plaintiff's loan.
Both parties then appealed to this court but the appeal was dismissed as nonfinal because the Appellate Division order had directed a remission to the trial court to ascertain the total of plaintiff's liens on the property (18 N.Y.2d 688, 273 N.Y.S.2d 438, 219 N.E.2d 884). The trial court has now determined that plaintiff mortgagee is entitled to a 'total payment and lien' of $44,884.50 (including interest).
Defendant Genevieve now contends that plaintiff mortgagee is not entitled to any recovery by way of subrogation because 'None of the * * * proceeds (of plaintiff's loan) was disbursed for (her) benefit'. Plaintiff mortgagee argues that the 'inter vivos trust agreement' between the Pelkofskis did not convey anything to Genevieve other than an eventual right to half the proceeds from the sale of the business. Alternatively, plaintiff urges, as the dissent in the Appellate Division held, that she should also be subrogated to the extent that the proceeds of her loan were used to repay the two personal loans. Plaintiff mortgagee's alternative contention is correct and the judgment should be modified accordingly.
Joseph acquired the real property involved in 1954 and erected a bowling alley. In order to obtain funds for the improvement and maintenance of the business, Joseph borrowed $35,000 from the National Bank of Kings Park which was secured by a first mortgage on the property, dated and recorded in February, 1961. On August 3, 1961 the first mortgage was extended by an agreement which was also signed by Genevieve. The next day, evidently as an outgrowth of a marital dispute, Genevieve executed the following instrument which had been prepared by her attorneys:
WHEREAS, the parties desire that the ownership of the business transacted by Joseph B. Pelkofski, at Jericho Turnpike, Commack, N.Y., known as the 'BOWL-MOR', including the real property on which it is situated, be held of record in the name of Joseph B. Pelkofski for business purposes and for the same reason that the ownership of record of the residence of the parties, viz., 274 Burr Street, Commack, N.Y., be held in joint names, and
WHEREAS, the said Joseph B. Pelkofski, desires to make provision for his wife, Genevieve F. Pelkofski Now, THEREFORE, in consideration of the premises and in further consideration of the sum of One Dollar ($1.00) paid to the said Joseph B. Pelkofski, receipt of which is hereby acknowledged, the said Joseph B. Pelkofski, for himself, his heirs and assigns, hereby covenants and agrees to stand seized of the said business and real property above described as trustee for the benefit of his said wife, Genevieve F. Pelkofski, and that in the event of sale, he will transfer and pay over to the said Genevieve F. Pelkofski, her heirs and assigns, all the proceeds received by him for the residence No. 274 Burr Street, Commack, New York, and one-half of the proceeds of the sale of the business and/or business real estate and the said Joseph B. Pelkofski further agrees and covenants that he will make no leases of the business or business premises in excess of three (3) years without the permission of the said Genevieve F. Pelkofski, and that he will execute no instruments or agreements except in conformity with this instrument.'
Joseph executed the document on September 25, 1961 but it was not recorded until March 21, 1963.
Between 1961 and 1964 (the exact dates are not revealed), the Pelkofskis entered into two other loan agreements for the benefit of the business. They borrowed $10,195 from the Valley National Bank (successor to the then existing mortgagee, the National Bank of Kings Park) in an agreement signed by both Joseph and Genevieve. The Pelkofskis also obtained a loan of $15,210 from Edna Stoothoff, evidenced by an agreement which was also signed by Joseph and Genevieve and secured by property which was held in Genevieve's name.
Then, on June 4, 1963, two and a half months after Genevieve had recorded the trust agreement, Joseph borrowed $75,000 from plaintiff mortgagee. As security for the loan, Joseph gave plaintiff mortgages on the bowling alley and on certain of its chattels. These mortgages were promptly recorded and filed. With the proceeds of this loan, Joseph proceeded to discharge the following debts: the first mortgage and loan from the old National Bank of Kings Park, which by then had been reduced from $35,000 to $26,411.98; the unsecured $10,195 loan from the Valley National Bank; and the $15,210 loan from Edna Stoothoff secured by property in Genevieve's name. Joseph also utilized $3,025 of the proceeds from plaintiff's loan to satisfy an outstanding real property tax bill on the mortgaged premises.
Joseph thereafter defaulted on the loan from plaintiff. The last interest paid was in March, 1964, and there have never been any payments of principal. Moreover, he did not pay either the real property taxes for 1963 and 1964 or the fire insurance premiums for this period. These charges, which amounted to $9,516.88, were paid by plaintiff mortgagee, bringing her total disbursement on the investment to $84,516.88.
The Supreme Court held that the agreement of August 4, 1961 between Joseph and Genevieve was a valid Inter vivos trust and that Joseph had no power to mortgage the property to plaintiff mortgagee. The...
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