Metro. Sav. Bank v. Tuttle

• Decision Date: 10 June 1943
• Citation: 49 N.E.2d 983,290 N.Y. 497
• Parties: METROPOLITAN SAV. BANK v. TUTTLE et al.
• Court: New York Court of Appeals Court of Appeals

290 N.Y. 497

49 N.E.2d 983

METROPOLITAN SAV. BANK

v.TUTTLE et al.

Court of Appeals of New York.

June 10, 1943.

Appeal from Supreme Court, Appellate Division, First Department.

Action by the Metropolitan Savings Bank against Friend L. Tuttle, as sole surviving executor of, and trustee under, the will of Angelo Umbriaco, deceased, and others, to foreclose mortgage. From an order of the Appellate Division of the Supreme Court, 264 App.Div. 705, 34 N.Y.S.2d 83, affirming by divided court an order of Special Term, Shientag, J., denying defendants' motion for dismissal of complaint, the defendants appealed by permission of the Appellate Division, and the Appellate Division certified a question.

Orders reversed, motion to dismiss complaint granted, and question certified answered in the negative. Friend L. Tuttle, of New York City, for appellants.

Irving Smith, Jr., A. S. Hutchins, and W. Hutchins, all of New York City, for respondent.

CONWAY, Judge.

This is an appeal, by permission of the Appellate Division, First Department, from an order of that court affirming an order denying a motion to dismiss the complaint under rule 106, subdivision 5, of the Rules of Civil Practice on the ground that it appeared on the face thereof that it did not state facts sufficient to constitute a cause of action. The Appellate Division has certified the following question: ‘Does the complaint herein state facts sufficient to constitute a cause of action?’

The complaint alleges that one Sohmer gave his bond dated December 10, 1923, to plaintiff in the sum of $15,000 by which he obligated himself to pay that sum on December 10, 1928, with interest to be computed from December 10, 1923, at the rate of five and one half per centum per annum to be paid on the first day of March next ensuing and semi-annually thereafter in each year. That as collateral security he executed and delivered to plaintiff a mortgage dated December 10, 1923, on certain described premises in the Bronx. That the mortgagor covenanted that the principal sum should become due and payable after default in the payment of interest for twenty days. ‘That the defendants have failed to comply with the conditions contained in said bond and mortgage by omitting to pay the interest on the principal sum of Fifteen Thousand ($15,000.00) Dollars which became due and payable on the first day of March, 1940, at the rate of six per centum per annum, amounting to the sum of $450.00, no part of which has been paid to the said plaintiff although duly demanded, and that more than twenty days have elapsed since said interest became due and payable, and that by reason of such default the plaintiff herein has elected and does elect, in accordance with the conditions contained in said bond and mortgage, to declare the principal sum immediately due and payable.’ There were other allegations proper in actions to foreclose a mortgage but not here material.

In substance, therefore, the complaint alleges that the bond and mortgage matured on December 10, 1928; that the rate of interest provided in the bond and mortgage was five and one half per cent; that there way a default by reason of the failure to pay interest at the rate of six per cent on March 1, 1940; that by reason of said default, plaintiff is entitled to foreclose the mortgage. Concededly there was no extension agreement ever made and there is no allegation that there any demand for the payment of principal prior to the emergency period or of interest at a rate greater than five and one half per cent prior to March 1, 1940.

It is the settled law in this State that, in the absence of other agreement by the parties, ‘where one contracts to pay a principal sum at a certain future time with interest, the interest prior to the maturity of the contract is payable by virtue of the contract, and thereafter as damages for the breach of the contract.’ O'Brien v. Young, 95 N.Y. 428, 429, 47 Am.Rep. 64. After maturity, in the absence of other agreement, the interest is computed as damages according to the rate then prescribed by law, whether that is more or less than the contract rate. O'Brien v. Young, supra, 95 N.Y. at page 430, 47 Am.Rep. 64;Ferris v. Hard, 135 N.Y. 354, 32 N.E. 129;Title Guarantee & Trust Co. v. 2846 Briggs Avenue, Inc., 283 N.Y. 512, 29 N.E.2d 66. The rate may continue to be the rate provided in the contract or obligation when so prescribed by statute but the interest is nevertheless that which is authorized by law. Title Guarantee & Trust Co. v. 2846 Briggs Avenue, Inc., supra.

That brings us to the question as to what is the rate of interest prescribed by statute as to the bond and mortgage here involved. Is it the rate provided in General Business-Law, section 370, or that provided in Civil Practice Act, section 1077-cc?

Section 1077-cc reads as follows: ‘Interest on evidence of indebtedness originally contracted for simultaneously with mortgage. Notwithstanding any inconsistent provisions of this act or of any other general or special law, the rate of interest upon any loan, indebtedness, bond, extension agreement, collateral bond, or other evidence of indebtedness or liability, if the indebtedness originated or was originally contracted for simultaneously with a mortgage upon real property and is secured solely by such mortgage, shall not be increased by reason of the maturity of such obligation during the emergency period as defined in section ten hundred seventy-seven-g of this act, but shall continue after such maturity at the rate specified in such obligation until the expiration of such emergency period.’

Plaintiff contends that section 1077-cc is inapplicable here because the maturity of the mortgage in suit occurred on December 10, 1928, which was not during the emergency period, and that, therefore General Business Law, section 370, is the applicable statute. Unquestionably the statutory rate of interest allowed as damages may be changed during the period between the maturity of an obligation and its payment. O'Brein v. Young, supra; Title Guarantee & Trust Co. v. 2846 Briggs Avenue, Inc., supra; People ex rel. Emigrant Industrial Sav. Bank v. Sexton, 284 N.Y. 57, 29 N.Ed.2d 469.

Stripped of phrases and clauses unnecessary for our present consideration, section 1077-cc reads: ‘* * * the rate of interest upon any loan, * * * originally contracted for simultaneously with a mortgage upon real property and * * * secured solely by such mortgage, shall not be increased by reason of the maturity of such obligation during the emergency period * * *, but shall continue after such maturity at the rate specified in such obligation until the expiration of such emergency period.’

Plaintiff justifies its construction of the section by making the phrase ‘during the emergency period’ modify ‘maturity.’ If we move the four-word phrase so as to make it follow the word ‘increased’ so that this portion of the section reads: secured solely by such mortgage, shall not be increased during the emergency period by reason of the maturity of such obligation but shall continue after such maturity at the rate specified in such obligation until the expiration of the emergency period, we would have more clearly presented the legislative intent and the phrase would be placed immediately after the verb ‘shall (not) be increased’ which it properly modifies.

Section 1077-cc was enacted (L. 1934, ch. 890, Ex. Sess.) at an extraordinary...