Union Estates Co. v. Adlon Const. Co.

• Decision Date: 11 July 1917
• Citation: 221 N.Y. 183,116 N.E. 984
• Parties: UNION ESTATES CO. v. ADLON CONST. Co. et al.
• Court: New York Court of Appeals Court of Appeals

221 N.Y. 183

116 N.E. 984

UNION ESTATES CO.

v.ADLON CONST. Co. et al.

Court of Appeals of New York.

July 11, 1917.

Appeal from Supreme Court, Appellate Division, First Department.

Action by the Union Estates Company against the Adlon Construction Company and others. From a judgment of the Appellate Division of the Supreme Court (165 App. Div. 979,150 N. Y. Supp. 1116), affirming the part of the judgment in favor of plaintiff, entered upon a decision of a court on trial at Special Term, plaintiff appeals. Judgment of Appellate Division reversed in part, and judgment of the Special Term modified.

See, also, 84 Misc. Rep. 599,147 N. Y. Supp. 783.

Chase, J., dissenting.

Louis F. Levy, of New York City, for appellant.

Outerbridge Horsey, of New York City, for respondents.

COLLIN, J.

The ultimate question to be decided by us is: Are the defendants, Frazee Realty Company, a domestic corporation, and Harry H. Frazee, liable to the plaintiff, by virtue of their written agreement with the plaintiff, for interest upon the sum secured by the bond and mortgage of the Realty Company at the rate of 23 per centum from the date of its maturity? Thus far it has been adjudged, and erroneously, that they were not. The instruments were executed as a single transaction July 11, 1912. The bond, fulfillment of which was secured by the mortgage, obligated the company to pay the plaintiff, on October 8, 1912, $70,000, with interest at the rate of 6 per centum per annum. By the written agreement the company--

‘covenants and agrees that, in the event that said mortgage shall not be paid on said 8th day of October, 1912, the party of the first part [the company] will, in addition to interest at the rate of 6 per cent. per annum provided for in said mortgage, pay additional interest at the rate of 17 per cent. per annum upon any sums remaining unpaid upon said bond and mortgage from October 8, 1912, until the day when said mortgage and its accompanying bond shall be fully and actually paid.’

The defendant Harry H. Frazee thereby guaranteed to the plaintiff the full and absolute performance by the company of all the terms, covenants, and conditions undertaken by it in the bond and mortgage and in the written agreement. The company wholly defaulted in such performance. The agreement further provided:

‘Nothing herein contained shall be construed as obligating the party of the second part, its successors or assigns, to extend the payment of said mortgage beyond said October 8, 1912, or as limiting the right to foreclose or take any other steps whatsoever in connection with said bond and mortgage upon a default in any of the terms, covenants and conditions of said bond and mortgage for $70,000.’

In this action to foreclose the mortgage, judgment of foreclosure and sale, awarding the plaintiff interest at the rate of 6 per cent. per annum only, was entered April 15, 1914. Under the notice of appeal, the record, and the briefs and arguments of counsel, we are to determine whether or not the company and Frazee were personally liable for the additional interest, from the maturity of the debt, at the rate of 17 per centum.

[1][2][3] Inasmuch as the company is a corporation, the undertaking of the written agreement was not void, as being usurious. General Business Law (Consol. Laws, c. 20) §§ 370, 371, 373, 374. Frazee was a guarantor of a lawful contract, and therefore liable within the obligations of his guaranty. Rosa v. Butterfield, 33 N. Y. 665. In case the written agreement creates a penalty for failure to pay the debt at maturity, the judgments below are right. In case it creates the contractual obligationto pay interest in the additional sum, they are erroneous.

[4] In the absence of an interdicting statute, the lender and borrower may agree that a rate of interest, other than the rate fixed as the legal rate by a statute, shall be paid from the date to either the maturity or the payment of the loan. The mere legislative naming of a rate does not bar a stipulation for a different rate, either less or greater. The lawfulness of such a stipulation does not depend upon the existence of a sanctioning statute, but upon the absence of a prohibiting statute. An agreement to pay interest upon a loan from its making until its payment, disregarding its maturity, is precisely what it purports to be; that is, an agreement to pay interest. O'Brien v. Young, 95 N. Y. 428, 47 Am. Rep. 64. Likewise an agreement to pay interest upon a loan from its date until its payment at a rate before and a differing rate after its maturity is an agreement to pay interest and not a penalty as to the latter rate.

In Herbert v. Salisbury & Yeovil Ry. Co. (L. R.) 2 Eq. Cas. 220, the defendant railway company agreed that the purchase money of lands of the plaintiff taken by it should be paid on or before the 1st of July, 1858; that interest thereon should be paid at the rate of 4 per cent., such interest to be calculated from the respective times of the company taking possession of each acre of the land; that from and after the 1st of July, 1858, the company should pay interest at 5 per cent. upon the purchase money, should the same be not then paid, and from and after the 1st of January, 1859, should pay interest at 8 per cent. on all moneys remaining due under the agreement until payment thereof, but that this should not be considered as creating any right on the part of the company to withhold or delay the payment of such moneys upon paying such higher rate of interest. The interest began to run at different times between September, 1856, and May, 1857, and the purchase money was not paid until February, 1865. The delay was not caused by the willful default or...