Van Schaick v. Title & Mortgage Guarantee Co. of Buffalo

• Decision Date: 20 March 1934
• Citation: 190 N.E. 153,264 N.Y. 69
• Parties: PEOPLE by VAN SCHAICK, State Superintendent of Insurance, v. TITLE & MORTGAGE GUARANTEE CO. OF BUFFALO (two cases).
• Court: New York Court of Appeals Court of Appeals

264 N.Y. 69

190 N.E. 153

PEOPLE by VAN SCHAICK, State Superintendent of Insurance,

v.TITLE & MORTGAGE GUARANTEE CO. OF BUFFALO (two cases).

Court of Appeals of New York.

March 20, 1934.

Proceeding by the People, by George S. Van Schaick, State Superintendent of Insurance, for an order to take possession of the property of and rehabilitate the Title & Mortgage Guarantee Company of Buffalo. From orders of a court of record of original jurisdiction finally determining such special proceeding, the Marine Trust Company of Buffalo, as depositary, appeals directly to the Court of Appeals; the only question involved being validity of a statutory provision of the state of New York under the Constitution of the state and of the United States.

Orders affirmed.Fritz Fernow, Thomas R. Wheeler, and Charlton G. Blair, all of Buffalo, for appellants.

Thurman W. Stoner, of Buffalo, and Henry E. Warner, of Albany, amicus curiae for Kate E. Warner.

Alexander Rubin, of Brooklyn, amicus curiae, for Sarah R. Heilbroner.

Thomas C. Burke, S. Fay Carr, and William L. Marcy, Jr., all of Buffalo, for respondent Van Schaick.

John Fletcher Caskey, of New York City, and Clarence E. Brand, of New Haven, Conn., amicus curiae, for Bond & Mortgage Guarantee Co.William L. Marcy, Jr., S. Fay Carr, and David L. Landy, all of Buffalo, for respondent Esty.

Abraham L. Gutman, Louis F. Lee, and Olin Potter Geer, all of New York City, Ralph W. Crolly, of Brooklyn, and Burton A. Zorn, of New York City, amici curiae for Society for Ethical Culture in the City of New York.

LEHMAN, Judge.

On August 14, 1933, an order was made and entered in the Supreme Court authorizing and directing the superintendent of insurance of the state of New York ‘forthwith to take possession of the property of the Title and Mortgage Guarantee Company of Buffalo and to conduct the business thereof in such manner and take such steps towards the removal of the causes and conditions which make necessary the granting of this order, as the Superintendent of Insurance shall consider wise, subject to the directions of the court, pursuant to the provisions of article 11 of the Insurance Law of the State of New York.’ The order contained the usual provisions directing the said company, its officers, directors, depositaries, trustees, agents, servants and employees and all other persons, having any property or records belonging to the said company, to deliver them to the superintendent of insurance and restraining the waste of assets by any person, the prosecution of actions at law, suits in equity, special or other proceeding against the company or the superintendent of insurance, and restraining all persons from making or executing any levy upon the assets of the corporation, or from ‘in any way interfering with the Superintendent of Insurance of the State of New York or his successors in office in his or their possession, control and management of the property of said corporation.’

The Marine Trust Company of Buffalo holds in its possession bonds and mortgages in the name of Title & Mortgage Guarantee Company of Buffalo, which have been deposited with it by that company under certain written agreements. Those agreements are in, substantially, the same form. Each provides that ‘upon request in writing of the President, a Vice President, the Secretary or Treasurer of the Title & Mortgage Company, the Trust Company shall certify, authenticate and deliver certificates from time to time in the form herein specified to an aggregate amount equal to but in no event exceeding, the total principal sum secured to be paid by the bonds and mortgages held by the Trust Company or deposited under the terms of this agreement and owing thereon; and the Title & Mortgage Company shall be at liberty to sell and dispose of such certificates.’ Certificates have been issued as provided in these agreements. Each certificate refers to a specific agreement and the bonds and mortgages deposited thereunder. These certificates have been sold by the Title & Mortgage Guarantee Company. The certificates issued under each agreement constitute a separate series. The purchasers and holders of these certificates have, by the terms of the certificates, acquired rights and interests in the bonds and mortgages deposited under the particular agreement under which that series of certificates was issued. Upon the petition of the superintendent of insurance, an order was entered on December 11, 1933, authorizing and directing him to administer, as a separate and distinct trust, each series of bonds and mortgages and other securities, real estate and cash for the benefit of the holders of the certificates issued in such series pro rata according to the amounts of their respective holdings, unless their rights be otherwise determined. In order to enable the superintendent to carry out this direction, the depositary of the bonds and mortgages, the Marine Trust Company, is authorized and directed, upon requisition of the superintendent of insurance, as rehabilitator, to deliver to him deposited bonds and mortgages ‘for the purpose of foreclosing same or accepting deeds in lieu of foreclosure,’ and also for other purposes, such as ‘enabling said Rehabilitator either to assign or satisfy the same,’ or for the purpose of carrying out a compromise. Other orders have been made in regard to specific bonds and mortgages which supplement the general order directing the administration of the deposited bonds and mortgages. By order dated January 8, 1934, a ‘plan promulgated by, * * * Superintendent of Insurance of the State of New York, for the reorganization of the rights of the holders of mortgage investments known as Series R of Title & Mortgage Guarantee Co. of Buffalo,’ was approved by the court. That plan was approved in writing by the holders of more than two-thirds in total amount of the certificates of that series. The order provided that the Marine Trust Company,as depositary, deliver to the corporation, mentioned and provided in said plan, all bonds and mortgages, securities, moneys, deeds, and other assets and properties ‘deposited with it by Title & Mortgage Guarantee Co. of Buffalo in said Series R of Mortgage Investments.’

The depositary has appealed directly to this court from each of said orders pursuant to the provisions of section 588, subd. 3, of the Civil Practice Act, on the ground that the statutory provisions authorizing these orders are invalid under the Constitutions of the state and of the United States. Upon this appeal, ‘only the constitutional question shall be considered and determined by the court.’

The attack is not directed against the provisions of the Insurance Law (Consol. Laws, c. 28), which authorize the court, in proper case, to direct the superintendent of insurance to take possession of the property of a corporation organized, under the Insurance Law, and to conduct its business for the purpose of rehabilitating or liquidating such company. The superintendent becomes a statutory receiver; the property of the corporation is brought into the protective arm of the law, and the receiver is subject to directions of the court except in so far as discretionary power is vested by the Legislature in him. Cf. Isaac v. Marcus, 258 N. Y. 257, 179 N. E. 487;Matter of People (Russian Reinsurance Co.), 255 N. Y. 415, 175 N. E. 114;Matter of People (Norske Lloyd Ins. Co.), 242 N. Y. 148, 151 N. E. 159;Matter of Casualty Co. of America (Rubin Claim), 244 N. Y. 443, 155 N. E. 735;Lafayette Trust Co. v. Beggs, 213 N. Y. 280, 107 N. E. 644. The provisions of section 63 (Laws 1909, c. 300) of the Insurance Law have been enlarged and are now embodied in article 11 of the Insurance Law (section 400 et seq. [Laws 1932, c. 191, § 1]). Express power is conferred upon the superintendent of insurance for ‘rehabilitation of domestic insurers.’ No question is now raised as to the power of the Legislature to confer upon him authority to secure that end. Invalidity, if such there were, of a particular power which the Legislature has attempted to confer upon the superintendent of insurance while liquidating the property or conducting the business of a corporation with a view to its rehabilitation, would not affect the unquestioned power of the Legislature to authorize the courts to appoint the superintendent of insurance as statutory receiver in the cases specified in article 11 of the Insurance Law and to direct him to take possession of the property and to conduct the business of corporations to which the Insurance Law is applicable. The appellant here does not contend otherwise. It does not contest the right of the superintendent of insurance to exercise the powers of a statutory receiver as provided in the Insurance Law and in the order dated August 14, 1933, authorizing him to take possession of the property of the Title Mortgage & Guarantee Company of Buffalo and to conduct its business; bur neither the Insurance Law nor the order, granted in accordance therewith, contains any express provision for the administration of ‘mortgage investments' of the company taken over by the superintendent of insurance and which were sold or guaranteed by such company or for the adoption of any plan of reorganization of such ‘mortgage investments.’ The orders which are before the court for review on this appeal and which do contain such provisions rest upon chapter 745 of the Laws of 1933, popularly known as the Schackno Law, and the challenge of the appellant is directed towards the power of the Legislature, under the Constitutions of the United States and the state of New York, to enact that law.

That law (section 2), as amended by chapter 780 of the Laws of 1933 (Ex. Sess.), applies to ‘mortgage investments' which are defined therein to ‘include all interests in bonds, notes and other evidence of indebtedness of individuals, partnerships, associations or corporations, secured by mortgage or mortgages or deeds of trust or...