Pink v. Thomas

Untermyer, J.

Lawyers Title and Guaranty Company, the holder of a bond and mortgage for $42,300, between July 1, 1932, and until February 1, 1933, sold to the public participating shares therein, represented by certificates, which it guaranteed as to principal and interest. Throughout this period, although the company reacquired and resold some shares or certificates, it retained an interest in the mortgage to the extent of $1,825, which it never sold to the public. On February 1, 1933, it held also an interest of $100, reacquired after sale to the public, which both parties concede to be subordinate to the interest of the certificate holders (Matter of Lawyers Title & Guaranty Co. [Forshay], 169 Misc. 266; affd., 254 App. Div. 653; affd., 279 N. Y. 571) and, therefore, not involved in the submitted controversy.

The present controversy is concerned only with the right asserted by the plaintiff, as owner of the retained interest of $1,825 in the bond and mortgage, to share ratably with the certificate holders in any proceeds of the mortgage security. Certain principles bearing upon that question are now authoritatively established. It is established that in the absence of a guaranty of payment or .other special equity the assignor of part of a mortgage indebtedness is entitled to share equally with his assignee in the proceeds of insufficient security. (Title Guarantee & Trust Co. v. Mortgage Commission, 273 N. Y. 415.) Where, however, the assignor has guaranteed payment of certificates he is not entitled as owner of a retained portion of the bond and mortgage to share pro rata with other certificate holders in the proceeds of the security unless the contract so provides. (Matter of Title & Mortgage Guaranty Co. of Sullivan County, 275 N. Y. 347.) The right of the assignor thus to share depends, therefore, upon the existence of a stipulation in the contract of the parties to that effect. (Matter of New York Title & Mortgage Co. [Series C-2], 253 App. Div. 308; affd., 278 N. Y. 488; Matter of Title & Mortgage Guaranty Co. of Sullivan County, supra.) It follows that the terms of the certificates here which express the rights of the certificate holders and the rights reserved to the company are decisive of the case.

The certificates contain the following provision: “ Lawyers Title and Guaranty Company hereby assigns to the holder hereof-an undivided share of Dollars and interest thereon at the rate of six per cent per annum from the date hereof, in the bond and mortgage hereinafter specified, equal and co-ordinate with all other shares assigned or retained by the Company, the aggregate amount of all such shares, issued and retained, at no one time to exceed the amount then owing on said bond and mortgage.” (Italics ours.) Thus the parties stipulated for equal and co-ordinate rights in the security not only with respect to all other shares “ assigned ” by the company to other parties but with respect to all shares “ retained by the Company.” That distinction is confirmed by the provision that all shares " issued and retained ” shall “at no one time ” exceed the amount due on the bond and mortgage.

The defendants suggest that these provisions should be interpreted to mean that the interest “ retained by the Company ” is only entitled to participate equally after it has assigned to parties who acquire the position of certificate holders. The answer to that contention is that the certificate does not contain any such limitation. Moreover, if we thus interpret the certificate, it renders superfluous and meaningless the words “ or retained by the Company,” since the right of other certificate holders, past or future, to participate equally would be fully protected by the word “ assigned.” Any other interpretation would be inconsistent also with the reference in the certificate to shares “ issued and retained ” which shall “ at no one time ” exceed the amount then owing on the bond and mortgage and which suggests the meaning to be ascribed to the word “ retained.” That provision plainly contemplates that during the fife of the certificate an interest in the mortgage may have been “ retained ” by the company in addition to any certificates that may have been “ issued.” It is with respect to certificates or shares “ retained,” though not “ issued,” that the company is accorded the right of equal participation.

This conclusion is in complete accord with the decision in Matter of Title & Mortgage Guaranty Co. of Sullivan County (supra), where a certificate containing these and other terms was under consideration. There the certificate provided that upon the collection of the proceeds of the mortgage the company should have the right “ out of the proceeds of such collection to retain so much as may remain after paying to the holder hereof whatever may be due to such holder of principal and interest on this certificate as herein provided.” By another clause in the certificate it was provided that “ the share assigned by this certificate shall be a coordinate lien with all other certificates of said mortgage now or hereafter issued and any share retained by the company.” It was strongly intimated by the court that the latter provision, very similar to the provision under consideration in the present case, would, standing alone, have allowed the company to share ratably with other certificate holders in the proceeds of the mortgage. On account of the presence in the certificate, however, of the other provision which entitled the company to retain only so much as might remain after discharging the claims of the certificate holders, the court concluded that the right did not exist. Speaking of the latter provision the court said: “ Standing alone, that clause might be read as an expression of intent that in the distribution of the proceeds of the mortgage the assignor and the assignee should share ratably. * Bead in its context, the clause may be given a narrower application and at most renders less clear the inference which would otherwise be inescapable that the parties intended that the certificate holders should be preferred over the mortgage company in the distribution of the proceeds of the mortgage.”

Judgment should, accordingly, be directed in favor of the plaintiff adjudicating that the plaintiff’s share, to the extent of $1,825, is equal and co-ordinate with the shares held by other holders of certificates and that the plaintiff is entitled, with respect to said share of $1,825, to a pro rata participation in any distribution by the defendants of the proceeds of the bond and mortgage, without costs.

Glennon and Cohn, JJ., concur; Martin, P. J., and Callahan, J., dissent.