Case Name: Isidore Londner, Appellant, v. David Perlman and Others, Respondents
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1908-12-11
Citations: 129 A.D. 93
Docket Number: 
Parties: Isidore Londner, Appellant, v. David Perlman and Others, Respondents.
Judges: 
Reporter: Appellate Division Reports
Volume: 129
Pages: 93–112

Head Matter:
Isidore Londner, Appellant, v. David Perlman and Others, Respondents.
First Department,
December 11, 1908.
Mortgage — agreement to subordinate purchase-money mortgage to building loans—rights of parties advancing moneys on faith thereof.
Where the grantor of lands having accepted purchase-money mortgages, stated in a contract to repurchase that it “ has been agreed between the parties” that the purchase-money mortgages shall be subrogated to mortgages which the grantees may place upon the premises to secure the payment of building loans and that he will on the execution of such building loan mortgages deliver an instrument in writing subrogating his purchase-money mortgages to the loan mortgages, one who advances money as a building loan is entitled to rely on such agreement and his lien is superior to that of the purchase-money mortgage although the grantor was not called upon to execute a subordination agreement, for he made a present agreement for subordination, the subsequent instrument was to be merely by way of further assurance.
As such agreement for subordination was plainly for the purpose of enabling the grantees to obtain a'building loan, it must be deemed to have been within the contemplation of the parties that it should he exhibited to the prospective lenders and it was not necessary that they should he direct parties to the in order to avail themselves thereof.
The position of one who in good faith advances money fdr”a building loan in reliance upon such agreement is not affected by subsequent transactions between the parties thereto — such as a subsequent cancellation of the agreement or the fact that the purchase-money mortgagors have made defaults.'
In equity, the grantor and those claiming under him are estopped from repudiating the agreement as against those who have advanced money in reliance thereon. '
This is true although the building loan agreement stated that mortgages existing on the premises were not to be deemed liens to prevent a payment of the building loan, but that said payments were to be made subject to the aforesaid liens, where a prior clause provided that no payments should be made on the building loan while any lien was recorded against the property, whether superior or subordinate to the building loan mortgage, for it was merely intended that existing mortgages should not he considered as liens so as to prevent payments on account of the loan.
Ingraham and Laughlin, JJ., dissented, with opinion.
Appeal by the plaintiff, Isidore Londner, from portions of a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of New York on the 24th day of March, 1903, upon the decision of the court rendered after a trial at the New York Special Term adjudging a mortgage held by the defendant, the State Bank, to he prior and paramount to a mortgage held by the plaintiff.
Henry Necarsulmer, for the appellant.
Benjamin N. Cardozo, for the respondents.

Opinion:
Scott, J.:
The facts upon which this controversy arises have been so fully stated by Mr. Justice Ingraham that it will be unnecessary to restate them. The subordination clause in the agreement between Perl, man and Bernikow, and Bernheimer was absolute and uncondi tional. The State Bank, or any other lender advancing money upon a building loan, was entitled to rely upon the promise therein contained. It would have been Bernheimer's duty, if called upon, to execute a subordination agreement, but in my opinion it was not necessary that he should do so in order to make the subordination effective.
The agreement, in this regard, after providing for the purchase-money mortgages to be given to Bernheimer, proceeds as follows: " Whereas the sellers (Perlman and Bernikow) contemplate obtaining building loans to be secured by mortgages on the various lots of land covered by.said purchase money mortgages, and it has been agreed between the parties that the said purchase money mortgages of $75,340.00 shall be subordinated to mortgages which the sellers may place upon said premises to secure payment of such building loans, the purchaser hereby agrees that at the time of the execution by the sellers of such building loans and building loan mortgages, that he, the purchaser, will upon request, execute and deliver to the sellers an instrument in writing subordinating said purchase money mortgages, to the lien of such building loan mortgage or mortgages." There follows an alternative provision for the satisfaction of the purchase-money mortgages, and the re-execution of other mortgages of like terms and effect, but subsequent and subordinate to the building loan mortgages. It will be seen that this clause recites a present agreement for subordination, coupled with a promise, if requested, to execute a further subordination agreement by way of further assurance, which further agreement is to be made, not when the building loan agreement is negotiated, but at the time of the execution of the building loan mortgage. It is perfectly evident that the clause was inserted in the agreement for the express purpose of facilitating the efforts of Perlman and Bernikow to obtain a building loan, and it must, therefore, have been within the contemplation of the parties that the agreement should be exhibited to prospective lenders of the contemplated building loan. It was not necessary that the State Bank, or any other maker of a building loan, should be directly a party to the agreement to subordinate. (Rose v. Provident Loan Assn., 28 Ind. App. 25 ; Cummings v. Consolidated Mineral Water Co., 27 R. I. 195.) It is made perfectly clear by the evidence that the subordination clause was exhibited to the State Bank; that it made the building loan in reliance upon it, and upon the promise of Perlman and Bernikow that they could and would obtain from Bernheimer a further agreement such as he had promised that he would execute upon demand. We have, therefore, presented upon uncontradicted evidence the case of a mortgagee who has in terms agreed to subordinate his mortgage to any building loan mortgage which should be executed, and the making of a building loan upon the faith of that agreement. The right of the mortgage to the State Bank to a priority over the purchase-money mortgage is referable to and founded upon that agreement which became effectual in equity when the building loan moneys were in good faith advanced in reliance upon it, and subsequent conditions uncommunicated to and unknown by the bank cannot alter that situation. Upon the plainest principles of equity Bernheimer, or any one claiming under him, is now estopped from repudiating this agreement. He put it in the power of Perlman and Bernikow to borrow money upon a building loan upon the faith of his promise to subordinate his purchase-money mortgages and cannot now be heard to repudiate his agreement. The principle underlying this rule has frequently been applied. (Jackson v. Nicol, 23 App. Div. 139; American Exchange Nat. Bank v. Woodlawn Cemetery, 120 id. 119-129 ; McNeil v. Tenth Nat. Bank, 46 N. Y. 325.) That Bernheimer did not execute a further subordination agreement with especial reference to the loan'of the State Bank is entirely immaterial. It was his duty to have done so, if called upon, for he had so agreed, and he cannot now repudiate his agreement upon which the State Bank relied by pleading that he failed or refused to do what he was legally bound to do. As I view it, therefore, the purchase-money mortgage to Bernheimer became in fact and in law subordinate to the building loan mortgage to the State Bank at the moment that the latter mortgage was executed in reliance upon the agreement that it should be so subordinated. After that it no longer lay within the power of Bernheimer, or of Perlman and Bernikow, or of all three, without the consent of the State Bank, to disturb the right of priority that had already vested in the mortgage given to it. Hence, the subsequent agreement between Bernheimer and Perlman and Bernikow to cancel the agreement which comprised within its lines the subordina tion agreement, however effective for any other purpose, could not affect tire established priority of the building loan mortgage. The numerous defaults alleged against Perlman and Bernikow in the fulfillment of their contract with Bernheimer are unavailing to defeat the priority of the loan by the State Bank. It is, of course, well settled that when a subordinate agreement is expressly made subject to the performance of conditions, it will not become effective unless the conditions are fulfilled. But that is not this case. The agreement which included the subordination clause was a very long one covering in great detail provisions for erecting houses and reconveying them to Bernheimer. But the fulfillment of these provisions of the contract were not made conditions of a subordination, and in the nature of things could not have been, for the procurement of a building loan was a necessary and anticipated prerequisite to carrying out the contract. Furthermore when the loan from the State Bank was procured Perlman and Bernikow were not in default for the time for fulfillment had not yet arrived. If they were then in default in paying the interest upon the purchase-money mortgages the State Bank had no means of knowing that fact, and Bernheimer's easy and obvious remedy was to foreclose his mortgages. It is true that at this time Perlman and Bernikow were so far behind hand in the performance of their contract that Bernheimer was reasonably justified in believing that they would be unable to complete, and it may be that he would then have been justified in rescinding his contract with them and refusing to go on with it. But he did not do so. On the contrary, he elected to keep it alive until long after the State Bank had made its loan and had acquired the right of priority over the purchase-money mortgage. Much stress is laid upon the clause in the building loan agreement (but not in the mortgage) that "the mortgages aggregating $58,000 now existing on said premises are not to be deemed liens under the terms of this agreement which are to prevent a payment to the party of the second part, but said payments are to be made subject to the aforesaid liens." It is argued that, as the $58,000 included the purchase-money mortgage, this clause indicated that the State Bank did not intend or expect to avail itself of Bernheimer's agreement to subordinate his mortgage. I do not so understand it. The clause above quoted must be read in connection with those immediately preceding it which in effect provide that no payments shall be made upon the building loan while any lien was recorded against the property, whether superior or subordinate to the building loan mortgage. All that was intended was to provide that existing mortgages should not be considered as liens which should prevent payments on account of the loan. For these reasons I am unable to find merit in the appeal. The judgment should be affirmed, with costs.
Patterson, P. J., and Clarke, J., concurred; Ingraham and Laughlin, JJ., dissented.