Case Name: LONDNER v. PERLMAN et al.
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1908-12-11
Citations: 113 N.Y.S. 420
Docket Number: 
Parties: LONDNER v. PERLMAN et al.
Judges: 
Reporter: West's New York Supplement
Volume: 113
Pages: 420–433

Head Matter:
LONDNER v. PERLMAN et al.
(Supreme Court, Appellate Division, First Department.
December 11, 1908.)
1. Mortgages (§ 159 )—Priority— Subordination Agreement.
An agreement between the vendor of land and the purchasers provided for purchase money mortgages, and recited that, as it had been agreed between the parties that the purchase money mortgages be subordinated to mortgages which the purchasers might make to secure the building loans, the vendor agreed that when the building loan mortgages should be executed he -would deliver an instrument' subordinating the purchase money mortgages to the building loan mortgages. Held that, though it would have been the vendor’s duty, if called upon, to execute a further subordination agreement, it was not necessary to make the subordination effective, as the original agreement was a present agreement for subordination, and, as the further agreement was not to be furnished until mortgages were executed, it was the apparent intention of the parties that the original agreement was to be used in effecting the loans.
[Ed. Note.—For other cases, see Mortgages, Cent. Dig. §§ 312, 330; Dec. Dig. § 159.*]
2. Mortgages (§ 159*)—Priority—Subordination Agreement—Rights of Subsequent Mortgagees.
It was not necessary, in order to subordinate the purchase money mortgages, that the makers of the building loans should be directly parties to the agreement to subordinate.
[Ed. Note.—For other cases, see Mortgages, Cent. Dig. §§ 312, 330; Dec. Dig. § 159.*]
3. Mortgages (§ 159 )—Priority—Subordination.
Money having been advanced in good faith on building loan mortgages in reliance on an agreement of the vendor of the premises that his purchase money mortgages should be subordinated to the building loans when made, the vendor and any one.claiming under him was estopped to repudiate it, and conditions arising between the vendor and purchasers, subsequent to the execution of the agreement and uncommunicated to and unknown by the lender at the time of making the building loan, would not affect its rights to priority.
[Ed. Note.—For other cases, see Mortgages, Cent. Dig. §§ 312, 330; Dec. Dig. § 159.*]
4. Mortgages (§ 159*)—Construction of Loan Agreement—Priority.
A building loan agreement provided that no payments should be made upon the building loan while any lien was recorded against the property, whether superior or subordinate to the building loan mortgages, but that the mortgages then existing on the premises (including a purchase money mortgage) should not be deemed liens within the terms of the agreement, which would prevent a payment to the mortgagee, but that the payments should be made subject to the aforesaid liens. Held, that it was a provision that existing mortgages should not -be deemed liens which would prevent payments on account of the loan, and did not show an intention of the lender not to avail itself of an agreement between the vendor and purchasers of the property to subordinate the purchase money mortgage to the building loan mortgage.
[Ed. Note.—For other cases, see Mortgages, Cent. Dig. §§ 312, 330; Dec. Dig. § 159.*]
Ingraham and Laughlin, JJ., dissenting.
Appeal from Special Term, New York County.
Action by Isidore Londner against David Perlman and others to foreclose a mortgage. Judgment for defendants, and plaintiff appeals.
Affirmed.
Argued before PATTERSON, P. J.. and INGRAHAM, LAUGH-LIN, CLARKE, and SCOTT, JJ. '
Henry Necarsulmer, for appellant.
Benjamin N. Cardozo, for respondents.
For other cases see same topic & § number in Deo. & Am. Digs. 1907 to date, & Rep’r Indexes
For other eases see same topic & § number in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes

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 Perlman and Bernikow and Bernheimer was absolute and unconditional. 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 mortgage upon 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 shall be subordinated to mortgages which the sellers may place upon said premises to secure payment of said building loans, the purchaser hereby agrees that at the time of the execution by the sellers oí said building loan and building loan mortgages he 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 Ass'n, 28 Ind. App. 25, 62 N. E. 293; Cummings v. Consolidated Mineral Water Co., 27 R. I. 195, 61 Atl. 353. It is made perfectly clear by the evidence that the subordination clause was exhibited to the State Bank, and that it made the building loan in reliance upon it and upon the promise of Perlman and Bernikow that they could 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, 48 N. Y. Supp. 974; Am. Exch. Nat. Bank v. Woodlawn Cemetery, 120 App. Div. 119-129, 105 N. Y. Supp. 305; McNeil v. Tenth Nat. Bank, 46 N. Y. 325, 7 Am. Rep. 341.
That Bernheimer did*not execute a further subordinate 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 Perl-man and Bernikow to cancel the agreement which comprised within its lines the subordination agreement, however effective for any other purpose, could not affect the 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 behindhand 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 Hens." .
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., concur.