Court Opinion

ID: 5366159
Source: CourtListenerOpinion
Date Created: 2022-01-08 07:48:21.920872+00
Date Added: 2024-06-11T08:29:57.103851
License: Public Domain

Dore, J.
(dissenting). The primary issue on this appeal is whether, on application by a mortgagee under section 1077-e of the Civil Practice Act, the court may direct payment of a surplus for a six months’ period that had expired three months before the mortgagee’s application to the court. That section, so far as here relevant, provides that notwithstanding the moratorium legislation any one who would otherwise have the right to foreclose a mortgage has the right “ to make an application to any court *444in which such foreclosure action might be brought upon eight days’ notice, * * * and if upon such application it shall appear to the satisfaction of the court that the mortgaged property during the six months prior to the application shall have produced a surplus ” over taxes, interest and carrying charges, the court may direct the payment of such surplus or a part thereof to the mortgagee to apply to the reduction of any past due principal. (Italics mine.)
Appellant, Foxvale Realty Company, also known as Foxvale Realty Corporation, Inc., is the owner of a five and one-half story apartment house in the Bronx. Respondent Title Guarantee & Trust Company is the holder of a first mortgage on the premises in the sum of $178,000 which became due July 1, 1937. On August 31, 1940, the mortgagee served notice on the owner to produce the owner’s books and records on September ninth for inspection to reveal the income and expense from the mortgaged premises for the six months’ period beginning February 1, 1940, and terminating July 31, 1940. The owner consented to examination of its books for the purpose of determining whether or not there was a surplus, as it had consented to two prior examinations covering two prior six months’ periods, viz., from February 1, 1939, to July 31, 1939, and from August 1, 1939, to January 30, 1940. After completing its last examination in September, 1940, the mortgagee on October 23, 1940, made application to Special Term for an order directing the owner to pay the mortgagee an alleged surplus of $4,943.65 claimed to have accrued in the six months’ period from February 1, 1940, to July 31, 1940, and asked that such surplus be applied on the past due principal of the mortgage pursuant to the provisions of section 1077-c. The owner asked that the application be denied on the statutory ground that the six months’ period designated by the mortgagee was not the six months prior to the application to the court, but a period that had expired almost three months before the maldng of the application; and also claimed a deficit for the six months immediately prior to the October application.
The court on November 26, 1940, by an intermediate order directed that the motion be held in abeyance and ordered the owner to make available to the mortgagee its records showing income and expenses from July 31, 1940, to October 1, 1940, to aid the court in determining any surplus which should be applied to the past due principal. That further examination of the owner’s books was also had. Thereafter by order dated January 3, 1941, Special Term on all the papers found that for the period from February 1, 1940, to July 31, 1940, there was a surplus of $4,943.65 and directed the owner to pay $3,000 thereof to be applied on the principal of the mortgage.
*445The owner appeals from this order and also from the intermediate order directing examination for the two months of August and September, 1940. We think that the order directing payment of the surplus for a period expiring three months prior to the application and the intermediate order appealed from were erroneous and should be reversed.
The proceeding is statutory and in view of the moratorium legislation, the application for payment of a surplus could not be allowed except for the provisions of section 1077-c. The section expressly states that an application thereunder for payment of a surplus relates to “ the six months prior to the application.” The statutory provisions show that the “ application ” referred to is the application made to the court, not, as the mortgagee erroneously contends, any prior notice or demand made upon the mortgagor for an examination to determine the facts relating to payment of a claimed surplus.
The cases follow the language of the statute. In Chase National Bank v. Guardian Realties, Inc. (283 N. Y. 350, 367) the Court of Appeals held that a surplus money application may not be made for a period of less than six months and said: “ Section 1077-c explicitly provides that an application for the determination of the surplus must be made for the period of six months prior to the application. Since this is a statutory proceeding, it is clear that there is no alternative but to require that an application must cover a six months’ period. The Legislature was unquestionably empowered to adopt a reasonable procedure, and compliance therewith may not be evaded.”
In Matter of Mortgage Corp. v. Menan Realty Corp. (258 App. Div. 429) the Appellate Division of the Second Department has held that under section 1077-c the surplus may be reached only for the period mentioned in the statute and not for any six months’ period preceding the application which may be selected by the mortgagee. In that case the six months’ period terminated seven months prior to the application to the court. The ruling of the Appellate Division reversing an order directing the owner to pay a claimed surplus to the mortgagee was affirmed without opinion by the Court of Appeals (282 N. Y. 724 [March 15, 1940]).
The mortgagee contends that because the mortgagee’s notice called for a designated six months’ period and the owner freely permitted an examination of its books for such period and had consented to similar examinations for two prior six months’ periods, a course of conduct consented to by the owner and waiver of any objection were shown. The Special Term appears to have adopted this view. But the application was made not on August 31, 1940, *446when the mortgagee gave notice and demand to examine the books, but in October, 1940, when the application was made to the court. On the return day of the motion, October 29, 1940, the owner asked denial of the application on the statutory ground relating to the proper six months’ period. There was no waiver or acquiescence.
It is urged that because of the size of the building, the examination of the books and records and the preparation of a statement of expense and income require several weeks. Where, as here, the owner was perfectly willing to permit a full examination of its books and records, the mortgagee could easily have demanded such examination for a named six months’ period and prior to the court application could have procured such examination a month or three weeks before the termination of such period. The facts and figures for practically the whole of the six months could at that time be determined accurately; the income and fixed charges for the remaining few weeks would by that time be easily ascertainable; and after such examination, the mortgagee would be in a position to move for the surplus claimed to be shown with complete accuracy or with reasonable certainty. In any event, as was pointed out in the Menan case, the owner may be required to produce his records upon the return day of the application to the court for inspection by the mortgagee and the court. (Matter of Mortgage Corp. v. Menan Realty Corp., supra, at p. 431; Matter of Mortgage Commission v. Salisch, 248 App. Div. 739.)
We do not say that designating a six months’ period ending the day notice is served of application to the court instead of on the return day of such motion would necessarily be defective. That narrow issue is not presented by this record and need not here be passed upon. On the facts disclosed in this record, however, we think the court was without authority to grant this application for a designated six months’ period that had concededly expired almost three months before either the date of service of the notice of motion or the return day of the application to the court. In view of our recommendation on this issue it is unnecessary to consider the other questions raised.
Accordingly we vote to reverse the orders appealed from with costs and disbursements.
Cohn, J., concurs.
Order entered January 4, 1941, affirmed, with twenty dollars costs and disbursements. Appeal from intermediate order dismissed.