Court Opinion

ID: 5940350
Source: CourtListenerOpinion
Date Created: 2022-01-13 05:43:15.140652+00
Date Added: 2024-06-11T08:47:11.486994
License: Public Domain

Ritter, J.,
concurs in part and dissents in part and votes to *255dismiss the appeal from the order dated June 20, 1989, and reverse the order dated April 17, 1989, insofar as appealed from, to deny the motion of the defendant Seco Management, Inc., and to remit the matter to the Supreme Court, Kings County, for a new determination of the amount to be awarded the plaintiff out of the proceeds of the foreclosure sale, with the following memorandum in which Rosenblatt, J., concurs: The question presented on this appeal is whether a mortgage providing for the payment of the maximum interest rate permitted by law (25%) "to the date of actual receipt of payment” should be given effect according to its terms. The Supreme Court answered the question in the negative and awarded the statutory rate of 9% interest once a judgment of foreclosure was entered. We would reverse the order dated April 17, 1989, and grant the plaintiff the benefit of the bargained-for interest rate holding that the defendant Seco Management, Inc. (hereinafter Seco) must pay 25% interest on the principal sum owed until the payment is received.
This case involves a mortgage agreement executed to secure payment of consolidated debts in the principal sum of $1,300,000. Interest ran at 3V2% above the prime rate and upon default, Seco was obligated to pay interest at the increased rate of 25% on the unpaid principal debt computed from the date of default to the date of actual receipt of payment.
After Seco defaulted, the plaintiff’s predecessor in interest obtained a judgment of foreclosure against Seco on February 11, 1988. The judgment confirmed the report of the court-appointed Referee that the total sum due on the mortgage, including accrued interest at the rate of 25% per annum through December 31, 1987, the date of computation, was $1,811,874.98. The judgment further provided that interest should accrue on this sum from December 31, 1987, "pursuant to the terms of said mortgage”.
The foreclosure sale was stayed when Seco filed a petition in bankruptcy court. The plaintiff’s predecessor moved for relief from the bankruptcy stay and a stipulation was executed on June 21, 1988, giving Seco time to find a buyer for a private sale of the mortgaged premises. In pertinent part, the stipulation provided that Seco would continue paying interest on the principal balance of $1,300,000 at the rate of 25% per annum "until the mortgage is fully paid”. Seco was given a specified time period in which to produce a buyer willing to contract for a minimum price sufficient to pay the principal balance, "interest to date of sale at 25% per annum”, plus all other sums accrued under the mortgage including foreclosure costs *256and legal fees. In the event that Seco could not produce a buyer in accordance with the stipulation, the stay was to be automatically vacated and the property sold pursuant to the judgment. Seco was unable to produce a buyer, and on December 12, 1988, the property was sold at auction for a price in excess of $3,000,000.
Thereafter, Seco moved to stay distribution of the proceeds of the foreclosure sale, and to direct that the amounts to be distributed to the plaintiff be limited to the amounts set forth in the judgment, with interest thereon computed at the rate of 9% per annum, the legal rate of interest on a judgment (CPLR 5004). The plaintiff opposed the motion, contending that it was entitled to enforce its judgment and collect interest at the rate of 25% per annum. The Supreme Court agreed with Seco and awarded interest at the rate of 9% per annum.
In our view, the legislative determination that the statutory rate of interest applied to judgments should be 9% (CPLR 5004) does not preclude the parties from agreeing to a different rate of interest (cf., O’Brien v Young, 95 NY 428). When a contract provides for interest to be paid at a specified rate until the principal is paid, the contract rate of interest, rather than the legal rate set forth in CPLR 5004, governs until payment of the principal or until the contract is merged in a judgment (see, Citibank v Liebowitz, 110 AD2d 615; O’Brien v Young, supra; Stull v Joseph Feld, Inc., 34 AD2d 655). Seco relies on Citibank in support of its contention that the contractual interest provision has been merged into the judgment and replaced by the statutory interest rate. Seco’s reliance on Citibank is clearly misplaced.
The only issue presented in Citibank was whether the contract interest rate or the statutory interest rate should govern from the date of default up until the date of judgment. In holding that the contract rate should be applied, this court simply reaffirmed the relevant principles of law articulated by the Court of Appeals over a century ago in O’Brien v Young (supra). There was no claim in Citibank that the agreement was intended to survive and not merge into the judgment (see also, Stull v Joseph Feld, Inc., supra).
The case at bar is distinguishable because here, the parties clearly intended that the specified contract rate should survive the entry of judgment and continue until payment of the principal debt was actually received by the holder of the mortgage. Contrary to Seco’s contention, merger does not occur when the parties intend otherwise, and when the judg*257ment incorporates the interest provisions of the mortgage. The parties’ clear expression of intent in this case is evidenced further by the postjudgment stipulation in which Seco agreed to continue paying the mortgage rate of interest while it sought a private buyer to avoid the foreclosure sale of the mortgaged premises. Indeed, Seco’s failure to seek modification of the judgment prior to the foreclosure sale bound it to the terms of the mortgage that were incorporated by reference into the judgment (cf., Rainbow v Swisher, 72 NY2d 106, 110).
If Seco were permitted to avoid its contractual obligation, there would be an incentive to allow the matter to proceed to judgment, and to prolong the satisfaction of the judgment. The interest rate fixed by the mortgage is considerably higher than the 9% rate applied to judgments. The resolution of disputes without resort to the courts is to be encouraged. The mortgage was drafted so as to accomplish this by increasing the interest rate upon default. This served to encourage prompt settlement of the indebtedness. Were the debtor to be permitted to replace the higher rate with the legal rate of 9%, it would encourage litigation and tactics designed to delay enforcement of the judgment. Accordingly, we conclude that the plaintiff was entitled to the benefit of the bargained-for 25% interest rate on the principal amount of $1,300,000 from the date of the Referee’s computation, December 31, 1987, to the date that principal amount was paid. The matter should be remitted to the Supreme Court for a new determination of the amount to be awarded to the plaintiff out of the proceeds of the foreclosure sale.