Court Opinion

ID: 5371751
Source: CourtListenerOpinion
Date Created: 2022-01-08 08:15:56.666086+00
Date Added: 2024-06-11T08:30:01.495184
License: Public Domain

Martin, P. J.
(dissenting). The parties have submitted this controversy for the purpose of having determined whether provisions of article 4-A of the Real Property Law are applicable to the voting trust agreement described in the agreed statement of facts. The stipulated facts, in so far as they are essential, are set forth in the accompanying opinion of Mr. Justice Glennon and will not be repeated here.
The positions of the parties are set forth in the agreed statement of facts as follows:
“31. The plaintiff claims that said Voting Trust Agreement will expire on April 1, 1942, by reason of the provisions of Article 4-A of the Real Property Law and has notified the defendants that it will not consent to the continuation of said Voting Trust Agreement beyond April 1, 1942, and has demanded the delivery to it on that date of the capital stock of the corporate defendant.
“ 32. The defendants claim that the provisions of Article 4-A of the Real Property Law do not apply to said Voting Trust Agreement and that said Voting Trust Agreement does not terminate until April 1, 1947, and further claim that, if said provisions of Article 4-A are applicable to said Voting Trust Agreement, they are, as so applied, invalid and void and unconstitutional under the provisions of Article I, Section 8, Clause 4, of the Federal Constitution in that they constitute improper infringement upon and limitation of the jurisdiction and power of the Federal bankruptcy court. The defendants have advised the plaintiff that the individual defendants will continue to perform their duties as Trustees after April 1, 1942 and that they will not recognize nor comply with the demand of the plaintiff that the Voting Trust Agreement shall terminate on said date and that the capital stock of the corporate defendant be delivered to the plaintiff.”
Article 4-A of the Real Property Law consists of sections 124 to 130-k of the Real Property Law, inclusive. Section 124 reads in part as follows: “ This article, except as otherwise expressly provided, shall apply] to the extent that the State has power to provide *552therefor, to all mortgage investments, as hereinafter defined, where the property constituting the underlying security therefor, or any part thereof, is located within the State or where the trustee, committee, depositary, management company, voting trustee or other person administering, holding in custody, or otherwise concerned with such investments has an office for the transaction of business with respect thereto within the State ór has obtained authority to do business in this State.”
Subdivision 1 of section 125 defined “ mortgage investments ” and reads in part as follows: “ 1. ‘Mortgage investments’ shall mean and include any and all shares and interests, heretofore or hereafter acquired, in an issue of bonds, notes or other evidence of indebtedness of individuals, partnerships, associations or corporations, held by more than one person and secured by a mortgage or mortgages upon real property, or by a deed or deeds of trust, trust indenture or indentures or other evidence of interest in real property, the payment of which is not guaranteed by any title and mortgage guaranty corporation or investment company * * *.”
It is clear from the agreed statement of facts that what we are concerned with is an “ issue of bonds ” held by “ more than one person,” which bonds are secured by “ mortgages upon real property.” These characteristics bring the securities within the provisions of subdivision 1 of section 125 if they are not guaranteed by a| “ title and mortgage guaranty corporation or investment company.”, The bonds are guaranteed by New York Investors, Inc. This' is not a title and mortgage guaranty corporation. “ Investment company ” is defined in the Banking Law. There is no other statutory definition. New York Investors, Inc., was organized "under the provisions of the Business Corporations Law, now incorporated in the Stock Corporation Law. We interpret the statute as being limited to an exclusion of mortgage investments guaranteed by an investment company organized under the provisions of the Banking Law solely. ,
■ We conclude. that article 4-A of the Real Property Law is applicable to the trust agreement described in the agreed statement of facts, as there are involved “ mortgage investments ” as defined in the article. The property constituting the underlying security for the mortgage investments is located within the State of New York and the voting trustees meet the jurisdictional requirement.
It is urged that the statute applies only where there is a reorganization of an interest in real estate such as a mortgage or a fee ownership. Defendants say: “ The concept of reorganizing real property itself is hard to grasp; but it is obvious that what the *553Legislature meant was either the reorganization of ownership of, or a hen interest in, real property. In this case, neither the ownership of, nor a hen interest in, real property was reorganized in any respect.” We cannot subscribe to any such narrow interpretation. Section 124 states: “ It is the purpose of the Legislature, in enacting this article, to provide for the regulation and supervision of the appointment, creation, agreements, acts, conduct, practices and proceedings of trustees, bondholders’ protective committees, depositaries, management companies, voting trustees and other persons administering, holding in custody or otherwise concerned with' real estate mortgages and interests therein to the end that such interests will be properly conserved, administered and ultimately liquidated in the pubhc interest. * * * ”
Section 130-h provides: “ This article shall be construed liberally to effectuate its purpose. * * * ”
It may be convenient for the defendants to describe the reorganization as the reorganization of a bond issue. It was not as simple as it sounds. Actually, the reorganization here required the transfer of ah pledged property, including twenty-four parcels of real property which had been acquired through foreclosure and which was part of the collateral for the outstanding bonds, the execution of a new indenture and the issuance of new bonds. As we view it, this was a reorganization of property within the inten-! tion of the statute.
To avoid the definition of mortgage investments as set forth in subdivision 1 of section 125 of the Real Property Law, the defendants urge that neither the old bonds nor the new bonds were secured by mortgage or mortgages upon real property or by deed or deeds of trust, trust indenture or indentures or other evidence of interest in real property. This ignores the provisions of the old indenture which transferred to the trustee mortgages and other items of collateral “ in trust, nevertheless, for the common and equal use, benefit and security of all and singular the person or persons, firm or firms, body or bodies politic or corporate, who shall from time to time be holders or registered owners of any of the bonds. * * * ”
Defendants argue that this is a collateral trust which was not intended to be subject to article 4-A and they point to the definitions of mortgage investments as set forth in the so-called Schackno  and Mortgage Commission  Acts which specifically include collateral trust issues. Defendants say that article 4-A omits any reference to collateral trusts and they, therefore, urge that thereby the Legislature evidenced an intention to exclude collateral trust issues *554from the operation of the statute. The phraseology of article 4-a differs from that of the Schaekno and Mortgage Commission Acts. In article 4-A the Legislature specifically provided that “ mortgage investments ” include shares and interests in an issue of bonds secured by a “ trust indenture or indentures.” The expression “ trust indenture or indentures ” is not limited or qualified and necessarily includes collateral trust obligations. The express purpose and object of article 4-A make it clear that it was intended to be broader than the prior statutes.
It may be of interest to note that with the exception of the cash item, all of the collateral presently held by the trustee consists of real estate or interests in real estate, and the cash fund is maintained for use in the protection of the items of real estate and mortgages held as part of the trust fund. There is nothing in the statute to indicate that the Legislature did not intend to have the provisions of article 4-A apply where real estate, bonds secured by mortgages on real estate and cash constitute the security for outstanding bonds.
The plan of reorganization pursuant to which the voting trust agreement was executed provides that the duration of the voting trust shall be for ten years or such shorter period as may be prescribed by law, or in the event that any new bonds, series A, are outstanding at the end of such period, for a further period “ determined to be in conformity with the laws of the State of incorporation of the new company.”
Apart from any estoppel which may have been created by this specific agreement that the law of the State of New York is determinative of the duration of the voting trust agreement, the constitutionality of the New York statute, in so far as it impinges on the power of the Federal bankruptcy court, was considered by the Circuit Court of Appeals for the Second Circuit in Matter of Ambassador Hotel Corporation (124 F. [2d] 435). It was held that article 4-A was applicable to a voting trust agreement created pursuant to a plan of reorganization under section 77B of the Bankruptcy Act, the court saying in part: “ When the court confirmed a plan of reorganization which set up a New York corporation with stock issued to voting trustees, it used a tool created under and subject to State laws. The future fate of the corporation was not within the control of the bankruptcy court, nor could that court reserve power to adjudicate controversies in which it might become involved. * * * In selecting such a corporation as an instrumentality of reorganization, the bankruptcy court sent it out into the State as fully subject to State law as though the court had had nothing to do with its creation.”
*555It is clear that article 4-A in no way limits or restricts the power of the Federal bankruptcy court.
We are of the opinion, therefore, that article 4-A applies to the voting trust agreement here involved and that plaintiff is entitled to judgment restraining the defendants from acting as voting trustees of the capital stock of the corporate defendant from and after April 1, 1942, and directing said individual trustees to deliver to plaintiff the certificate or certificates for all of the capital stock of the corporate defendant.
Townley, J., concurs.
Judgment directed for the defendants, without costs. Settle order on notice.