Court Opinion

ID: 9569646
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:16:03.951847+00
Date Added: 2024-06-11T12:03:42.178337
License: Public Domain

Judge CLARK
dissenting.
Plaintiff made a construction loan of $250,000 to Village Associates, with knowledge that these funds were borrowed for the specific purpose of the construction of improvements on the Abernethy lots. Plaintiff knew that the construction of improvements was a condition contemplated by the lease agreement and the subordination agreement. The lease agreement provided in pertinent part:
“10a. The Lessor agrees to subordinate and subject its fee simple title in and to the premises to the lien of any mortgages or deeds of trust placed on the premises by the Lessee to secure construction and permanent financing, including primary financing, for the erection, furnishing and equipping of improvements on the premises provided that under no circumstances shall the maturity date of any such mortgage or deed of trust extend beyond the fifty-ninth year of the *624term hereof, and at the request of the Lessee will execute any mortgage deed of trust or subordination agreement to effectuate the provisions of this paragraph.
10b. The Lessor shall not be personally responsible for the payment of any such indebtedness secured by the Lessee for the erection of improvements on the premises, and that such financing shall not exceed the actual cost of the aforementioned improvements and equipment.”
On 12 July 1969, Jonas W. Kessing wrote a letter to Richard F. Downham, Attorney for the plaintiff, which stated that the total loan proceeds would be paid immediately to Village Associates, $125,000 to be placed in an account to be held for construction of the buildings on the Abernethy lot, the remainder to be disbursed for closing costs and to pay the second mortgage on the Castilian Apartments. Mr. Downham responded on 14 July 1969, to the effect that the disbursement schedule was acceptable to plaintiff. On 24 July 1969, Reynolds, the Attorney for Jonas W. Kessing Co. and agent for the plaintiffs, telephoned the plaintiff’s offices and informed the president of National Mortgage Co., Mr. Green, that the disbursement schedule was unusual in that it disbursed all the funds prior to beginning construction. Mr. Green informed Reynolds to proceed with the disbursements.
The plaintiff clearly agreed to disburse funds for purposes other than the construction of buildings on the Abernethy lot with knowledge that this was contrary to the express terms of the lease between Kessing and the Abernethys and the terms of the subordination agreement. The plaintiff also agreed to the unorthodox disbursement scheme which endangered the security of the mortgage on the Abernethy property.
In Brick Realty Corp. v. Title Guarantee & Trust Co., 161 Misc. 296, 291 N.Y.S. 637 (1936), the court held that a title insurance company was not obligated to defend a suit brought by the mortgagor’s wife in which she claimed that the mortgagor fraudulently schemed to wipe out her dower rights. The court noted that the title insurance company did not insure the defendant against the consequences of his own acts. See Feldman v. Urban Commercial, Inc., 87 N.J. Super. 391, 209 A. 2d 640 (1965). From the facts before us, the conclusion is inescapable that the defect in the title arose because plaintiff agreed to distribute *625funds for purposes other than construction of buildings on the Abernethy lots in violation of the terms of the lease and subordination agreement and because plaintiff jeopardized its security by agreeing to the unusual disbursement scheme. The defendant insurance company did not insure plaintiff against the consequences of its own reckless acts, and was therefore not liable for any loss occasioned thereby.