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Prudential Ins. Co. v. Liberdar Holding Corp.

August 10, 1936

PRUDENTIAL INS. CO. OF AMERICA
v.
LIBERDAR HOLDING CORPORATION; BROOKLYN TRUST COMPANY V. LEIDER ET AL.



Appeal from the District Court of the United States for the Eastern District of New York.

Author: Hand

Before MANTON, L. HAND, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

This is a petition by the Brooklyn Trust Company, which is the owner of a consolidated mortgage on premises 441 Ocean avenue, in Brooklyn, N.Y., which secures outstanding certificates in the names of some 242 holders amounting in the aggregate to $575,000, for an order directing Liberdar Holding Corporation, the purchaser of the mortgaged premises at a sale in partial foreclosure, to convey title thereof to the trust company as trustee for the certificate holders, and that the ancillary receivers consent thereto.

The payment of the principal and interest of these certificates was guaranteed by New York Title & Mortgage Company (hereafter called the Mortgage Company). Prior to the issue of the certificates that company owned the consolidated mortgage outright but, upon the purchase by the certificate holders of participation interests in the mortgage, the Mortgage Company assigned to them undivided interests therein at par to the extent of the sums advanced. The Mortgage Company guaranteed payment of interest at the rate of 5 1/2 per cent. as the same should become due under the terms of the bond and mortgage. Any excess of interest collected by the Mortgage Company beyond that rate was to belong to it. It also guaranteed payment of the principal when collected on each certificate as it became due, but in any event within eighteen months after payment should be demanded by the certificate holder. In the instrument of guaranty it was appointed agent of the assured to collect, sue for, and receive the principal and interest secured to be paid by the bond and mortgage and to satisfy and discharge the mortgage in its own name on receiving full payment thereof. The guaranty also provided that the Mortgage Company should have the right, without expense to the assured, to collect the mortgage and out of the proceeds to retain so much as might remain after paying to the latter whatever might be due of principal and interest. It further provided that the company might assign the bond and mortgage to any corporation organized under the banking or insurance laws, subject to the rights of the holders of certificates which might then be outstanding.

In 1932 the Mortgage Company, being then the record owner and holder of the consolidated bond and mortgage against which the certificates were issued and guaranteed by it, began an action for partial foreclosure in the New York Supreme Court, Kings County. New York Civil Practice Act, ยง 1086. A sale was had in the action for partial foreclosure and the property was bid in by Liberdar Holding Corporation, a wholly owned subsidiary of the Mortgage Company. The petition alleges that a referee's deed conveying the premises to the Liberdar Corporation was executed and delivered on or about August 30, 1932. On September 6, 1933, ancillary receivers were appointed in a conservation suit by the Prudential Insurance Company of America against the Liberdar Corporation. The affidavit of Receiver Dreyer states:

That the property was acquired by the Liberdar Corporation, "* * * as a result of a foreclosure instituted because of the non-payment of interest, and was acquired by defendant on November 30th, 1932.

"At or about the time of the acquisition of this property the defendant made the following disbursements:

Referee's fee $100.00

Advertising 84.50

Foreclosure costs 548.00

Interest 35,288.88

Recording deed ...


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