The opinion of the court was delivered by: Sweet, District Judge.
S.L. Building Company ("S.L. Building") has moved under
Rule 56, Fed.R.Civ.P., for summary judgment dismissing the
complaint by which plaintiff the United States of America
(the "Government") seeks to collect, by way of foreclosure of
the property 601 West 26th Street, $1.2 million in unpaid
taxes, which are owed by Claire Britt Freidus ("Britt"). The
Government has cross-moved for summary judgment directing
foreclosure. For the reasons set forth below, the motion of
the Government is granted and that of S.L. Building denied
based upon the findings and conclusions set forth below.
This action was filed on July 20, 1990 and certain
discovery has been had. The instant motions were argued and
submitted on February 15, 1991.
The following facts have been established by the 3(g)
statements submitted by the parties.
S.L. Building is a New York partnership with its principal
place of business at 60 East 42nd Street, New York, New York,
and is the current fee owner of the property located at 601
West 26th Street, New York, New York. S.L. Building acquired
title to the property at public auction held on August 20,
1974, as a result of a mortgage foreclosure proceeding of a
third mortgage held by Precision Dynamics Corporation.
On June 21, 1967, Britt entered into a settlement agreement
(the "Settlement Agreement") with her husband, Jacob Freidus
("Freidus"), 601 West 26 Corp. (of which Freidus was then the
president and principal owner) and other parties, resolving,
inter alia, matters relating to Britt's divorce from Freidus.
It also provided that Freidus would indemnify Britt for any
counsel fees that she might have expended "in defending or
settling any claims which are covered by these indemnities,
if Mr. Freidus fail[ed] adequately to defend or settle them.
. . ." and that in the event of a default under the
Settlement Agreement, which default was defined as:
Britt would be permitted to proceed against the security. On
June 26, 1967, Britt, Freidus, 601 West 26 Corp. and others
entered into an addendum to the Settlement Agreement and on
June 29, 1967, Britt, Freidus and 601 West 26 Corp. entered
into a further agreement.
On February 15, 1968, 601 West 26 Corp., by Freidus,
created a guarantee (the "Guarantee") which guaranteed
Freidus' performance of the Settlement Agreement with Britt.
The Guarantee stated that:
On March 29, 1968, 601 West 26 Corp. gave a mortgage to
Britt, which was recorded in the office of the City Register
of New York County on October 23, 1969 on reel 154, page 1067
(the "Mortgage"), to secure the February 15, 1968 Guarantee.
The Mortgage agreement provides that there might be
multiple defaults and partial foreclosures, each of which
would be treated separately:
On March 29, 1968, 601 West 26 Corp. was the fee owner of
the property located at 601 West 26th Street, New York, New
By Judgment of Foreclosure and Sale, dated July 29, 1974,
the Supreme Court of the State of New York directed a public
sale of the property and further directed that the property
On December 19, 1979, the United States Tax Court issued
its decision in Freidus, et al v. Commissioner, Nos. 4317-63,
4319-63, 1205-68, 1206-68, and 1207-68, 1979 WL 3591 regarding
Britt's federal personal income tax liability for tax years
1949 through 1960. Britt filed an appeal of this decision with
the United States Court of Appeals for the Second Circuit,
Claire Britt v. Commissioner of Internal Revenue, No. 82-4167
On October 27, 1982, and November 19, 1982, the Internal
Revenue Service made assessments of federal personal income
tax, penalty and interest against Britt in the total amount
of $6,791,987.39, based upon the United States Tax Court
On June 20, 1984, Britt, through her attorneys, offered to
settle the case of Claire Britt v. Commissioner of Internal
Revenue, No. 82-4167 (2d Cir.). The offer for settlement
On August 2, 1984, Britt, through her attorneys' letter
confirmed the June 20, 1984 offer of settlement with
clarifications. The letter stated:
By letter of August 7, 1984, Glenn L. Archer, Jr.,
Assistant Attorney General, by Mildred L. Seidman, Chief,
Office of Review, Tax Division, Department of Justice,
accepted Britt's offer of settlement, as submitted on June
20, 1984 and confirmed on August 2, 1984, stating that:
On September 5, 1984, Britt, in consideration for the
settlement of Claire Britt v. Commissioner of Internal Revenue,
No. 82-4167 (2d Cir.), assigned the Mortgage to the Internal
Revenue Service. The assignment of the Mortgage was recorded in
the office of the City Register of New York County on September
14, 1987 on reel 832, page 727.
On October 2, 1985, Britt made a collateral assignment (the
"Collateral Assignment") of rights to the Internal Revenue
Service. The Collateral Assignment was recorded in the office
of the City Register of New York County on October 25, 1985
on reel 976, page 1861.
As a result of the settlement in Claire Britt v. Commissioner
of Internal Revenue, No. 82-4167 (2d Cir.), there remains
outstanding against Britt $1,200,000 in unpaid tax liabilities,
to be paid out of the Mortgage.
On January 14, 1986, the Internal Revenue Service, through
the United States Department of Justice, gave notice to
Freidus of a default under the terms of the Settlement
Agreement dated June 21, 1967. At no time has Freidus made
any payments of Britt's tax obligations within the meaning of
the Settlement Agreement.
This action was filed on July 20, 1990. On November 14,
1990 Britt and the Government filed a stipulation so ordered
by the court which provided that:
[A]s a result of the settlement in Claire Britt v.
Commissioner of Internal Revenue, No. 82-4167 (2d
Cir.), there remains outstanding against Britt
$1,200,000 in unpaid tax liabilities, to be paid
out of the March 29, 1968 Mortgage.
Summary Judgment Is Appropriate
The material facts as found above are set forth in the
Government's 3(g) statement and in the S.L. Building's 3(g)
statement. The June 21, 1967 Settlement Agreement, the
February 15, 1968 Guarantee, and the March 29, 1968 Mortgage,
are not disputed except as to the dispute concerning the
legal interpretation of these documents which does not
present a "genuine issue of material fact." As a general
matter, the interpretation of contracts is a question of law,
not fact. See e.g., Nicholas Laboratories, Ltd. v. Almay, Inc.,
900 F.2d 19 (2d Cir. 1990) ("the interpretation of the words of
a contract is generally a question of law"); Network Pub. Corp.
v. Shapiro, 895 F.2d 97 (2d Cir. 1990) (same) (citing Eddy v.
Prudence Bonds Corp., 165 F.2d 157, 163 (2d Cir. 1947) (L.
Hand, J.)). Thus, no material facts are in dispute.
I. This Action Is Not Barred By The Statute Of Limitations
S.L. Building has moved to dismiss the Government's action
to foreclose on the Mortgage as time barred under state law
or as a contract action under Federal law, relying upon,
respectively, Section 213(4) of the New York Civil Practice
Law and Rules ("CPLR") and 28 U.S.C. § 2415(a) for that
1. 28 U.S.C. § 2415(a) Does Not Bar This Action
In an action to collect on an assessment of tax, a six-year
statute of limitations applies. 26 U.S.C. § 6502(a) ("Where the
assessment of any tax imposed by this title has been made
within the period of limitation properly applicable thereto,
such tax may be collected by levy or by a proceeding in court,
but only if the levy is made or the proceeding begun — (1)
within six years after the assessment of the tax"). If an
assessment is based on a decision of the Tax Court, however,
the six-year period of limitations for collection of an
assessment is tolled "until the decision of the Tax Court
becomes final," plus an additional 60 days.
26 U.S.C. § 6503(a)(1). See M. Saltzman, IRS Practice and Procedure ¶ 5.05
at 5-25 (1981) ("While the assessment triggers the running of
the period of limitations on collection, the running of the
period is suspended until the Tax Court decision becomes
final."). A Tax Court decision, in turn, does not become final
until the termination of any appeal from the decision.
26 U.S.C. § 7481(a) ("the decision of the Tax Court shall become
final . . . (2)(A) if the decision of the Tax Court has been
affirmed or the appeal dismissed").
S.L. Building does not question the fact that the
assessments based on the decision of the Tax Court were
timely made within three years after the filing of an income
tax return. 26 U.S.C. § 6501(a). The IRS made its assessments
in October and November of 1982, less than three years after
the date of the Tax Court decision, and in any event, before
the Tax Court decision became final upon the dismissal of
Britt's appeal in 1984.
Since the Tax Court decision did not become final until
September 10, 1984, the Government was entitled to bring an
action to collect on its assessment of Claire Britt's taxes
up until November 10, 1990. See 26 U.S.C. § 6502(a) (six-year
period of limitations); 26 U.S.C. § 6503(a)(1) (tolling until
60 days after Tax Court decision final).
2. CPLR § 213(4) Does Not Bar This Action
As a general rule, and as S.L. Building concedes, "the
United States is not subject to any statute of limitations in
enforcing its rights unless Congress explicitly provides
otherwise." United States v. Podell, 572 F.2d 31, 35 n. 7 (2d
Cir. 1978); see United States v. John Hancock Mutual Life Ins.
Co., 364 U.S. 301, 308, 81 S.Ct. 1, 6, 5 L.Ed.2d 1 (1960) ("the
United States is not subject to local statutes of
limitations"); Guaranty Trust Co. v. United States,
304 U.S. 126, 132-33, 58 S.Ct. 785, 788-89, 82 L.Ed. 1224 (1938) (citing
rule and its history); S.L. Building Mem. at 7 ("[u]nder most
circumstances the [Government] is not subject to local statutes
S.L. Building, however, cites three cases for the
proposition that an assignee's contract rights are derived
from those of the assignor and that the assignee, "even if it
is the United States Government, may not acquire better
rights tha[n] its assignor and is bound by . . . the
applicable statute of limitations." S.L. Building Mem. at 7
citing FDIC v. Forte, 109 Misc.2d 546, 440 N.Y.S.2d 500 (Nassau
Co.Spec.Term 1981), aff'd, 94 A.D.2d 59, 463 N.Y.S.2d 844 (2d
Dep't 1983); Deitrick v. Standard Surety & Casualty Co.,
303 U.S. 471, 58 S.Ct. 696, 82 L.Ed. 962 (1938); and United States
v. Alessi, 599 F.2d 513 (2d Cir. 1979) (per curiam).
In Forte, the question presented was whether provisions of
the New York Real Property Actions and Proceedings Law
("RPAPL"), which require appraisal of property before sale,
applied to a proceeding instituted by the Federal Deposit
Insurance Corporation ("FDIC"), which sought a deficiency
judgment against the maker of a promissory note. The Forte
Court held that the RPAPL applied, noting (1) "the statute
creating the [FDIC] . . . is silent as to whether State Law or
Federal Law should apply in cases where, following foreclosure
of a mortgage, a deficiency exists, and it is also silent as to
whether an appraisal is required," id., 440 N.Y.S.2d at 501;
and (2) "[t]here is no federal statute or overriding policy
which confers on the FDIC as the liquidator or receiver greater
powers than the bank itself had before insolvency," id., 440
N YS.2d at 502.
However, the Forte rule has been limited to its
circumstances. See FDIC v. Fisher, 727 F. Supp. 1306, 1311 n. 6
(D.Minn. 1989) (the Forte court "limited its holding that New
York law applied to the foreclosure of a mortgage by explicitly
confining it to situations where `there is no Federal statute
or overriding national policy'") (citation omitted). The Fisher
court, for example, refused to apply the Forte rule to a case
where the makers of promissory notes sought to assert various
state defenses (including accord and satisfaction, novation,
conversion, and lack of holder in due course status) to an
action by the FDIC based on various promissory notes. See
Fisher, 727 F. Supp. at 1310 ("There is no question that federal
law controls this case.").
In Deitrick, the maker of a guaranty bond sought to set up
the defense of fraud in an action by a Government receiver. The
Court, without detailed analysis, ruled that "the receiver
stands no better than the bank." 303 U.S. at 480-81, 58 S.Ct.
at 701. Four years later, however, in D'Oench, Duhme & Co. v.
FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), the
Supreme Court held that, in an action by the FDIC to collect on
a note, "the liability of [the
maker] on the note involves decision of a federal, not a
state, question. . . ." Id. See, e.g., FDIC v. Meo,
505 F.2d 790, 793 n. 4 (9th Cir. 1974) ("federal law controls in cases
involving the rights of the FDIC").
The Alessi Court did not apply a state statute of
limitations; it applied federal law. Nor does the Alessi
decision suggest that an action by the United States to collect
on tax liabilities is subject to any state defenses. None of
the cases cited by S.L. Building involve tax collection, and
none involve state statutes of limitations.
3. Action To Collect On Assessment Not Barred By §
Characterizing this action as one to collect on an
assessment rather than to enforce a contract, gives rise to
the application of the federal statute of limitations. S.L.
Building further argues, however, that 28 U.S.C. § 2415(a) bars
this action on the grounds that the Government's action is to
enforce a contract, citing § 2415(a)'s provision that "every
action for money damages brought by the United States or an
officer or agency thereof which is founded upon any contract .
. . shall be barred unless the complaint is filed within six
years after the right of action accrues. . . ." 28 U.S.C. § 2415(a)
Section 2415(a) is inapplicable to the instant action on
its face: the Government seeks to collect on a tax judgment.
Section 2415, moreover, separately states that the statute of
limitations does not apply to any "actions brought under the
Internal Revenue Code or incidental to the collection of
taxes imposed by the United States." 28 U.S.C. § 2415(h).
Nor does the Government's execution of the offer of
settlement with Britt require a characterization of this
action other than as one to collect an assessment. In
Golub v. United States, 74-2 U.S.T.C. ¶ 9566, 498 F.2d 1405,
204 Ct.Cl. 935 (1974), for example, the Government brought an
action to collect taxes owed pursuant to a "collateral
agreement" that settled a taxpayer's obligation to pay certain
tax deficiencies. The taxpayer contended that the Government's
right to proceed on the collateral agreement had terminated.
The Court of Claims rejected that assertion, noting that
Section 2415(h) "expressly excludes actions `incidental to the
collection of taxes imposed by the United States.'" Id. at 84,
Similarly, in a series of decisions with regard to the
Surface Mining Control and Reclamation Act, courts have
concluded that actions to collect delinquent reclamation
fees, which are owed as a consequence of statute, not by
contractual agreement, are not subject to the limitations
provisions of Section 2415(a). See, e.g., United States v.
Tri-No Enterprises, Inc., 819 F.2d 154, 158 (7th Cir. 1987)
(where company never entered into agreement to pay delinquent
fees, Section 2415(a) did not apply); United States v. E & C
Coal Co., 647 F. Supp. 268, 273 (W.D.Va. 1986) ("[T]he payment
of the reclamation fees is not a contractual situation between
the government and the defendant."); United States v. Davis,
No. CV 84-4653, 1985 WL 8036 (S.D.Ill. Sept. 16, 1985) (same);
but see United States v. Gary Bridges Logging & Coal Co.,
570 F. Supp. 531, 533 (E.D.Tenn. 1983) (action for fees construed as
contractual action where company entered into installment
agreement with government to pay delinquent fees); United
States v. Hawk Contracting, Inc., 649 F. Supp. 1 (W.D.Pa. 1985).
This case is "brought under the Internal Revenue Code or
incidental to the collection of taxes imposed by the United
States," within the meaning of 28 U.S.C. § 2415(h) since it is
expressly denominated as an action pursuant to 26 U.S.C. § 7401,
et seq (civil actions for the recovery of taxes), brought
on behalf of the Internal Revenue Service and predicated on a
judgment of the Tax Court with respect to Britt's personal
income tax liabilities, and the subsequent assessment by the
IRS of more than six million dollars in tax liability. See
Complaint ¶ 2. It seeks a judgment, inter alia, that Britt pay
$1,200,000 in unpaid tax liabilities, such judgment to be
satisfied by collection on a mortgage.
4. Mortgage Foreclosure Actions Not Barred By §
Section 2415 contains a second express exemption from the
statute of limitations. Under 28 U.S.C. § 2415(c), Section
2415(a) is limited such that "[n]othing herein shall be deemed
to limit the time for bringing an action to establish the title
to, or right of possession of, real or personal property."
Courts have routinely applied this provision in holding that
mortgage foreclosure actions brought by the federal government
are not governed by 28 U.S.C. § 2415(a). See, e.g., United
States v. Copper, 709 F. Supp. 905, 907 (N.D.Iowa 1988) (holding
that, in action to enforce SBA loan, even if Section 2415(a)
bars an action to enforce a debt, "the statute in no way limits
the government's right to foreclose a mortgage given to secure
said debt"); Curry v. SBA, 679 F. Supp. 966, 970 (N.D.Cal. 1987)
(statute of limitations under Section 2415(a) did not bar SBA
from exercising power of sale in deed of trust); Cracco v. Cox,
66 A.D.2d 447, 414 N.Y.S.2d 404, 406 (4th Dep't 1979) (Section
2415(a) inapplicable in FHA action to foreclose mortgage).
In Cracco v. Cox, 66 A.D.2d 447, 414 N.Y.S.2d 404 (4th Dep't
1979), the Fourth Department examined the text and history of
Section 2415(a) in detail and concluded that the Section did
not apply to an action by the United States to foreclose on a
mortgage given to the FHA to secure a loan. The Cracco court
It is a long-standing rule that the right to
foreclose a mortgage securing a debt is distinct
from the right to bring an action for money
damages on the note or bond representing the
debt. Congress recognized and preserved this
distinction and intended that Section 2415 apply
only to actions for damages.
Id., 414 N.Y.S.2d at 405. Further, the court emphasized that
"the right to foreclose survives [even] when an action on the
debt is barred by the statute of limitations." Id., 414
N YS.2d at 406 (citing Union Bank of Louisiana v. Stafford, 53
U.S. (12 How.) 327, 340-41, 13 L.Ed. 1008 (1851); Hulbert v.
Clark, 128 N.Y. 295, 28 N.E. 638 (1891)). Upon reviewing this
history of the distinction between mortgage and contract
actions, and the language and history of Section 2415(a), the
Cracco court concluded:
Nowhere is there an indication that section
2415(a) is to apply to any other type of action
or that it was intended to effect a sweeping
change in the general rule that limitation
periods do not govern actions brought by the
Id., 414 N.Y.S.2d at 406. The Cracco rule has been expressly
approved by other courts. See, e.g., Gerrard v. United States
Office of Educ., 656 F. Supp. 570, 574 (N.D.Cal. 1987) (applying
Cracco rule and holding that Section 2415(a) did not prevent
Government from seeking recovery of unpaid student loans in tax
refund proceeding); Curry v. SBA, 679 F. Supp. 966, 970
(N.D.Cal. 1987) (applying Cracco rule and holding that Section
2415(a) did not bar SBA from exercising power of sale in deed
According to S.L. Building, the Cracco rule is limited to
circumstances where the federal government seeks to collect
on a mortgage for a loan made by the government, and,
therefore, does not apply when the government takes the loan
by assignment. S.L. Building Mem. at 7 n. 1. Under S.L.
Building's view, all mortgage foreclosure actions are
contract actions, unless they involve mortgages originally
granted to the federal government.
However, in cases in which the government is an assignee of
claim, courts have looked to the time of assignment when
applying the statute of limitations. In United States v.
Matthews, 1988 WL 76567, 1988 U.S.Dist.LEXIS 7521 (E.D.N Y
1988), the United States sought to foreclose on a mortgage that
was originally held by a bank. Thereafter, the bank assigned
the mortgage to the Small Business Administration. The Matthews
court, applying the Cracco rule, concluded that Section 2415(a)
"does not apply to mortgage foreclosure claims." Id. The
Matthews court expressly held that, so long as the assignment
of the mortgage from the bank to the SBA occurred within the
period of limitations, "the mortgage had value at
the time of the assignment, and the action to foreclose is
not time-barred." Id.
S.L. Building suggests that Matthews is at odds with United
States v. Alessi, 599 F.2d 513 (2d Cir. 1979) (per curiam). The
Alessi court, however, did not hold that Section 2415(a)
applies to all mortgage foreclosure actions. In Alessi, the
government moved for the foreclosure and sale of property
mortgaged to the Veterans Administration. The issue before the
court was whether the cause of action for foreclosure accrued
at the time of the default or at the time that the government
elected to foreclose, i.e., upon initiation of suit. The Alessi
court held that the government's cause of action accrued at the
time of election to foreclose, and that the action, therefore,
was timely. In a footnote, the Alessi court referred to
28 U.S.C. § 2415(a). See Alessi, 599 F.2d at 515 n. 4. This
reference, however, did not amount to a "holding" that Section
2415(a) applies to all mortgage foreclosure actions.
Neither party has cited a case that has relied on
Alessi for the proposition that Section 2415(a) applies to a
mortgage foreclosure action. Although S.L. Building has cited
United States v. Roach, Civ. No. 85-2521-S (D.Kan. Aug. 29,
1986), that case was not an action to foreclose on a mortgage.
In Roach, the Veterans Administration guaranteed a loan to a
veteran. After default, and payment by the VA on the guarantee,
the VA sought to collect the amount of its payment from the
veteran. The Roach court concluded that 28 U.S.C. § 2415(a)
provided the applicable statute of limitations because "this
action is clearly for money damages brought by the United
States on an express contract." Id. The Roach court cited
Alessi for the proposition that in contract actions governed by
that statute, "the government's right of action accrues not at
the time of default, but on a date when a claim first could be
sued upon by the government." Id.
In any case, the Government's claim here, under the rule in
Alessi, did not accrue until the government sent a demand
letter, on January 14, 1986, less than five years before the
government brought suit. In Alessi the Second Circuit
determined that where a mortgage bond provided that the whole
of an obligation under the bond would become due and payable
"at the option of the obligee," if any default in payment
occurred, the principal under the bond did not become due until
the government elected to demand payment, in the form of
bringing suit. See Alessi, 599 F.2d at 515 & n. 3.
The instruments at issue in this case contain optional
language similar to the facts in Alessi. The Mortgage itself
states that the obligee has the option to foreclose in the
event of any default. The Guarantee further indicates that, in
the event of a default, the obligee has the option to pursue
the security, but is not obligated to do so.
II. Freidus' Default, If Any, Does Not Bar This Action
The Settlement Agreement, which spells out Freidus'
obligation to pay Britt's income tax obligations, provides as
set forth above in ¶ 5:
Upon such a default, Mr. Freidus shall be
entitled to receive written notice thereof . . .,
and he shall be entitled to ten days' notice if
the amount of the default is less than $5,000,
and thirty days notice if it is in excess
thereof, during which period of time Mr. Freidus
shall have the opportunity to cure the default.
If he fails to do so, the escrowee . . . shall,
if he is holding cash, pay over to Mrs. Freidus
an amount thereof sufficient to cure the default,
and if he is not holding sufficient cash, Mrs.
Freidus may direct the sale of the securities
which he [the escrowee] is holding in escrow.
Under the Alessi rule, where the obligee has the option not
to require immediate payment in the event of a default, the
time to bring an action to enforce the obligor's obligations
and pursue any security only begins to run after the obligee
has made a demand for payment. In the instant case, no such
demand was made until January 14, 1986, when the government
made demand for payment upon Freidus.
According to S.L. Building the time to bring any action to
foreclose on the mortgage began to run upon the first default
in obligations by Freidus, either at the time defaults
occurred in 1979, when the Tax Court rendered a decision
against Britt (and Freidus did not pay), or in 1982, when the
IRS assessed income tax liability against Britt (and Freidus
did not pay), or at some unstated time when Britt incurred
defense costs in connection with the Tax Court proceeding
(and Freidus did not pay).
As discussed above, Britt's obligation to pay her income
tax liabilities did not become final until September 10,
1984, when her appeal to the Second Circuit was dismissed.
Thus, the issuance of the decision of the Tax Court and the
making of assessments of income tax liability did not trigger
events of default within the meaning of the Settlement
Indeed, the Settlement Agreement expressly contemplated
that the issuance of a decision by the Tax Court and the
making of assessments of income tax liability would not
trigger events of default. Until Britt's appeal to the Second
Circuit was dismissed, no judgment or liens were enforced
against her, and no events of default occurred.
Finally, S.L. Building claims that an event of default
occurred when Britt incurred counsel fees in connection with
her tax litigation, and the fees were not paid by Freidus.
S.L. Building Mem. at 9. However, the factual support for
that contention is made by a non-party upon information and
belief. Further, even assuming that the assertion is true, it
does not demonstrate that an event of default occurred, or
that it was not cured. As the Settlement Agreement provided,
a default might occur "if [Britt] has to make expenditures
for counsel fees against which she has been indemnified,"
i.e., if Freidus did not pay those fees.
Finally, even assuming: (1) that Britt incurred counsel
fees, (2) that Freidus did not pay them, (3) that these
events constituted a partial default, and (4) that Britt gave
notice of default, such that the time for collecting on the
security to enforce the obligation to pay these fees began to
run, this partial default would not preclude the government
from collecting on the remaining obligation to pay Britt's
tax obligations. As a general matter:
[a] mortgagee's failure to commence an action
within the limited period on default in the
payment of an installment under a mortgage does
not preclude him from later suing for and
recovering later unpaid installments in an action
brought within the statutory period.
78 N.Y.Jur.2d, Mortgages § 441 at 301 (1989). Thus, if one
event of default occurs, and the statute of limitations runs as
to that default, the obligor cannot claim that the statute of
limitations protects him from performing on all his other
The terms of the instruments at issue here confirm that
basic understanding. Under the Settlement Agreement, for
example, if an event of default occurred, Britt was entitled
to pursue certain security, by forced sale if necessary. If
the proceeds of the sale were in excess of Freidus'
obligations at the time, "[t]he proceeds of any such sale
will be held by the escrowee as security as well." Settlement
Agreement at 18. Thus, the Settlement Agreement expressly
contemplated that various events of default might occur, and
that each would be treated as a separate incident.
The Mortgage agreement provides that there might be
multiple defaults and partial foreclosures, each of which
would be treated separately.
III. The Rule Against Perpetuities Does Not Apply
S.L. Building seeks to bar the government's action as a
violation of the rule against perpetuities. The rule against
perpetuities codified in New York provides:
No estate in property shall be valid unless it must
vest, if at all, not later than twenty-one years
after one or more lives in being at the creation of
the estate and any period of gestation involved.
N YEst.Powers & Trusts Law ("EPTL") § 9-1.1(b) (McKinney 1967)
Under common law definition of a mortgage, such instruments
create no "estates" in property that could be subject to the
rule against perpetuities. The encyclopedic New York
Jurisprudence, citing a host of New York cases, states that:
A mortgage on real property creates no estate in
land but is merely security for a debt or other
obligation. A mortgage has been variously
described as a lien, a lien to secure a debt, a
lien remedy, an encumbrance, and as security,
upon the mortgaged premises as an incident to the
debt which it is intended to secure.
77 N.Y.Jur.2d, Mortgages § 2 at 374; see, e.g., Boyarsky v.
Froccaro, 125 Misc.2d 352, 479 N.Y.S.2d 606, 612 (Nassau
Co.Sup.Ct. 1984) ("mortgage" imports a debt or obligation to be
secured, due from the mortgagor to the mortgagee); Rivera v.
Blum, 98 Misc.2d 1002, 420 N.Y.S.2d 304, 308 (N.Y. Sup. Ct.
1978) ("mortgage" is the security for a debt representing a
lien on the mortgaged premises). As a result, "[a] mortgage is
generally considered to be personal property. It is not chattel
real." 77 N.Y.Jur.2d, Mortgages § 3 at 375; see Flyer v.
Sullivan, 284 A.D. 697, 134 N.Y.S.2d 521, 523 (1st Dep't 1954)
("It has long been the law that a bond, or other obligation,
secured by a mortgage lien on realty, is a chose in action and
constitutes personal property."). Indeed, the EPTL defines any
"[d]ebts secured by mortgages" as a species of personal
property for purposes of administration of a decedent's estate.
EPTL § 13-1.1(a)(7). See In re Estate of Caperonis,
95 Misc.2d 690, 408 N.Y.S.2d 231, 234 (Saratoga Co.Surr.Ct. 1978)
(bond located in New York and secured by mortgage on New York
realty was to be considered personal property).
The Mortgage here was a true mortgage, and not some other
form of instrument that might be construed as an "estate"
subject to the rule against perpetuities. As a general
matter, "[a] mortgage is defined as any conveyance of land
intended by the parties at the time of making it to be
security for the payment of money or the doing of some
prescribed act." 77 N.Y.Jur. 2d, Mortgages § 1 at 373 (1989).
Further, the Mortgage recites that it is made "to secure the
payment of an indebtedness in the sum of [$1,200,000]" and was
granted as "additional collateral security pursuant to a
certain agreement of settlement dated June 21, 1967."
The documents surrounding the Mortgage comport with the
view that the Mortgage is a security interest, not an
"estate." The Settlement Agreement, for example, referred to
the mortgage as a "guarantee mortgage" and "collateral
security." See Settlement Agreement at 20, ("601 West 26 Corp.
will execute and deliver a guarantee mortgage in the amount of
$1,200,000 as collateral security in order to enforce the
guarantees of [Freidus'] obligations to [Britt]."). In
addition, the Guarantee by 601 West 26 Corp. recited that Britt
had the immediate right to transfer her interest in this and
all other security ("any security or liens for Jacob Freidus'
obligations may, from time to time, in whole or in part, be
exchanged, sold, released, surrendered or otherwise dealt with
by [Britt] . . .").
The few New York cases cited by S.L. Building, involving
rights of first refusal, Kowalsky v. Familia, 71 Misc.2d 287,
336 N.Y.S.2d 37 (Orange Sup.Ct. 1972), or options on land Izzo
v. Brooks, 106 Misc.2d 743, 435 N.Y.S.2d 485 (Rockland Sup.Ct.
1980), are not persuasive. Indeed, the Kowalsky and Izzo rule,
in any event, was disapproved by Metropolitan Transp. Authority
v. Bruken Realty Corp., 67 N.Y.2d 156, 164, 492 N.E.2d 379,
383, 501 N.Y.S.2d 306, 310 (1986) (referring to view that
preemptive rights could ever be subject to the rule against
perpetuities as "contrary to established principles of law").
IV. The Government Is Entitled To Enforce The Mortgage
It is well settled that:
a mortgagor is bound by the terms of his contract
as made and cannot be relieved from his default,
if one exists, in the absence of waiver by the
mortgagee, or estoppel, or bad faith, fraud,
oppressive or unconscionable conduct on the
Nassau Trust Co. v. Montrose Concrete Products Corp., 56 N.Y.2d
175, 183, 436 N.E.2d 1265, 451 N.Y.S.2d 663 (1982); see Weiss
v. Croce, 167 A.D.2d 465, 561 N.Y.S.2d 927 (2d Dep't 1990)
(same); Dimacopoulos v. Consort Development Corp., 166 A.D.2d 631,
561 N.Y.S.2d 59 (2d Dep't 1990) (same); Massachusetts
Mutual Life Ins. Co. v. Transgrow Realty Corp., 101 A.D.2d 770,
475 N.Y.S.2d 418 (1st Dep't 1984). Thus, where the mortgage
holder establishes the basic elements of a cause of action for
foreclosure, the mortgage holder is entitled to a presumptive
right to collect, which can only be overcome by an affirmative
showing from the defendant.
In an action to foreclose on a mortgage, the essential
requirements of the plaintiff's case are proof of the
existence of an obligation secured by a mortgage, and a
default on that obligation. In Northeast Savings, F.A. v.
Rodriguez, 159 A.D.2d 820, 553 N.Y.S.2d 490 (3d Dep't 1990),
for example, the court concluded that a valid cause of action
for foreclosure was made out on these elements:
Plaintiff's documentary evidence establishes a
valid mortgage. Given defendant's admission that
there is an unpaid balance past due on the
mortgage and receipt of the foreclosure notice,
plaintiff has made a prima facie showing of
entitlement to summary judgment. . . . To
successfully withstand plaintiff's motion,
defendant was obliged to demonstrate a bona fide
defense to the mortgage.
Id., 553 N.Y.S.2d at 492.
In the instant case, the documents attached to the
Government's complaint, all of which are conceded to be
genuine, establish both the existence of an obligation and a
default. The Settlement Agreement recognized an obligation
owed by Freidus to indemnify Britt with regard to income tax
claims. Settlement Agreement ¶ 1. Separately, 601 West 26 Corp.
agreed to guarantee the performance by Freidus of his
obligation to Britt. As security for the Guarantee, 601 West 26
Corp. gave a mortgage to Britt securing Freidus' obligation to
pay Britt's federal tax obligation. Britt's rights under the
Settlement Agreement, Guarantee, and Mortgage were validly
transferred to the government.
Further, there has been a default upon the obligations. The
Government assessed more than $6 million in taxes, interest,
and penalties against Britt and as a result of the settlement
in Claire Britt v. Commissioner of Internal Revenue, No.
82-4167 (2d Cir.); there remains outstanding against Britt at
least $1,200,000 in unpaid tax liabilities, to be paid out of
the March 29, 1968 Mortgage. Despite a demand by the
government, Freidus has not paid any of Britt's tax
To defeat the government's claim, S.L. Building maintains
that by settling with Britt in 1984, the Government
extinguished all her remaining tax obligations, and that, as
a result, the government cannot enforce the mortgage it
received from Britt.
It is evident that the offer for settlement had as its
principal intent the collection by the Government of all the
assets of Britt that were available to satisfy the more than
$6 million in income tax, penalty, and interest that the
government had been awarded in the Tax Court proceeding. For
example, the original proposal for settlement made by Britt
stated that, within 30 days after settlement, Britt would
transfer all her assets to the government, with the exception
of clothing, personal effects, and certain other items. The
offer for settlement, moreover, specifically stated that part
of the intent of the parties was to permit the Government to
collect on the $1.2 million mortgage.
Britt's counsel outlined, in a separate letter, a request
for recognition that, when compliance with the terms of the
offer for settlement was complete, the Government would not
seek to gather any further assets from her. The Government
specifically accepted this offer, conditioned on full
compliance with the terms of the settlement offer. In order
to comply fully with the terms of the settlement offer, of
course, Britt was required to "cooperate fully in attempting
to obtain for the Government payment of the $1,200,000
mortgage." Thus, until the mortgage was
paid, Britt's tax obligations were not extinguished.
To the extent that any doubt about the intent of the
parties remained, Britt removed that doubt in a stipulation
and order filed with the court. The stipulation and order
expressly provided that Britt admitted the critical
allegations of the complaint. Further, Britt has consented to
the entry of judgment for the Government, including a
declaration that "plaintiff United States is entitled to
foreclose on the March 29, 1968 Mortgage to satisfy and
collect $1,200,000 in Defendant Britt's unpaid tax
According to S.L. Building, the transfer of the mortgage
without transfer of the underlying guarantee was void, and as
a result, the Government is not entitled to foreclose on the
mortgage. However, as further recognized in the stipulation
and order, at least $1.2 million in unpaid tax liabilities
remain to be collected from the proceeds of the mortgage.
S.L. Building asserts that "a cause of action for
indemnification does not accrue until the judgment is paid."
S.L. Building Mem. at 14. However, here the judgment was paid
in the form of transfer of the $1.2 million mortgage.
Indeed, well-settled authority in New York recognizes that
"for the sake of fairness and judicial economy," an indemnity
claim may be pursued even before a judgment has been paid.
See Burgundy Basin Inn, Ltd. v. Watkins Glen Grand Prix Corp.,
51 A.D.2d 140, 379 N.Y.S.2d 873, 880 (4th Dep't 1976) (citing
S.L. Building also has recited the rule that "assignment of
a mortgage without an underlying obligation is a nullity,"
S.L. Building Mem. at 14, and has contended that because the
Collateral Assignment of Britt's rights under the Guarantee
came after her assignment of the Mortgage, the Mortgage now
holds no value and the government is not entitled to
foreclose. If the tax obligations remained after the
settlement offer was concluded, and Britt intended to convey
both the mortgage and her rights to indemnification from
Freidus and the Guarantee by 601 West 26 Corp. to pay on that
indemnification, then the transfer of the Mortgage, and
subsequent transfer of the indemnification and guarantee
rights were valid:
[P]hysical delivery of the original note is not
mandatory since the mortgage assignment, when
accepted and recorded, transfers the interest in
the note and mortgage by operation of law . . .,
where as here there is no doubt that there is an
intent to so transfer the interest in the note
Felin Associates, Inc. v. Rogers, 38 A.D.2d 6, 326 N.Y.S.2d
413, 415 (1st Dep't 1971) (citing cases).
Here, in consenting to the settlement offer, Britt intended
to make a valid transfer of all her rights to collect on the
$1.2 million mortgage under the Settlement Agreement and the
Collateral Assignment. In executing the settlement offer, the
Government and Britt plainly intended a valid transfer of
rights in the mortgage.
Because the Government action seeks to enforce a tax
obligation, it is not time barred, nor is the mortgage sought
to be enforced subject to the rule against perpetuities.
Freidus having defaulted, the Government is entitled to
enforce Britt's rights appropriately assigned to it.
Enter judgment on notice.
It is so ordered.
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