Bank of Tokyo Trust Co. v. Urban Food Malls Ltd.

229 A.D.2d 14, 650 N.Y.S.2d 654
CourtAppellate Division of the Supreme Court of the State of New York
DecidedDecember 3, 1996
StatusPublished
Cited by16 cases

This text of 229 A.D.2d 14 (Bank of Tokyo Trust Co. v. Urban Food Malls Ltd.) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Bank of Tokyo Trust Co. v. Urban Food Malls Ltd., 229 A.D.2d 14, 650 N.Y.S.2d 654 (N.Y. Ct. App. 1996).

Opinion

OPINION OF THE COURT

Sullivan, J. P.

These four appeals arise out of an action to foreclose, inter alia, various mortgages and leasehold interests in 14 parcels of realty, pledged and collaterally assigned to plaintiff, The Bank of Tokyo Trust Company, a New York bánking corporation, as security for loans advanced by it to The Urban Food Malls Ltd. (UFM), a defendant herein. Although the facts underlying the loan advances and subsequent default are complex, the legal issue at the heart of these appeals—whether a pledgee of a mortgage may institute an action to foreclose on the real property under the Real Property Actions and Proceedings Law (RPAPL) without first proceeding to foreclose its security interests under the Uniform Commercial Code (UCC)—is relatively straightforward. Complicating this issue and the others posed, however, is the injection of extraneous matter involving spurious and totally meritless claims of ethical violations against the court-appointed receiver of the subject properties as well as the appointing Judge. These claims are nonetheless argued and permeate the proceedings.

Sylvia Riese, as executrix of the estate of Irving Riese, Anita Riese as temporary administratrix of the estate of Murray Riese, I.C. Terminal Inc., 160 W. Inc. and I & M 162 Associates, each a defendant herein, are the fee owners of one or more of the subject parcels of real property. The Riese family controls the corporate fee owners, and Irving and Murray Riese owned 11 of the properties directly. Their estates now own the properties as tenants in common. The net lessees of the subject properties, 14 in all, owned and controlled by the Riese family, are also defendants herein. The subtenants, some of which are affiliates of the Riese family, are currently paying rents to the net lessees.

On December 9, 1987, UFM, which is also owned and controlled by the Riese family, issued short-term commercial paper notes (debt securities) to the investing public in the face amount of $75,000,000. The proceeds of these notes were used [18]*18by UFM to purchase or extend the underlying mortgages encumbering each of the 14 properties. These debt securities had maturity dates ranging from approximately 30 to 90 days. UFM’s obligation to repay the notes upon maturity was secured by an irrevocable letter of credit issued by The Bank of Tokyo, Ltd. (the bank), acting through its New York agent, plaintiff. In the event UFM failed to honor the notes, the trustee for the benefit of the holders of the notes was entitled, in payment thereof, to draw down on the bank’s letter of credit. As part of the original transaction, UFM, plaintiff and the bank entered into a reimbursement agreement, which provided that in the event of a draw down on the letter of credit UFM would reimburse the bank. In order to enable UFM to do so, plaintiff agreed, under the reimbursement agreement, to make available to UFM a credit facility up to $75,000,000. Simultaneously with a draw down on the letter of credit, plaintiff would advance funds to the bank under the credit facility to effect an immediate repayment of the amount drawn down. These loans were to be charged to UFM either as short-term loans or term loans, depending on the length of time they were outstanding. A short-term loan was the amount advanced to reimburse the bank for any draw under the letter of credit. The outstanding balance of such a loan became a term loan on the 181st day after the loan had been advanced.

As evidence of its obligation to plaintiff for any such advances under the credit facility, UFM executed and delivered to plaintiff a promissory note in the amount of $75,000,000, subsequently reduced to $62,321,000, which, after an extension, matured on March 9, 1995. As security for its obligations to plaintiff under the reimbursement agreement and promissory note, UFM collaterally assigned to plaintiff, inter alia, all of its right, title and interest in and to the underlying mortgages and notes, including the right to collect rent. After using the proceeds of the commercial paper transaction to extend or purchase the underlying mortgages encumbering the 14 parcels, UFM then consolidated and modified the mortgages and spread them into three separate mortgages, which it held. These are the collaterally assigned mortgages.

As the debt securities matured, they would be repaid either out of the sale of new paper, the sale of which would coincide with the maturity date of the old paper, or through a draw down on the letter of credit. Between December 1987 and March 9, 1995, the selling of new commercial paper to repay holders of maturing paper occurred every 30 to 90 days. Dur[19]*19ing this period, there were at least 73 short-term loans to UFM by plaintiff. Each of the short-term loans was then repaid by UFM within approximately five days of the sale of further debt securities. No short-term loan was ever converted to a term loan.

By its express terms, the credit facility came to an end on March 9, 1995. Accordingly, on that date, all the outstanding debt securities, totalling $62,321,000, matured. The trustee for the holders of the debt securities, in order to repay them, drew down $62,321,000 on the letter of credit. Pursuant to the terms of the reimbursement agreement, plaintiff, that same day, made a final short-term loan to UFM of $62,321,000, which was used to repay the bank for the draw down. Thus, on March 9,1995, when the UFM promissory note matured, UFM became obligated to repay plaintiff the sum of $62,321,000, the principal amount of the credit facility due under the promissory note and the amount then "outstanding as a Short Term Loan or Term Loan”.

UFM’s failure to pay the $62,321,000 due to plaintiff under the promissory note within five business days of March 9, 1995 constituted an event of default, which, under section 8.1 (A) (b) of the reimbursement agreement, is defined as occurring "if [UFM] shall fail to pay when due any installment of interest or principal or any other sums payable, or if [UFM] shall fail to reimburse [the bank] or [plaintiff! when required, under this Agreement, the [UFM promissory] Note, the Assignments of Mortgages, or any other Security Document or if [UFM] shall fail to comply with any monetary covenant made by it in any Security Document”.

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Bluebook (online)
229 A.D.2d 14, 650 N.Y.S.2d 654, Counsel Stack Legal Research, https://law.counselstack.com/opinion/bank-of-tokyo-trust-co-v-urban-food-malls-ltd-nyappdiv-1996.