In re the Arbitration between Silverman & Benmor Coats, Inc.

91 A.D.2d 959, 458 N.Y.S.2d 578, 1983 N.Y. App. Div. LEXIS 16249

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: January 27, 1983
• Status: Published

Opinions

— Order and judgment (one paper) of the Supreme Court, New York County (Lane, J.), entered March 9, 1982, confirming the award of the arbitrator affirmed, with costs. The facts are adequately stated in the memorandum of our dissenting brother. Our disagreement with him flows from two facts: first, the arbitrator was aware of the subordination agreement. To insure that the award did not affect the rights of the parties sought to be protected thereby he directed that payments to be made on account of principal be limited to “an amount equal to Thirty Five Percent (35%) of benmor’s after-tax net income of the prior calendar year” (emphasis supplied). To make certain that net after-tax profits were not absorbed by payments to its officers as salary and by travel and entertainment expenses, he limited the specific dollar amount thereof. Whether in so doing he exercised his discretion wisely or not is not before us. What is before us is the issue of his power. Since payments on account of principal are limited to net after-tax profits, the creditors for whose benefit the loan was subordinated cannot be injured thereby. Hence, his power was properly exercised. Secondly, the officer of the Century National Bank in charge of the account of Benmor Coats, Inc., now asserts that the subordinated loan cannot be repaid without the consent of the creditors for whose benefit the loan was subordinated and that the bank does not consent. However, she does not deny that she testified at the second session of the arbitration proceeding and stated that the bank had no objection to payment by Benmor of a portion of its profits to satisfy its indebtedness to the estate of the subordinating creditor. Although endeavor is made by counsel for Benmor in a footnote in a reply affidavit to meet this allegation, it is noteworthy that nowhere is there an assertion by Mrs. Pace, the bank officer, that she did not so testify. Without speculating on the reason for the arbitrator’s award it is obvious to us that Benmor and its officers are attempting to utilize an agreement made in good faith by the widow and executrix of the deceased partner and subordinated creditor as a basis for never repaying the loan. The remedy fashioned by the arbitrator avoids imperiling the creditors for whose benefit the subordination agreement was made while, at the same time, affording the subordinated creditor some hope of repayment. Concur — Sullivan, J. P., Bloom, Fein and Alexander, JJ.