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Matter of Movielab, Inc. v. Murphy

Appellate Division of the Supreme Court of New York, Third Department
May 22, 1967
28 A.D.2d 617 (N.Y. App. Div. 1967)

Opinion

May 22, 1967


Proceeding under article 78 CPLR to annul a determination of the respondent confirming the imposition of a mortgage tax by the City Register of the County of New York. On December 26, 1963, Daniel Steingart and Joseph Gershman purchased premises known as 619 West 54th Street, New York City, from John J. Reynolds. As part of the purchase price, the purchasers executed and delivered a purchase-money mortgage to the seller in the sum of $500,000 and, at the time of the recording of said mortgage, the mortgage tax in the sum of $2,500 was duly paid. This mortgage was subordinate to a first mortgage on the premises in the sum of $1,900,000 held by the New York Savings Bank. On April 1, 1964, the petitioner, Movielab, Inc., purchased a one-half interest in the premises from Steingart and Gershman by the payment of $50,000 in cash and by agreeing to assume and pay the $500,000 purchase-money mortgage payable to Reynolds. On the same date, Movielab executed a note and mortgage on its interest in the premises to the parties from whom it purchased said interest, which mortgage was in the sum of $500,000 and which included a statement therein that the mortgage was given as a collateral security for the payment by Movielab of the Reynolds' note and mortgage. In the event of any default by Movielab in any of the terms of the Reynolds' note and mortgage, the collateral mortgage would immediately become due at the option of the mortgagees. On April 3, 1964, Movielab presented the collateral mortgage for recording and claimed exemption from the recording tax provided by section 255 Tax of the Tax Law. The exemption was denied and the mortgage tax was paid under protest, and thereafter Movielab applied for a refund of the tax which respondent has denied. Section 253 Tax of the Tax Law imposes a recording tax measured by the principal debt or obligation which is secured by the mortgage presented for recording. Section 255 Tax of the Tax Law provides that, under certain circumstances, a supplemental mortgage shall not be subject to the recording tax "unless it creates or secures a new or further indebtedness or obligation other than the principal indebtedness or obligation secured by or which under any contingency may be secured by the recorded primary mortgage". The Movielab mortgage was given in payment of part of its purchase price for its one-half interest in the premises. As between the sellers, Steingart and Gershman, and the buyer, Movielab, a new indebtedness or obligation was created, separate and distinct from the indebtedness or obligation of the Reynolds' mortgage and the lien created thereunder. If Movielab defaulted in its payments, the Movielab mortgage could be foreclosed extinguishing Movielab's ownership in the premises with no effect on the primary mortgages. Thus, the indebtedness of Movielab to Steingart and Gershman could not, under any contingency, be secured by the recorded primary Reynolds' mortgage, and the Movielab mortgage was, therefore, not entitled to the exemption provided by section 255 Tax of the Tax Law. Petitioner relies on People ex rel. Banner Land Co. v. State Tax Comm. ( 244 N.Y. 159) which held that a collateral mortgage was not subject to the tax. There a purchaser bought property subject to existing mortgages pursuant to which the mortgagee had not advanced all the sums called for under the existing mortgages. The purchaser gave collateral mortgages to the same mortgagee to obtain the balance of money secured by the primary mortgages. These collateral mortgages were exempt from the mortgage tax because the collateral mortgages were given as security for the original indebtedness. Here the relationship of debtor and creditor was created between Movielab and Steingart and Gershman, and the mortgage represented the amount Movielab owed for the half interest purchased. It created no relationship between Movielab and the holder of the purchase-money mortgage and in no way affected the existing relationship between that holder and his mortgagors, Steingart and Gershman. The transaction created a new obligation for which the mortgage became the security. The collateral mortgage given by petitioner is not entitled to the exemption provided by section 255 Tax of the Tax Law. Determination confirmed, with costs. Gibson, P.J., Reynolds, Aulisi, Staley, Jr., and Gabrielli, JJ., concur in memorandum by Staley, Jr., J.


Summaries of

Matter of Movielab, Inc. v. Murphy

Appellate Division of the Supreme Court of New York, Third Department
May 22, 1967
28 A.D.2d 617 (N.Y. App. Div. 1967)
Case details for

Matter of Movielab, Inc. v. Murphy

Case Details

Full title:In the Matter of MOVIELAB, INC., Petitioner, v. JOSEPH H. MURPHY, et al.…

Court:Appellate Division of the Supreme Court of New York, Third Department

Date published: May 22, 1967

Citations

28 A.D.2d 617 (N.Y. App. Div. 1967)