Matter of 10 E. Realty, LLC v Incorporated Vil. of Val. Stream

Matter of 10 E. Realty, LLC v Incorporated Vil. of Val. Stream 2009 NY Slip Op 02445 [12 NY3d 212] March 31, 2009 Jones, J. Court of Appeals Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected through Wednesday, May 13, 2009

[*1] In the Matter of 10 East Realty, LLC, et al., Respondents,
v
Incorporated Village of Valley Stream et al., Appellants.

Argued February 10, 2009; decided March 31, 2009

Matter of 10 E. Realty, LLC v Incorporated Vil. of Val. Stream, 49 AD3d 764, reversed.

{**12 NY3d at 214} OPINION OF THE COURT

Jones, J.

The issue before this Court is whether a purchase-money mortgage taken by a municipality to secure the payment of the consideration in connection with a sale of municipal [*2]property to{**12 NY3d at 215} a private entity violates article VIII, § 1 of the New York Constitution.

In 2002, respondent, the Incorporated Village of Valley Stream (the Village), sold a parcel of land owned by the Village to 1 E. Lincoln Realty Corp, a private entity, for $275,000. Under the purchase agreement, no money was to be paid at closing, instead the consideration was to be paid over 15 years with an interest rate of 5% per annum. The Village took a mortgage interest in the property to secure the deferred payments under the contract. Petitioners, a civic organization and several residents, then commenced the instant CPLR article 78 proceeding (1) to annul the Village's resolution which authorized the sale and (2) to enjoin the Village from closing on the sale, alleging, among other things, that the transaction involved an unconstitutional loan under article VIII, § 1 of the New York Constitution (Gift or Loan Clause). Modifying Supreme Court's dismissal of the petition (11 Misc 3d 1074[A], 2006 NY Slip Op 50561[U]), the Appellate Division held that the purchase-money mortgage was a loan prohibited by the Gift or Loan Clause (49 AD3d 764 [2008]). We disagree.

The Gift or Loan Clause provides that "[n]o county, city, town, village or school district shall give or loan any money or property to or in aid of any individual, or private corporation or association, or private undertaking" (NY Const, art VIII, § 1). A purchase-money mortgage is generally defined as "a mortgage executed at the time of purchase of the land and contemporaneously with the acquisition of the legal title, or afterward, but as part of the same transaction, to secure an unpaid balance of the purchase price" (Szerdahelyi v Harris, 67 NY2d 42, 46 [1986]). In Mandelino v Fribourg, this Court answered the question of "whether a purchase-money mortgage is to be regarded in law as a loan" in the negative (23 NY2d 145, 147 [1968]). Although decided in the context of the usury laws, the rationale is equally applicable in this case. "A contract which provides for [payment] of interest . . . upon a deferred payment . . . constitutes the consideration for a sale" (id. at 151) and such a transaction is not the type contemplated by the Gift or Loan Clause (see Sun Print. & Publ. Assn. v Mayor of City of N.Y., 152 NY 257, 268-269 [1897]).

Here, the Village made no loan of money or property to the purchaser. The fact that the consideration in this sale mentions an interest rate and a term of payment, or that a mortgage was taken as a security interest, does not make this transaction involving a deferred payment plan an unconstitutional loan.{**12 NY3d at 216}

Accordingly, the order of the Appellate Division, insofar as appealed from, should be reversed, with costs, and the judgment of Supreme Court reinstated.

Judges Ciparick, Graffeo, Read, Smith and Pigott concur; Chief Judge Lippman taking no part.

Order, insofar as appealed from, reversed, etc.