
    Alfred H. Copp et al., Respondents, v. Sands Point Marina, Inc., Appellant.
    Submitted March 29, 1966;
    decided May 5, 1966.
    
      
      M. Allan Hyman for appellant.
    I. The Appellate Division erred in holding that the mortgagee was entitled to the contract rate of interest, and improperly granted respondent’s motion for summary judgment. (Matter of County of Westchester v. P. & M. Materials Corp., 35 Misc 2d 197, 17 A D 2d 822; Algonquin Gas Transmission Co. v. E. W. Realty Corp., 281 App. Div. 898, 305 N. Y. 919.) II. The amount of interest respondents are entitled to receive for any period following the date of vesting of title is limited to the amount paid by the condemning authority. (German Sav. Bank in City of N. Y. v. Dunn, 75 Misc. 251, 150 App. Div. 928; Matter of City of New York [Chrystie St.], 239 App. Div. 314; Muldoon v. Mid-Bronx Holding Corp., 287 N. Y. 227.)
    
      Marvin A. Holland for respondents.
    I. That the security has been condemned is no defense to action on the principal obligation. (Seamen’s Bank for Sav. v. Smadbeck, 293 N. Y. 91; Union Trust Co. of Rochester v. Kaplan, 249 App. Div. 280; Matter of Jeroloman, 6 F. Supp. 430; Utter v. Richmond, 112 N. Y. 610; Irving Trust Co. v. Hughes, 239 App. Div. 74; Muldoon v. Mid-Bronx Holding Corp., 287 N. Y. 227; Hendry v. Title Guar, & Trust Co., 165 Misc. 349, 255 App. Div. 497, 280 N. Y. 740; Matter of City of New York [Rockaway Beach], 
      288 N. Y. 51.) II. Plaintiff is entitled to interest at the rate specified in the note. (Matter of City of New York [Stephen Wise Project], 38 Misc 2d 455; Security Nat. Bank of L. I. v. Sabatelli, 38 Misc 2d 503; Fliegel v. Manhattan Sav. Bank, 296 N. Y. 214.)
   Scileppi, J.

In November, 1958 the defendant corporation executed a note secured by a purchase-money mortgage for $103,500, with interest thereon at 5%. The principal was due five years from the date of execution, and the interest was payable semiannually. The plaintiffs bring this action on the note to recover $5,175, representing two unpaid interest payments, each $2,587.50. The first payment was due on November 21, 1962, the second on May 21, 1963.

The defendant admits the making of the note and the nonpayment of the interest. In defense, it urges that, since, after a condemnation proceeding, title vested in the Town of North Hempstead on October 8, 1962, the plaintiffs are only entitled to a statutory rate of interest at 4% (General Municipal Law, § 3-a, subds. 2, 3), and it may only be recovered by proceeding against the condemnation award, when it is made.

Plaintiffs’ motion for summary judgment was denied at Special Term. The Appellate Division, two Justices dissenting, reversed and granted the motion. We affirm.

It is fundamental that the holder of a note (or bond) and mortgage has two remedies: one at law in a suit on the debt as evidenced by the note, the other in equity to foreclose the mortgage (Seaman’s Bank for Sav. v. Smadbeck, 293 N. Y. 91, 95; Dudley v. Congregation of St. Francis, 138 N. Y. 451, 457). The note represents the primary personal obligation of the mortgagor, and the mortgage is merely the security for such obligation (see Matter of Wilbur v. Warren, 104 N. Y. 192,197). When the sovereign affects the relationship between the mortgagor and the mortgagee by means of condemnation proceedings, the law substitutes the condemnation award for the security previously provided by the mortgage (Muldoon v. Mid-Bronx Holding Corp., 287 N. Y. 227, 231). In other words, the lien on the mortgaged property has been transferred to the condemnation award. Chief Judge Lehman, writing for this court in Muldoon, specifically left open the question presented here, i.e., whether, after the condemnation of mortgaged property, the holder of the note may assert his rights against the mortgagee in an action on the note and not be circumscribed by the change of the status of the security (287 N. Y. 227, 231).

Since only the mortgage lien is affected by the condemnation — a proceeding by which the sovereign obtains the property free from incumbrances—we hold that the holder of the note may sue at law thereon and, in so doing, may recover interest at the rate specified therein.

Special Term’s exclusive reliance on Matter of County of Westchester v. P. & M. Material Corp. (35 Misc 2d 197, affd. 17 A D 2d 822) was erroneous because that case involved not an action on the note but an attempt by a mortgagee to enforce its lien against the award before it was paid to the owner of the parcel.

The order appealed from should be affirmed, with costs.

Chief Judge Desmond and Judges Fuld, Van Voorhis, Burke, Bergan and Keating concur.

Order affirmed.  