Flushing National Bank v Municipal Assistance Corp. case brief summary
40 NY2D 731
40 NY2D 731
i. π, bank on behalf of noteholders, sought review of the order from the Appellate Division of the Supreme Court affirming a judgment entered granting ∆ NYC summary judgment & declaring that the provision of the NY State Emergency Moratorium Act was valid and constitutional.
ii. NYC passed the New York State Emergency Moratorium Act for the City of New York which imposed a 3-year moratorium on actions to enforce the city's outstanding short-term obligations (Deal was set up that you could exchange your city bonds (short term) for MAC long term bonds, giving the city some room to breathe, or you could keep the note and not get paid. ). The bank, on behalf of other holders of notes, filed an action alleging that the Act violated both the state and federal constitutions. The appellate court affirmed a judgment entering summary judgment in favor of the city and declaring the Act valid and constitutional. On appeal, the ct reversed, holding that N.Y. Con. art. VIII stated that a city couldn’t have contractual indebtedness unless it had pledged its faith and credit for the payment of the principal thereof and the interest thereon. The ct held that the constl. prescription of a pledge of faith and credit was designed to protect the rights vulnerable in the even of difficult economic circumstances and that it was conclusive that the constitution permitted no escape for the municipality from performing its obligations.
iii. The court reversed the order from the appellate ct. The court held that the NY Constitution provided that ∆, NYC, could not have contractual indebtedness unless it had pledged its faith and credit for the payment of the principal thereof and the interest thereon.you can’t just not pay if they are General Obligation Noteholders.
1. If NYC don’t pay bond indebtedness, wont be able to raise capital for a long time
2. NYC needed to just raise taxes and pay the notes.
3. The policy choice was for the future: If you don’t pay your bondholders you won’t be able to get money on the bond market in the future. But they temper this by saying at the end that no extraordinary remedy is available