ATTORNEY-GENERAL'S OPINIONS STATE OF NEW YORK OFFICE OF THE ATTORNEY-GENERAL August 29, 1918. Hon. JESSE S. PHILLIPS, Superintendent of Insurance, Capitol, Albany, N. Y. DEAR SIR.- As a result of your correspondence with Mr. Charles R. Miller, vice-president of the Fidelity and Deposit Company of Maryland, and your previous advices to him touching the powers of surety companies in connection with the issuance of bonds to protect mortgagees against the priority of seed liens in the State of North Dakota, Mr. Miller has formulated three questions, as follows: 1. Under subdivision 4 of section 70 of the Insurance Law, a surety company is authorized to guarantee any "Federal Land Bank" against loss by reason of defective title. Is a Joint Stock Land Bank incorporated under the Federal Farm Loan Act a Federal Land Bank within the meaning of subdivision 4? 2. Suppose John Jones, mortgagor, should borrow $5,000 from Thomas Smith, mortgagee, in the State of North Dakota and should enter into a contract obligating himself to protect said mortgagee from any prior lien that might arise under the Seed and Feed Lien Act of the State of North Dakota, could a Surety Company organized under the laws of New York guarantee the performance of that contract by the mortgagor? 3. Suppose a mortgagor borrowing $6,000 from a mortgagee should agree to furnish to the mortgagee through some reputable attorney a good abstract of title and should further agree that he would indemnify the mortgagee from any loss which the latter might suffer if there should be any lien against the property which should take priority over the mortgage lien, could a surety com pany organized under the law of New York issue a bond guaranteeing that the mortgagor would carry out this contract? While authority for the creation of Joint Stock Land Bank is found in the Federal Farm Loan Act of July 17, 1916, such banks have many distinguishing characteristics from Federal Land Banks and the statute is very careful to have the operations of the Joint Stock Land Bank very clearly labeled and distinguished from the operations of the Federal Land Banks (section 16, Act of July 17, 1916). A Joint Stock Land Bank is a voluntary organization of individuals and is not directly created by the Federal Government as are the Federal Land Banks. As our statute refers merely to Federal Land Banks, I think we are not justified in extending it to Joint Stock Land Banks, any more than we would be justified in extending it to any State Bank which is engaged in the business of making loans on the security of farm mortgagees. In other words, the statute of 1918 did not open the door to a general field of business, that of guaranteeing mortgages against losses by reason of defective title but authorin the one instance only the guarantee of a Federal Land Bank against such losses. The contract set forth in question 2 is, I think permissible under our present New York statute. A borrower contracts that he will pay any seed lien which may attach to the premises, or that he will protect the mortgagee from any prior lien that may arise under the Seed and Feed Lien Act which is the same in substance. As no lien of that nature can possible arise except through application for seed by the owner of the farm to the county officials or through the application of a tenant or lessee with the consent of such owner (sections 3481, 3482, Compiled Laws of North Dakota), the owner is in a position to contract that he will not permit the imposition of a seed lien upon the premises, or that if by his act he permits such lien to attach, he will pay the amount and remove the lien. This is a direct contract obligation not subject to alteration by any outside power and I am of the opinion that a surety company can guarantee the performance of the obligation. Question 3 presents an instance of title insurance, in my judg ment. The contract of the mortgagor, as also the guarantee of the surety company, seeks to protect against losses from which the mortgagee might suffer if there should be any lien against the property which should take priority over the mortgage lien. This would cover not only the seed lien but any other lien, mortgage or otherwise, which already existed on the property, although not disclosed by the title search. Such a bond could be written to the Federal Land Bank but not to any other bank or person, under our statute. "Section 65 of the Insurance Law prohibits an insurance company from paying to a licensed broker or agent a commission on insurance placed by him upon his own property or risk but does not prohibit the payment of a commission to a licensed broker where he is the employee of the insured named in the policy of insurance." Inquiry Is an agent or a licensed broker prohibited from receiving a regular commission on business placed by him upon his own property or risk, and is a licensed broker prohibited from receiving a commission on business placed by him for his employer? Opinion The answer to the inquiry involves the construction or interpretation of section 65 of the Insurance Law as amended by chapter 141 of the Laws of 1918. |