296 Mass. 556 | Mass. | 1937
Upon the bill, filed on November 24, 1936, a single justice of this court on December 10, 1936, appointed three permanent receivers of the defendant corporation Conveyancers Title Insurance and Mortgage Company (hereinafter called the Company) and its wholly owned subsidiary corporation Realty, Inc. G. L. (Ter. Ed.) c. 175, § 6. Various holders of so called parti-mortgage receipts or of so called mortgage certificates issued by the Company intervened, to obtain a determination of their rights and in particular to obtain the delivery and transfer to them, or to a new trustee to be appointed, of the mortgages held by the Company and represented by their receipts and certificates. The facts being agreed, the single justice reserved the intervening petitions for the full court.
The Company was incorporated in 1889 for the purpose of éxamining and insuring titles to real estate, and during its existence wrote about four thousand policies of the face value of about $32,000,000, upon which liability was to cease upon a transfer of title by the insured. Whether there is any actual danger of liability upon any of these policies is not known. It is common knowledge that title insurance never became usual in Massachusetts. The system of land registration, which was adopted in 1898, reduced both the need and the desire for it. In 1891 and 1892 the charter was amended to enable the Company “to buy and sell mortgages of Massachusetts real estate and act as agent in negotiating the same,” and “to act as agent or broker for the purchase, sale and care of real estate.” For many years its principal business has been the lending of money on mortgages and the sale of interests in them, represented by receipts and certificates such as are held by the petitioners. G. L. (Ter. Ed.) c. 175, §§ 47, Eleventh; 114.
The nature of the parti-mortgage receipts (occasionally
In each of the receipts the Company acknowledged payment to it of a certain sum of money as the purchase price of “a parti-interest to that amount in a certain” described note and mortgage. “It is agreed that the owner hereof shall receive no assignment of the mortgage other than this receipt.” The receipts continue: “The note shall remain in the name of the Company, which alone shall have full and complete powers in reference thereto as if it were the absolute owner thereof, including, without limiting the foregoing, the right to collect and receive payment and to make a valid and binding discharge thereof, to extend said mortgage or any installment thereof from time to time, but in no event shall said mortgage, or the installment thereof with respect to which this receipt is issued, be extended beyond [here a date was inserted], which shall be the due date hereof. The Company may, at its discretion, in lieu of extending said mortgage, allow the mortgage to continue overdue or foreclose it; and, if the Company becomes the purchaser at foreclosure sale, the Company shall hold the property in trust in lieu of the mortgage for the benefit of the holders of the parti-mortgage receipts issued with respect to said note without being accountable for the amount bid by it at such foreclosure sale . . . Any payment received on account of the principal of the note, or any proceeds received from the sale
“The Company shall have the right to purchase this receipt on any interest date, provided written notice of its intention to so purchase this receipt shall be mailed to the bolder at his registered address at least sixty (60) days prior to such interest date, upon payment of any unpaid balance of the face amount hereof, together with any interest thereon unpaid to the date of purchase, and the delivery to the holder of a warrant for the payment of an amount equal to one per cent (1%) of the amount of this
The deposit agreement with the bank, to which all receipt holders assented and agreed, provided as follows: “No receipt holder shall be entitled to the possession of any deposited note or mortgage or .to any division or setting apart of his specific interest in any deposited note or mortgage. Only the Company shall have the right to collect either interest or principal of any deposited note.” One of the petitioners owns a parti-mortgage receipt covering the whole of a mortgage. Others represent the ownership of parti-mortgage receipts covering in the aggregate the whole of a mortgage. Others represent fractional interests.
The insured first mortgage certificates are much like the parti-mortgage receipts in form and as to the rights created. The essential differences are that the certificates conveyed an interest, not in one mortgage but in a block or pool of mortgages, taken together, and that provision was made for withdrawing one mortgage and substituting
The securities issued by the Company and outstanding are as follows: (1) mortgage certificates antedating September 15, 1932, $20,000; (2) mortgage certificates under the plan of September 15, 1932, $5,281,700; (3) partimortgage receipts antedating September 15, 1932, $71,800; (4) parti-mortgage receipts under the plan of September 15, 1932, $7,186,834.09; (5) mortgages assigned to purchasers and guaranteed by the Company, $58,000. The mortgages represented by these securities, or in case of foreclosure the properties themselves, are held subject to the rights of security holders. Some of the mortgages are in good standing and not in arrears. Others are in arrears, but some interest is being received. In other cases the income of the real estate is insufficient to pay the current expenses, nothing is being paid on the mortgage interest, and the Company for its own protection has had to advance money for taxes and repairs. Such advances amount to $185,151. Other mortgages have been foreclosed and bought in by the defendant Realty, Inc., a wholly owned subsidiary corporation, which has given a note and mortgage to the Company for the entire purchase price.
Besides the mortgages against which receipts and certificates have been issued, the principal assets of the Company in the hands of the receivers are (1) forty-seven mortgages of a face value of $600,000, set apart as a guaranty fund upon title insurance policies as required by G. L. (Ter. Ed.) c. 175, § 116; (2) mortgages pledged with banks for loans to the Company of $202,323;
The parties have presented with commendable industry and thoroughness the question whether the relation between the Company and its receipt and certificate holders was that of trustee and cestuis que trust, or that of debtor and secured creditors. The petitioners argue that the Company was only a trustee, that the powers of the trustee cannot be transferred to receivers, and that the mortgages ought to be delivered to the petitioners or placed in the control of new trustees to be appointed after notice to all cestuis.
Many cases arising in New York, where the collapse of companies of this sort has caused much litigation, have been cited as to the true relation of the parties. These cases require a careful study of the form of the securities there under discussion. Where a company of this sort assigned a mortgage and added its guaranty, although reserving by contract the right to perform services to the assignee for a consideration, it has been held that the assignee becomes the owner and the company merely a guarantor. Matter of People (Bond & Mortgage Guarantee Co.) 267 N. Y. 419. Matter of People (New York Title & Mortgage Co.) 154 Misc. (N. Y.) 586. Matter of New York Title & Mortgage Co. 160 Misc. (N. Y.) 1. Fearey v. Williams, 72 Fed. (2d)
We have not found it necessary to determine with technical accuracy the legal relation between the Company and its investors. What we have to say has no application to the mortgages assigned and guaranteed by the Company, for no holder of them is a petitioner. If the relation between the Company and its receipt and certificate holders in the present case was a trust relation, it was far from a typical one. The Company was liable for the face value of the investment, both principal and interest, regardless of the prudence of its management. The Company had a right to buy the investment, and thus get rid of the investor, while retaining the property in which the investor had an interest. If the Company was a trustee of the note and mortgage, and the investors were cestuis que trust, the Company itself was also a cestui que trust to the extent of the share of the income which it was “entitled to retain for its own use” and which constituted its only means of living. Its right was something more than the right of a trustee to compensation. The right of the Company to this income was protected by stringent provisions giving it all the rights and powers of complete ownership and control, and denying to investors all right to possession, assignment, division or setting apart of any mortgage.
The main question argued in this case seems to be answered by our statutes. In G. L. (1921) c. 175, § 47, Eleventh, the purposes for which title insurance companies could be incor
All the petitioners took title to their securities at a time when the statute was substantially as it is now. No contract or property rights of theirs are invaded by its application, for they took title in contemplation of it. The statute contemplates a receivership of the Company, not merely in its character and capacity as an insurer of titles, but in its entirety and with respect to all the business permitted by G. L. (Ter. Ed.) c. 175, § 47, Eleventh. The receivers, by § 6, are “to settle its affairs, subject to such rules and orders as the court may prescribe.” The decree of December 10, 1936, appointing permanent receivers, made them receivers “of all the property, assets and effects, legal or equitable or both of every kind and nature belonging to or in the possession or control of the” Company, with power “to continue without further authority from the court the business and affairs heretofore conducted by the” Company.
We have now decided the principal point raised by the petitions and argued by the petitioners. Some of the petitioners pray for a declaration of their rights and for other relief. No substantial dispute seems to exist with regard to the right of the investors to require the receivers to segregate the mortgages and the income from them, and to give to each group of investors the income from the mortgages held for it, less the share to which the Company is entitled. It may be that in the future troublesome questions may arise as to the details of administration. We can hardly decide them now. A decree is to be entered dismissing the several petitions so far as they pray for a transfer of title to or custody, possession or management of notes, mortgages or other property from the receivers to the petitioners or to any trustee or other person or persons, and dismissing the several petitions without prejudice in other respects.
Ordered accordingly.
Cents are omitted in the sums stated in this paragraph. — Reporter.