282 Mass. 380 | Mass. | 1933
This is a suit in equity brought on June 10, 1931, by a committee for the protection of holders of mortgage bonds of the aggregate face value of $1,200,000 originally secured by a first trust mortgage on real estate in Brookline — both bonds and mortgage having been executed by The Pelham Hall, Inc., and the bonds having been sold through American Bond and Mortgage Company — against the defendant both as an individual and as trustee under the mortgage. The object of the suit is to obtain an accounting for the proceeds of a foreclosure sale held by the defendant under the mortgage. It is alleged in the bill that the plaintiffs are owners of more than nine tenths of the entire issue of bonds so secured; that the mortgagor has defaulted in the performance of many covenants contained in the mortgage; that after such defaults the defendant as trustee, in accordance with the terms of the trust mortgage, has taken possession of the real estate covered by the mortgage and has sold it at public auction and has received therefor $450,000; that the bonds are wholly unpaid, and that the amount thus received is in the hands of the defendant for ratable distribution among the holders of the bonds after deduction of certain costs and expenses, all as provided in the mortgage; and that the bill is brought in behalf of the plaintiffs and “such other holders of the bonds as may care to become parties plaintiff.” The prayers are for an accounting and for distribution. ratably of the amount in the hands of the defendant among holders of the mortgage bonds, and for further relief. The defendant’s answer admits most of the allegations of the bill, but avers that he is entitled to retain expenses for foreclosure of the mortgage amounting to $7,346.42, and sets up in some detail claims for reimbursement out of the fund in his hands for sums aggregating $181,500 advanced by him as trustee in order to complete the building contemplated by the mortgage, which sums with interest are averred to be due to him under the terms of the mortgage in priority and paramount to the amounts due to the holders of bonds.
After the filing of the original answer, the individual holder of one bond secured by the mortgage filed a “Motion to intervene as Party Complainant” for the purpose of contesting the claim of the defendant to reimbursement in priority to the rights of the holders of bonds for sums advanced by himself in order to complete the building. That motion was allowed, counsel for plaintiffs stating in writing that he made no objection. The petition to intervene alleged that the intervenor with others had instituted a suit in the Superior Court against the defendant and all the persons named as plaintiffs in the bill in the case at bar, and others as defendants including the American Bond and Mortgage Company, and copy of the bill in that suit was annexed to his petition. The intervening petition did not incorporate any of the allegations of that bill; it was founded merely on an alleged purpose to contest the claim for priority urged by the defendant. It introduced no new facts.
Thereafter, the intervenor filed a motion to amend his petition to intervene. In this motion the intervenor sought to introduce allegations at considerable length charging the defendant with bad faith in respect to many of his acts connected with the completion of the building, the procurement of the foreclosure of a second mortgage on the property and failure to collect rents and profits from the property for the benefit of the bondholders. He also alleged the pendency in the United States District Court for the District of Massachusetts of an action by the defendant against the Maryland Casualty Company for breach of the condition of a bond signed by it as surety and given to guarantee the completion of the building by the landowner, for money spent by him in completing the building after the owner and the contractor had failed to do so, and set
The single justice ruled that, since the motion to amend the petition to intervene raised issues of fact independent of those raised by the bill and answer, the original plaintiffs were domini litis and that their control of the proceedings could not be interfered with by the intervenor, that the intervenor must take the record of this class bill as he found it, that if he desired to raise new issues he must do so by suit on his own account, and as matter of law denied the motion to amend the petition to intervene. At the request of all parties, he reported that ruling to the full court for determination. If that ruling was right, the case is to be heard upon bill and answer.
The first question to be decided is whether there was error in thus denying the motion to amend the petition to intervene.
As bearing upon this question, a brief summary of the allegations of the bill in the suit in equity alleged by the intervenor to have been brought by himself and others in the Superior Court is relevant. That suit was brought on May 1, 1931, by plaintiffs, some of whom were holders of bonds secured by the mortgage described in the present bill. The defendants embraced all the plaintiffs and the defendant in the case at bar, and other corporations and individuals. The allegations of that bill are that the defendant in the case at bar (hereafter called the defendant) entered into a scheme, outlined at considerable length, with the American Bond and Mortgage Company whereby they intended to reap a secret profit at the expense of the bondholders or of the Maryland Casualty Company, that the defendant has been guilty of other fraudulent acts in failing to take possession of the real estate covered by the mortgage, that his interests are hostile to those of the bondholders and that he ought to be removed as trustee, that a protective committee of bondholders having ulterior designs has been formed, and that all the acts of the defendant in connection with the real estate and in fore
It is manifest that the intervenor is a participant in prosecuting as a party other litigation hostile to the purpose of the plaintiffs in the present bill and inconsistent with relief here sought, and that by his proposed amendment he is seeking to interject into the present suit issues not hitherto raised and antagonistic to the theory on which this suit is founded. The present suit was properly brought as a class bill by the plaintiffs in their own right and in behalf of other bondholders secured by the same trust mortgage. Spear v. H. V. Greene Co. 246 Mass. 259, 266-267. It was based on allegations that the mortgage had been foreclosed.
One who brings a suit such as the present holds and retains absolute dominion over it unless the court orders otherwise upon findings made after hearing that it is not being prosecuted in good faith, with vigor and reasonable capacity. There can be but one master of litigation for the plaintiffs. The original plaintiffs assumed the burden of prosecuting the cause to a conclusion and the liability to costs if defeated.
It would be impracticable to permit litigation in these circumstances to be conducted by the independent action of several plaintiffs acting without harmony and according to divergent ideas as to the establishment of the liability of the defendant. This is the general rule supported by many authorities. Handford v. Storie, 2 Sim. & Stu. 196, 198. Hirshfeld v. Fitzgerald, 157 N. Y. 166, 182-184. Duerson’s administrator v. Alsop, 27 Grat. 229, 236. Thompson v. Fisler, 6 Stew. (N. J.) 480-481. Manning v. Mercantile Trust Co. 26 Misc. (N. Y.) 440. Price v. North, 2 Y. & C. Ex. 620, 628, 635. Watson v. Cave, 17 Ch. D. 19, 22. 1 Dan. Ch. Pl. & Pract. (6th Amer. ed.) 794. See 21 C. J. 289-290, and cases collected. It is on this principle
There are many instances where an intervenor comes into pending litigation as an independent party, as for example in receivership proceedings, and is allowed to pursue the course dictated by his own desires. Check v. Kaplan, 280 Mass. 170, and cases reviewed. Kingsley v. Fall River, 280 Mass. 395. Parties are not infrequently permitted to intervene where they have a necessary interest to be protected or asserted. Chase v. Dickey, 212 Mass. 555. Zani v. Phandor Co. 281 Mass. 139,146, 148, 149. It is unnecessary to multiply illustrations from the cases of these large classes. The case at bar is distinguishable.
The present intervenor is attempting to try the case on a quite different conception of the grounds of liability from that of the plaintiffs. In substance and effect he is striving to assume control of the suit and to oust the plaintiffs from their control of it. He is a party to a separate suit, where issues which he seeks here to raise appear to be open to him.
This result in no way impairs the settled principle that courts of equity are sedulous to provide opportunity to be heard for all parties interested in a trust. Sears v. Hardy, 120 Mass. 524, 529. First National Fire Ins. Co. v. Salisbury, 130 Mass. 303, 312. Wickwire Spencer Steel Corp. v. United Spring Co. 247 Mass. 565, 569. That practice is inapplicable to the facts here shown.
The disposition to be made of the case upon the reservation for consideration upon the bill and answer, as amended, remains to be determined. For this purpose, all facts alleged in the bill, so far as not denied in the answer, and all relevant and responsive facts well pleaded in the answer, must be accepted as true. Joslin v. Boston & Maine Railroad, 274 Mass. 551-552. Boston v. Curley, 276 Mass. 549, 555. On this branch of the case the controversy relates to the contention of the defendant that he is entitled, in prior
Not only is a trustee who makes proper expenditures in connection with the trust property entitled to reimbursement out of the trust property but such claim for reimbursement may constitute a charge superior to rights of beneficiaries of the trust. Woodard v. Wright, 82 Cal. 202, 206. Turton v. Grant, 86 N. J. Eq. 191, 194. In re Exhall Coal Co. (Ltd.) 35 Beav. 449. The defendant does not rely solely upon this principle but relies also upon express provisions of the mortgage. The landowner covenanted in that instrument to erect the apartment building upon the land, of specified dimensions with appointments described in considerable detail. By art. VI the defendant as trustee was authorized, whenever the landowner was delinquent in the performance of its covenants, “to perform such covenants ... to place said mortgaged property in proper condition . . . and to advance or expend the necessary money for any or all of said purposes . . . ,” and the landowner covenanted to pay to the defendant as trustee “all moneys advanced or expended . . . with interest ... at seven per cent ... all of which sums shall be a first lien on said premises prior and paramount to the bonds hereby secured . . . .” It was provided by art. IX, § 4 (b), that in case of sale by foreclosure of the mortgaged property the proceeds should be applied, after payment of the costs of such sale, “To the payment of all other expenses of the trust . . . including all moneys advanced by the”
These provisions of the mortgage in express terms authorized the defendant to expend sums necessary to complete the building in case of failure on the part of the landowner to complete it in conformity to the requirements of the mortgage. They did not confine him in such expenditures to the amount received from the sale of the bonds secured by the mortgage because, by the words of art. VI already quoted, the sums so advanced by the defendant were to be a “first lien” “prior and paramount to the bonds.” A clear distinction is thus drawn between the bonded debt and the debt arising from advances made by the defendant as trustee. These words express an understanding that the total of the two might exceed the amount of the bonds. If any limitation was intended, it would have been stated. The unmistakable purport of this provision in art. VI is that the defendant is entitled to priority over the bonds for advances made by him in accordance with the mortgage. These provisions, in order to be given any effect, must be held to control other terms of the mortgage as to the security afforded to the bonds. The power to create this priority is to be gathered from the mortgage as a whole, attributing due weight to all its parts in order that it may be a consistent and workable instrument. The decision in Gray v. McClellan, 214 Mass. 92, related to a different matter and is not pertinent to issues here raised.
The averments of the answer are direct and unequivocal to the effect that the amount claimed was paid in cash by the defendant for the purpose of completing the building and that the money so paid was lent to him by the American Bond and Mortgage Company. Those averments standing alone would be decisive in favor of his right to priority for such payments over the bonds.
The form of entries on the books of the American Bond and Mortgage Company is not of consequence in view of the express averments of the answer as to the facts and intentions of the parties. They simply show, in view of the other
Nothing in the so called brokerage agreement militates against this conclusion. The parties to that agreement were the landowner and the American Bond and Mortgage Company. Neither the defendant nor the bondholders were parties to that agreement. It was dated July 7, 1925, and executed shortly afterwards, while the mortgage was not dated until September 1, 1925. It cannot be thought that any provisions of the mortgage were limited or narrowed by the preexisting contract. Moreover, on the bill and answer, as amended, it cannot be assumed that the American Bond and Mortgage Company was acting under the agreement, in face of averments that the defendant was acting under the mortgage in completing the building.
No provision in the mortgage requires or even implies that the defendant, if required to complete the building in conformity to the power conferred upon him by the mortgage, must use his own money exclusively and was forbidden to borrow for that purpose. It has been held that one acting in a fiduciary capacity may agree in advance that his lien for expenditures made for trust purposes shall enure to the benefit of a third person furnishing money or services thus expended by the trustee. Schoenherr v. Van Meter, 215 N. Y. 548, 551. Jessup v. Smith, 223 N. Y. 203. Field v. Wilbur, 49 Vt. 157, 164. The language of art. VI of the mortgage is of broad sweep. The trustee is authorized, in order to make good a delinquency by the landowner, “to advance or expend the necessary money for any or all” such purposes and the covenant and lien extend to “all moneys advanced or expended pursuant” to the authorization. It is declared, also, by art. X, § 2, that the defendant as individual trustee “shall not be personally hable for any debts contracted by him . . . but . . . the same shall be a charge upon the trust estate.” These provisions, in conjunction with the other terms of the mortgage and the main purpose of the entire transaction, authorize the defendant to borrow the necessary money and to incur no personal liability if he acted reasonably.
The terms of G. L. (Ter. Ed.) c. 244, § 20, and c. 183, § 27, are not relevant to the facts here disclosed and are not imported into the mortgage by anything contained in art. IX, § 4, of the mortgage as a limitation upon the rights and powers expressly conferred upon the defendant.
This right of the defendant to a lien for sums expended in completing the building is not cut down by the provision in art. I, § 6, of the mortgage that no purchaser before maturity of the bonds shall as to the lien created by the mortgage be affected by equities between various other parties including the landowner, the defendant, and the American Bond and Mortgage Company. Manifestly that provision does not refer to rights expressly and in detail created by the mortgage in favor of the defendant for the purpose of completing the building, but refers to equities which might arise in other aspects of the undertaking or in other transactions.
The contention cannot be supported that the defendant committed a breach of duty in permitting the Pelham Hall Corporation to occupy the property for a considerable period. Bad faith is not alleged in the bill and fraudulent conduct cannot commonly be presumed but must be proved. Brown v. Little, Brown & Co. (Inc.) 269 Mass. 102, 117. There is nothing to indicate that the building on the mortgaged premises was producing revenue at the time. It was new. It had no established patronage. Time and managerial skill may have been required to organize the staff of such a building, secure tenants, and build up a good will. The defendant in this particular may have
There are no facts in the record to support a contention that the defendant dealt with the property for his personal benefit or in any manner save to preserve the interests of the bondholders.
The purchase of the property in 1927 by the American Mortgage Loan Company at the foreclosure of the second mortgage and its transfer in a few days to the Pelham Hall Corporation did not have the effect of extinguishing by merger the hen of the defendant for bis advancement to complete the building pursuant to authority conferred by the first mortgage. That ultimate purchaser was a distinct corporation. All its stock was owned by the American Mortgage Loan Company, a. separate corporation, whose stock was entirely owned by William J. Moore. The latter was a stockholder in the American Bond and Mortgage Company, also a separate corporation, but there were other stockholders. Although substantially all the common stock of the latter corporation was owned by the Moore family, there is nothing to indicate how much was owned by the several members of the family or by William J. Moore in particular, nor who were the owners of its preferred stock. Thus it appears that there was no unity of stock ownership in any two of these corporations. The defendant was a stockholder in the last named corporation but in neither of the others, and it does not appear how
There are instances where courts look through the corporate form to the individuals in order to protect the public, prevent a fraud, or to accomplish some other essential justice. J. J. McCaskill Co. v. United States, 216 U. S. 504, 515. Southern Pacific Co. v. Lowe, 247 U. S. 330, 337. Gulf Oil Corp. v. Lewellyn, 248 U. S. 71. But the case at bar does not fall within that class. The facts do not warrant the conclusion that the Pelham Hall Corporation and the American Mortgage Loan Company were not independent entities and free agencies in respect to the property here in question, so far as concerned the defendant or the American
The circumstance that the money was advanced to the defendant for the purpose of completing the building, by the American Bond and Mortgage Company, and that the lien for those expenses may ultimately enure to the benefit of that corporation, does not have the effect of extinguishing the lien by merger. No unity of interest is established between the American Mortgage Loan Company as purchaser at the foreclosure of the second mortgage and its grantee, the Pelham Hall Corporation, on the one side, and the defendant and the American Bond and Mortgage Company on the other side. Although merger arises when the title to real estate vests absolutely in the owner of a security without any intervening impediment, the diversity of corporate entities with the other factors already mentioned prevents any merger of the lien of the defendant in the case at bar. Cheffee v. Geageah, 253 Mass. 586, 589.
It is argued that, because the sale on the foreclosure of the second mortgage was presumably made subject to the lien here in controversy, it would be inequitable to permit that hen now to be satisfied out of the proceeds of the sale under the first mortgage. It cannot be disputed on this record that the money for which the lien is claimed was honestly spent in completing the building. To that extent the holders of the first mortgage bonds, represented by the plaintiffs, were benefited by that expenditure. It does not appear that the defendant or the American Bond and Mortgage Company has ever been repaid for that expenditure. Even if it be assumed that the purchaser at the foreclosure of the second mortgage bought subject to that lien, neither such purchaser nor its successor in title has ever paid it. It is possible that temporarily there may have been some speculative value in the equity thus bought. However that may be, there is now no value to that equity because it has been wiped out by the foreclosure of the first mortgage. We are unable to perceive anything inequitable in permitting the defendant .to enforce the lien for advancements in these circumstances.
The result is that the order denying the motion to amend the petition to intervene is affirmed. The defendant is entitled to establish his lien for the sum claimed for advancements made to complete the building and to be paid for the same as provided in the mortgage, out of the proceeds of the foreclosure sale in his hands, in priority to the claims of the plaintiffs as bondholders. It has not been argued that the defendant is not entitled to be paid for the expenses of the foreclosure in like priority. The details of the decree in conformity to these directions may be settled by the single justice.
Ordered accordingly.