Williams v. Old Colony Trust Co.

222 Mass. 378 | Mass. | 1916

Braley, J.

The decree sustaining the demurrers and dismissing the bill should be affirmed with costs. The plaintiff as receiver, no fraud on the part of the defendant being alleged, has no greater rights to the property in litigation than the Lenox Hotel Company had, a domestic corporation whose assets he has been appointed to collect. Stone v. Old Colony Street Railway, 212 Mass. 459, 462.

The corporation was organized to carry on the business of an hotel, and for this purpose acquired valuable real property which at the date of purchase was subject to a first mortgage given to the defendant, the Old Colony Trust Company, to secure the payment of six hundred and fifty coupon bonds of the par value of $1,000 each, bearing interest at the rate of four per cent per annum, payable semiannually, all of which are held by the individual defendants. It seems that the enterprise never succeeded financially, and, the interest having fallen into arrears, foreclosure *380followed. The net proceeds of the sale, however, are insufficient to pay the principal, and ordinarily the fund would be distributed among the bondholders in proportion to their respective holdings. But, at the date of purchase and of foreclosure, the property also was subject to a second mortgage given more than three years after the first mortgage to the Adams Trust Company, now the defendant the American Trust Company, to secure the payment of certain promissory notes for $50,000 in all, bearing interest at the rate of six per cent per annum, payable semiannually, evidenced by coupons attached to the notes. By an agreement of even date it is provided, that this second mortgage is given to represent interest due and to become due on the first mortgage bonds “up to and including August 1, 1905,” and the bondholders covenanted that the trustee under the second mortgage should hold the notes “in escrow,” and, as coupons on the bonds matured within the period named, the notes were to be delivered to the bondholders upon surrender of an equivalent amount of coupons, or if any bondholder sold or pledged his bonds, he was to deposit with the first mortgagee sufficient cash to pay the coupons, and receive proportionately a note in accordance with the terms of a letter signed by all parties interested and which by reference is incorporated in the agreement.

The plaintiff bases his claim to participate in the distribution of the fund on the transactions which subsequently arose over the payment of the notes secured by the second mortgage. It is alleged in paragraph five of the bill, that all of the notes were delivered to the bondholders and that the coupons were surrendered to the American Trust Company which now holds them as additional security for the payment of the second mortgage. But by the transaction set forth in the sixth paragraph a voluntary association designated as the Associated Trust, the members of which had acquired all the stock of the hotel company, undertook to pay the second mortgage, principal and interest, and the taxes and interest on the first mortgage. The Associated Trust, which held notes of the face value of $2,000, proposed in writing to the mortgagee to deposit these notes, and to pay the remaining notes by instalments with interest for the account of the defendant Ayer, who now seems to have become the sole owner. And, Ayer having indorsed his consent to the proposal, it was accepted, and *381payments amounting to $27,000 were made. If under all the allegations of the bill the position is taken, that the moneys came from the hotel treasury and can be followed as a trust fund, or that, the second mortgage having in substance been given for the payment of coupons on the bonds, the Associated Trust was entitled to participate in the foreclosure fund to the amount of the payments, and the hotel company by subrogation succeeded to their rights, a short answer is, that the Associated Trust was a mere volunteer for the benefit of its members, as the hotel company, as appears from the instrument of proposal, signed only as guarantor, and, the moneys having been mingled with the general assets of the Associated Trust from which payments were made to the mortgagee, the fund cannot be traced and identified. Wall v. Mason, 102 Mass. 313, 316. Taylor v. Wilcox, 167 Mass. 572, 575. Furber v. Dane, 203 Mass. 108, 120, and cases cited. But, even if the hotel company and the Associated Trust are treated as identical, and the moneys advanced by the trust came from the company’s funds, the payments clearly appear, from the tenor of all the agreements when read together, to have been made for the specific purpose of preventing the foreclosure of either mortgage and if possible saving the property for the benefit of whoever for the time being was the owner of the equity. The payments having been made and accepted in partial satisfaction of a valid outstanding incumbrance which could be discharged only by full compliance with the conditions of the mortgage under the agreement of payment,- the debt in so far as extinguished cannot be revived to deplete securities which are wholly insufficient to discharge the primary obligation. Pearmain v. Massachusetts Hospital Life Ins. Co. 206 Mass. 377.

Decree affirmed with costs.