Barry v. Gen. Mortgage & Loan Corp.

• Decision Date: 07 January 1926
• Citation: 150 N.E. 293,254 Mass. 282
• Parties: BARRY et al. v. GENERAL MORTGAGE & LOAN CORPORATION (two cases).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

254 Mass. 282

150 N.E. 293

BARRY et al.

v.GENERAL MORTGAGE & LOAN CORPORATION (two cases).

Supreme Judicial Court of Massachusetts, Suffolk.

Jan. 7, 1926.

Appeal from Supreme Judicial Court, Suffolk County.

Separate suits by William J. Barry and others, as trustees and as creditors' committee, against the General Mortgage & Loan Corporation, consolidated for trial. From a decree for defendant in part, plaintiffs appeal. Affirmed in part, and affirmed as modified in part.

Geo. Lewis Wilson and Frank W. Thayer, both of Boston, for appellants.

Hugh W. Ogden and Edwin J. Owens, both of Boston, for appellee.

SANDERSON, J.

The three plaintiffs bring these bills as trustees holding title to the equity of redemption of the mortgaged premises under a trust deed, and also as a committee acting for and in behalf of certain creditors of York Apartments, Inc. The first is for an accounting and the redemption of six mortgages held by the defendant; the second for the rescission and cancellation of six construction loan agreements which accompanied the mortgages. By order of court these cases were consolidated for trial.

The plaintiff Luff and two associates, on May 15, 1924, organized a corporation called York Apartments, Inc., for the purpose of acquiring three lots of land and erecting thereon three apartment houses without any substantial investment of their own money in the enterprise. The defendant, in response to an application by one of these organizers for three construction loans to be secured by mortgages on the lots in question, agreed to loan $60,000 on each, subject to certain conditions, one of which was that the applicant and his associates purchase from the defendant certain real estate in Roxbury for $45,000. The conditions were accepted, and the papers necessary to carry out the transaction were executed and delivered on June 2, 1924. They included a deed of the three lots from the former owner to a representative of York Apartments, Inc., and a mortgage back, to which the mortgages to the defendant were subject. The notes secured by the defendant's mortgages were to run for one year with interest at the rate of one per cent. per month. In November, 1924, York Apartments, Inc., arranged with the defendant for another construction loan of $12,000 on each lot, which was taken by a subsidiary and later assigned to the defendant. The notes secured by these mortgages were for three months, with interest payable monthly in advance after maturity at the rate of one and one-third per cent. per month. Up to this point the organizers of York Apartments, Inc., had put no money into the enterprise, An unrecorded construction loan agreement accompanied each mortgage, fixing the time when payments to the full amount of the mortgage should be made, some of which were to go to the defendant for certain charges and expenses. After the last series of mortgages was placed, suspended building operations were resumed and continued until March 15, 1925.

Meanwhile, creditors who had furnished labor or materials for the buildings, held meetings, and on January 2, 1925, appointed the plaintiffs a committee with power to proceed with their construction. Two members of this committee represented creditors; the third, Luff, was president of York Apartments, Inc. At a meeting, attended by more than one half the creditors, on April 2, 1924, a vote was taken appointing the plaintiffs a committee to represent them. Two of the plaintiffs first learned of the construction agreements at a meeting in December, 1924; the other knew of them from the first and guaranteed performance of the first series of these agreements. All creditors who attended the meeting in December were aware of the existence of construction agreements. Title to the three lots here in question was conveyed to the plaintiffs by a trust deed dated January 2, 1925, subject to all restrictions, mortgages, liens, taxes, and other existing incumbrances and charges against the property. They were therein given broad discretionary powers to carry out such measures as, in their judgment, would be most beneficial to secure the completion of the buildings and payment to creditors furnishing labor or materials in their construction. There was also provision for the manner in which payments should be made under the mortgages, and money expended by the plaintiffs' direction. Thereafter such payments were requested by the plaintiffs and made from time to time by the defendant. The total amount of unpaid claims for labor and material is about $55,000, of which approximately $34,000 was unpaid when the creditors' committee was appointed. The plaintiffs concede that the defendant is entitled, as of April 1, 1925, to $138,538.71. The decree provided that the plaintiffs might redeem on or before August 6, 1925, by payment of $186,996.13. The difference is made up chiefly of charges and payments authorized by and made in accordance with the terms of the unrecorded construction agreements.

The plaintiffs contend that the creditors, whom they represent, and who contributed to the value of the buildings without knowledge of the construction agreements, have rights in part at least superior to those of the defendant, and that some of the terms of those agreements are inequitable and as matter of law fraudulent. The provisions upon which they base this contention are, (1) items requiring payment of interest from the date of the notes on the whole sum agreed to be advanced; (2) clauses which are the basis of the master's findings that the defendant charged and received as a consideration for making the first series of loans $9,000, and $6,000 by way of charge for making the three $12,000 loans with interest thereon for three months; and (3) the provision in each of the first series of agreements for payment of $1,200 upon passing the papers for services of attorney and inspector.

The parties who have a right to redeem are the mortgagor or persons claiming or holding under him. G. L. c. 244, § 18. By reason of the conveyance of legal title to the plaintiffs, they stand in the place of the mortgagor. Such rights as plaintiffs have to represent creditors in this proceeding they acquire by virtue of the trust deed, and those rights are not enlarged by vote of the creditors to which reference has been made. None of the creditors has assigned his claim to the plaintiffs, or given notice of a claim of lien for labor or materials under the provisions of G. L. c. 254; and none of them is an attaching creditor.

[3][4] A simple contract creditor cannot maintain a bill to redeem. Talbot v. Gingras, 246 Mass. 356, 358, 141 N....