Bigelow v. Lawyers Mortg. Inv. Corp. of Boston

• Decision Date: 25 September 1946
• Citation: 68 N.E.2d 920,320 Mass. 254
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: EDWARD A. BIGELOW, administrator, v. LAWYERS MORTGAGE INVESTMENT CORPORATION OF BOSTON & others.

320 Mass. 254

68 N.E.2d 920

EDWARD A. BIGELOW, administrator, v. LAWYERS MORTGAGE INVESTMENT CORPORATION OF BOSTON & others.

Supreme Judicial Court of Massachusetts, Suffolk.

September 25, 1946

May 13, 1946.

Present: FIELD, C.

J., QUA, RONAN & SPALDING, JJ.

Mortgage Company. Bills and Notes, Indorser, Holder in due course. Mortgage, Of real estate: "mortgage certificates." Contract Construction. Lien. Accord and Satisfaction. Receivership. Res Judicata.

Under the terms read together, of coordinated documents, a "deposit agreement" whereby a mortgage company deposited with a bank mortgage notes indorsed by the company in blank, and mortgage certificates sold by the company to investors and purporting to convey to each purchaser an "undivided interest" in the notes, -- the documents requiring the company to maintain on deposit with the bank at all times notes of an aggregate amount equal to the aggregate face amount of the certificates and sufficient to produce interest at a stated rate thereon, to collect and distribute interest at that rate, and in effect to pay the certificate holders the principal amounts of the certificates at specified times but reserving to the company the right to withdraw and substitute notes and to collect and retain all principal on the notes and to retain all interest in excess of the stated rate, and providing that no certificate holder should be entitled to possession of any deposited note or to have his specific interest set apart, -- the certificate holders did not become holders in due course of the notes nor did the company's indorsement of the notes have the ordinary effect of an indorsement of a promissory note; and in a receivership of the company the certificate holders were not entitled to prove for the full unpaid amount of the principal and interest of the deposited notes on the theory that the company was liable to them as indorser, but were restricted to proving for only the principal of their certificates and the stated interest thereon.

On facts pertaining to a mortgage company in liquidation which, as agent for holders of certificates sold by it, had a claim against its wholly owned subsidiary respecting mortgage notes and mortgages acquired by it from the subsidiary and deposited by it with a bank as security for the payments to be made on such certificates, and which also had a claim against the subsidiary respecting other mortgage notes and mortgages acquired by it from the subsidiary and not so deposited but held by it as its own "free" assets, a certain sum received by it in a liquidation of the subsidiary on account of the "free" notes and mortgages was not subject to an equitable lien in favor of the certificate holders as against the mortgage company's other creditors, but was its general asset available ratably to all its creditors in its liquidation.

A certain agreement among the creditors of a title company in receivership, including a mortgage company of which the title company was a wholly owned subsidiary and a bank to which the mortgage company had pledged notes acquired from and indorsed by the title company, applied only to the creditors' claims in that receivership, and the agreement and payments made to the creditors thereunder did not operate as an accord and satisfaction determining for the purposes of a receivership of the mortgage company the question of the validity of such pledge and the question of the right of the bank to claim therein as a secured creditor of the mortgage company; nor did decrees in the receivership of the title company approving the agreement and ordering distribution of assets in accordance therewith make such questions res judicata in the receivership of the mortgage company.

BILL IN EQUITY, filed in the Supreme Judicial Court for the county of Suffolk on June 14, 1943, for the appointment of a receiver of the defendant Lawyers Mortgage Investment Corporation of Boston.

A receiver was appointed. Subsequently he filed a petition for instructions, which was reserved and reported by Qua, J.

A. L. Hyland, for the receiver, stated the case. W. A. Powers, for certificate holders.

S. H. Babcock, (W.

Malcolm with him,) for The First National Bank of Boston.

R. C. Williams, Jr., for New England Mutual Life Insurance Company. G. K. Richardson, for John Hancock Mutual Life Insurance Company, submitted a brief.

QUA, J. The receiver appointed by this court for Lawyers Mortgage Investment Corporation of Boston, hereinafter called the mortgage company, reports that substantially all the assets of that company have now been turned into liquid form, and requests the determination by the court of several questions of law which must be settled before distribution can be made.

The material facts have been agreed upon among the parties interested and in so far as is necessary will be referred to later in dealing with the particular issues. It may be stated here, however, that prior to the year 1933 the mortgage company was engaged in the business of acquiring real estate mortgages, depositing them with a depositary bank and selling to dealers in securities insured first mortgage certificates, so called, certified by the bank. The method of operation was this. The mortgage company was the sole owner of a subsidiary corporation known as Lawyers Title Insurance Company, hereinafter called the title company. The title company lent money to owners of real estate on their negotiable notes secured by mortgages. It then sold these mortgages at face value for cash to the mortgage company. The title company indorsed the notes and assigned the mortgages to the mortgage company and also issued to the mortgage company insurance policies insuring both the validity of the titles and the sufficiency of the mortgages. A large proportion of the notes and mortgages was deposited by the mortgage company with The First National Bank of Boston, hereinafter called the bank, as depositary under the terms of certain deposit agreements between the mortgage company and the bank under which it was the duty of the bank, in general, to receive and hold in its custody the deposited notes and mortgages and to "certify" and deliver the certificates to the mortgage company, but only to such amounts that the aggregate face amount of the certificates of any series at any time outstanding should not exceed the aggregate principal amount of the mortgage notes deposited and held in the custody of the bank for the benefit of holders of certificates of that series, and to keep a record of such certificates. The deposit agreements also provided that deposited mortgage notes might be withdrawn from deposit by the mortgage company from time to time, provided that the mortgage company always maintained the aggregate principal of the deposited notes at a sum at least equal to the aggregate face amount of the outstanding mortgage certificates issued with respect to such mortgages. Upon depositing the notes and mortgages with the bank, the mortgage company indorsed the notes in blank but did not execute assignments of the mortgages. The insurance policies were also deposited. The mortgage company then sold the certificates. In each certificate the mortgage company purported to sell to the certificate holder an "undivided interest" in the deposited mortgage notes proportionate to a specified amount called the "face amount" of the certificate, and covenanted with him that the aggregate principal amount of the deposited notes should always be at least equal to the aggregate face amount of the outstanding certificates; that it would at all times maintain with the depositary an aggregate of deposited mortgage notes sufficient to produce interest at five (or five and one half) per cent on the face amount of the outstanding certificates; that it would distribute such interest semiannually; and that ten years after the date of the certificate or upon the death of the certificate holder (and in some certificates upon the termination by the death of a beneficiary of a trust holding the certificate) it would "buy" the certificate from the registered holder at a "price" equal to its face amount with interest, less all amounts previously distributed to the holder. The mortgage company also had an option to buy before the expiration of ten years. There were provisions which in effect compelled the certificate holder to sell to the company corresponding to the company's covenant to buy at the expiration of ten years or to the exercise of its option to buy at an earlier date. The form of the certificates was incorporated in the deposit agreements, and the certificates referred to those agreements and were expressly made subject to them. It is plain therefore that the contracts between the mortgage company and the certificate holders are to be found in both the certificates and the deposit agreements, which must be read together.

The whole plan was intended to provide a method by which purchasers of certificates might acquire the benefit of investment in specified proportions in a group or pool of deposited real estate mortgages of which the investors were to have no immediate possession or control and which might be changed from time to time at the will of the mortgage company, but which at all times while the certificates remained outstanding must be sufficient to make secure the principal of the investment and the interest thereon. This plan was closely similar to the plan under which were issued the "first mortgage certificates" described and discussed in Commissioner of Insurance v. Conveyancers

Title Ins. & Mortgage Co. 296 Mass. 556 , 560-563. See also the same case in 300 Mass. 457 , 461-462, 470-471.

1. The first question upon which the receiver desires instruction relates to the...