Everett Credit Union v. Allied Ambulance Services, Inc.

• Decision Date: 18 August 1981
• Citation: 424 N.E.2d 1142,12 Mass.App.Ct. 343
• Parties: EVERETT CREDIT UNION v. ALLIED AMBULANCE SERVICES, INC. et al. 1
• Court: Appeals Court of Massachusetts

Page 1142

424 N.E.2d 1142

12 Mass.App.Ct. 343

EVERETT CREDIT UNION v. ALLIED AMBULANCE SERVICES, INC. et al. ¹

Appeals Court of Massachusetts, Middlesex.

Argued April 13, 1981.

Decided Aug. 18, 1981.

Hyman Katz, Boston, for plaintiff.

Mary E. Dacey, Asst. Atty. Gen., for the Commonwealth.

Jacob Bloch, Boston, for Jerome J. Rosenstein and another.

Steven A. Remsberg, Boston, for Mass. Bank and Trust Co.

Philip I. Brennan, Washington, D. C., for Internal Revenue Service.

Before BROWN, DREBEN and KASS, JJ.

DREBEN, Justice.

Everett Credit Union (Everett), the holder of a mortgage on real estate owned by the debtor, Allied Ambulance Services, Inc. (Allied), conducted a foreclosure sale. This is an interpleader action brought by Everett to resolve competing claims to the surplus proceeds. Everett and the Commonwealth of Massachusetts are two of five claimants to these proceeds, and in their appeals they challenge the order of priority of the claims set forth in the judgment. The order of priority is critical, as the surplus proceeds ($38,394.70) are insufficient to pay all the claims. A third claimant, Massachusetts Bank and Trust Company (Bank), appeals on the ground that the judgment did not include interest and attorney's fees to which it claims it is entitled. The two remaining claimants (see note 1, supra ), the United States and Rosenstein and Silk, have not appealed.

The judgment gave lowest priority to a 1975 claim of Everett for sums advanced to Allied for the purchase of ambulances. Although Everett repossessed and sold the ambulances, a deficiency remained. Everett contends that the judge was in error, and that it is entitled to first priority based on a clause in the 1971 mortgage held by it on the real estate of Allied which made that real estate security for all "direct and contingent liabilities" of Allied to Everett "whether now existing or hereafter contracted." The Commonwealth urges that the judgment incorrectly permitted two partners, Jerome J. Rosenstein and Charles Silk, who were creditors of Allied to take ahead of the Commonwealth's tax liens. Rosenstein and Silk were given priority under G.L. c. 62C, § 50(b ), on the basis of a judgment recovered against individual stockholders of Allied at a time when the corporation was dissolved.

We hold that the Bank is entitled to interest and reasonable attorney's fees, that Everett's 1971 mortgage secured its 1975 claim, and that Rosenstein and Silk were judgment creditors of Allied. The judgment is to be modified in accordance with our opinion. The facts, based on an adopted master's report, will be set forth as required.

1. The validity of the 1971 mortgage provision. As indicated earlier, the 1971 mortgage given by Allied to Everett contained a so-called "dragnet" provision which purported to secure debts of Allied "whether now existing or hereafter contracted." Everett contends that it has priority over all claimants by reason of this clause. ²

Although the record does not indicate the purpose of Allied's $30,000 borrowing in 1971, which was secured by Everett's first mortgage, documents which evidenced a subsequent borrowing made by Allied from Everett in 1975 suggest that the later loan was for the purchase of ambulances. Allied executed a separate security agreement in 1975 which gave Everett a security interest in the ambulances. Neither the security agreement nor the 1975 note referred to the 1971 mortgage. The 1971 note, unlike the 1975 note, was captioned "Real Estate Note."

The master made the following finding: "While no evidence was introduced as to the intent of the parties in executing the August 11, 1971, mortgage (Exhibit 1), I infer from Exhibits 13 (the 1975 security agreement) and 14 (the 1975 note) that by executing a separate security agreement for the ambulances, the parties did not intend the original real estate mortgage to cover this later acquisition of ambulances and their financing." The judge adopted the master's finding in his "Order and Memorandum of Decision" and stated that the 1975 loan for purchasing ambulances is not "of the general kind of debt secured by a real estate mortgage." He went on to say, "Moreover, the execution of a separate security agreement for the ambulances supports the inference that the parties did not intend the dragnet clause to secure the loan for ambulance acquisition."

As the conclusions of the master and the judge are based solely on documentary evidence, ³ we are in the same position as they were and need not be bound by their conclusions. Coonce v. Coonce, 356 Mass. 690 693, 255 N.E.2d 330 (1970). We consider the fact that there was collateral for the second loan insufficient to find a waiver of the 1971 mortgage provision.

Mortgages covering future advances are usually held valid in Massachusetts, at least where such advances are made prior to the intervention of other liens. Barnard v. Moore, 8 Allen at 274. Carlson v. Lawrence H. Oppenheim Co., 334 Mass. 462, 465, 136 N.E.2d 205 (1956). Bennett v. Worcester County Natl. Bank, 350 Mass. 64, 67-68, 213 N.E.2d 254 (1966). Financial Acceptance Corp. v. Garvey, 6 Mass.App. 610, 614, 380 N.E.2d 1332 (1978). This is true even where other collateral secures the later advance. Exchange Trust Co. v. Hitchcock, 249 Mass. 547, 549-550, 144 N.E. 373 (1924). See generally Osborne, Handbook on the Law of Mortgages § 118 (2d ed. 1970). The Uniform Commercial Code also permits a security agreement to "include future advances." G.L. c. 106, § 9-204, as appearing in St.1979, c. 512, § 7. See generally 2 Gilmore, Security Interests in Personal Property § 35.5 (1965).

While so-called "dragnet" clauses are narrowly construed where they are used oppressively or as a device for fraud, "relief from the effect of dragnet clauses involves principles of equity." Wong v. Beneficial Sav. & Loan Assn., 56 Cal.App.3d 286, 297, 128 Cal.Rptr. 338 (1976). Capocasa v. First Natl. Bank, 36 Wis.2d 714, 720, 726, 154 N.W.2d 271 (1967). See Financial Acceptance Corp. v. Garvey, 6 Mass.App. at 616, 380 N.E.2d 1332. See also Osborne, Nelson and Whitman, Real Estate Finance Law § 12.8 (1979), where, at 773, the authors state that the holdings limiting "dragnet" provisions "are said to be based on the intention of the parties, but in reality they usually represent the court's conceptions of fairness and equity."

There is here no evidence of any unfairness or oppressiveness in the relationship between Everett and Allied. Both loans were made for business purposes in a commercial setting. The master expressly pointed out that no evidence was introduced as to the intent of the parties in executing the 1971 mortgage. In such circumstances, contrary to the view of some of the creditors, we deem it wholly consistent with the view expressed in Financial Acceptance Corp. v. Garvey, supra at 613, 380 N.E.2d 1332, to rely on "the language employed in the mortgage." The question is not whether the 1975 loan refers to the mortgage provision, but rather whether the 1971 mortgage includes the later advance.

The fact that the later loan did not make reference to the earlier mortgage and had its own collateral is not sufficient, in our opinion, to constitute a waiver of the 1971 mortgage provision. See Exchange Trust Co. v. Hitchcock, 249 Mass. at 550, 144 N.E. 373. We recognize that there is authority to the contrary elsewhere on this issue. For a collection of authorities, see both the majority and dissenting opinions in First Security Bank v. Shiew, 609 P.2d 952 (Utah 1980). However, in the circumstances of this case we see no reason to conclude that the parties did not intend the 1971 mortgage provision to operate as written. We therefore accord priority over subsequently recorded liens to Everett's 1975 claim.

2. Priority of Rosenstein and Silk over the Commonwealth's tax liens. Allied was dissolved by judicial decree on February 3, 1971. Nevertheless, as stipulated by all counsel, after that date "some entity or individuals originally affiliated with (Allied) as shareholders and/or directors continued to operate the business of (Allied) with the same equipment and at the same location during all times material to this action." Everett and the Bank obtained certificates of revival of Allied pursuant to G.L. c. 156B, § 108. Rosenstein and Silk did not follow that procedure. Instead, they obtained a judgment against two individuals who were stockholders of Allied and recorded the execution issued thereon on July 13, 1977, a date prior to the revival certificates obtained by Everett or the Bank.

No claimant challenges the levy and execution, see G.L. c. 223, § 59, and G.L. c. 236, § 4 (as in effect prior to St.1980, c. 152), and no one argues that Rosenstein and Silk were not creditors of Allied. The Commonwealth and Everett claim that because the judgment was obtained against stockholders and not the corporation itself, that Rosenstein and Silk are not judgment creditors of Allied.

The judge found that Rosenstein and Silk were judgment creditors of Allied, see G.L. c. 62C, § 50(b )(1), ⁴ and entitled to priority over the Commonwealth "insofar as the amount represents the interest of (the stockholders in Allied)." We agree.

A judgment may not be obtained against a dissolved corporation. Thornton v. Marginal Freight Ry., 123 Mass. 32, 35 (1877). Its property is held as tenants in common by its stockholders, Cummington Realty Associates v. Whitten, 239 Mass. 313, 325, 132 N.E. 53 (1921), or, if only one, by its sole stockholder, Springfield v. Schaffer, --- Mass.App. ---, ---, ^a 423 N.E.2d 797 (1981). The interest of the stockholders in a dissolved corporation may be reached by its creditors. See Folger...