Lyman v. Stevens
| Decision Date | 05 January 1938 |
| Citation | 197 A. 313,123 Conn. 591 |
| Court | Connecticut Supreme Court |
| Parties | LYMAN v. STEVENS et al. |
Rehearing Denied March 2, 1938.
Appeal from Superior Court, New Haven County; Earnest C. Simpson Judge.
Action by Charles M. Lyman against Carleton H. Stevens and others for a declaratory judgment determining the rights of the plaintiff under a deposit of bond coupons, brought to the superior court and tried to the court. Judgment that plaintiff share pro rata with other holders of bonds and unpaid coupons, and defendants appeal.
No error.
Frank R. Goldman and Russell H. Atwater, both of New Haven for appellants.
Charles M. Lyman, of New Haven, for appellee.
Argued before MALTBIE, C.J., and HINMAN, AVERY, BROWN, and JENNINGS, JJ.
This action was brought for a declaratory judgment determining the rights of the plaintiff in the proceeds of a parcel of real estate in Worcester, Mass., held by the defendants as a committee of bondholders upon foreclosure of a mortgage thereon. The facts are admitted in the pleadings or stipulated, and as far as material may be summarized as follows: In July, 1928, the Colonial Bond & Mortgage Company, hereinafter referred to as the trustee, foreclosed a mortgage which it held upon the real estate in question. Thereafter, on September 25, 1928, it conveyed the property to the Mayflower Realty Corporation and received as consideration for the conveyance a mortgage of $800,000 to it as trustee to secure an issue of a like amount of bonds of varying denominations. The Mayflower Realty Corporation thereafter placed a second mortgage on the property of $350,000 to the Colonial Capital Corporation. The Mayflower Realty Corporation had been organized for the purpose of acquiring and holding title to the premises. The trustee or some of its officers and stockholders was instrumental in its formation, and part or all of its capital was furnished and owned directly or indirectly by the trustees or some of its officers, stockholders, or subsidiaries. The Colonial Capital Corporation was a subsidiary or allied corporation directly or indirectly controlled by the trustee or some of its officers and stockholders, and some or all of the officers of the trustee were officers of the Colonial. Of the bonds issued to it by the Mayflower Realty Corporation, the trustee sold to the general public bonds to the amount of approximately $100,000 at face value; the balance of the bonds being owned by it and pledged with various persons and corporations as security for loans to it. The bonds had coupons annexed providing for the payment of interest semiannually.
When the first semiannual interest coupon became due, the mortgagor was in default as to interest, insurance and taxes, and the trustee paid from its own funds the coupons then due upon the bonds which it had sold to the general public. It likewise paid the interest on the loans to it for which it had pledged bonds as collateral; and, on such payment, the coupons then due upon the pledged bonds were detached and returned to it. When the second coupon became due the same situation existed and the trustee paid the interest, and the coupons were returned in the same manner. When the third coupon became due at the expiration of another six months' interest period the same course was followed, except that a creditor, the Worcester County National Bank, kept and refused to surrender the coupons due in the third period on March 25, 1930. On May 31, 1930, a receiver of the trustee was appointed, and thereafter the plaintiff was appointed permanent receiver, and thereafter the receiver resigned the trusteeship under the mortgage and a successor trustee was appointed. On October 10, 1930, the successor trustee foreclosed the mortgage and a committee of the bondholders acting under an agreement for the benefit of all depositing bondholders acquired title to the property at the foreclosure sale and are still holding the same. The plaintiff deposited with the bondholders' committee the coupons which the trustee had paid to the holders of bonds sold by it and which it had received from the banks upon the payment by it of the interest upon its loans. The plaintiff claims that when the property is sold by the bondholders' committee, he, as representing the trustee, is entitled to share in the proceeds of the sale pro rata with the other depositing bondholders in respect of the coupons deposited. The defendants, the bondholders' committee, claim, on the other hand, that the receiver is entitled to share in the avails of the sale of the property only after all the other bondholders have been paid in full.
For several months prior to the institution of the receivership, the president of the trustee was negotiating for the sale of the mortgaged property, and about March, 1930, received an offer to purchase it at a price in excess of the mortgage; namely, $925,000. He did not accept this offer, but continued his efforts and on one occasion received an inquiry as to whether the trustee would accept $1,000,000 for the property. His negotiations for the sale were never consummated, and no offer was accepted. At or before the time of the negotiations, he had been advised by real estate experts that the property was worth about $1,200,000.
The situation in the present case was that of a corporation holding a piece of real estate upon which it desired to reimburse itself as to all or part of the cost by selling bonds secured thereby to the general public. The Colonial Bond & Mortgage Company, the trustee, or its officers and stockholders were directly interested in the property and in the second mortgage. It is a fair assumption therefore that the deed of trust was drawn in the interest of the trustee. The bonds were delivered to the trustee for the purpose of selling them to the general public and the agreement provided that it might become the owner of some or all of them. Accordingly the deed of trust provided, among other things, that the trustee should be answerable for its own willful neglect or default and be responsible for reasonable diligence in the performance of the trust; that the coupons attached to the bonds should always be transferable by delivery merely; that in case of default by the mortgagor in the payment of taxes, assessments, insurance, or interest, etc., as provided in the mortgage, the trustee, if it deemed it advisable, might make such payment or any other payment for the protection of the property, and that any such payment should become part of the mortgage debt. It also provided that the trustee in its individual capacity might advance to any of the holders of any bonds any payment of principal or interest not paid by the mortgagor when due, and should thereupon, to the extent of such payments, be subrogated to the rights of such holders of bonds; that in case of foreclosure the proceeds of the sale less expenses should be paid to the bondholders pro rata. An exclusive right to enforce the mortgage was given to the trustee, but the right was given to the bondholders in case the trustee did not proceed in case of default to make application to a court for permission to proceed upon their own behalf.
In construing the trust instrument in this case it is to be borne in mind that it is the trustee's own language which is to be interpreted; and if the instrument is so drawn as to leave room for two constructions, the words used should be interpreted most strongly against the trustee. The rule of construction is analogous to that applied in the construction of insurance policies. Rinaldi v. Prudential Ins Co., 118 Conn. 419, 424, 172 A. 777; Fleener v. Omaha National Co., 131 Neb. 253, 256, 267 N.W. 462. A reading of the mortgage agreement makes it evident that the individual interest of the trustee, its officers, and stockholders was quite thoroughly concealed. A person reading the instrument with reasonable care would understand that the situation was one where the trustee was acting solely in the interests of holders of bonds, and that it had no individual interest other than such as might accrue to it through ownership itself of some of...
To continue reading
Request your trial