A-Z Servicenter, Inc. v. Segall

• Citation: 138 N.E.2d 266,334 Mass. 672
• Decision Date: 14 November 1956
• Docket Number: A-Z
• Parties: SERVICENTER, Inc. v. Harry SEGALL, Trustee.
• Court: United States State Supreme Judicial Court of Massachusetts

Page 266

138 N.E.2d 266

334 Mass. 672

A-Z SERVICENTER, Inc. v. Harry SEGALL, Trustee.

Supreme Judicial Court of Massachusetts, Essex.

Argued Feb. 10, 1956.

Decided Nov. 14, 1956.

Morris H. Rapoport, Lynn, for plaintiff.

Israel Bloch, Lynn, for defendant.

Before RONAN, SPALDING, COUNIHAN and WHITTEMORE, JJ.

RONAN, Justice.

This is an appeal by the defendant mortgagee from a final decree determining the amount due upon a mortgage, ordering its discharge and cancellation upon the payment of said amount, and dismissing the defendant's counterclaim. We have a transcript of the evidence and a report of the material facts. We examine the evidence, finding facts ourselves, but do not reverse the findings made by the judge unless they are plainly wrong.

Three young men, for a year or two prior to April 10, 1952, had been conducting a gasoline filling station upon premises owned by the defendant which they occupied under a lease from him. They agreed with the defendant to purchase these premises for $20,000 giving back a mortgage which was to run for fifteen years for the entire purchase price payable in monthly instalments on principal and interest together with one twelfth of the real estate tax. A mortgage for $20,000, dated April 10, 1952, was drafted by the defendant's attorney. It also contained a provision calling for the payment of taxes in twelve equal monthly instalments. He also drafted a mortgage note for $20,000 in the usual form. The defendant, however, intended to add the entire interest until maturity to the principal of $20,000 and had his attorney draft a new note based on a schedule showing that the payment of $20,000 over a period of fifteen years at the annual rate of interest of 11.2% would require a potential liability of $41,400 and monthly payments of $230. The new note read as follows: $20,000.00 April 10, 1952 For Value Received A-Z Servicenter, Inc. promises to pay to Harry Segall, as he is Trustee under a Declaration of Trust, dated November 21, 1951, recorded with Essex South District Deeds, Book 3864, Page 239 or order Twenty Thousand Dollars as follows: $230.00 on April 10, 1952, and $230.00 on the first day of each month thereafter, such payments to be applied first against interest, and second against principal, it being agreed that the entire monetary obligation of principal and interest under the note being $41,400.00, and the balance in fifteen years from this date, with interest payable as aforesaid at the rate of 11.2 per centum per annum, during said term, and for such further time as said principal sum, or any part thereof, shall remain unpaid, provided, however, that if and whenever any default in the performance of the conditions of the mortgage securing this note shall continue for a period of thirty days, then at the option of the holder of this note, the entire amount of $41,400.00 as set forth above less any payments made hereon shall be immediately due and payable as liquidated damages and not as a penalty. A-Z Servicenter, Inc. By Paul LaPointe, Pres. Raymond L. LaPointe, Treas. Witnesses Normand A. Dion v.-pres. Roland E. Gingras.'

The note and mortgage were signed by the three individuals who comprised the corporate officers although the vice-president signed under the word 'Witnesses.' The signature of the president was witnessed by the attorney for the plaintiff. The monthly payments of $230 in accordance with the note were made until February, 1953, when, because of a gasoline price was and the building of a road in front of the mortgaged premises, the plaintiff became unable to continue these payments and made lesser monthly payments with the consent of the defendant until July, 1954, when they ceased. The one hundred eighty monthly payments of $230 required for making the payments in the manner set forth in the note were to be allocated between interest and principal starting at $186.67 for interest and $43.33 for principal, and finally diminishing to $1.43 for interest and $153.26 for principal. There was no dispute that the purchase price of the realty was $20,000.

The judge found that the plaintiff thought it was to pay $20,000 with interest at 11.2% a year in monthly payments of $230 on interest and principal but that it did not understand it was to pay $41,400 even though the indebtedness was paid before the expiration of fifteen years; and that the provision making the entire interest for fifteen years payable upon default in the conditions of the mortgage was a penalty and unenforceable. He found that on March 16, 1955, the date of the order for a decree, there was a balance owed on principal $19,548.44, on interest to March 15, 1955, $4,670.33, for taxes to December 31, 1954, $302.29, and for counsel fees and other foreclosure expenses $300, aggregating $24,821.06.

The defendant brought a bill under the Soldiers' and Sailors' Civil Relief Act of 1940, U.S.C. (1952 ed.) Title 50, Appendix, § 532 [50 U.S.C.A.Appendix, § 532], seeking permission to foreclose the mortgage, and after a hearing a final decree was entered on September 21, 1954, for the present defendant. The instant bill was filed when the foreclosure was advertised.

The total payments made by the plaintiff upon the mortgage note amounted to $2,970.62, of which sum $451.56 was properly allocated to principal and $2,519.06 to interest. The note called for the payment of $41,400--of which $21,400 was to be allocated to interest. In other words, if the acceleration clause became operative thirty days after the breach as the note provided, then interest already actually in arrears and amounting to a few thousand dollars together with interest for the remaining term of the note, in all amounting to many thousand dollars, would be due and payable to the seller or mortgagee who sold the property to the plaintiff mortgagor for $20,000 and took the note for the full payment of the purchase price.

Whether a provision of a contract for the payment of a sum upon a breach is rendered unenforceable by reason of its being a penalty depends upon the circumstances of each case. DeCordova v. Weeks, 246...