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Attorney(S)

L. Wyman, for the defendants. J.E. Crowley, ( L. Meltzer with him,) for the plaintiffs.

Judges

CROSBY, J.

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Smart Summary

Opinion Summary: James Antonellis & Herman W. Shaneck v. Eva Weinstein et al.

Factual and Procedural Background

This is an equity bill, filed February 16, 1926 (later amended), by James Antonellis and Herman W. Shaneck, holders of separate judgments against Eva Weinstein of $215.65 and $167.75 respectively. Executions on those judgments were levied on a parcel of land owned by Weinstein prior to February 6, 1926. The property was subject to a first mortgage of $4,000 and a second mortgage of $4,100. A third mortgage dated April 11, 1925, was held by Shapiro and on December 30, 1925 Shapiro assigned that mortgage to Kelly; the assignment was agreed to be without consideration and Kelly acted as a "straw man" or agent for Shapiro.

Kelly (as agent for Shapiro) advertised a foreclosure sale of the third mortgage for February 6, 1926, describing the land as subject to the prior first and second mortgages. At the sale the auctioneer, at counsel's direction and in counsel's presence, announced amounts for the first and second mortgages and other figures; Shapiro (through Kelly/agent) became the highest bidder at $9,050. The amount actually due on the third mortgage was $750 plus $36 interest. The plaintiffs sought a decree that their judgments be paid from any proceeds of the foreclosure sale of the third mortgage that exceeded the sum necessary to satisfy that mortgage and the expenses of sale.

The case was heard in the Superior Court by Morton, J., with a stenographer appointed under G.L. c. 214, § 24, Equity Rule 29 (1926) to take testimony. A decree for the plaintiffs was entered. Defendants Kelly and Shapiro appealed. The Supreme Judicial Court of Massachusetts affirmed the decree (opinion delivered by Crosby, J.).

Legal Issues Presented

Whether the amount bid and paid by a purchaser at a foreclosure sale of a third mortgage can be applied to satisfy encumbrances (prior mortgages) that antedate the third mortgage.
Whether, if the sale price exceeds the sum required to satisfy the third mortgage and expenses, holders of executions (judgment creditors) that were levied on the property prior to the foreclosure may reach any surplus to apply it toward satisfaction of their executions.
Whether evidence of the mortgagee's subjective intent (that the purchaser intended the bid to include payment of prior mortgages) is admissible and operative to alter the legal effect of a foreclosure sale held pursuant to the mortgage power.

Arguments of the Parties

Plaintiffs' Arguments

The plaintiffs sought a decree that their earlier levied executions be satisfied out of any surplus realized on foreclosure of the third mortgage — that is, amounts paid at the third mortgage foreclosure in excess of what was required to satisfy the third mortgage and sale expenses.

Defendants' Arguments

The auctioneer (at the mortgagee's direction) announced figures and the defendants, through Shapiro (and Kelly as agent), acted at the sale and bid $9,050. The defendants offered evidence that they intended the bid to include the amounts necessary to satisfy the first and second mortgages (i.e., that the sale was to result in extinguishment or payment of prior encumbrances as part of the bid).
Defendants (Kelly and Shapiro) appealed the decree ordering an accounting and payment to the plaintiffs from the bid surplus.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Wiggin v. Heywood, 118 Mass. 514	Foreclosure of a mortgage does not discharge encumbrances prior to that mortgage; equitable attachment of prior liens to proceeds in excess of the mortgage debt and sale expenses.	Applied to support the principle that the foreclosure of the third mortgage did not extinguish the plaintiffs' prior levied liens and that such liens attach to any surplus from the sale beyond the third mortgage and sale expenses.
Maguire v. Spaulding, 194 Mass. 601	Same general principle regarding priority and surplus from foreclosure sale.	Used alongside other cases to confirm that prior encumbrances survive foreclosure of a later mortgage and that surplus proceeds are subject to prior liens.
LaCentra v. Jackson, 245 Mass. 14, 18	Reinforces the rule that prior liens attach to surplus proceeds after foreclosure of a later mortgage.	Cited to show consistency of the rule applied in the present case.
Feuer v. Capilowich, 242 Mass. 560 (at p. 565)	Statement of estoppel: mortgagee is legally assumed to have intended to sell only the mortgagor's interest and his own interest under the power; mortgagee is estopped from asserting any other understanding of his act in exercising the power and becoming purchaser at the sale.	Quoted and applied to hold that evidence of the mortgagee's contrary subjective intent (that he intended to include prior mortgages in the bid) was inadmissible and that the mortgagee is estopped to claim such an intent.
Fowle v. Merrill, 10 Allen 350	Support for the estoppel principle regarding the effect of a mortgagee's sale and purchase under the power.	Cited as additional authority supporting the court's estoppel analysis.
Torrey v. Cook, 116 Mass. 163	Further authority on limits of a mortgagee's power and the effect of foreclosure sales.	Referenced as additional support for the court's conclusions about what a mortgagee may properly sell and be estopped to assert.
Donohue v. Chase, 130 Mass. 137	Another supporting case on the legal effect of mortgage foreclosure sales and estoppel.	Cited to reinforce the court's reliance on established Massachusetts law concerning foreclosure and the mortgagee's conduct at sale.

Court's Reasoning and Analysis

The court proceeded from the operative facts found by the trial judge: the plaintiffs had prior executions levied on the property before the foreclosure sale of the third mortgage; the third mortgagee (Shapiro) through Kelly advertised the sale as subject to the first and second mortgages; at the sale the auctioneer (in counsel's presence) announced amounts for prior mortgages and other figures and called for bids; Shapiro (the mortgagee) was the highest bidder at $9,050 while the amount due on the third mortgage was $750 plus $36 interest.

The court applied established equitable principles and Massachusetts precedent to analyze the legal effect of a foreclosure sale by a junior mortgagee. It reiterated that foreclosure of the third mortgage does not discharge prior encumbrances; rather, such prior liens in equity attach to the proceeds of the sale in excess of the amount required to satisfy the third mortgage and the expenses of sale (citing Wiggin v. Heywood and other cases). From that principle the court concluded that the plaintiffs' levied executions, which predated the foreclosure and levy, could reach any surplus after satisfaction of the third mortgage and sale expenses.

The court rejected the defendants' proffered evidence that the mortgagee intended the bid to include payment of the first and second mortgages. The court treated such subjective intent as irrelevant and inadmissible because the mortgagee, in exercising the power of sale and in becoming a purchaser at the sale (which occurred in his presence and under his supervision), is legally presumed to have intended to sell only the mortgagor's interest and his own interest; the mortgagee is estopped to assert any other understanding or intent inconsistent with the sale he conducted (citing Feuer v. Capilowich and other authorities). The court further noted that statutory sale notice requirements (G.L. c. 244, § 14) prescribe that premises are to be sold subject to recorded encumbrances created prior to the mortgage, reinforcing that the sale could not legally include prior mortgages.

Based on these principles, the trial judge correctly ruled that, insofar as the plaintiffs' rights were concerned, the sale did not and could not include the first and second mortgages, and therefore the defendant must account to the plaintiffs out of the amount bid to the extent of their liens.

Holding and Implications

Holding: The decree entered for the plaintiffs in the Superior Court was affirmed. The court held that the foreclosure sale of the third mortgage could not legally include the prior first and second mortgages, and that any surplus realized by the mortgagee/purchaser above the amount needed to satisfy the third mortgage and expenses was subject to the plaintiffs' prior levied executions.

Implications:

The direct effect is that the plaintiffs (holders of judgments and earlier executions) are entitled to be paid from any surplus realized on foreclosure of the third mortgage after satisfaction of that mortgage and the sale expenses.
The court affirmed that a mortgagee who conducts a sale and becomes purchaser is estopped from asserting a contrary subjective intent that would treat a foreclosure bid as including prior mortgages; such evidence is not admissible to defeat prior levied liens.
The decision applies and follows existing Massachusetts precedent and statutory requirements for foreclosure sale notices; the opinion does not announce a new rule of law beyond the application of these established principles.

Disposition: Decree affirmed as to defendants Kelly and Shapiro.

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JAMES ANTONELLIS another vs. EVA WEINSTEIN others.

Mortgage, Of real estate: foreclosure, accounting by mortgagee for surplus. Evidence, Competency.

The amount bid and paid by a purchaser at a sale in foreclosure of a third mortgage cannot be subject to use for payment of encumbrances prior to the third mortgage; and if that amount exceeds the sum required to satisfy the provisions of the third mortgage, the holder of an execution, issued upon a judgment recovered against the mortgagor before the foreclosure proceedings were begun and levied upon the real estate before the sale and before any other lien intervened, may reach such surplus and apply it toward the satisfaction of the execution.

CROSBY, J.

The plaintiffs, Antonellis and Shaneck, each in a separate action, recovered a judgment against the defendant Eva Weinstein, and before February 6, 1926, levied executions, issued in said actions upon a parcel of land belonging to the defendant Weinstein. The land was subject to a first mortgage of $4,000, and a second mortgage of $4,100; a third mortgage, dated April 11, 1925, was held by the defendant Shapiro. On December 30, 1925, Shapiro assigned his mortgage to the defendant Kelly; it is agreed that the assignment was without consideration, and that in taking and foreclosing the mortgage Kelly was a "straw man" who acted merely as agent for Shapiro.

On January 7, 1926, Kelly,.by a publication in the newspaper, advertised the land for sale on February 6, 1926, for the purpose of foreclosing the third mortgage for breach of its conditions. The notice of sale set forth that the land was "subject to a first mortgage of $4,000.00 held by the Eliot Savings Bank, dated November 6, 1922, . . . and subject to a second mortgage of about $4,100 at present, and subject also to taxes for 1925. . . . Other terms to be announced at the sale." The defendants knew that executions had issued on the judgments obtained respectively in the above named actions about January 1, 1926, and that the property was subject to the levies made thereon.

At the time and place of sale the auctioneer, at the direction of counsel for Shapiro, the mortgagee, and in his presence, announced that there was a first mortgage of $4,000 on the property, and a second mortgage of $4,063, and interest of $36 due on the third mortgage; that $55 had been paid on the principal of the second mortgage, and $19 insurance and costs; "that the bids were to include these figures, but that there were unpaid taxes which amounted to about $237 and interest on the first mortgage amounting to $80 which the purchase price or the sale price did not include." He then called for bids. The first was that of Shapiro, and was either $8,700 or $8,750. Other bids were made by Shapiro and Kelly, and there was one by a third person whose name was not known to the auctioneer; finally Shapiro bid $9,050. As he was the highest bidder the property was sold to him. The amount due on the third mortgage held by Shapiro was $750 and $36 interest thereon. There was evidence that the auctioneer's commission on the sale would be over $300.

The trial judge found that the auctioneer at the sale announced that the amount of $9,050 bid by Shapiro included the first and second mortgages amounting to $8,100 and interest, and other payments made by the third mortgagee, and that if these payments were legally included in the amount bid, the liens of the plaintiffs could not be satisfied in full or in part. The judge then ruled that "so far as the plaintiffs' rights are concerned, the sale could not and did not include the first and second mortgages, and that the defendant must account to the plaintiffs out of the amount bid by him to the extent of their liens." This ruling was correct. The foreclosure of the third mortgage did not operate to discharge the encumbrance of the liens, but in equity they attached to the proceeds of the sale over the amount due on the third mortgage and expenses of sale. Wiggin v. Heywood, 118 Mass. 514. Maguire v. Spaulding, 194 Mass. 601. LaCentra v. Jackson, 245 Mass. 14, 18.

The defendant, Shapiro, acting through his agent Kelly, advertised the property for sale subject to the two prior mortgages and bid in the property for a sum in excess of his own mortgage. He could legally sell only his interest as mortgagee and the interest of the mortgagor under the power. The recital in the notice, "Other terms to be announced at the sale," did not authorize a sale which included the first and second mortgages, nor upon terms in violation of law.

The evidence offered by the defendant that he intended to include the first and second mortgages when he made his bid of $9,050 was not admissible. It had no bearing upon the rights of the parties as disclosed by the record. As was said in Feuer v. Capilowich, 242 Mass. 560, at page 565, "It must be assumed as a matter of law that the mortgagee intended to sell the interest of the mortgagor and his own interest in the property under the power; and he is estopped to claim any other understanding or intent of his own act in exercising the power and in becoming a purchaser at the sale, which was had in his presence and under his immediate supervision." See also Fowle v. Merrill, 10 Allen, 350; Torrey v. Cook, 116 Mass. 163; Donohue v. Chase, 130 Mass. 137.

The notice of sale for the foreclosure of mortgages, prescribed by G.L.c. 244, § 14, provides that the premises shall be sold subject, among other things, to "existing encumbrances of record created prior to the mortgage. . . ."

It is plain that the sale in the present case could not legally include prior mortgages; to hold otherwise would not only be contrary to our decisions but would be in violation of the statute.

The question, whether the plaintiffs could join in a single bill to obtain the relief sought, was not argued by the defendant and need not be considered.

Decree affirmed.

ANTONELLIS v. WEINSTEIN