Mortgage, Necessary expenses of foreclosure sale, Construction of agreement to pay interest, Terms of mortgage note incorporated by reference, Interest on surplus proceeds of foreclosure sale.
In a suit in equity against a mortgagee to have the surplus of the proceeds of a foreclosure sale applied to the plaintiff's claim, the mortgagee is entitled to be allowed for counsel fees incurred by him in preventing or removing an injunction to restrain the foreclosure proceedings, this being a reasonably necessary expense of those proceedings.
A mortgagee is entitled to be allowed a fee paid by him to an auctioneer for his services in conducting a foreclosure sale, if it appears that he paid in good faith no more than the usual price for such services, although there is a reasonable probability that by searching among auctioneers he might have found one who would have undertaken to conduct the sale for a smaller compensation.
A mortgage note read as follows: "For Value Received, I promise to pay to A.B. or order $30,500, in three months from this date, with interest to be paid monthly at the rate of one and one half per centum per month, during the said term, and until the said sum is paid in full." The note was secured by a mortgage on land on which the promisor was about to erect a block of buildings, and the consideration for the note was a written agreement for a building loan whereby the mortgagee agreed to advance to the mortgagor the sum of $30,500 in specified instalments from time to time as the work on the buildings progressed. The agreement provided that the mortgagee should not in any case be liable to make any of the stipulated payments after foreclosure of the mortgage. The note, mortgage and agreement were all delivered as one transaction about a month after the date of the note. Thereafter advances were made from time to time in accordance with the agreement until the mortgagor made default and the mortgage was foreclosed. Held, that the legal effect of the contract was that the mortgagee should have interest upon the full amount of the principal of the note from the date of the note and so long as he was under a legal obligation to furnish the money, whether it was set apart or not, and that this obligation ceased only upon the foreclosure of the mortgage.
A mortgage note provided that interest thereon should be paid monthly at the rate of one and one half per centum per month. The mortgage stated the condition to be the payment of a certain sum of money, "with interest, as expressed in the note hereby secured," without naming any rate of interest. It was contended, that the mortgage stated the rate of interest only by reference to a private unrecorded document and thereby failed to comply with the registration laws, and that no rate of interest being named in the mortgage the rate must be six per cent per annum under Pub. Sts. c. 77, § 3. Held, that the mortgage deed gave notice that some interest was to be paid and the rate and times of payment were stated in the note, and the reference to the note was sufficient to put persons having claims subject to the mortgage upon inquiry.
If a mortgagee, who holds a surplus from the proceeds of a foreclosure sale, keeps no special deposit of the balance in his hands after satisfying his claims, and there is nothing to show that he has not used the money in his business, he is chargeable with interest upon the surplus from the date of the sale when he received it.
HAMMOND, J.
1. As to the allowance of $50 for counsel fees. The bill when filed contained a prayer for injunction against a sale, and this expense was incurred by the mortgagee in preventing or removing an injunction. It was a part of the expense of the foreclosure proceedings, was reasonably necessary, and was therefore rightly allowed.
2. As to the allowance of $277, paid to the auctioneer for services in selling the property. Upon this the master reports that it appeared in evidence that this charge, being at the rate of one per cent on the purchase price, was the ordinary and customary charge of auctioneers in Boston for such services in the absence of any express agreement, and that Fallon believed and had reasonable ground to believe that he was liable to the auctioneer for that sum. It further appeared in evidence that there was reasonable probability that by searching among the auctioneers he might have found one who would have undertaken to conduct the sale, an express agreement having been made in advance, for an amount not exceeding $50. The master ruled that Fallon was under no obligation to make such search, and found that he was entitled to be allowed the sum. We think the master was right. The property was of considerable value, and Fallon may well have thought that, since it was desirable to have an experienced and competent man to conduct the sale, he would be much more likely to find such a person in one who charged the regular rates than in one content to undertake the sale at a much lower rate. In any event he paid in good faith no more than the usual price for such services, and it is no more than just that he should be allowed what he thus paid.
3. As to the question of interest. The master allowed interest on the face of the note from its date to the time of the sale, at the rate of eighteen per cent per annum, in accordance with its terms. The plaintiffs contend that interest should not be computed upon the note before September 7, 1897, the time of its delivery, and then only upon the payments made, and from their respective dates, and that no interest should be allowed upon money not lent or set apart by the mortgagee.
The note contains an absolute promise to pay in three months from its date the sum of $30,500, with interest thereon at the rate of one and one half per cent per month; and it is secured by a mortgage of real estate upon which the mortgagor was about to erect a block of buildings. The consideration for the note is to be found in the contemporaneous written agreement. The note, mortgage and agreement, all form part of one and the same transaction; and, by reference to the latter, it is seen that the money was to be delivered by Fallon only by instalments. The times and the amounts of the several payments are therein set forth, and the mortgagor could not insist upon receiving the money save in accordance therewith. The note called for interest payable monthly, while it was apparent from the agreement that more than a month might elapse before the mortgagor could rightfully call for any money. In fact no money seems to have been payable to him until November, 1897. It was not the purpose of the instrument to modify the promise contained in the note, but simply to state the consideration for that promise.
By the agreement Fallon had bound himself to lend Kenerson certain sums of money up to the full amount named in the note, with the proviso that he should not in any case be liable to make any payment after the foreclosure of the mortgage. It does not appear, upon the facts found by the master, that Fallon was released from his promise before that time, although it is found that at some time subsequent to April 27, 1898, he entered upon the premises for the purpose of foreclosing the mortgage. If the full amount named in the agreement had been advanced in accordance with its terms, then the full consideration for the note would have been paid, and the mortgagor would have been indebted the full amount. It is not suggested that Fallon was not at all times ready to comply with the terms of his agreement. It was clearly the understanding of the parties that the interest was to be payable monthly on the whole sum named in the note, for four such payments are indorsed upon the note. We think that the legal effect of the contract was that Fallon should have interest upon the full amount of the principal of the note, so long as he was under an obligation to furnish the money, whether formally set apart or not. Lewin v. Folsom, 171 Mass. 188. Upon the facts found by the master that obligation seems to have ceased with the foreclosure on August 24, 1898, and it does not appear to have ceased before.
But it is insisted by the plaintiffs that, inasmuch as the mortgage, neither in itself nor by reference to any recorded instrument, shows what the rate of interest is, it should not be allowed as against these plaintiffs at a rate greater than six per cent per annum. It is urged that a mortgage note is a private document, to which the public have no rightful access, and that a mortgage deed which states the rate of interest on the debt only by reference to a private, unrecorded document, does not in that respect comply with the registration laws, since the amount of the encumbrance cannot be ascertained from the record; and that where no rate of interest is mentioned, the rate must be six per cent per annum. Pub. Sts. c. 77, § 3.
The condition of the mortgage is that there shall be paid a certain sum with interest "as expressed in the note hereby secured." The mortgage deed gives notice that some interest is to be paid, and that the rate and the times of payment are set out in the note; and this was sufficient to put the plaintiffs upon inquiry; Richards v. Holmes, 18 How. 143; and, being put upon inquiry, they must be held to know the facts which in the absence of fraud would be disclosed to them upon such inquiry. See May v. Gates, 137 Mass. 389. This is not a case where the amount expressly named in the mortgage is less than that named in the note, as in Frost v. Beekman, 1 Johns. Ch. 288, and similar cases.
The result is that all of the exceptions of the plaintiffs to the report of the master are overruled.
As to the mortgage deed to Ellen P. Kenerson, it seems upon the findings made by the master to have been fraudulent as against these plaintiffs. The master has made no specific finding that it was delivered to the mortgagee. No note was given with it, and it was intended to secure a prior indebtedness to the mortgagee. It cannot affect the plaintiffs' rights to the surplus.
The master having found that, from the date of the foreclosure sale, Fallon has kept no special deposit of the balance in his hands after satisfying his claims, and there being nothing to show that he has not used it in his business, he should be charged interest upon it from the date of the sale, the time he received it.
The result is that the surplus proceeds of the sale, amounting to the sum of $390.31, with interest from August 24, 1898, is to be decreed as belonging to the plaintiffs, and is to be apportioned among them according to their respective interests as they may appear.
So ordered.