SPENCER SAVINGS BANK v. COOLEY, Mass., Judgment, Law, casemine.com

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Attorney(S)

A.L. Green F.F. Bennett, for the plaintiff. J.B. Carroll W.H. McClintock, for the defendants.

Judges

MORTON, J.

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Smart Summary

Factual and Procedural Background

This action was brought by Spencer Savings Bank on a bond against Mary L. Cooley (principal) and Gilbert E. Russell and George P. B. Alderman (sureties) to recover sums paid for mechanic's liens and related costs under a condition to save the bank harmless "from all mechanic's and other liens" on property belonging to Cooley on which the bank held a mortgage, and from "all expenses, costs, and charges arising out of any such lien or liens." The mortgage was foreclosed by the bank for non-payment of taxes and interest. The foreclosure notice stated the "premises will be sold subject to all unpaid taxes, mechanic's liens, and assessments." At the sale an agent of the bank, Craig, bid $7,388 (the amount of mortgage, interest, and foreclosure costs), took a deed in his own name, and immediately quitclaimed it to the bank. After foreclosure, judgments on mechanic's liens were recovered against the property in favor of Lynch ($657.60 and costs) and Fowles ($1,002 and costs). The principal and sureties were notified to defend those actions but did not; the bank requested that the bondsmen settle the judgments, and when they refused the bank settled them to prevent sale of the property. The case was tried in the Superior Court (judgment for the defendants by Maynard, J.), and came to the Supreme Judicial Court of Massachusetts on appeal upon agreed facts.

Legal Issues Presented

Whether the bank is entitled to recover from the principal and sureties on the bond the sums it paid to settle mechanic's liens and related costs under the bond's condition to save the bank harmless from such liens.
Whether, given that the foreclosure sale was conducted "subject to all unpaid taxes, mechanic's liens, and assessments" and the bank (through its agent) bid the amount of the mortgage, interest, and foreclosure costs, the bank sustained a loss that the bond covers.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Skilton v. Roberts, 129 Mass. 306	That if property sold at foreclosure is bid off for a sum larger than the mortgage, interest, and costs, the excess cannot be applied by the purchaser (mortgagee) to payment of liens but belongs to the mortgagor or her assignee.	The court cited this principle to show that, even apart from the property's value, the bank would not have been entitled to apply any excess over mortgage, interest, and costs to mechanic's liens and thus could not claim a better position because the sale notice reserved liens.
Brown v. Holyoke Water Power Co. 157 Mass. 280	Support for the principle that a purchaser at foreclosure is accountable for any excess bid over mortgage, interest, and costs, and cannot apply such excess to liens.	Used alongside Skilton to reinforce that the bank could not treat payment of lien judgments as a loss recoverable from the bondsmen where the foreclosure sale terms and application of proceeds limited its rights.
Hood v. Adams, 124 Mass. 481	That the transaction (foreclosure sale and bid) would operate as a payment of the mortgage.	The court invoked this decision to support the conclusion that the bank's acquisition through the foreclosure sale effectively operated as satisfaction of the mortgage, undermining the claim of loss arising from settling liens.

Court's Reasoning and Analysis

The court began by identifying the object of the bond: to save the bank harmless as mortgagee from any loss it might sustain by being compelled to pay mechanic's or other liens on the mortgaged property, and expenses arising from such liens. The court examined the foreclosure sale terms, which expressly stated the premises would be sold subject to unpaid taxes, mechanic's liens, and assessments, and noted that the bank's agent bid exactly the amount of the mortgage, interest, and foreclosure costs ($7,388), took a deed, and quitclaimed it to the bank.

The court concluded that the bank sustained no loss by paying the mechanic's liens it settled. Because the bank effectively paid for the property an amount equal to the mortgage, interest, costs, unpaid taxes, mechanic's liens, and assessments, the payment of the mechanic's liens did not produce a net loss; allowing recovery would permit the bank to make a profit at the defendants' expense. The court further reasoned that, even without knowledge of the property's actual value, established law (cited cases) prohibits a purchaser at foreclosure from applying any excess bid over mortgage, interest, and costs to liens and requires accountability to the mortgagor or assignee for such excess. The court also noted that the foreclosure transaction would operate as a payment of the mortgage. Finally, the court observed that the bank could not be placed in a better position because the foreclosure notice expressly reserved mechanic's liens than it would have been without such a reservation. On these bases the court affirmed the ruling for the defendants.

Holding and Implications

Judgment for the defendants.

Implications: The direct effect is that the bank cannot recover from the principal and sureties on the bond the sums it paid to settle the mechanic's liens because, under the facts presented (sale subject to liens and bid equal to mortgage, interest, and costs), the bank sustained no compensable loss. The opinion applies existing precedent to reach this outcome; it does not announce or purport to establish a new legal principle beyond those authorities cited.

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SPENCER SAVINGS BANK vs. MARY L. COOLEY others.

Bond to save Bank harmless from Mechanic's Liens, etc. At the trial of an action by a bank against the principal and sureties on a bond to recover for a breach of a condition to save the bank harmless "from all mechanic's and other liens" on property of the principal on which the bank took a mortgage, and from "all expenses, costs, and charges arising out of any such lien or liens," it appeared that the mortgage was foreclosed by the bank for non-payment of taxes and interest; that in the notice of the foreclosure sale it was stated that the "premises will be sold subject to all unpaid taxes, mechanic's liens, and assessments"; that at the sale the property was bid off by an agent of the bank for the amount of the mortgage, interest, and costs of foreclosure, and he took a deed in his own name and immediately quitclaimed to the bank; that after the foreclosure judgments were recovered on mechanic's liens against the property, and the principal and sureties were notified to defend the actions, but did not do so, and that to prevent the sale of the property the bank settled the judgments, the bondsmen having refused so to do on request. Held, that the bank had sustained no loss, and that this action to recover for the sums thus paid could not be maintained.

MORTON, J.

This is an action on a bond against one Mary L. Cooley, as principal, and Gilbert E. Russell and George P.B. Alderman, as sureties, to recover for a breach of a condition to save the plaintiff harmless "from all mechanic's and other liens" on certain property belonging to said Mary L. Cooley, on which the plaintiff took a mortgage, and from "all expenses, costs, and charges arising out of any such lien or liens." The mortgage was foreclosed by the plaintiff for non-payment of taxes and interest. In the notice of the foreclosure sale it was stated that the "premises will be sold subject to all unpaid taxes, mechanic's liens, and assessments." At the sale the property was bid off by one Craig, acting for the plaintiff, for $7,388, which was the amount of the mortgage, interest, and costs of foreclosure, and he took a deed in his own name, and immediately quitclaimed to the bank. After the foreclosure, judgments were recovered on mechanic's liens against the property in favor of one Lynch for $657.60 and costs, and in favor of one Fowles for $1,002 and costs. The principal and sureties on the bond were duly notified to come in and defend these actions, but did not do so. To prevent the sale of the property the bank settled these judgments, having first requested the bondsmen to do so, which they refused to do. This action is to recover for the sums thus paid.

The object of the bond was to save the bank harmless as mortgagee from any loss which it might sustain by being compelled to pay any mechanic's liens and other liens on the property, and any expenses, costs, or charges arising out of such liens. But as the case stands the bank sustained no loss in being compelled to pay the mechanic's liens which it settled. The property was bid off for the amount of the mortgage and interest and costs of foreclosure, "subject to all unpaid taxes, mechanic's liens, and assessments." In other words, the bank was content to pay for the property a sum equal to the mortgage, interest, costs of foreclosure, unpaid taxes, mechanic's liens, and assessments. If that was the value of the property, as for aught that appears it may have been, then the bank clearly suffered no loss or damage in being compelled to pay the mechanic's liens, and to permit it to recover of the defendants would be to allow it to make out of the transaction a profit at their expense equal to the amount paid by it to settle the liens. But, irrespective of the value of the property, if, under the terms of the sale, the property had been bid off for a sum larger than the amount of the mortgage, interest, and costs of foreclosure, the bank would not have been at liberty to apply the excess to the payment of the mechanic's liens, but would have been accountable to the mortgagor or her assignee for the same, and would have been compelled to pay the liens. Skilton v. Roberts, 129 Mass. 306. Brown v. Holyoke Water Power Co. 157 Mass. 280.

The transaction would also have operated as a payment of the mortgage. Hood v. Adams, 124 Mass. 481. Manifestly the bank cannot occupy a better position where the notice expressly states that the property is to be sold subject to mechanic's liens than it would if the notice did not contain that statement. We think that the ruling was right.

Judgment for the defendants.

SPENCER SAVINGS BANK v. COOLEY