Union Trust Co. v. Hasseltine

Knowlton, C. J. The defendant pledged to the plaintiff three mortgages, as collateral security for the payment of his promissory note. The contract of pledge gave the plaintiff “ full power and authority to sell and assign and deliver the whole of said property, or any part thereof, or any substitute therefor, or any addition thereto, at any brokers’ board, or any public or private sale, at the option of said trust company or its [417] president or treasurer, or its or their or either of their assigns, and with the right to be the purchasers themselves at such brokers’ board, or public or private sale, on the non-perform-once of this promise, . . . without advertisement or notice.” The questions before us arise on the action of the plaintiff upon one of these mortgages. This mortgage the plaintiff foreclosed, by a sale under a power in the mortgage, for a breach of the condition thereof. It is agreed that this sale was made in good faith, and in accordance with the terms of the power. The plaintiff, through a third person, became the purchaser at the sale, and took from him a transfer of the property, which we assume was done under the authority of the power. The defendant was sued in this action for a balance due upon his debt to the plaintiff, and he offered to prove that the plaintiff acted in bad faith in disposing of the property acquired under the foreclosure, and sold it for much less than it was worth. He claimed an allowance upon the note for its value. The first question is whether the plaintiff could make a valid foreclosure of the mortgage under the power of sale contained therein. It was an assignee of the mortgage, and was within the terms of the power given by the mortgagor. As the holder of the mortgage title it had the right to foreclose, unless restrained by the terms of its contract with the defendant as pledgor. The contract was silent on this point. The broad power to sell the pledged property did not in itself give a right to foreclose the mortgage. But the pledgee of property has the control of it for the time being, and he represents not only his own interest, but that of the pledgor, in taking any proper action for the preservation of it and the collection and care of its proceeds. If the pledged property is a promissory note or other evidence of debt, he may collect it when it becomes due. If it is stock in a corporation he may collect the dividends. If it is a mortgage upon land and regularly assigned to him, he may foreclose the mortgage for a breach of the condition, if he deems such action best for the interests of himself and the pledgor. 22 Am. & Eng. Encyc. of Law, (2d ed.) 895, 896, and cases cited. The right of a pledgee to foreclose a mortgage is recognized in this Commonwealth, although most of the cases [418] show a foreclosure by an entry and possession, rather than by a sale. Brown v. Tyler, 8 Gray, 135. Stevens v. Dedham Institution for Savings, 129 Mass. 547, 549. Montague v. Boston & Albany Railroad, 124 Mass. 242, 245. The language in the case of Lord v. Hartford, 175 Mass. 320, in which it was held that a pledgee “ is precluded from buying the property pledged at a foreclosure sale, on the ground that his duty to the pledgor is inconsistent with his interest as a purchaser,” was used of a purchase in reference to the right acquired under it as against the pledgor. He cannot take the title by virtue of the purchase at the auction sale and hold it absolutely, as against the pledgor. If he buys, he takes the title as a trustee for the pledgor, and holds it subject to redemption by him on the payment of the debt for which it was pledged. It was not intended to intimate that his right to foreclose, under the power, by virtue of his title as holder of the mortgage, does not enable him to buy it at the auction sale to prevent the sacrifice of the property, if the power in the mortgage gives such a right. If he does this, as was held, of a similar foreclosure by possession in each of the cases above cited, he holds as a trustee for the pledgor, as well as for his own security. It was decided otherwise upon the facts in Jennings v. Wyzanski, 188 Mass. 285, 289, because, by the terms of the pledge, he was expressly authorized, not only to foreclose the mortgage but to purchase at the foreclosure sale. This, as, between the pledgor and pledgee, was held to give the pledgee a right to buy for himself at the sale. It follows that the plaintiff, after the foreclosure, held the real estate in trust for the defendant, and it had no right to sell it without regard to his interests. The terms of the contract of pledge gave it no right to make such a sale as that which the defendant offered to prove. The third instruction requested should have been given. Exceptions sustained.