Union Trust Co. v. Parker

• Decision Date: 03 October 1930
• Docket Number: No. 123.,123.
• Citation: 251 Mich. 630,232 N.W. 360
• Parties: UNION TRUST CO. v. PARKER.
• Court: Michigan Supreme Court

251 Mich. 630

232 N.W. 360

UNION TRUST CO.

v.PARKER.

No. 123.

Supreme Court of Michigan.

Oct. 3, 1930.

Error to Circuit Court, Macomb County; Neil E. Reid, Judge.

Action by the Union Trust Company against John Parker. Judgment for defendant, and plaintiff brings error.

Reversed and remanded.

Argued before the Entire Bench.Bulkley, Ledyard, Mills & Dickinson, of Detroit, and Lungerhausen, Weeks, Lungerhausen & Neale, of Mt. Clemens (Harold R. Smith, of Detroit, of counsel), for appellant.

Henry C. L. Forler, of Detroit, for appellee.

POTTER, J.

Plaintiff sued defendant on a written guaranty dated November 20, 1926, by which defendant guaranteed the prompt and punctual payment in accordance with their terms, of any and all collateral trust notes not exceeding $20,000 of the Prudential Discount Company, a Michigan corporation, that had been or might thereafter be discounted with the Union Trust Company of Detroit, together with any and all renewals or extensions of said notes and interest thereon and charges thereunder. The guaranty also contained the language:

‘Demand, presentation, protest, notice of protest and diligence in collection are hereby expressly waived by the undersigned.’

The defendant pleaded the general issue and gave notice the written guaranty was obtained by the plaintiff without consideration, defendant had been released from liability thereon, plaintiff had been guilty of fraud in accepting from the Prudential Discount Company notes not in accordance with the trust agreement providing for the delivery of such notes to the Union Trust Company, and the certification by it of the collateral trust notes guaranteed by defendant; the contract of guaranty had been fully paid and satisfied and there had been an accord and satisfaction. On trial a verdict was rendered for defendant and judgment later entered thereon. Plaintiff brings error.

February 28, 1924, Fred J. Horning, the son-in-law of defendant, was doing business in Detroit as Prudential Discount Company. On that date he entered into a written contract with the Union Trust Company to enable him to finance automobile notes and to borrow money thereon. The agreement was that Horning should deposit and pledge these automobile notes with the Union Trust Company, and thereupon he was to make and execute his own notes payable to himself; the Union Trust Company was to certify the Prudential Discount Company had deposited with it as trustee, as collateral security for the payment of such collateral trust notes, so called, automobile paper to the par amount of one and one-fifth times the face value thereof. Horning represented and warranted the notes deposited under the trust agreement with the plaintiff were his own property and he had a right to hypothecate and pledge the same; that said notes represented the unpaid balances of bona fide sales of automobiles at fair market prices, of which not less than 33 1/3 per cent. had been paid in cash, the payment of the notes being secured by conditional sales contracts or such notes might evidence loans on automobiles of standard make and amount not to exceed 50 per cent. of the appraised value thereof, which value was to be based upon the resale value of such automobiles as of the date of such loans. He further warranted and represented the notes were covered and protected by insurance in responsible insurance companies, subject to the approval by the trust company against fire, theft, and embezzlement. He also assigned and made over to the trust company all the right, protection, and indemnity afforded by the conditional sales contracts and the insurance thereon, and all agreements with dealers or others for the protection of all automobile notes pledged and for the resale of automobiles acquired including any and all credit insurance on such automobile paper.

The trust agreement provided:

‘Said Trust Company, may at its option and its discretion, permit said first party to retain possession of the papers evidencing the protection and indemnity above indicated, and handle and administer such protection and indemnity, as its agent nevertheless and in trust for the account and benefit of the trusteeship hereby created.’

The trust company was to hold and administer the automobile notes, give notice of maturity of the paper to the makers thereof, and receive and collect the payments on the notes. The agreement provided that in case the notes were not paid they would be surrendered to the Purdential Discount Company and new notes substituted in their place so the security back of the collateral trust notes was maintained at all times. The cash proceeds of the automobile notes when paid were to be used to retire the collateral trust notes certified by the trust company. The Union Trust Company was to receive not less than $35 a month for carrying out its part of the trust agreement. Attached to the agreement was the form of the promissory notes, guaranty, conditional sales contracts, and assignments to the trust company. The trust agreement provided the trust company assumed no liability as to the correctness of any statement contained in the trust agreement, nor as to the validity of the agreement or the lien purported to be created thereby, nor as to the title or value of the automobile notes above described, nor in the taking or carrying of insurance as to the extent, value, validity, or amount of insurance so taken or carried, nor the insurable value of the property insured. It stipulated it might deal in the certified notes issued under such trust agreement with the same rights and immunities as if it were not trustee.

Subsequently Fred J. Horning, doing business as the Prudential Discount Company, assigned his interest in the trust agreement to the Prudential Discount Company, a Michigan corporation, and the Prudential Discount Company, a corporation, in consideration of such assignment, accepted the same and agreed to perform the covenants and conditions in the agreement with the Union Trust Company to be kept and performed by the said Fred J. Horning, doing business as the Prudential Discount Company.

When John Parker entered into agreement with the Union Trust Company, September 15, 1924, more than two years prior to the making of the contract of guaranty sued upon, Mr. Adams, a director of the Union Trust Company, is said to have stated the Union Trust Company issued trust notes for 85 per cent. of the amount of the automobile paper deposited with the Union Trust Company. The contract itself provides:

‘Upon pledge and deposit of such automobile notes, said first party may execute his own promissory note or notes for an amount not exceeding eighty-three and one-third (83 1/3) per cent. of such automobile notes, in form substantially as follows: * * *

‘It is the purpose and intent hereof that the promissory notes so certified shall at no time and in no event exceed in their aggregate amount at any one time outstanding, 83 1/3% of the automobile paper in good standing, held by said Trust Company hereunder.’

The certificate attached to the collateral trust notes certified the Prudential Discount Company had deposited and pledged with the Union Trust Company as collateral to the collateral trust notes one and one-fifth times the face value of such collateral trust notes.

This testimony was objected to as being too remote. The question whether it was remote or not does not depend entirely on the time, but this statement made on the...