Am. State Sav. Bank v. Am. State Sav. Bank

• Decision Date: 09 March 1939
• Docket Number: No. 106.,106.
• Parties: AMERICAN STATE SAV. BANK v. AMERICAN STATE SAV. BANK et al.
• Court: Michigan Supreme Court

288 Mich. 78

284 N.W. 652

AMERICAN STATE SAV. BANK

v.AMERICAN STATE SAV. BANK et al.

No. 106.

Supreme Court of Michigan.

March 9, 1939.

Bill by American State Savings Bank, a Michigan banking corporation, as trustee under depositors' agreement providing for the reorganization of American State Savings Bank, effective April 29, 1933, against the American State Savings Bank, a Michigan banking corporation, in its individual corporate capacity, and others, for the construction of the agreement. From an order dismissing petition of Charles R. Annable, as administrator of the estate of William Meister, deceased, seeking to intervene, such administrator appeals.

Affirmed.

Appeal from Circuit Court, Ingham County, in Chancery; Leland W. Carr, judge.

Argued before the Entire Bench.

L. E. Barnett, of Hastings, for appellant.

Bulkley, Ledyard, Dickinson & Wright, of Detroit (T. Donald Wade and Charles R. Moon, Jr., both of Detroit, of counsel), for appellee American State Sav. Bank, as trustee.

Foster & Cameron, of Lansing, for appellee American State Sav. Bank in its individual corporate capacity.

McALLISTER, Justice.

Plaintiff, American State Savings Bank, as trustee under a bank depositors' agreement, filed a bill in the circuit court of Ingham county, asking for a construction of the agreement with reference to its power to mortgage assets, to realize cash, in order to make payment on claims of depositors, and to terminate its trust. All of the depositors under reorganization had, upon payment of 50% of their claims, relieved the bank of further liability, received ‘certificates of participation’ and agreed to look for the balance of their claims to the liquidation of the trust assets, consisting of certain depreciated assets of the bank which had been transferred to a trust fund. The object of the bill filed by plaintiff was to secure more than a million dollars from the Reconstruction Finance Corporation in exchange for the so-called trust assets, which sum had been computed as the estimated amount which could be obtained from liquidation of such assets by the corporation, over a period of several years, less the estimated cost of liquidation.

At the time of filing the bill, there were approximately seven thousand certificate holders who had entered such agreement, in which plaintiff was trustee. Many lived outside Ingham county as well as outside the State of Michigan. The certificates were transferrable and often changed hands. Because of the circumstances, 12 certificate holders were named and personally served with process. The bill contained full allegations as to the number of certificate holders, their representation by the named defendants, and the allegations necessary to establish the ‘class suit’ character of the proceeding. The bill further prayed that the decree be made binding on all members of the class. All of the named defendants appeared by counsel and filed answer, and all counsel except one were present in the court at the time of hearing. In addition, an order was entered and published in accordance with Court Rule No. 77, which provides: ‘When a trustee or other fiduciary under an express trust shall have filed a bill or petition in a court of chancery praying only instructions in performance of duties involving trust relations, if it shall appear from such bill or petition, by reason of multiplicity of parties, absence of parties from the State, or otherwise, that personal service upon all or certain of them within this State will be impossible, impractical or unduly burdensome, the circuit judge may make an order setting forth in general terms the purpose or purposes of such bill or petition and specifying a time and place of hearing thereon, and directing publication thereof substantially as is required by Compiled Laws of 1929, § 15538, or amendments thereto, relating to probate notices, and such substituted service by publication shall be given the same effect as is given to probate notices published pursuant to said section.’

On hearing, the court entered a decree finding that the right and interest of each and all of the certificate holders was identical in respect to all of the issues arising in the proceeding; that they were all one and the same class, that the relief sought was beneficial; and thereupon authorized the trustee to sell the trust assets and terminate the trust.

After the time in which to take an appeal had expired, Charles R. Annable, appellant herein, filed his petition, setting forth that he was administrator of the estate of William Meister, deceased; that his decedent had entered into the depositors agreement; that petitioner was not personally served in the class suit and did not see the notices of publication in the newspaper; that the defendants named in the bill did not include an administrator; and that by termination of the trust, petitioner would suffer irreparable loss in being unable to collect the balance of the amount of decedent's claim. Petitioner prayed that any ‘constructive default’ against him be set aside, and that he be given time in which to file his answer; that the trustee be restrained from seeking to avoid payments of its net earnings into the trust fund until petitioner received the balance still due him; and that all parties concerned with the plan be restrained from carrying out the provisions for termination of the trust. On motion by defendants, the court dismissed the petition, on the ground that the cause had been properly instituted as a class suit, and that petitioner as a member of the interested class was fully and fairly represented by the defendants named, by reason whereof the final decree entered, not having been appealed from, was conclusively binding on petitioner. The court also stated in its order that it did not appear from the petition that any of the rights of petitioner had been prejudiced by the decree, and that there were no equitable grounds for the relief prayed for. From such order petitioner appeals.

The fact that petitioner was an administrator of the estate of a deceased person did not change his status as a member of the class before the court. As a cestui qui trust, his interest was the same as that of any other of the seven thousand certificate holders. The only matters in issue were the powers of the trustee, under the trust instrument, and the determination of such powers affected all concerned in the same degree. There was no issue that could be raised by petitioner in such circumstances that would not affect all other depositors, or holder of certificates in the same way. One certificate holder could not have greater rights as to his claim than another; and what would have been a defense or answer to the bill for one would have been the same for another. Their rights and defenses were identical.

Petitioner was a member of the class, represented by the named defendants. In City of Detroit v. Detroit United Railway, 226 Mich. 354, 197 N.W. 697, 702, the class suit doctrine was adopted by this court. In that case, where it appeared that an exigency existed, requiring a change in the terms of a trust in which approximately 1200 bondholders were involved, the court quoted with approval the following from the decree of the trial court:

‘It seems to be a well-known equitable doctrine that virtual representation clearly establishes the rule that where it would be totally impracticable to bring all the members of a definite class before the court, where they may have an opportunity of appearing, if they elect so to do, but where certain of their class are before the court, and the proposed decree is beneficial, all parties are bound by the action of the court. It was this question that presented itself to the court at the very outset of this hearing, whether or not, in the absence of all bondholders being made parties to this litigation, and decree made by the court would be binding upon the absent parties, and, while there does not seem to be any case in point, there are plenty of decisions bearing upon and involving the effect...