Detroit Trust Co. v. Detroit City Serv. Co.
| Decision Date | 01 March 1933 |
| Docket Number | No. 47,Oct. Term, 1932.,47 |
| Parties | DETROIT TRUST CO. et al. v. DETROIT CITY SERVICE CO. et al. (UNION GUARDIAN TRUST CO. et al., Interveners). |
| Court | Michigan Supreme Court |
OPINION TEXT STARTS HERE
Appeal from Circuit Court, Wayne County, in Chancery; Robert M. Toms, Judge.
Separate suits by the Detroit Trust Company, trustee, and by the Detroit Insurance Agency and others, against the Detroit City Service Company and others, which were consolidated and wherein the Union Guardian Trust Company, trustee and others intervened as noteholders' protective committee, and White Star Refining Company and others also intervened. From decree rendered, the Equitable & Central Trust Company, trustee, the noteholders' protective committee, and the White Star Refining Company and others appeal.
Modified and affirmed and remanded, with directions.
Argued before the Entire Bench.Stevenson, Butzel, Eaman & Long, of Detroit (Charles A. Wagner, of Detroit, of counsel), for appellant Equitable and Central Trust Co.
John M. Chase, of Detroit, for appellants Union Guardian Trust Co. and others.
Harold R. Martin, of Detroit, for appellants White Star Refining Co. and others.
Dykema, Jones & Wheat, of Detroit, for appellee Detroit Trust Co.
In 1927, the Detroit City Service Company was incorporated under the laws of this state for the purpose of continuing the ice and fuel business formerly carried on by the General Necessities Corporation, whose plants, equipment, fixtures, good will, etc., it acquired. The General Necessities Corporation had manufactured and sold over 60 per cent. of the artificial ice purchased by the people of the city of Detroit and vicinity. It had owned a large number of plants at various points in or near the city of Detroit, systematically located so that, with the use of horses and wagons or motortrucks, all consumers could be conveniently served from a neighboring plant. During the winter time a large portion of the transportation equipment had been employed in the fuel business. The plants were so co-ordinated that they constituted one large business, conducted principally from a single accounting and management office.
Owing to financial difficulties, the General Necessities Corporation threatened to default on $3,000,000 in bonds and $1,000,000 in notes, which had been underwritten and sold to the public through the assistance of Hoagland, Allum & Co. and other investment bankers. In order to avert this default, the bankers formed the Detroit City Service Company, referred to herein as the service company, which acquired the plants, machinery, fixtures, and other equipment of the General Necessities Corporation used in the ice and fuel business, as well as some real estate. At the same time the bankers organized the Detroit City Service Realty Company, which took over the larger part of the real estate of the General Necessities Corporation unemployed in its business. The realty company also acquired two plants, which it rented to the service company. The realty company is not involved in the present litigation.
The General Necessities Corporation was the owner of all of the property it turned over to the service company, with the exception of a cold storage plant which was being purchased on land contract, and on which there was still $400,000, or thereabouts, due at the time of its acquisition by the service company. This contract was subsequently abandoned.
The capital stock of the service company consisted of 25,000 shares of preferred stock, valued at $100 a share, and 200,000 shares of no par value stock. Sixteen thousand shares of the preferred stock and all of the no par stock were subscribed for and issued. All of the common stock, with the exception of the few qualifying shares taken in the name of the directors, was subscribed for by William K. Hoagland, of the firm of Hoagland, Allum & Co. He also subscribed as trustee for all of the preferred stock that was issued. Hoagland became a director and the treasurer of the company, and appears to have been closely identified with the company's affairs from its very inception.
The articles of association of the service company placed the following valuations upon the assets it acquired:
+----------------------------------------------------------+
¦Land, buildings and improvements, after ¦ ¦
+--------------------------------------------+-------------¦
¦deducting $400,000 due on the land ¦ ¦
+--------------------------------------------+-------------¦
¦contract ¦$3,891,836.00¦
+--------------------------------------------+-------------¦
¦Machinery, equipment, delivery ¦ ¦
+--------------------------------------------+-------------¦
¦equipment, supplies, furniture and fixtures,¦ ¦
+--------------------------------------------+-------------¦
¦etc. ¦2,135,364.00 ¦
+--------------------------------------------+-------------¦
¦Commodities and inventories ¦300,000.00 ¦
+--------------------------------------------+-------------¦
¦Deferred discount on bonds, prepaid taxes ¦ ¦
+--------------------------------------------+-------------¦
¦and insurance, etc. ¦440,000.00 ¦
+--------------------------------------------+-------------¦
¦Investments in subsidiaries ¦500,000.00 ¦
+--------------------------------------------+-------------¦
¦Cash ¦100,000.00 ¦
+----------------------------------------------------------+
In order to raise funds to purchase these assets and to continue the business, the service company executed a first and open end mortgage of $10,000,000 to the Union Trust Company, as trustee, to secure $10,000,000 of first mortgage 6 1/2 per cent. gold bonds, $3,000,000 of which were issued at once. Seven million dollars of additional bonds might be issued from time to time under conditions set forth in the indenture, upon the acquisition of other properties and filing of supplemental mortgages contemporaneously therewith, so as to bring the new properties under the lien of the original indenture. The mortgage was dated July 1, 1927, and is referred to herein as the first mortgage. It covered the real estate, machinery, tools, implements and appliances, supplies, good will, etc., of the service company. The personal property is not described in great detail in the mortgage, but there is an omnibus clause covering all of the company's property, both real, personal, and mixed, and also all such property that might be acquired thereafter.
There was expressly excluded from the lien of the mortgage the accounts receivable, choses in action, inventory of merchandise and capital stock of subsidiary or other corporations. As the inventory amounted to $300,000 at the time of the organization, it will be seen that the value of the unmortgaged property ran into a large figure. The mortgage also covered ‘tolls, rents, revenues, issues, incomes, product and profits thereof.’ The mortgage further provided that the personal property and chattels conveyed or intended to be conveyed by or pursuant to the indenture should be real estate for all purposes of the indenture and held and deemed to be fixtures and appurtenances. They were not to be used or sold separately from the real estate except as otherwise provided in the instrument. The mortgage specifically permitted the sale of fixtures, equipment, machinery, apparatus, appliances, tools, implements and delivery equipment that were worn out or unserviceable, antiquated, or unnecessary in the conduct of the business, but upon such sale they were to be replaced in due course with new fixtures, etc., which should forthwith become subject to the lien of the indenture.
The mortgage provided that, in the event of default, the trustee should be entitled to the possession of the mortgaged property and also to the rents, income, issues, and profits, after giving the notice required by Act No. 228 of the Public Acts of 1925 (Comp. Laws 1929, §§ 13498, 13499). It was further provided that, upon the occurrence of one or more events of default and the filing of a bill in equity or the commencement of other judicial proceedings, the trustee should be entitled, as a matter of right, to the appointment of a receiver or receivers of the mortgaged and pledged properties, and of the rents, income, issues, and profits thereof pending such proceedings, with such powers as the court making such appointment should confer.
The mortgage was duly executed and recorded as a real estate mortgage. It never has been filed as a chattel mortgage, though it contains a duly executed affidavit, showing adequacy of security, etc., in the form required for the recording of chattel mortgages. Section 13424, Comp. Laws 1929. The mortgage bears a certificate of the county treasurer showing that a $1,500 mortgage tax was paid in accordance with section 3642, Comp. Laws 1929.
In January, 1928, the service company, in order to acquire the properties of the National Ice Company and the Detroit Consumers Company, issued $1,300,000 of first mortgage bonds under the $10,000,000 open end mortgage hereinbefore described. In October, 1928, an additional $260,000 in first mortgage bonds were issued to pay in part for the acquisition of properties of the Gaukler Ice & Fuel Company of Pontiac, Mich. In both instances, supplemental mortgages were duly executed and properly recorded as real estate mortgages.
In addition to the first mortgage of $10,000,000, the company on its organization issued $1,250,000 of five year 6 1/2 per cent. gold notes, dated July 1, 1927, and a year later, $700,000 of 6 1/2 per cent. gold notes, payable in four years. Both note issues were secured by indentures running to the Union Trust Company, trustee.
On January 1, 1931, the company...
To continue reading
Request your trial
-
Yellowstone Sheep Company v. Ellis
... ... ground therefor exists. See also Detroit Trust Co. v ... Service Co., 262 Mich. 14, 247 N.W. 76 ... ...
-
Price v. Kosmalski (In re Receivership of 11910 S. Francis Rd.)
...of the nature of a lien, and a first lien on assets has no priority of such court costs and expenses.23 One year later in Detroit Trust Co. v. Detroit City Service Co.,24 we likewise applied this general common-law rule when we held that the receivers were entitled to deduct their fees and ......
-
Dep't of Transp. v. Gilling.
...“ ‘specially adapted to the full enjoyment of the realty’ ” were considered as fixtures. Id., quoting Detroit Trust Co. v. Detroit City Serv. Co., 262 Mich. 14, 30, 247 N.W. 76 (1933). We note that in Detroit Trust, 262 Mich. at 29–30, 247 N.W. 76, for example, the Court held that an ice an......
-
Velmer v. Baraga Area Schools, Docket No. 80356
...203 (1932), a number of different appliances were deemed to be fixtures in an apartment building. See also Detroit Trust Co. v. Detroit City Service, 262 Mich. 14, 247 N.W. 76 (1933) (machinery as well as spare motors and replacement equipment found to be fixtures). Finally, the planing mac......