Foster v. Ypsilanti Sav. Bank

• Decision Date: 06 October 1941
• Docket Number: No. 4.,4.
• Citation: 300 N.W. 78,299 Mich. 258
• Parties: FOSTER et al. (HIGHLAND CEMETERY ASS'N et al., Interveners), v. YPSILANTI SAV. BANK.
• Court: Michigan Supreme Court

299 Mich. 258

300 N.W. 78

FOSTER et al. (HIGHLAND CEMETERY ASS'N et al., Interveners),

v.YPSILANTI SAV. BANK.

No. 4.

Supreme Court of Michigan.

Oct. 6, 1941.

Suit for an accounting by Edward D. Foster and others in their own right, and in behalf of other holders of participation certificates, against the Ypsilanti Savings Bank, wherein the Highland Cemetery Association and others intervened as plaintiffs. From a decree allowing an accounting tendered by defendant, and dismissing the bill of complaint, plaintiffs and interveners appeal.

Decree in so far as it allowed accounting affirmed, and case remanded for further proceedings.Appeal from Circuit Court, Washtenaw County, in Chancery; George W. Sample, Judge.

Argued before the Entire Bench.

Ronald R. Weaver, of Detroit, and James R. Breakey, Jr., of Ypsilanti, for plaintiffs and appellants, Edward D. Foster et al.

J. Don Lawrence, of Ypsilanti, for intervening plaintiffs and appellants, Highland Cemetery Ass'n et al.

John P. Kirk, of Ypsilanti (Burke & Burke, of Ann Arbor, of counsel), for defendant and appellee, Ypsilanti Sav. Bank.

NORTH, Justice.

By action of its board of directors the Ypsilanti Savings Bank, a Michigan banking corporation and defendant herein, suspended business July 24, 1931. About a month later the state banking commissioner filed a bill of complaint looking to the winding up of the bank, and a receiver was appointed. Thereupon interested parties joined in formulating a plan whereby the defendant bank would be reorganized and permitted to resume business. At a meeting of depositors an agreement providing for reorganization of the bank was consummated and ultimately signed by depositors holding in the aggregate more than 95 per cent of the deposits. The written depositors' agreement executed by these parties is printed in full at the foot hereof. We have italicized the portions which are more particularly pertinent to decision herein. We have also appended hereto a copy of the participation certificates issued to depositors incident to the execution of the depositors' agreement. In December, 1931, the reorganized bank was permitted to open for business, and the bank undertook the administration of the so-called 25 per cent trust which by the depositors' agreement had been created for the benefit of the bank and the holders of participation certificates.

In about half the five-year time limit provided in the depositors' agreement the bank paid in full with accrued interest to the depositors the 75 per cent of deposits covered by the moratorium provision of the agreement; but no payments were made on the certificates of participation which depositors held in lieu of the remaining 25 per cent of the deposits. After the expiration of the five-year period provided in the depositors' agreement for the execution of the trust and on February 16, 1938, plaintiffs in their own right and in behalf of other holders of certificates of participation filed the bill of complaint herein. In brief they allege maladministration of the trust by the defendant bank and ask an accounting. The charge of maladministration is denied in defendant's answer wherein defendant asserts that its administration of the trust has been in full conformity with the provisions of the depositors' agreement; and defendant asserts willingness to account to plaintiffs. Such an accounting was made in the trial court. Plaintiffs excepted to the accounting as to various items. After a full hearing the trial court allowed the accounting tendered by defendant and dismissed plaintiffs' bill of complaint. In the particulars hereinafter noted, plaintiffs have appealed.

In disposing of this litigation it must be borne in mind that primarily the rights of these litigants are controlled by the depositors' agreement. Hence at the outset it is important to determine the purpose and effect of that agreement because in construing the agreement and determining the rights of the respective parties the purpose sought to be accomplished will be controlling if within the provisions of the contract. In effect the depositors by their agreement put 25 per cent of their respective deposits into a trust fund ‘for the purpose of liquidating any assets' of the bank which might be considered questionable; and the beneficial interest of the depositors in the trust was evidenced by participation certificates issued to them. Payment of such certificates was to be made, if at all, ‘through liquidation of trust assets and earnings of the bank’ during the five-year trust period ‘in accordance with the depositors' agreement.’

Clearly the fundamental purpose of the depositors' agreement, read in its entirety, was to accomplish the reorganization of the bank and to continue it as a solvent financial institution. By so doing the depositors were assured of repayment of 75 per cent of their deposits and accrued interest within five years, thereby minimizing the loss that in all probability they otherwise would have sustained. As noted above, such payment was made by the reorganized bank to the depositors. The terms of the depositors' agreement clearly disclose that the bank, insofar as its needs required, had during the five-year trust period the first claim on the assets or receipts from liquidation of the assets of this so-called 25 per cent trust. The agreement recites that the depositors entered into it ‘with the understanding that if any of the good assets of said bank should become otherwise that any cash received for any part of the assets which are in the twnety-five per cent (25%) classification may be exchanged for questionable assets which may be placed in the seventy-five per cent (75%) classification’, i. e., the assets held by the reorganized bank. And the agreement also provides that the questionable assets of the old bank ‘shall be transferred to a trust fund * * * for the use and benefit of such reorganized bank, with the understanding that they are to be liquidated as rapidly as possible, without too great a sacrifice.’

In asserting right of recovery plaintiffs stress the claim of maladministration of the trust in consequence of the failure of defendant bank to literally ‘exchange’ a questionable asset for every asset removed by the bank from the 25 per cent trust fund. Plaintiffs would justify such contention by a literal construction of that portion of the depositors' agreement just above quoted wherein it is provided ‘that any cash received for any part of the assets which are in the twenty-five per cent (25%) classification may be exchanged for questionable assets' held by the reorganized bank. An illustrative transaction of the character of which plaintiffs complain would be the taking of money for any ‘exchanged’ item by the reorganized bank from the 25 per cent fund to make good a write-off on some asset held by the bank in accordance with the direction of the state banking commissioner. It is obvious that plaintiffs would have profited in no way by a book-keeping transaction whereby the written-off portion of such asset held by the bank was transferred to the 25 per cent trust. Or if the asset in lieu of which cash was taken from the 25 per cent fund was an asset which had become wholly worthless, it would have profited plaintiffs nothing to have transferred it to the 25 per cent trust fund and in that way to have literally ‘exchanged’ the one item for the other. The record shows that in event the reorganized bank received from a questionable asset an amount in excess of that for which it was carried on the bank's books, such excess was credited to the 25 per cent trust fund. By so accounting to the trust fund, we think the bank complied with the requirements of the depositors' agreement wherein it was provided the bank ‘may exchange for questionable assets,’ etc. In our view of the record, plaintiffs have not established a loss to the 25 per cent trust fund in consequence of which they are entitled to recover by reason of a failure on the part of the bank to exchange or to place in the 25 per cent trust fund a questionable or worthless item in lieu of every good asset removed therefrom. Surely the depositors' agreement could not be construed to require the bank to place in the 25 per cent trust fund an item of equal value every time it removed an asset therefrom, for such a construction would defeat the fundamental purpose of the depositors' agreement. That would not have aided the reorganized bank in establishing or maintaining a solvent condition. We think it is a fair conclusion that except the depositors' agreement were construed as we construe it herein, it would not have met with the approval of the state banking commissioner and reorganization of the bank would not have been accomplished.

We are not in accord with appellant's further attempt at strict construction in that portion of their brief wherein they state: ‘The Depositors' Agreement expressly limits the items that may be for the ‘use and benefit’ of the bank to ‘ Accounts Receivable”; and argue therefrom in effect that since literally the bank had no ‘accounts receivable’, none of its assets were transferred to the trust fund for ‘the use and benefit of such reorganized bank’. Clearly as used in the depositors' agreement the expression ‘accounts receivable’ was intended to include all assets of the bank in the nature of choses in action. In Hess v. Haas, 230 Mich. 646, 652, 203 N.W. 471, 472, we quoted approvingly the following from 21 C.J. 204: ‘In the construction of a written instrument, equity always attempts to get at its substance, and to ascertain, uphold, and enforce the rights and duties that spring from the real intention of the parties. In doing so, while it will of course not change the words of the instrument, the court of equity will look into all the circumstances under which it was made, in order to determine the proper meaning of the transaction. It will do this not only to sustain a just...