Roberts v. Mich. Trust Co.

• Decision Date: 11 October 1935
• Docket Number: No. 40.,40.
• Parties: ROBERTS et al. v. MICHIGAN TRUST CO. et al.
• Court: Michigan Supreme Court

273 Mich. 91

262 N.W. 744

ROBERTS et al.

v.MICHIGAN TRUST CO. et al.

No. 40.

Supreme Court of Michigan.

Oct. 11, 1935.

Suit by Catherine Peck Roberts and others against the Michigan Trust Company, trustee under the will of Catherine A. Peck, deceased, and Percy S. Peck, as trustee and as beneficiary under the will of Catherine A. Peck, deceased. From the decree, the Michigan Trust Company, trustee under the will of Catherine A. Peck, deceased, appeals, and plaintiffs and defendant Percy S. Peck, as trustee and as beneficiary under the will of Catherine A. Peck, deceased, cross-appeal.

Decree modified.Appeal from Superior Court of Grand Rapids; Thaddeus B. taylor, judge.

Argued before the Entire Bench.

Butterfield, Keeney & Amberg, of Grand Rapids, for Michigan Trust Co.

Lloyd E. Cooper, of Grand Rapids, for Percy S. Peck.

Norris, McPherson, Harrington & Waer, of Grand Rapids, for Catherine Roberts and others.

BUTZEL, Justice.

Plaintiffs, all adults, are the three children of Percy S. Peck, who as trustee and beneficiary under the will of Catherine A. Peck, deceased, is a defendant herein, with the Michigan Trust Company, trustee under the same will, as codefendant. Under the will of Catherine A. Peck, the Michigan Trust Company and Percy were named as executors and trustees. The value of the estate, at the time the assets were turned over to the trustees of the trusts hereunder, exceeded $1,400,000. The will provided for a number of specific bequests, including the creation of several trusts of smaller amounts for others. One-half of the residue was left in trust for Percy and the other one-half for his sister Clara. The value of the share of the residue turned over by the executors to themselves as trustees for Percy was $363,839.90, without taking into consideration some assets that the executors still held for distribution. Percy was only entitled to the income from the one-half of the residue, thus set aside for him, during his lifetime. Percy received as income from the trust set aside for him the sum of $38,643.20 for the period from March 27, 1929, to December 5, 1931. He was also given the power to designate by last will and testament the person or persons to whom the corpus should go upon his death, and, in default of his exercise of such power, the residue was to go to his issue, if living. The will also contained spendthrift trust provisions.

Thomas M. Peck, Percy's uncle, had also left a large estate. He trusted valuable parcels of property on Monroe avenue and Library street in the city of Grand Rapids to two trustees, of whom the Michigan Trust Company became the successor. The trustees were directed to collect the income, pay the taxes, look after the upkeep of the property, and pay Thomas' widow an annuity of $4,000 during her lifetime. The balance of the income during her lifetime was payable to his brother and sister, John E. Peck, and Catherine A. Peck, to whom he devised the property subject to the life interest of his widow. Catherine A. Peck deeded her interest in the property to her brother, John E. Peck, who thus became the owner of the two parcels, subject to the payment of the annuity to Thomas Peck's widow in the manner stated. John E. Peck, upon his death, left his interest in these properties to his two children, Percy and Clara, but subject to the payment of the income to John's widow during her lifetime. The latter also died, and the title to the properties appears to have vested in Percy and Clara subject to the annunity payable to the widow of Thomas M. Peck, a very aged lady with but a short expectancy of life at the time of the giving of the mortgages hereinafter referred to.

Upon the appointment of executors and trustees of the estate of Catherine A. Peck, the question arose as to the amount of bond to be exacted of Percy. In a written statement to the probate court he agreed that the custody and control of the funds should remain in the Michigan Trust Company, his coexecutor and cotrustee, and his bond therefore was fixed at only $10,000, although the assets of the estate exceeded $1,400,000. Notwithstanding the fact that the control and custody nominally remained in the Michigan Trust Company, Percy nevertheless qualified and fully exercised his rights and duties as coexecutor and cotrustee. Plaintiffs complain of acts in which Percy participated and from which he was the recipient of all of the benefits. However, the present suit obviously is brought to fasten the losses on the corporate trustee, apparently the only one with financial responsibility. The record does not show Percy's net worth at the time of the acts hereinafter complained of, but he undoubtedly was considered a wealthy man at that time. He was also engaged in the business of indorsing paper for others for a consideration.

The first investment complained of arose as follows: On March 2, 1928, Percy, in his individual capacity, applied to the Michigan Trust Company for a loan of $120,000 on his one-half interest in the Monroe avenue property. In a written application, he represented the entire parcel to be 44 feet by 88 feet, improved with a five-story office building with an average gross rental of $16,400 per year for the stores on the ground floor and $12,000 per year for the upper floors. The loan was to be represented by 24 serial notes of $5,000 each running to the Michigan Trust Company as trustee, the sum of $5,000 becoming due each year over a period of 10 years when the entire balance was payable. At the time of the execution of the mortgage, in accordance with the application, Percy gave a written direction to the trust company to invest funds that would become available in his trust under the will of Catherine A. Peck, deceased, in the mortgage notes. $85,000 of the notes were acquired from such funds shortly thereafter. On the division of the residue of the estate between Percy and his sister, these notes were allocated to Percy's trust. In March, 1929, an additional $5,000 note was acquired. However, a $5,000 note had been paid so that the trust still owned $85,000 of these notes.

The second investment complained of arose as follows: Percy borrowed the sum of $42,000 on the Library street property hereinbefore mentioned, the loan running to the Michigan Trust Company as trustee, and secured by 14 notes of $3,000 each. At the time of the execution of the mortgage, a $3,000 note was acquired for Percy's trust. Later a note was also acquired for an inter vivos trust established for Percy and his wife by Thomas M. Peck, referred to later in this opinion. In September, 1932, D. Bradford Apted, the husband of one of the plaintiffs herein, in a letter to the trust company, stated that Percy's wife protested against the placing of the $3,000 note in the inter vivos trust, and that it was entirely agreeable to Percy that the investment be transferred to his own trust under the will of Catherine A. Peck. This was done.

The third investment complained of by plaintiffs was the purchase on April 15, 1930, of a $1,000 bond of a large issue of the Comstock Investment Company of Detroit, secured by a mortgage on land centrally located in Detroit and underwritten by a trust company of high standing in Detroit.

Objection is further made to the acquisition of 680 shares of no-par common stock with 332 option warrants, and scrip for 56/80 of a share of no-par common stock of the Commonwealth & Southern Corporation, a large public utility company that took over the properties of the Commonwealth Power Corporation. Under the will of Catherine A. Peck, her executors and trustees were authorized to retain any shares held by her at the time of her death, notwithstanding the fact that such action might otherwise be in violation of the laws in relation to trust investments. At the time of Mrs. Peck's death, she was the owner of 151 shares of the stock of Commonwealth Power Corporation, a company rated very highly by investment authorities. Shortly after her death, rights were issued to her executors enabling them to purchase 15 additional shares at a price materially less than the market at that time. Upon a division of the residue estate between the two trust funds, established for Percy and his sister, the latter ordered the one-half of the Commonwealth Power Corporation shares sold, and the sum of $7,149.20 was realized on the sale Percy's shares, however, were kept with his knowledge and consent and carried on the books at the price at which his sister's stock had been sold. Later the 83 shares held in Percy's trust were exchanged for the Commonwealth & Southern Corporation stock, which was considered at the time as a very good investment, derived from the stock that belonged originally to the estate. Some question arose as to the propriety of the trust company basing its commission on the enchanced value of the new shares of stock. This would make a difference of only $34 in fees. No complaint was made on that account in the bill of complaint, and we shall not dwell upon it. It was proper for the trust company to value the stock at the market price as established by the sale of the stock at the time of the division between Percy and his sister.

Complaint is also made of a loan of $2,500 to Lewis A. Geistert for a period of three years, with interest at 6 1/2 per cent. per annum secured by a second mortgage on a new home constructed by Geistert in a high-class residential district of Grand Rapids. The trust company had loaned him $10,000 on a first mortgage. He required an additional sum of $2,500. This made the aggregate amount of the loans $12,500. Percy requested in writing that the loan be made. The property was valued at $20,000, although Geistert claimed it was worth more. Payments, however, were made on the two mortgages so that the $2,500 loan was reduced to $2,000, and the $10,000 loan to $8,500 prior to the beginning of the instant suit.

The final transactions complained of were...