Schaffer v. Eighty-One Hundred Jefferson Ave. E. Corp.
| Decision Date | 04 June 1934 |
| Docket Number | No. 163.,163. |
| Citation | 255 N.W. 324,267 Mich. 437 |
| Parties | SCHAFFER et al v. EIGHTY-ONE HUNDRED JEFFERSON AVENUE EAST CORPORATION et al. |
| Court | Michigan Supreme Court |
OPINION TEXT STARTS HERE
Appeal from Circuit Court, Wayne County, in Chancery; Robert M. Toms, Judge.
Suit by Harry F. Schaffer and others against the Eighty-One Hundred Jefferson Avenue East Corporation and others. From a decree of dismissal, plaintiffs appeal.
Affirmed, and cause remanded, with leave to amend bill of complaint.
Argued before the Entire Bench, except BUSHNELL, J.
Edward N. Barnard, of Detroit, for appellants.
Milburn & Semmes, of Detroit, for appellee Union Guardian Trust Co.
Plaintiffs review decree dismissing their bill of complaint for multifariousness and want of equity. In substance the bill alleges:
In 1922, defendant De Vos acquired real estate in Detroit and erected on it four cross-shaped 8-story apartment buildings, containing 352 apartments and a large underground garage, the whole paid for from the proceeds of a $2,000,000 mortgage. In 1923 he organized Alden Park Manor, Inc. (the holding company), as a Michigan profit corporation, and conveyed the premises to it. In 1927 the mortgage was refinanced and discharged through a new trust mortgage to Union Trust Company, trustee (now Union Guardian Trust Company), for $1,875,000. De Vos is controlling stockholder and manager of the holding company, and conducts it for his personal benefit.
The project was not financially successful and, in 1927, De Vos decided to make sale of individual apartments to individual purchasers. To induce plaintiffs and the public to buy, he made many promises and representations, particularly that a corporation, Eighty-One Hundred Jefferson Avenue East Corporation (co-operative association), would be organized, with a capital of $2,050,000, to own and operate the property, the project was sound financially, and the interest of a purchaser would be represented by a 30-year lease, renewable for like periods, and certificate of stock in the co-operative association, which would constitute an ownership in the land and buildings. Afterwards he made other representations to similar effect. Prospective purchasers were given full notice of the mortgage.
In 1927 De Vos organized the co-operative association as a nonprofit corporation under the laws of this state, to acquire and own the real estate, manage and lease the land and buildings, ‘to be held by the stockholders as tenants on the co-operative basis.’ By-laws were adopted providing for leasing apartments to the stockholders. De Vos caused the holding company to convey the premises to the co-operative association subject to the mortgage; the association assuming and agreeing to pay it. And, in consideration, the association transferred to the holding company all of its capital stock.
In reliance upon the promises and representations made by De Vos and on the articles and by-laws of the association, the plaintiffs purchased apartments at prices ranging from about $5,000 to $35,000. The instruments in connection with a purchase were:
(1) Application for purchase, to the holding company.
(2) A ‘receipt of your application for the purchase of your apartment,’ from the holding company.
(3) Promissory note from purchaser, payable to himself and indorsed in blank for unpaid balance, when purchase price was not paid in full, delivered to the holding company.
(4) Stock certificate of association for a designated number of shares, running to the purchaser, on assignment from holding company.
(5) Stockholders' lease from the association as landlord and to the purchaser as tenant.
The application gave notice of the mortgage, its assumption by the association, and provided that the note for the unpaid balance should be secured by a pledge of the stock and lease, and that the stockholder should vote for the approval of the issuance of all leases to persons approved by the holding company.
The note included the pledge of stock and lease with right of holder to sell on default and to re-enter the premises and repossess the apartment by any appropriate action.
The stockholders' lease described the purpose for which the association was incorporated and provided terms in detail; that the lease was for the life of the corporation; the lessee should pay as rent an annual assessment made by the board of directors of a proportionate part of the carrying charges of the association, including operating expenses and principal and interest on the mortgage debt; ‘that this lease and the term hereby created’ should cease at the option of the association on certain contingencies, as if the lessee cease to be a stockholder, or be declared bankrupt, or make a general assignment for creditors, or a receiver for his property be appointed, or his stock be levied on or sold as pledged security, or the lessor, by a two-thirds vote, in amount of capital stock, desire to sell the property, or, by a three-fourths vote, the association determine the tenancy of the lessee be undesirable because of objectionable conduct on his part or that of his visitors; and other terms.
Under the facts stated, plaintiffs claim to be the owners of their respective apartments and their interests are real estate which cannot be terminated by sale of their stock or through summary proceedings.
Plaintiffs are informed and believe that a large number of the promises and representations made by De Vos were untrue, he knew it, made them with intent to induce plaintiffs to part from their money, and plaintiffs did not discover their falsity until recently. Particularly the representations regarding the financial soundness of the project were false. De Vos and the two corporations did not pay nor intend to pay the rental charges against them but misappropriated to themselves large sums in violation of the articles of association instead of making payment on the mortgage. Wherefore, plaintiffs charge that a fraud has been perpetrated on them by De Vos, the holding company and the association, and they should account for the damages and plaintiffs have a lien on the premises.
The promissory notes given to the holding company have been transferred to defendant Union Guardian Trust Company, which claims to be the owner but is not a bona fide purchaser; plaintiffs have no liability thereon, and the company should be restrained from commencing any action for recovery thereof.
On November 24, 1931, the Union Guardian Trust Company, as trustee, filed bill for foreclosure of the trust mortgage against both the holding company and the association, and the trust company was appointed receiver to take possession of the property and collect rents. The default was on August 20, 1931. It was caused by the willful neglect and refusal of De Vos, the holding company, and the association to pay rentals for the apartments they own; they refused to pay in order to induce foreclosure and, through it, to eliminate plaintiffs' interest in the property and acquire it for themselves. Their conduct made the foreclosure fraudulent, and they should account to plaintiffs by reason thereof.
Plaintiffs claim they are necessary parties to the foreclosure proceedings, the proceedings are void, and further prosecution should be enjoined; the order appointing the receiver was void and should be vacated because plaintiffs had no notice of the application for it; the order should be vacated because the receiver has permitted the same persons who formerly controlled it to manage the property; the receivership is detrimental to plaintiffs and the bondholders in causing great expense; the trust company is not a proper receiver because it is insolvent and in charge of a conservator who is subject to the jurisdiction of the executive branch of the government, not of the court.
Plaintiffs are informed and believe that the foreclosure suit was engineered by De Vos, the holding company, and the association; that the receiver is a friendly one, and: ...
To continue reading
Request your trial
-
Triplett v. St. Amour
...For instance, it has long been recognized that an action at law will lie to recover damages for fraud. Schaffer v. Jefferson Ave E. Corp., 267 Mich. 437, 448, 255 N.W. 324 (1934); Spanos v. Edwards, 249 Mich. 400, 402, 228 N.W. 765 (1930). This principle should serve as the starting point f......
-
Com. v. 2101 Co-op., Inc.
...Co. v. 160 West Seventy-third Street Corp., 260 N.Y. 205, 183 N.E. 365, 86 A.L.R. 361 (1932); Schaffer v. Eighty-One Hundred Jefferson Ave. East Corp., 267 Mich. 437, 255 N.W. 324 (1934); In re Miller (In re 325 East 72nd St., Inc.) 173 Misc. 347, 18 N.Y.S.2d 59 (1940). Contra: In re Pitts'......
-
Hathaway v. Porter Royalty Pool, Inc.
...negative the existence of a joint adventure when such was the manifest purpose of the parties.’ In Schaffer v. Jefferson Avenue East Corporation, 267 Mich. 437, 255 N.W. 324, 327, it was said: ‘Sometimes, when joint adventurers use the corporate form for convenience in carrying out their pr......
-
White v. Riness (In re White)
...affect the grantee's interest. Caselaw does not support plaintiff's position. In Schaffer v Eighty-One Hundred Jefferson Ave East Corp, 267 Mich. 437; 255 N.W. 324 (1934), the defendant De Vos organized the defendant corporation, Eighty One Hundred Jefferson Avenue East Corporation, to sell......