Sloan v. Silberstein

• Decision Date: 12 April 1966
• Docket Number: No. 1,No. 672,672,1
• Parties: Hattie S. SLOAN, Robert B. Aikens, as next friend of Robert, David, Daniel, Michael, Lisa, Heather, Steven and Joshua Sloan, minors, and Eugene Sloan, Richard Sloan, Jerome Sloan and Ronald Sloan, Plaintiffs- Appellees and Cross-Appellants, v. Ben L. SILBERSTEIN, individually and as trustee, Defendant-Appellant and Cross-Appellee, Robert Silberstein, individually and as trustee, Irwin I. Cohn, as executor of the Estate of Harry Silberstein, and Irwin I. Cohn, as executor of the Estate of Joseph Silberstein, Defendants. Cal
• Court: Court of Appeal of Michigan — District of US

Page 332

141 N.W.2d 332

2 Mich.App. 660

Hattie S. SLOAN, Robert B. Aikens, as next friend of Robert David, Daniel, Michael, Lisa, Heather, Steven and Joshua Sloan, minors, and Eugene Sloan, Richard Sloan, Jerome Sloan and Ronald Sloan, Plaintiffs- Appellees and Cross-Appellants, v. Ben L. SILBERSTEIN, individually and as trustee Defendant-Appellant and Cross-Appellee Robert Silberstein, individually and as trustee, Irwin I Cohn, as executor of the Estate of Harry Silberstein, and Irwin I. Cohn, as executor of the Estate of Joseph Silberstein, Defendants.

Cal. No. 672.

Court of Appeals of Michigan, Division No. 1.

April 12, 1966.

George E. Brand, Jr., Butzel, Eaman, Long, Gust & Kennedy, Detroit, for Ben L. Silberstein.

Wunsch, Aikens & Lungershausen, Detroit, for plaintiffs-appellees and cross-appellants. Chris M. Youngjohn, Harry M. Nayer, Detroit (of counsel).

John Sklar, Detroit, and Robert Silberstein, New York City, for defendant Irwin I. Cohn.

Before WATTS, P.J., and BURNS and GILLIS, JJ.

WATTS, Judge.

This is a suit in equity brought by Hattie S. Sloan and others against Ben L. Silberstein and Robert Silberstein, individually and as trustees, and Irwin I. Cohn, as executor of the estates of Harry and Joseph Silberstein. Plaintiffs seek an accounting of all real and personal property of the Mary Silberstein trust and the impressing of a constructive trust on all stock of the National Building Corporation owned by Ben L. Silberstein, hereinafter referred to as appellant, or on the proceeds of the stock, said constructive trust being for the benefit of the plaintiffs and all the other beneficiaries of the express trust created in the will of Mary Silberstein. Judgment was entered for the plaintiffs against the appellant, who filed a claim of appeal in the lower court on March 25, 1965. On April 9, 1965, the plaintiffs filed a cross appeal. On December 7, 1965, the Court of Appeals granted plaintiffs' motion to add Calvin C. Rock, current successor trustee, as party plaintiff.

On March 18, 1941, Mary Silberstein, the mother of Hattie S. Sloan, Gertrude Marks, Joseph, Harry, Ben L. and Robert Silberstein, died. Her will was probated in Wayne county. On December 15, 1943, trustees qualified under the Mary Silberstein express trust, which left the entire residuary estate in trust, the income to be paid in equal shares to her 6 children during their lifetime, the corpus to their issue, the remainder beneficiaries.

Joseph and Harry Silberstein were appointed cotrustees of the family trust. Joseph died March 25, 1946. Harry was the sole trustee from March 23, 1946 to May 6, 1946, on which day appellant was appointed cotrustee. Harry died February 28, 1955. Appellant was the sole trustee from February 28, 1955 to March 31, 1955, when Robert Silberstein was appointed cotrustee. Appellant and Robert Silberstein served as cotrustees until June, 1960, when appellant resigned. Robert Silberstein and the National Bank of Detroit served as cotrustees until December 3, 1962, when Calvin C. Rock was appointed and qualified successor trustee.

On March 7, 1946, appellant, one of the beneficiaries of the trust, received information from Edwin Gage that the National Bank Building could be purchased from the First Liquidation Corporation for $6,000,000 cash. On March 13, 1946, appellant and associates submitted a written offer to purchase the bank building for $5,900,000 cash. A deposit of $100,000 accompanied the offer to purchase and an additional $150,000 was deposited upon acceptance of the purchase offer (March 16, 1946). The total deposit of $250,000 was to be forfeited if the remainder of the entire $5,900,000 purchase price were not paid within 3 months after delivery of abstract of title. Jason Honigman and family furnished $125,000 of the deposit money, appellant $62,500 (which money was loaned to him by Harry (Galperin), and $62,500 by Harry Galperin.

A mortgage on the property was acquired for $5,000,000. The total amount to be raised by the sale of debentures and common stock was $1,000,000: $900,000 was to be raised by the sale of debentures; $100,000 by the sale of common stock. This left a balance of $100,000 in reserve over the purchase price of $5,900,000. The record indicates that to facilitate the raising of this amount of money within a relatively short period, the privilege of purchasing common stock was generally extended to those who bought debentures.

On May 9, 1946, the National Building Corporation filed articles of incorporation in Lansing, and on May 16th these were put on file in Wayne county. Appellant was a principal stockholder, its director and president. He became cotrustee of the Mary Silberstein trust on May 6, 1946.

On May 24, 1946, appellant and Harry Silberstein, cotrustee of the trust, issued a check in the amount of $50,000 payable to the National Building Corporation for the purchase of a National Building Corporation debenture or promissory note.

On June 1, 1946, the corporation delivered its $50,000 debenture or promissory note, bearing 6% Interest and signed by appellant, the president of the corporation, payable to himself and Harry Silberstein, cotrustees of the Mary Silberstein trust. On the same day, appellant Personally signed an agreement to purchase the debenture or promissory note held by the trust within 60 days of demand. Approximately 2 years later, the debenture or promissory note was redeemed by the corporation and the trust received payment of $50,000 plus interest.

In 1954 and 1955 when rumors came to the attention of Hattie S. Sloan of the possible misuse of trust assets, she hired an accountant to audit the books. The audit was completed in 1957, and Hattie S. Sloan subsequently brought suit in chancery in 1959.

Hattie S. Sloan alleged that defendant trustees improperly and fraudulently advanced funds from the trust to themselves for their own use. She sought that a constructive trust be placed on all the stock of the National Building Corporation owned by appellant, or the proceeds of the said stock, and that an accounting be had of all the assets of the trust.

Plaintiffs seek to impress a constructive trust upon certain assets acquired by appellant during his administration of the trust.

Appellant denies that he was guilty of a breach of trust and claims that plaintiff Hattie S. Sloan had knowledge of, acquiesced in, and consented to the purchase of National Building Corporation debentures.

More specifically, The plaintiffs claim:

'On or about June 1, 1946, the defendant Ben L. Silberstein, caused the trust to purchase a $50,000 promissory note of National Building Corporation. Said defendant was the principal promoter and one of the incorporators of this corporation. Pursuant to his agreement with the other promoters, said defendant was obligated to raise approximately $406,875 for the new corporation, and upon fulfilling this obligation said defendant or persons named by him became entitled to receive approximately 39,375 shares of the common stock of said corporation.

As a direct result of the use of trust funds for the purchase of such promissory notes of said corporation, the defendant acquired the right to receive approximately 7,633 shares of common stock of National Building Corporation, which shares were acquired by him in his own name. The plaintiffs claim that these shares were acquired by said defendant without their knowledge or consent and without disclosure by said defendant of his interest in said corporation or his rights and obligations in connection with the financing of said corporation.

The plaintiffs seeks on behalf of the trust to impose a constructive trust upon 7,633 shares of said common stock acquired by said defendant or upon the proceeds of such shares or to surcharge said defendant for the value of said shares. The plaintiffs also contend that they are entitled to an accounting of the benefits accruing to said defendant as a result of the ownership of such shares and to surcharge said defendant for dividends received by him thereon and for such other benefits as he may have received through such ownership.

Defendant-appellant Ben L. Silberstein contends:

The loan to National Building Corporation and the $50,000 note (a debenture) were not concealed. The transaction was discussed with, and approved by, the beneficiaries, was promptly entered upon the books and records of the trust and the debenture was inventoried in determining the distribution of trust property made in 1947 to the beneficiaries including plaintiff Hattie S. Sloan. The beneficiaries, including said plaintiff, also received 6% Interest income from the debenture and the income was also reflected on the books and records. The debenture and the income therefrom were also reflected upon the current statements to the beneficiaries.

Availability of the funds loaned for future trust use was assured by the written agreement of appellant that he would personally purchase the note or debenture from the trust, upon demand and at the full unpaid balance plus accrued interest. Appellant's share of the trust income was then approximately $25,000 a year; he was also of independent means.

The debenture was purchased with idle funds borrowed before appellant became a trustee and which were drawing approximately 2% Interest in a savings account. By reason of the loan the funds produced 6%.

The note or debenture was partially repaid in 1947 and completely repaid by May, 1948. Interest at 6% Was paid throughout. At no time since the repayment in 1948 has the trust had any funds loaned to, or risk in connection with, National Building Corporation. Since 1948 the trust has had the use of the $50,000 for other purposes. Even had an improper loan been made in 1946, or had a proper investment been omitted, the sole period to be considered is that when the loan made was outstanding.

Appellant did not 'acquire the right to receive' or receive 7,633 shares, or...