Union Guardian Trust Co. v. Emery
Decision Date | 15 March 1940 |
Docket Number | No. 68.,68. |
Citation | 290 N.W. 841,292 Mich. 394 |
Parties | UNION GUARDIAN TRUST CO. et al. v. EMERY. |
Court | Michigan Supreme Court |
OPINION TEXT STARTS HERE
Suit by the Union Guardian Trust Company, a Michigan corporation, and others, against Harvey C. Emery, as liquidating trustee under the plan of reorganization of the Union Guardian Trust Company, to establish preferences of claims against the trust company. From a decree, defendant appeals, and certain plaintiffs cross-appeal.
Affirmed in part, and vacated in part, and bills of complaint dismissed.Appeal from Circuit Court, Wayne County, in Chancery; Guy A. Miller, judge.
Argued before the Entire Bench, except BUTZEL and BUSHNELL, JJ.
Bulkley, Ledyard, Dickinson & Wright, Yerkes, Goddard & McClintock, and Beaumont, Smith & Harris, all of Detroit, for certain plaintiffs, appellees and cross-appellants.
Shaeffer & Dahling, Hill, Hamblen, Essery & Lewis, Slyfield, Hartman, Mercer & Reitz, and Milburn & Semmes, all of Detroit, for other plaintiffs, appellees and cross-appellants.
Prescott, Coulter & Baxter, of Detroit (Merrill E. Olsen, of Detroit, of counsel), for Union Guardian Trust Co.
Shapero & Shapero, of Detroit, for Julia Meier.
Lewis & Watkins and Jason L. Honigman, all of Detroit (Sempliner, Dewey, Stanton & Honigman and Milton J. Miller, all of Detroit, of counsel), for Harvey C. Emery.
Butzel, Levin & Winston, of Detroit, for Times Pub. Co. and another.
Wiley, Streeter & Ford, of Detroit, for plaintiff Olympia, Inc.
The above case is a consolidation of 203 cases on trial and review.
On proclamation by the governor of the so-called bank holiday, the Union Guardian Trust Company was closed as of February 11, 1933. After operation by a conservator, appointed by the state banking commissioner, the company was reorganized in April, 1934. By the plan of reorganization, all the assets of the company were set aside in a fund designated as a depositors' and creditors' trust fund for liquidation by a trustee for the benefit of creditors, and provisions were made for the filing and allowance of claims, with the right of claimants to file suit to establish such claims as were disallowed. Plaintiffs were claimants who sought preference. Their claims were allowed as general claims, and they thereupon filed suit to establish preferences. The circuit court found constructive trusts resulting from certain of the deposits made and that such trust funds could be constructively traced. On other claims, it found that certain plaintiffs were cestuis que trustent under agreements of trust with the company, and on such claims preference was allowed. Claims of other plaintiffs were held to be trusts, but preference was denied because of inability to trace. From the decree, the trustee for creditors appeals; and certain plaintiffs file cross-appeals.
The primary questions to be determined are whether certain trusts ex maleficio arose as a result of the conduct of the trust company and whether, in other instances, there was an actual trust relationship growing out of contract. It is contended by defendant trustee for creditors that the relations above mentioned were those of debtor and creditor, and that there were no trust relationships between the trust company and the other plaintiffs.
In order to arrive at its conclusion that certain claimants are entitled to a preference over general creditors, the trial court found that the conduct of the trust company in accepting the deposits in question and in issuing certificates of deposit was ultra vires and, therefore, constructively fraudulent; that thereby there arose a constructive trust impressed upon the general funds of the trust company in favor of the claimants.
Section 6164, 2 Comp.Laws 1897 (3 Comp.Laws 1929, § 12018 [Stat.Ann. 23.248]), under which the trust company was organized, provides: ‘Any corporation organized or existing under this act shall have power in and by its corporate name to take, receive and hold, and repay, reconvey and dispose of any effects and property, both real and personal, which may be granted, committed, transferred or conveyed to it, with its consent, upon any terms.’
In Lamb v. Abendroth, 268 Mich. 73, 79, 255 N.W. 447, 449, the court commented upon the statute as follows:
In an opinion by Attorney General Fellows, Report of Attorney General, Michigan 1913, p. 170, it was maintained that a trust company, under the statutes mentioned above, had the right to accept deposits and issue certificates of deposit therefor. In the opinion, it was stated that while the issuance of certificates of deposit was a function ordinarily performed by banks, it was not peculiar to banks alone, nor was it one of their primary functions. With regard to the right to issue certificates of deposit, it was held that such certificates are to be considered promissory notes.
The rule that a certificate of deposit, payable on the return thereof properly endorsed, is, in legal effect, a promissory note, payable on demand, and that the principles applicable to such notes should be applied to certificates of deposit, has been repeatedly reaffirmed by this court. Tripp v. Curtenius, 36 Mich. 494, 24 Am.Rep. 610;City of Lansing v. Wood, 57 Mich. 201, 23 N.W. 769;Beardsley v. Webber, 104 Mich. 88, 62 N.W. 173;Wolfe v. A. E. Kusterer & Co., 269 Mich. 424, 257 N.W. 729. It has been held that a trust company's right to issue certificates of deposit in the course of its business, and as an incident thereto, is not to be doubted. Bank of Saginaw v. Title & Trust Co., C.C., 105 F. 491.
Under the statutes in effect at the time of the issuance of the certificates of deposit in the instant case, there was no apparent intention of the legislature to limit the authority of trust companies to receiving and holding property merely as trustee. As was further said in the opinion of the Attorney General, supra:
It appears that the practice of a trust company in issuing certificates of deposit has been followed without opposition or question by the state and has been recognized as a proper function of such companies for the past 50 years. However, the former statutes with relation to trust companies have been repealed since Lamb v. Abendroth, supra, and the transactions in this case, and superseded by Act No. 341, chap. 5, Pub.Acts 1937 (Stat.Ann.1939 Cum.Supp., § 23.1001 et seq.), which in turn was amended by Act No. 289, Pub.Acts 1939 (5 Comp.Laws Supp. 1940, § 11897-191 et seq.), and uncertainty with respect thereto is not likely in the future.
But in any event it does not necessarily follow, although it be assumed that the receipt of deposits and issuance of certificates therefor was ultra vires, that such transactions were constructively fraudulent. Constructive fraud has been defined as a term applied to a great variety of transactions which equity regards as wrongful, to which it attaches the same or similar effects as those that follow from actual fraud, and for which it gives the same or similar relief as that granted in cases of actual fraud. Pomeroy Eq. Jur. (4th Ed.), § 922. Constructive fraud has been evolved to designate what is, in its essence, nothing more than receipt and retention of unmerited benefits. Hernig v. Haris, 117 N.J.Eq. 146, 175 A. 169. Such trusts are raised to prevent injustice, and while the varieties of constructive trusts are infinite, they depend upon equitable principles and are imposed in those cases where it would be inequitable to do otherwise. In Weir v. Union Trust Co., 188 Mich. 452, 463, 154 N.W. 357, 360, it is said:
‘Constructive trusts arise by operation of law. The following is found in 39 Cyc. p. 169:
‘Also, the following in 15 Am. & E. Enc.Law (2d Ed.) [p.] 1123:
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