Union Guardian Trust Co. v. Bldg. Sec. Corp.

Decision Date21 May 1937
Docket NumberNo. 93.,93.
Citation280 Mich. 144,273 N.W. 424
PartiesUNION GUARDIAN TRUST CO. v. BUILDING SECURITIES CORPORATION et al.
CourtMichigan Supreme Court

OPINION TEXT STARTS HERE

Suit by the Union Guardian Trust Company against the Building Securities Corporation and another. From the decree, defendants appeal.

Decree vacated and cause remanded, with directions.

WIEST, J., dissenting.Appeal from Circuit Court, Wayne County, in Chancery; Adolph F. Marschner, Judge.

Argued before the Entire Bench.

Munro, Powell, Smilay & Covey, of Detroit (Slyfield, Hartman, Mercer & Reitz, of Detroit, of counsel), for appellants.

Milburn & Semmes, of Detroit (Edward T. Goodrich, of Detroit, of counsel), for appellee.

BUSHNELL, Justice.

The decree of the trial court in this foreclosure of a trust mortgage permits the trustee, if the becomes the purchaser at the foreclosure sale, to bid in the mortgaged premises without paying cash or depositing mortgage bonds. The decree states: ‘If said trustee, or any successor in trust, shall be the purchaser at said sale, it shall not be required to have in its possession or to present to the circuit court commissioner conducting said sale any bonds and coupons, nor shall it be required to pay any sum in cash except the costs and expenses of said sale, and the remaining purchase price may be paid by crediting the balance of such purchase price on the indebtedness herein decreed to be due in the same amounts and with the same priorities as though the balance of such purchase price had been paid in cash by a third party and such cash paid to said trustee pursuant to the provisions hereof.’ Appellants claim that the court was in error in this particular.

It is also claimed that the court erred in failing to limit the time within which the mortgaged premises may be sold. The decree states: ‘It is hereby further ordered, adjudged and decreed that the defendants, or either of them, pay, or cause to be paid, to the plaintiff, or to its attorneys, on or before the 15th day of December, A.D. 1935, the sums so mentioned aforesaid and decreed to be due to the plaintiff, with interest thereon at the rate of 7 per centum per annum from the date of this decree, and the costs of the plaintiff in this suit to be taxed according to law; and that in default thereof all and singular the mortgaged premises and property mentioned in the bill of complaint in this cause and hereinafter described be sold at public auction by or under the direction of a circuit court commissioner of this county, at any time after the 15th day of December, A.D. 1935.’

The contractual rights and liabilities of the parties cannot be implied; they must be found in the trust indenture. See 3 Comp.Laws 1929, §§ 13281, 13282 and 13309.

Article IX of the trust instrument has to do with foreclosure, sale and distribution. Section 5 thereof reads in part:

‘At any such sale any bondholders or coupon holders or any committee or trustee appointed by them or a part of them, or the trustee or any successor in trust herein named may bid for and purchase said mortgaged premises or any part thereof. The purchaser at any such sale shall be entitled in making settlement or payment for the property purchased, to use and apply any bonds and any matured and unpaid coupons hereby secured, by presenting such bonds and/or coupons in order that there may be credited thereon the sum apportionableand applicable to the payment thereof, out of the net proceeds of such sale; and thereupon such purchaser shall be credited on account of such purchase price payable by him, with the sum apportionable and applicable out of such net proceeds to the payment of the bonds and coupons so presented; provided, however, that in all cases the purchaser or purchasers shall pay in money a sufficient sum to cover the items referred to in subparagraphs (a) and (b) of section 4 of this article.’

The last-mentioned subparagraphs have to do with costs and expenses, etc.

Appellee says: ‘The power of the trustee to purchase the property for the benefit of all bondholders and to make payment of its bid by applying the amount due on the mortgage indebtedness is contained in section 5 of Article IX (supplemental record, pages 70 to 72) and in the second sentence of section 2 of Article X (supplemental record, page 79), when this section and this sentence are read together and construed in the light of the entire mortgage.’

In order to read the second sentence of section 2 of article X in its own setting, we quote all of sections 1 and 2 and a portion of section 3, italicizing the language relied upon by the trustee:

‘Liabilities, Duties, Powers and Rights of the Trustee.

Section 1. The recitals contained herein and in the bonds issued hereunder shall be understood as made solely by the grantor and not as made or vouched for by the trustee. The trustee shall have no responsibility for the validity of the lien of this indenture or the execution or acknowledgment thereof, nor as to the title, value or extent of the security afforded hereby, and shall be under no obligation to see to the recording, registration, filing or refiling of this instrument, or any instrument of further assurance, or to the giving of any notice thereof, or to see that any of the property intended now or thereafter to be conveyed in trust hereunder is subjected to the lien hereof or to see to the use or application of the bonds or their proceeds.

Section 2. The trustee shall not be under any obligation to recognize any person, firm or corporation as the holder or owner of any of the bonds secured hereby, or to do or refrain from doing any act pursuant to the request of any person, firm or corporation, professing to be or claiming to be such holder or owner, until such supposed holder or owner shall produce the said bonds and deposit the same with the trustee in the respective cases and instances herein required and specified. But all powers and rights of action hereunder may be exercised and enforced at all times by the trustee, at its election, without the possession or production of any of said bonds or coupons, or proof of ownership thereof at any time whatsoever. The trustee shall not be answerable for the default or misconduct of any agent or attorney employed by it in and about the execution of this trust if such agent or attorney shall have been selected with reasonable care. The trustee shall not be personally liable for any debts contracted by it nor for damages to persons or property incurred by it nor for damages to persons or property of any kind whatsoever, or for salaries or nonfulfillment of contracts during any period wherein it shall manage the trust estate or premises upon entry, but all of the same shall be a charge upon the trust estate.

Section 3. The trustee shall not be in any way liable for the consequence or any breach of the covenants herein contained, or for any act done or anything omitted hereunder by the grantor, and in no event shall the trustee be liable to any bondholder, except for gross negligence or wilful misconduct or neglect. It shall be no part of the duty of the trustee to effect or collect insurance against fire or other damage on any portion of said premises,’ etc.

It is not contended by appellee that the mortgage foreclosure statutes (3 Comp.Laws 1929, §§ 14364-14380), as amended, contain any language authorizing the trustee to purchase the mortgaged premises at the foreclosure sale, without having in its possession or presenting ‘to the circuit court commissioner conducting said sale any bonds and coupons.’

Appellee suggests that the answer to the following question is decisive: ‘Is the plaintiff trustee authorized by the trust deed and the bonds to bid for and purchase the mortgaged property for and on behalf of all of the bondholders, and to make payment of its bid (except for costs and expenses of sale) by applying all or any part of the mortgage debt in payment of its bid without having in its possession any of the bonds, and to thereby satisfy the debt evidenced by the bonds to the extent of the trustee's bid without credit therefor being actually indorsed upon the bonds?’

In answer thereto appellants say:

Defendants contend that even if the trust mortgage contains the express power authorizing the plaintiff trustee to bid for and purchase the mortgaged properties without the use of bonds (which defendants do not admit), the lower court had no right or jurisdiction to enforce such power in the present equity foreclosure proceedings.

‘To clarify defendants' contentions, defendants suggest the further question:

‘In this statutory foreclosure proceeding, did the lower court have either the right, power or jurisdiction to enter the decree in this case authorizing the plaintiff trustee to bid for and purchase the mortgaged premises without cash or bonds, even though express power so to do was conferred upon the trustee in the trust mortgage.’

None of the meticulous details of section 5 of article IX suggests that the parties presumed that the trustee, if the purchaser, would use any token of payment other than cash or bonds, etc. On the contrary, the intent of the parties is indicated by the following language of this section: ‘The purchaser at any such sale shall be entitled in making settlement or payment for the property purchased, to use and apply any bonds and any matured and unpaid coupons hereby secured, by presenting such bonds and/or coupons in order that there may be credited thereon the sum apportionable and applicable to the payment thereof, out of the net proceeds of such sale,’ etc.

Had the parties intended that the purchase would be made ‘without the possession or production of any of said bonds or coupons, or proof of ownership thereof,’ the natural place to state such intention would be in section 5 of article IX.

The language of section 2 of article X, which the trustee now claims gives it power to purchase the mortgaged premises, at the foreclosure sale, merely by...

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