Giblin v. Detroit Trust Co.

258 N.W. 635, 270 Mich. 293, 1935 Mich. LEXIS 683

• Court: Michigan Supreme Court
• Decided: January 29, 1935
• Docket: Docket No. 47, Calendar No. 37,978.
• Status: Published

Opinions

Butzel, J.

I concur with the holding in the accompanying opinion (Justice Edward M. Sharpe’s) that the instrument in question is a trust mortgage. After the foreclosure of the first mortgage given by Julius Berman, the title to the property was perfected in the Federal Bond & Mortgage Company through its purchase of the equity of redemption. Berman desired to protect Becker, who held a second mortgage. Berman, however, was unwilling to become personally liable on a new mortgage and bond issue, and accordingly an employee, one Donohue, was procured to act as mortgagor in the new transaction. The Federal Bond & Mortgage Company gave a deed to Donohue, who thereupon signed $150,000 of new bonds, and executed a trust indenture running to the Federal Bond & Mortgage Company, as trustee, by way of security. According to the opening* statement of counsel for plaintiffs, no bonds were “sold under this mortgage by the Federal Bond & Mortgage Company. They got this $150,000 of bonds but they were so busy in other matters of theirs they did not dispose of these bonds; maybe the public is lucky; some $125,000 were pledged as collateral security on a loan to the Peoples Savings Bank and $12,000 in another bank,' but the title always remained in the Federal Bond & Mortgage Company.” The claim is made that under these circumstances the indenture was not a trust mortgage, notwithstanding the fact that it ran to a trustee and contained all the terms'.and pro-' visions of a trust instrument, including ¿ properly phrased clause assigning the rents as Additional security. There is nd.'merit in this contention. It is not within our province to consider the allegation made in the brief of amicus curies that the' bonds pledged to the banking* institutions as collateral secu rity for certain loans had been foreclosed and subsequently became the property of those banks, inasmuch as this fact does not appear in the record. It is common practice for a financial institution acting as underwriter of mortgage securities to purchase and take over an entire issue of bonds, frequently secured by a mortgage running to itself as trustee, with the purpose and intent of selling the bonds to the public. Such was the purpose and intent in the instant case. The fact that for the time being the bonds could not be sold, and were therefore held by the trustee, does not of itself alter the trust nature of the mortgage, provided it was the intent of the parties at the time the indenture was executed to make it a trust mortgage and to sell the bonds to the public. Plaintiffs rely largely on Equitable Trust Co. v. Milton Realty Co., 261 Mich. 571, and 263 Mich. 673, and Bankers Trust Company of Detroit v. Russell, 263 Mich. 677. The mortgages in these cases did not run to a trustee, and we based our decision on the fact that it was apparent from a consideration of the instruments as a whole that the parties in neither case intended to create a trust. In the instant case, however, it is quite definitely indicated that the intent of the parties was to make the indenture a trust mortgage, and not simply to create a large purchase money mortgage running to one or more mortgagees. Any uncertainty on this score is dispelled by the fact that the owner of the equity of redemption unquestionably treated the instrument as a trust mortgage, as shown by his futile effort to follow the very terms of the mortgage and substitute plaintiff James Griblin as trustee thereunder. He cannot treat the instrument as a trust mortgage for one purpose and ascribe a different character to it for another. The question is raised as to whether Griblin was ever properly ap pointed as successor trustee. Even if he were, he was properly removed in accordance with the terms of the trust indenture and the Detroit Trnst Company is the successor trustee under the mortgage.

I do not agree with the finding in the accompanying opinion (Justice Edward M. Sharpe’s) that either of the plaintiffs is entitled to possession of the property from the time of the filing of the bill of complaint. From the very inception of the mortgage, the Republic Management Company, an agent of the trustee, had peaceful possession of the property, and the exhibits show that default occurred long before either of the plaintiffs asserted any rights of possession. Before the right of possession was actively asserted by either of the plaintiffs, the Detroit Trust Company, defendant in the instant case, was in possession for a considerable time, as successor trustee to the Federal Bond & Mortgage Company, of which it was appointed receiver. Defendant’s appointment as successor trustee was duly recorded, and was recognized by all parties. It collected the rents and managed the property. Plaintiffs claim, however, that under the provisions of Act No. 228, Pub. Acts 1925 (3 Comp. Laws 1929, §§13498, 13499), it was necessary for defendant, as a condition precedent to its right to continue in possession, to file in the office of the register of deeds for Wayne county, in which the property is located, a notice of default in the terms and conditions of the trust mortgage, and to serve a copy of such notice upon the occupiers of the mortgaged premises'. Act No. 228, Pub. Acts 1925, § 1, supra, establishes the legality of an assignment of rents and profits of the property mortgaged to the trustee or trustees under the trust mortgage or deed of trust, for the benefit of the bondholders, etc. Section 2 of the act provides that such an assignment shall be valid as against the mortgagor or .mortgagors, or those claiming under or through them, from the date of the recording of the trust mortgage or deed of trust. It is further provided, however, that notice of default in the terms and conditions of the trust mortgage or deed of trust shall be filed and served upon the occupiers of the premises. In Detroit Trust Co. v. Detroit City Service Co., 262 Mich. 14, we held that the service of such notice upon the occupiers of the premises was solely for their protection. The filing of notice of default with the register of deeds in accordance with the provisions of Act No. 228, Pub. Acts 1925, § 2, also is for the protection of the occupiers of the premises, by indicating upon the record the proper party to whom payment of rent should be made. In the instant case no possible question or objection can be raised on the part of the occupiers of the premises. Por a long period of time they had been paying rent continuously to the trustee, or the agent of his predecessor, both of whom held possession with the consent of the owners of the title from the time the mortgage was given. When the owner finally claimed the right to possession, default on the part of the mortgagor had already occurred. When the default took place, the trustee was entitled to continue, under the assignment of rent clause in the mortgage, the possession voluntarily bestowed upon it prior to default. Possession by defendant was therefore proper.

Our attention is called to Detroit Properties Corp. v. Detroit Hotel Co., 258 Mich. 156. In that case no voluntary possession was given to the trustee, nor was notice served upon the receiver in possession. In Reichert v. Guaranty Trust Co. of Detroit, 261 Mich. 315, and Pines v. Equitable Trust Co., 263 Mich. 458, we held that possession was proper when given by tbe owner. In Union Guardian Trust Co. v. Commercial Realty Co., 265 Mich. 604, cited by plaintiffs, we merely held that when a receiver was improperly appointed, possession wrongfully divested from the owner would be returned to him. Had not possession voluntarily been granted to the trustee by the owner in the instant case, or had any prejudice to the rights of the occupiers of the premises been involved, it would have been necessary that the trustee file notice of default and serve it on the occupiers of the premises. Under the facts of the present case this was entirely unnecessary. Defendant having been properly vested with possession of the property, and default having occurred in the mortgage, and there being no question of prejudice to any right of. the occupiers of the premises, defendant was entitled to continue in possession under the assignment of rent clause in the mortgage, notwithstanding the objection of plaintiffs.

The decree of the lower court is reversed and one will be entered in accordance 'with the foregoing opinion. Defendant will recover costs.

Potter, C. J., and North and Wiest, JJ., concurred with Butzel, J.