15 N.W.2d 475 | Mich. | 1944
Lead Opinion
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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *286 In order to present the issues more fully in the instant case, we find it necessary to refer to some of the pertinent facts. It is, however, impossible to set forth all the details as they appear in a voluminous record and are discussed in 12 briefs. In coming to our conclusions, we have carefully reviewed all of the facts. The answers to many of the questions raised will be found in our discussion of the facts.
On August 20, 1929, suit was brought to foreclose a mortgage for $3,500,000 given January 2, 1926, to the Detroit Trust Company, as trustee, on the Tuller Hotel which was built on slightly more than *288 eight and one-half lots centrally located in the city of Detroit, Michigan. All but 60 feet fronting on West Adams avenue were owned in fee by the mortgagor. The 60 feet, consisting of two half lots, were held by the mortgagor on 99-year leases. The present lessors are the Koch and Longyear estates, each owning 30 feet of the leased property. The Tuller Hotel fronts on West Adams, Park and Bagley avenues.
At the time of the foreclosure sale, there were still $3,300,500 of bonds outstanding. A bondholders' committee was formed and the property purchased for over $3,000,000 by the trust company as trustee for the bondholders who had deposited their bonds with the committee which, in turn, issued certificates of deposit to the depositors. The bonds, so deposited, were applied toward the payment of the purchase price at the foreclosure sale. The trust company advanced $42,719.32 to pay nondepositing bondholders, and by agreement was given a prior lien for this amount. The trust company also owned in its own right a large amount of bonds, which it deposited. The bondholders' committee consisted of Fred H. Mason and Harry L. Stanton and others. Defendants Mason and Stanton, only remaining members of the committee, were made defendants in all subsequent court proceedings. Mr. Stanton is an officer of the Detroit Trust Company.
Upon purchasing the hotel property the trust company issued a declaration of trust to which the bondholders' committee duly assented. It provided that all funds advanced by the trust company were to be a prior charge on the trust estate and superior to any rights or interests of the cestuis. Many bondholders sold their certificates. The claim was made at the hearing of the instant suit that some *289 of those who acquired certificates in recent years purchased them at two cents on the dollar.
On June 16, 1939, the trust company filed a bill of complaint making the bondholders' committee and the certificate owners defendants. It alleged that there was due it for advances the sum of $384,639.86, which included the amount it had paid to nondepositing bondholders at the time of the sale. It further alleged that the property held in fee had been sold and bid in by the city of Detroit for various taxes, aggregating $132,825.91, and that there were other unpaid taxes against both the property held in fee and the leasehold in the amount of $565,953.59; that notwithstanding the fact that the hotel was managed by one of plaintiff's employees, no part of his salary had been repaid to plaintiff; that during the many years plaintiff had charge of the trust it had not received any compensation for services rendered either in the operation of the hotel or in the management of the trust; that the revenue from the hotel had been insufficient to maintain all portions thereof in usable condition, so that sections of it had to be closed at various times; that the results of the operation of the hotel during approximately 10 years had made it apparent that the tax obligations could not be discharged or any of the advances made by plaintiff repaid except by sale of the property to a purchaser who could refinance the charges against the property as well as rehabilitate it. It further stated that the trust company was in imminent danger of losing the entire sum of $384,639.86, which it had advanced, unless afforded the aid and protection of a court of equity. It therefore prayed that it be given the right and authority to sell the property subject only to making a report of any proposed sale and obtaining the approval of the court in advance *290 of the closing thereof. A decree was filed October 31, 1940, granting plaintiff the relief prayed for but reserving jurisdiction in the court.
Some time thereafter the title to the property held in fee became vested in the State of Michigan on tax sale. For a time plaintiff leased the property from the State. The only remaining asset, with the exception of the personal property of the hotel, some accounts receivable, cash and the leaseholds, consisted of the preferential right to match any bid for the property when sold at the scavenger sale. This right was the main asset of the trust estate. The right could be transferred by assignment or deed. Act No. 155, § 5a, Pub. Acts 1937, as added by Act No. 363, Pub. Acts 1941 (Comp. Laws Supp. 1943, § 3723-5a, Stat. Ann. 1943 Cum. Supp. § 7.955 [1]). The sum of $351,962.25 was required to bid in the property. Plaintiff did not care to advance such amount to an unsuccessful and impoverished trust, nor to obligate itself personally for a very large amount on a land contract to repurchase the property from the State. Without asking or securing the consent of the court, but with the approval of the bondholders' committee, the Detroit Grand Park Corporation (hereafter called the Grand Park) was formed with a capital of 50,000 shares of common stock having a par value of $1 per share. Mr. Stanton, an officer of the plaintiff, and one of the two remaining members of the bondholders' committee, became president of the Grand Park. All of the stock was issued to the bondholders' committee, but immediately pledged to plaintiff as security for the amounts due it. The full and exclusive voting rights were also assigned to plaintiff. The personal property of the hotel and the right to match the highest bid at the scavenger sale were transferred to Grand Park. A chattel mortgage on the personal *291 property was given plaintiff. Grand Park purchased the property from the State on land contract. Ten per cent. of the amount of the bid was paid to the State and the balance was made payable over a period of 10 years. On March 1, 1943, the amount had been reduced by monthly payments to $284,135.60.
Plaintiff is criticized for not having sought the consent of the court and the certificate holders before transferring the right to bid to the $50,000 corporation. Plaintiff in filing its subsequent petition did not regard the court as being divested of the subject matter, although the outward form of the corpus of the trust had changed. Fault is also found because the certificate holders had no opportunity to be heard, and that possibly some method might have been devised other than turning the property over to a $50,000 corporation. It is contended that had a successor trustee been appointed or a corporation with a much larger capital been formed, and should the hotel thereafter be operated on a profitable basis, very serious income tax problems, including possibly that of payment of a very large amount for excess profit taxes, might have been avoided. On the other hand, the attorneys for the bondholders' committee now claim that the formation of Grand Park with the consent of the bondholders' committee ousted the court of all further jurisdiction. Plaintiff did not believe it did when it filed its subsequent petition in the chancery court, nor did the bondholders' committee when it answered the petition and asked that it be granted. We agree with plaintiff that the court retained jurisdiction. Nor can we criticize the plaintiff for forming a corporation with a capital of $50,000. The past history of the hotel, its almost constant and continuing losses of large amounts, *292 the considerable amount of money, time and effort plaintiff expended without any repayment, and the large prior liens against the property indicated beyond any question that there was some doubt whether any equity would be saved for the certificate holders, or whether plaintiff could recover the amounts it had advanced. With the large amount of fees and taxes that a corporation with a large capital would have had to pay on its organization and subsequent operation, plaintiff might have been subjected to criticism had the capital been larger, even though the original investment of the bondholders would have justified a larger capitalization.
On April 1, 1943, the Detroit Trust Company filed a petition for approval and authorization for the reorganization and disposition of Tuller Hotel property. It set forth the former court proceedings and the final decree of the court, and alleged that all the holders of certificates of deposit were and still are parties defendant in the case, and that the court had reserved jurisdiction to approve any sale or disposition of the property. It recited the assignment of the bidding right to Grand Park and stated that the hopeless insolvency of the trust prevented plaintiff from assuming any liability to the State on the land contracts for the purchase price of the property at the scavenger sale. It further stated that the Koch and Longyear leaseholds were being maintained on a rental basis of $14,000 a year plus taxes on these parcels; that the claims against the property consisted of a balance due the State of Michigan on land contracts as of March 1, 1943, amounting to $284,135.60, and the sums due the Detroit Trust Company for advances to the trust aggregating $384,639.86; that the Koch and Longyear estates' rentals, accruing under leaseholds over a period of years and in dispute, were the sum of *293 $94,909.39; and that also the sum of $9,000 was due the bondholders' committee, their counsel and the Chicago depositary. This made a total of $798,945.24. The petitioner further stated that during the past 10 years of its operation all revenues which might have been available for paying debts had been used for rehabilitation of the property; that in addition to not receiving any compensation for its services or responsibility incurred, it had not received any payment on account nor had interest been charged on the amounts advanced by it.
It further stated that all efforts to obtain new funds had been futile, that the trust company had been willing to subordinate its claims to any new loan and extend the time for payment for the period of the loan, that there was no possibility of creating an equity value for bondholders unless the enumerated claims were paid and new funds obtained for the purpose of rehabilitating the property. It further stated that the continued operation of the hotel under conditions that had previously prevailed and without refinancing to the extent necessary for payment of obligations and necessary for rehabilitation of the property would result only in the sale for the best price available which would be a sum substantially less than the total obligations. Petition was filed on April 1, 1943, when the hotel evidently was no longer losing money, probably due to war conditions, for at the end of the following month the financial statement indicated a profit of $130,245.38 from which it seems to be conceded that a 40 per cent. tax would have to be deducted. The petition further stated that until recently no one had offered to venture an investment of any amount in the property. The Jefferson Standard Life Insurance Company of North Carolina, hereinafter called Jefferson Standard, proposed to invest in the *294 hotel on the condition that the paramount claims against the property could be eliminated. The proposal had been developed so as to create a potential equity for the former bondholders. Plaintiff, on condition that the plan be approved, offered to accept $108,000 for its advances amounting to $384,639.86 and for its expenses, and to further waive interest and other compensation for services, and further to cancel certificates of the face value of $186,700 representing what it owned in its individual corporate capacity. The plan proposed by Jefferson Standard for the disposition and reorganization of the property was to furnish Grand Park with the sum of $500,000, $470,000 of which the Jefferson Standard would loan on a first mortgage payable in 15 years with 6 per cent. interest, small amounts to be payable on principal semiannually. The $30,000 additional would be paid into the corporation by Jefferson Standard in return for 60 per cent. of Grand Park's outstanding capital stock of $50,000, thus leaving 20,000 shares of the par value of $1 each for the certificate owners. Figuring the stock as worth par, this would be a return of approximately 65 cents for every $100 originally invested by the bondholders.
From the $500,000 thus realized, plaintiff would receive the sum of $108,000, and the State of Michigan would be paid the balance due it on the contracts arising out of the scavenger sale. The petition also stated that the Koch and Longyear estates would release their claims of approximately $94,909.39 in consideration of new leases being entered into for the term of 18 years at a rental of $18,000 per year plus an additional 12 years at a rental of $16,000 per year. There also would be sufficient left to pay the past-due taxes on the leasehold properties, as well as the sum of $9,000 to members *295 of the bondholders' committee, its attorneys and depositaries. It was further proposed to reorganize the Detroit Grand Park Corporation so as to provide for five directors, two of whom would represent the certificate holders, and also increase the number of shares of common stock to be issued on a 60-40 per cent. basis, so that after the cancellation of the certificates held by plaintiff, 31,138 shares would belong to certificate holders and 46,707 shares to the Jefferson Standard.
Plaintiff, as petitioner, further stated that it did not make any representations as to what had been accomplished or would be accomplished by the proposed plan, but it offered to accept $108,000 in full for the various items hereinbefore set forth in the firm belief that the total sums due it could not be obtained by sale of the property or otherwise and such reductions in the plan proposed afforded the only possible means of creating some equity or potential equity for certificate holders which would have a material value. Plaintiff stated that the plan proposed would leave the property encumbered only by the mortgage of $470,000. It stated that the continued operation of the hotel property under the present financial arrangement was bound to result in a sale of the property for a sum substantially less than the total obligations. Petitioner further alleged it had been unable to obtain or develop any other plan which afforded the certificate holders the opportunity of salvaging anything. The offer of plaintiff to reduce or waive part of its claim was conditioned upon the approval and consummation of the plan which petitioner recommended as being fair and reasonable in view of the circumstances and for the "best interest" of the certificate holders and other parties in interest. Petitioner therefore prayed that the court, in the exercise of the power *296 reserved in the former decree to modify and change the same or to make other or further decree, authorize the carrying out of the plan thus set forth in all "the particulars or as to this court shall seem expedient and for the best interests of all concerned." Order to show cause was issued.
One group of certificate holders opposed the granting of the petition; another certificate holder proposed a different plan. Messrs. Mason and Stanton, the remaining members of the bondholders' committee, filed an answer in which they did not claim the court was without power. They expressly stated that they had participated in the formation of the plan and that it offered the holders of certificates of deposit of bonds "the greatest possible interest in a solvent corporation that is obtainable." They further stated that unless they obtained such shares of stock in such a solvent corporation their interests, and consequently, the interests of holders of certificates of deposit, "are worthless."
The court after a hearing and the arguments of counsel filed a supplemental decree granting the petition to carry out the Jefferson Standard plan. Very shortly thereafter appellant Skaff, holding a large amount of certificates of deposit, which it is claimed he purchased at two cents on the dollar, filed a motion to set aside the supplemental decree and suggested that efforts be made to secure a mortgage from the R.F.C. Mortgage Corporation on a new application so as possibly to create a greater equity for the certificate holders. At the hearing of the motion, there was considerable difference of opinion as to whether such a loan could be obtained. The court thereupon appointed Henry Meyers, an attorney, as friend of the court to investigate the possibility of obtaining such a loan and to report his findings to the court. The order appointing the friend stated that the court was desirous of obtaining *297 the best possible solution and was particularly anxious about the interest of certificate holders, and that the court should have a report from an officer of the court. The court ordered all persons before it to cooperate with the friend of the court and furnish him all information necessary in connection with the presentation. Three days later, an order was entered extending the powers of the friend of the court and instructing him to solicit proposals in writing from all parties for the reorganization or sale of the property in a manner that would be more beneficial to the bondholders than the one theretofore approved, and that such offers be submitted to the court by the friend with his recommendations. The record shows no objections whatsoever were made to the order appointing a friend of the court, or his active participation thereafter in accordance with the order of the court. He notified parties whom he thought might be interested and as a result a number of other proposals were received, all predicated, however, upon plaintiff accepting the $108,000 as indicated in its proposal, in consideration of an absolute release of all claims and the cancellation of certificates of deposit. Proposals were solicited by the friend of the court and sealed bids were opened at a specified time. All of the proposals were submitted to the court with the recommendation of the friend of the court. We shall discuss the various proposals to the extent we believe necessary in connection with the appeals of the proponents of such offers.
The proposal of one Louis Schostak was deemed the best by the court and an order was made directing its consummation by plaintiff and the necessary defendants.
Early in the proceedings the Jefferson Standard made a new proposal and offered to give the certificate holders the option of taking either their pro *298 rata share of 40 per cent. of the stock of the Grand Park or the sum of $7 for each $100 face value of bonds deposited and represented by the certificates. Jefferson Standard further amended its original plan by offering a mortgage loan of $500,000 at 5 per cent. interest at maturity with serial payments to be made as in their first plan. They later offered to pay $300,000 for the entire 50,000 shares of Grand Park stock. After deducting $9,000 miscellaneous fees, there would remain for the 31,138 shares held by certificate holders who would share in the proceeds (the trust company's share being eliminated) about $9 per share. In addition the certificate holders were given the option to purchase one share of stock for every $100 of the face amount of their certificate at $6 per share. The attorney for the Detroit Trust Company stated that it would accept $108,000 if this latter plan were approved.
The final offer of Louis H. Schostak was to acquire all of the stock of Grand Park by purchasing the 31,138 shares outstanding at a price of $12.30 per share conditioned solely upon the acceptance of an additional $108,000 by the Detroit Trust Company in return for a waiver of all of its claims, including the cancellation of the $186,700 of certificates owned in its individual corporate capacity. This would enable Schostak to become the owner of the entire outstanding capital stock of Grand Park on purchasing the 31,138 shares. It seems to be conceded that this would net each certificate holder approximately $12 per share for every $100 of bonds represented by the certificate. A holder of $13,000 certificates of deposit, represented also by the attorney for Schostak, filed a separate petition asking for the approval of the Schostak offer. An order making Grand Park a defendant was entered. The court considered the various proposals, approved the *299 Schostak proposal and ordered the closing of the trust and disposal of the property and the corpus therewith. The Detroit Trust Company was ordered to accept $108,000 in accordance with its proposal and to perform the other details necessary to make the transfer effective.
On October 26, 1943, the day after the court orally stated that it approved the Schostak offer, plaintiff filed a withdrawal of its commitment to accept $108,000.
An important factor in the Schostak proposal is the fact that it was made on the understanding that Schostak and those whom he represented would be obliged to take their chances in making proper adjustment with the lessors of the two 99-year leases and the settlement of all claims thereunder. Unless some agreement already exists or can be reached, it might become necessary to divide the building and close off that part of the hotel on the leased lots, which part contains the elevators and other necessary apparatus of the hotel. If the building on the leasehold property is separated or is torn down and used as a parking lot, it is claimed the leasehold properties would not bring nearly as large an income as is provided for under the revised leases as contained in the original petition of plaintiff. There is some claim on the part of Schostak's attorney that the holders of the 99-year leasehold are legally bound to accept the new leases as set forth in plaintiff's petition. It is further claimed that the lessors, if they have not already bound themselves by agreement, might be influenced by other factors including the responsibility of the parties with whom they dealt.
Schostak, as appellee, claims that the Detroit Trust Company in its individual capacity is solely a creditor and when it disposes of its claim, its responsibility *300 entirely ceases. Schostak attaches to his brief an agreement between the trust company, Grand Park and the lessors by which it is claimed that any liability as might have existed has become solely that of the Grand Park Corporation. This new agreement is not part of the record and attorneys for plaintiff asked that it not be considered notwithstanding an affidavit of the attorney for Schostak claiming that it was omitted from the record because of a misunderstanding between counsel. It is not part of the record. No motion was made to amend the record and it will not be considered but without prejudice to any rights that any purchaser or his assignee might be able to enforce as owner of all of the stock of Grand Park and to any additional rights the purchaser or his assignee might have upon being subrogated to plaintiff's rights upon payment of the $108,000. On the other hand, inasmuch as this case is being heard de novo, the decree should be modified so as to provide that the purchaser and his assignees shall indemnify and save harmless the Detroit Trust Company against all claims that might be made against it by the lessors under the 99-year leases if such claims exist. Neither the Koch nor Longyear estates are parties defendant in the instant proceeding. The decree cannot bind them or take away any rights they or the purchaser or his assignee may have. The original and amended propositions of the Jefferson Standard set forth the fact that satisfactory arrangements had been made with the lessors of the 99-year leases. The trust company on disposing of its claims should be protected against any possible claim or liability because of the leases. On the other hand, the purchaser and his assignee shall be given notice of any claim and shall have full rights to direct the defense against these claims. *301
It appears from the record that one Charles W. Morris makes some claim, indefinite in character and amount, for services in connection with the Jefferson Standard proposal. He was drawing the sum of $600 a month for services from the Detroit Grand Park Corporation for a number of years. It developed during the hearing, for the first time, that the Jefferson Standard, if its proposal was accepted, had agreed to transfer to Morris 9 per cent. of the capital stock of the Grand Park Corporation. Morris testified that he had a claim of some kind but made no formal presentation of it and from the testimony he failed to establish it. As he was not a party to the proceedings, any decree would not be res judicata as to such claim. It is, however, very significant that when the plaintiff filed its original petition for approval and authorization for the reorganization and disposition of the Tuller Hotel property, it set forth existing claims and made no mention whatsoever of any amounts due Morris, thus indicating that if Morris has any claim, it is against the Grand Park.
In the final decree the court reviewed the various propositions and declared that it had jurisdiction of the parties and subject matter at the time the Detroit Trust Company agreed to accept $108,000, that such proposal was subject to the approval of the court and that the proposal was made for the benefit of the certificate holders so that they might realize something on their certificates. The court further found that the Detroit Trust Company had agreed to accept $108,000 in accordance with the Jefferson Standard proposal, which would provide $9 a share to the holders of certificates, that the Schostak plan would enable the certificate owners to realize substantially more than $9, and that Schostak through his attorney in open court offered to complete the *302 proposed arrangements with the Koch and Longyear estates. It further stated that the trust company having come into court praying for relief, may, in turn, be required to do equity in the premises; that it recognized its obligation to the holders of the certificates of deposit when it filed its first petition for the acceptance of the so-called Jefferson Standard plan, and in which it agreed to accept less than the full amount due it, waived all sums in excess thereof and continued to do so in the various revisions of the plan, thus creating an equity for certificate holders. The court, on the petition of a bondholder, ordered that the Schostak plan, to pay $382,997.40 for 50,000 shares of stock of the Detroit Grand Park Corporation, and the further sum of $108,000 to the Detroit Trust Company for its claims, be accepted as the most advantageous to certificate holders, and that upon making these payments Schostak be subrogated to all the claims of the Detroit Trust Company for advances, et cetera. The order made further provision for the payment of fees of the attorneys for the bondholders' committee and the sum of $2,000 for Mr. Mason, a member of the bondholders' committee, Mr. Stanton, the other member of the committee, having made no claim for compensation. It also made provision for payment of the Chicago depository. It further provided that if the Schostak proposal was not completed and consummated, the Detroit Trust Company be ordered to accept $108,000 out of the corporate funds for payment of its advances, fees for counsel, services, et cetera, and for certificates for bonds amounting to $186,700, which certificates should then be cancelled. It further provided that the fees of Henry Meyers, friend of the court, be determined after hearing and the same be paid from the moneys deposited with the clerk of the *303 court as a charge for the services rendered. It further provided that the friend of the court be appointed and directed to represent the bondholders' committee if an appeal should be prosecuted, but not exclusive of other legal representatives, and that the friend of the court should mail a letter to all certificate holders setting forth the history of the proceedings. The court reserved jurisdiction to make such further findings and further orders as might be necessary.
The Detroit Trust Company on appeal states that the main question is whether it, as a creditor of a trust of which it is also trustee, can be compelled by court order to accept $108,000 in full payment of the sum of $384,639.86 due under prior decree of the court and compensation for services for 12 years and for the cancellation of $186,700 of bonds, all without its consent or agreement to do so and against its objection and protest and without any legal or moral consideration for so doing.
The record shows that the hotel was run at a tremendous loss for many years. The friend of the court stated in the oral argument that he had no criticism to make in regard to the trust company's management. The testimony indicated that the hotel was now being run at a large profit, probably due to war conditions, but it is highly speculative as to whether or not this profit will continue after the war. It is shown that the profit at the present time amounts to possibly $150,000 a year or thereabouts, less, of course, income taxes which are estimated at 40 per cent. However, it is pointed out by the attorney for Schostak that no provision whatsoever is being made for excess profit taxes. The trust company is criticized for incorporation for only $50,000. It is plain that the low capitalization of the Grand Park Corporation might possibly make *304 the company liable for very large excess profit taxes which would leave a net profit of a comparatively small amount. The record does not show that the trust company took the question of excess profits into consideration. The income of the corporation was increasing, particularly during a period prior to the time when plaintiff continued to express its willingness to accept $108,000, if the amended Jefferson Standard plan was adopted. It is difficult to conceive that the Detroit Trust Company filed its petition with any donative intent. It stated very frankly that it was satisfied to accept $108,000 so as to create a potential equity for the bondholders, the value of which the attorney for the bondholders admitted was very problematical. Even if there was a gift, and we do not find that there was one, it was solely for the benefit of the bondholders for whom the trust company still was the trustee. The trust company distinctly asked for the approval of its petition or any modification the court might see fit to make. The trust company owed a duty to the bondholders; it stood in a fiduciary relationship; it came into a court of equity for the purpose of bringing the trust to an end and disposing of the property. The court made no modification of the trust company's proposal in regard to its individual claim. It modified it as to certificate holders in conformance with the prayer of the bill.
It is not for us to say whether or not it was good business for the trust company to accept $108,000. The money had been lost in an unsuccessful venture. A vice president of the trust company testified that he wanted the original Jefferson Standard plan consummated; that there was no other plan that he believed was as good and which would be possible to consummate; that he did not want to run the risk of losing the one he had; that he would not refuse to *305 reduce the indebtedness down to $108,000 for other plans just because these would not be the trust company's plan; that, if the Jefferson Standard plan went through, the trust company would get $108,000 and would have no further interest in the project; that he did not want to propose a plan that in his opinion would not be a feasible one, a workable one, a fair one which in some way made provision for the bondholders; and that he was trying to work out the trust company's problem and also to help the bondholders. He did state that he objected to the other plan because he wanted a plan to go through that would be feasible and would put the enterprise in a sound position where it would have an opportunity to advance in a good sound financial condition and be able to weather the storms of the future. He claimed that only the Jefferson Standard plan accomplished this. He also stated that he thought the trust company could get $108,000 for its claim very quickly if it wanted to put no other conditions on it. He stated, however, that the trust company had two interests: a monetary interest of its own and a desire to do something for the bondholders. As appellant, however, the trust company claims that its action also constituted a gift to a third party, and that it had a legal right to make such gifts to such persons as it saw fit and it was under no legal obligation, nor could it be compelled, to make a gift to any one other than persons whom the donee or donees had selected. From a careful reading of the record and considering the staggering loss that had theretofore been incurred in the operation of the hotel, and considering also its present prosperity and future prospects, much depending upon income taxes and possible excess profit taxes, the question immediately arises whether plaintiff after its long and unfortunate past experience with the property *306 was not willing to accept a loss, get back $108,000 and reinvest it in a gainful manner. Unfortunately, plaintiff was in a somewhat dual position. As a creditor, it had its own corporate interest to protect, and at the same time, it acted as trustee for the bondholders. One of its officers was chairman of the bondholders' committee and the president of the Grand Park, and one of its employees was secretary to the Grand Park. Plaintiff had an absolute right to protect its investment, but it had also accepted a trust on becoming trustee of the bondholders. Even had there been a gift, and we find none, it would have been to the bondholders to whom the trust company owed a duty. It was a liquidating trustee for their benefit and was bound by law to carry out its duties toward them with great fidelity and administer the trust solely in the interest of the beneficiaries. 1 Restatement of Trusts, § 170. It was under a duty to the beneficiaries in administering a trust not to be guided by the interests of any third person, and it would be improper for the trustee to sell trust property to a third person for the purpose of benefiting this party instead of the estate. 1 Restatement of Trusts, § 187, p. 482. Plaintiff came into court stating that it had been unable to develop any other plan which afforded the certificate holders the opportunity to salvage anything; that the plan proposed was for the best interests of the certificate holders; that its offer to accept $108,000 was made with the firm belief that the total sums due it could not be obtained by sale of the property, or otherwise, and the reductions of the plan afforded the only possible means of creating some equity or potential equity for certificate holders which would have material value.
Plaintiff came into a court of equity with a sworn petition making the proposal. It called attention to *307
the decree wherein the court had reserved the power to make modifications or changes, and asked for the court's approval and authority to carry out the plan as set forth in all particulars "or as to this court shall seem expedient and for the best interests of all concerned." The proposal was in writing signed by the trust company. The language must be most strictly construed against the person responsible for it. Fort PittMalleable Iron Co. v. Detroit Steel Products Co.,
"SECTION 1. An agreement hereafter made to change or modify, or to discharge in whole or in part, any contract, obligation, or lease, or any mortgage or other security interest in personal or real property, shall not be invalid because of the absence of consideration: Provided, That the agreement changing, modifying, or discharging such contract, obligation, lease, mortgage or security interest shall not be valid or binding unless it shall be in writing and signed by the party against whom it is sought to enforce the change, modification, or discharge."
Commitment having been made in the judicial proceeding, it is not subject to arbitrary withdrawal after the court had stated that it would accept it, as modified. We quote from a case where the facts are not even analogous, but wherein the correct principle is stated as follows:
"Obviously an offeror cannot play fast and loose in a case where judicial approval is required. If an offeror duly submits an offer for approval to a court, where such judicial approval is required, it would seem that such offer might not be withdrawn *308
pending approval proceedings, provided the latter were not unduly protracted." Evans v. 2168 Broadway Corp.,
The trial court held that plaintiff had come into a court of equity and was bound to do equity. Plaintiff was correct in stating that the obligation to do equity does not extend to its foregoing a legal claim. Ordinarily a court could not make a mortgagee in a foreclosure suit waive part of its mortgage, but we have a different situation here. The trust company of its own volition presented a petition to the court agreeing to accept $108,000 in full for its interests. It frankly stated that on account of untoward conditions presented, it proposed to accept such amount in fall settlement of its interests and thereby salvage something which appeared to be of doubtful value for the certificate holders. It asked the court's approval of the plan or any modifications the court might see fit to make. The court did not ask the trust company to take less than it had proposed. It, however, ordered the company to accept the amount it had offered to take but under a modified order that would net the certificate holders approximately $12 instead of only 65 cents for each $100 in bonds represented by the certificates. Having thus submitted itself to a court of equity, it was bound to do what the court should find equitable under the circumstances. With its equitable powers the court had the right and duty to look after the interest of the certificate holders and to that extent it was doing the very thing plaintiff indirectly had requested in its petition. The plaintiff did not withdraw its offer when the Jefferson Standard changed its plan and proposed to pay $9 per $100 to certificate holders coupled with the right to buy one share of stock for each bond represented by the certificate *309 at $6 a share. In its original petition the plaintiff reserved for the court the right to modify its proposal as the court shall deem expedient and for the best interests of all concerned. The court found that it was to the best interests of all concerned to accept the Schostak plan which would give plaintiff the sum requested and return a larger amount to the bondholders than any other plan had offered.
Plaintiff on appeal further contends that the court had no right to appoint a friend of the court to attempt to obtain a loan from the R.F.C. Mortgage Corporation or, later, to solicit bids higher than the Jefferson Standard proposal in order to obtain more for the bondholders. A peculiar situation had arisen. The Jefferson Standard plan was the result of negotiations in which plaintiff, the bondholders' committee and Mr. Morris, employed by the Grand Park Corporation, had participated. Plaintiff urged the acceptance of the plan. The attorney for the bondholders' committee not only urged it but insisted upon it to the exclusion of any other possible plan. From the testimony offered, it was shown that a better plan was available which would give plaintiff the $108,000 it asked for and net more for the certificate holders. A very unfortunate colloquy took place wherein the attorney for the bondholders' committee plainly showed that he was interested only in the Jefferson Standard plan. The judge could not solicit other plans. He felt that, in fairness to the certificate holders, efforts should be made along this line and thereupon appointed Mr. Meyers friend of the court, not to make any decision for the court but to obtain other plans and make recommendations, the court reserving to itself the exclusive right to make the final determination. There is authority for the appointment and payment of a friend of the *310
court who aids in the performance of certain labors and examinations. See 3 C.J.S. p. 1048; 2 Am. Jur. p. 679; In re St.Louis Institute of Christian Science,
Some of the appellants claim that the final order of the trial court does not properly incorporate the proposal or offer submitted by Schostak. There might be some merit to this contention had not the question been settled in the discussion that took place in open court. This discussion left no doubt that Schostak proposed to pay $12.30 for each $100 unit represented by a certificate and based upon the total of 31,138 units remaining outstanding after those held by the trust company were excluded. On the payment of such amount, and $108,000 to the trust company, Schostak would become the beneficial owner of all of the capital stock held by the bondholders' committee and pledged to the trust company. The colloquy that took place removed all ambiguity. The court made the proper order.
Some of the appellants contend that the court could not make the order in view of the opposition of the holders of the certificates representing a large number but a minority of the deposited bonds. The holders of certificates representing a majority of such deposited bonds took no active interest in the proceedings. The certificate holders are bound by the deposit agreement and the original and the final *311 decrees of the court, each providing for the disposition of the property by the court.
We shall not discuss the comparative merits of other offers or plans presented by some of the appellants. We agree with the court that Schostak made the best offer and that under it certificate holders would presently receive a larger amount than under any other plan proposed. Over 14 years had elapsed since the bondholders, or their successors, the certificate holders, had realized anything whatsoever from the trust. It is true that the hotel is now showing a large profit, but it is speculative whether such condition will continue after the termination of the war. The foreclosure sale took place in 1932 after litigation that preceded it. The trust company wanted the trust wound up. The court had jurisdiction and properly exercised it.
Some of the appellants claim that because Grand Park is making an estimated profit of $150,000 a year (before Federal taxes) and because it has a large amount of cash on hand, the trust company in conformance with its petition should be paid $108,000 and the other fees should be liquidated in a similar manner by Grand Park. The stock thus freed from the trust company's claim should then be distributed to the certificate holders. This plan assumes that the owners of the leaseholds have made or are bound to make the same concessions. If they refuse, the amount of cash on hand would be seriously depleted. Under the Schostak plan, the purchaser must take his chances on the concessions being made, if they have not been made theretofore. If Grand Park must pay an excess profit tax, it will retain but a small proportion of its profits. It still remains highly speculative whether the hotel can be run at a profit after the war. The Schostak plan will net bondholders almost $12 for each $100 unit. We believe *312 the trial judge was correct in ruling it was the best plan for bringing the trust to a close.
The trust company contends that it owes a duty to all creditors including the owners of the leased property. The decree does not relieve the Grand Park from any liability under the leases. If the trust company has any liability in its individual capacity, Schostak and his assignees must assume it, subject to their right to show that the trust company is not liable in its individual capacity. No part of any amount paid or to be paid because of such liability whether on the part of the Grand Park or the trust company can be deducted or paid out of the $12.30 per unit to be deposited by the purchaser. The decree can in no way affect the leases. The purchaser and his assignees by becoming owners of the capital stock of the Grand Park do not release the corporation from its liabilities.
We have endeavored to discuss such of the questions raised as have any merit. The length of this opinion precludes us from discussing any others.
The decree of the trial court is affirmed, subject to the slight modification in regard to the assumption by Schostak and his assignee of any individual liability the trust company may have to the owners of the leasehold properties or their representatives. The trial court properly has retained jurisdiction and the decree entered in this court will so provide so that any further questions that may arise including the mechanics of carrying out the decree may be determined by the trial court. Appellees will recover costs.
NORTH, C.J., and STARR, BUSHNELL, SHARPE, BOYLES, and REID, JJ., concurred with BUTZEL, J.
Dissenting Opinion
The decree should be modified by elimination of the compensation *313 awarded the so-called friend of the court. The court had no power, sua sponte, to appoint an amicus curiae to actively participate in activities of the parties litigant.