Court Opinion

ID: 3492635
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:00:51.321422+00
Date Added: 2024-06-11T15:47:01.569806
License: Public Domain

I am in full accord with the opinion and decree of the lower court, denying any relief to defendant Commercial National Company. The record shows that this defendant is in the business of making and selling second mortgages, for which it makes a large charge. It also, in this instance, secured for one of its allied companies a profitable contract for the renting and managing of the property in question. By making the entire mortgage bond issue become due in one year, the defendant avoided the necessity of securing the approval of the securities commission and having the interests of the public safeguarded thereby. However, in its mortgage it was very careful to provide that any renewal mortgage should retain priority over all liens subsequent to the date of the indenture in question. The mortgage ran to the defendant as trustee. The sales agreement was made with defendant which is asserting the claim. The mortgage was made by Lipsitz as mortgagor, and an additional agreement was entered into with Rosenthal in which he agreed to be bound by the terms of the mortgage in the event that Lipsitz did not obtain title. The sales agreement provided that in the event there was any difficulty over the title between Lipsitz and Rosenthal, the moneys were to be deposited with the Union Trust Company and disbursed by it in accordance with the agreements. The moneys were to be used for the completion of the building. Although defendant knew that the title was not vested in Lipsitz, the mortgagor, nevertheless it published a very alluring circular, with the legend "$75,000 Serial Gold Mortgage Notes," printed thereon in large letters. The circular described Lipsitz as the owner and mortgagor, and stated that defendant held title insurance issued *Page 205 
by the Union Title  Guaranty Company for the full amount of the mortgage, and that the insurance policy was on file at defendant's office. This was obviously untrue. It further edited and printed in its circular a confusing statement signed by Lipsitz in which he "estimated" that he and his wife have holdings, including the property in question, of $1,500,000, and that their net equities amount to $750,000; that they own a large number of Detroit apartment buildings. Defendant knew that Lipsitz did not have title to the property in question, and that there was difficulty in regard to it. Furthermore, it would not have required an exhaustive search to ascertain how little, if anything, Lipsitz owned. On the strength of this circular defendant proceeded to sell the bonds to the public. Thirty-two thousand and fifty dollars' worth of bonds were thus sold. The moneys realized therefrom were not deposited with the trust company as specified in the agreement, defendant claiming that waivers of liens were not secured. The record is not clear as to whether such waivers were a prerequisite to the depositing of the money with the trust company, or whether the moneys were to be paid out by the trust company upon waivers being presented. In any event, the moneys were a trust fund. Defendant, without any authority whatsoever, proceeded to invest this trust fund in other securities sold or dealt in by it. While it might have been advantageous for defendant, had it the legal right, thus to save interest and also make a profit on the sale of other securities, the record fails to show such right on its part to divert the moneys of bondholders, or to which plaintiffs might have become entitled. The defendant did not have the amount of the proceeds from the sale of the bonds on hand. It claims it *Page 206 
could have borrowed this amount from the bank if Lipsitz had become entitled to it. This does not excuse its conduct.
Defendant presented a claim for $8,569.23, on which it credited the sum of $995.99, the amount that had been paid to it by the allied company from the rents of the property. Counsel in the case consented that defendant be permitted to keep this amount, and the lower court therefore approved of it. We believe, however, that defendant is not entitled to the balance of its claim. In its statement presented to the court it not only charged for loss of profits, but also a large amount for such proportion of its general business overhead expenses as it allocated to these particular bonds. It further gave no credit whatsoever for the interest it received on the moneys through the reinvesting of the proceeds in other securities, nor for the profit it made in purchasing such other securities from itself with the money of the bondholders. Although not a single dollar was paid to the plaintiffs, or anyone else in their behalf, defendant as sales agent now claims profits and expenses. The defendant, as trustee, lost no principal or interest in the transaction, and as dealer, it received back all of its actual cash outlay, except part of the moneys paid for insurance in order to insure the property to the extent of the amount of its second mortgage. Had the policies been surrendered there would have been no loss for cash expenses whatsoever.
The lower court found the conduct of the defendant to be such as not to entitle it to equitable relief. I do not believe the decree in that regard should be disturbed. For this reason the decree of the lower court should be affirmed, with costs.
NORTH and FEAD, JJ., concurred with BUTZEL, J. McDONALD, J., did not sit. *Page 207