Union Trust Co. v. Preston National Bank , 144 Mich. 106 ( 1906 )

Ostrander, J.

{after stating the facts). 1. It is asserted as reason for denying payment of interest to the Detroit United Railway that provision for prompt reimbursement had been made by the deposit of the 250 bonds with the Union Trust Company, and that the account for expenditures was not, in any event, interest bearing. I quote from the brief:

“If the Detroit United Railway was not reimbursed promptly, why should the damages, that is, the interest upon its expenditures, be paid out of the fund derived from the sale of the bonds, that is, by the assignees of the bonds, who were in no way at fault ? Certainly the damages (interest) should be paid by the party at fault.”

And again:

“There is another sufficient reason why it should not be allowed interest. * * * The rule is firmly estáblished that interest can never be allowed on an unsettled or an unliquidated account without an agreement, express or clearly implied, and it is not allowable as damages if there has been no final understanding as to how much is to be paid.”

The contract obligation of the vendors of the railway properties was to complete the specified work; failing in which, the vondeé was empowered to proceed with said work, “ charge the same to said vendor and guarantors, and shall be entitled to take from the hands of the trustee sufficient bonds to fully cover the cost of such completion.-” The allowance of interest in the decree is supported by the contract, explained by the situation with reference to which it was made. The properties purchased by the Detroit United Railway were sold at the price of completed properties and the purchase price was paid. The obligation to complete the properties rested primarily upon the vendor and guarantors. It was their possible default, in whole or in part, against which the deposit of bonds protected the purchaser. The immediate and the anticipated result of the sellers’ default was the advancement by the purchaser of funds necessary to complete the properties. Whether the money was used to pay for work and labor or for materials, it was for the use and benefit of an advancement of money to the sellers, was due and payable immediately, and carried interest from the date of each advancement. That the account for these advancements was unliquidated in the sense that they were required to be proved or admitted, is true. They were none the less, each of them, advancements of money to the persons who provided the indemnity and as proved, or admitted, were debts due when made. Reid v. Rensselaer Glass Factory, 3 Cow. (N. Y.) 393; Rensselaer Glass Factory v. Reid, 5 Cow. (N. Y.) 587. The Detroit United Railway could be indemnified only by immediate repayment of moneys expended. It must be considered, in view of all the circumstances, that the contract words “ to fully cover the cost of such completion ” mean interest as well as advancements. Woerz v. Schumacher, 161 N. Y. 530, 37 App. Div. 374. If it could be said that each advancement which was made operated as an immediate transfer of an equal interest in the bonds, it would also be noticed that the bonds bore interest at the rate allowed by the court.

The letter written by the receiver to the president of the Detroit United Railway indicates an understanding that it was intended that payment should be made in bonds, and that interest at the rate provided in the bonds would be equivalent to payment in bonds. It "cannot be said ■that the effect of the correspondence was a waiver by the Detroit United Railway of its right to be paid interest or ■the equivalent thereof, or an undertaking on the part of the receiver to pay interest. The bonds were sold, by «consent of all interested parties, and presumably for the benefit of appellants, at an agreed price plus accrued interest. Changing the deposit from bonds to money interfered in no manner with the relations of the railway company to the fund provided for its indemnity. Unless done by consent of interested parties or pursuant to an order of court, this fund could not be disbursed by the Union Trust Company except at its peril. It is said in the brief for appellants that, “if it had allowed expenditures not properly chargeable against the bonds, the vendor and guarantors, and later the appellants, could have compelled it to account therefor.” It was on April 19, 1902, that ■the Detroit United Railway took upon itself the completion of the properties, and it appears by its answer in this cause that at the time the bill of complaint was filed it was still proceeding with that work. Appellants complain that it did not earlier apply to be reimbursed, saving thus the interest charge to the indemnity fund. The right of appellants to complain is based upon their succession to the fund subject to the indemnity to be paid, and it is assumed in the complaint made that the Detroit United Railway is alone at fault. Since the bill of complaint was filed, all of the parties in interest have been in court with full knowledge of what was claimed by other parties, the condition and the custody of the fund. An examination of the record discloses no good reason for saying that one party rather than another should be held responsible for unnecessary delays if any occurred. The decree, with respect to the allowance of interest to the Detroit United Railway, is affirmed, with costs against the appellants.

2. If the trust company had applied the proceeds of safes of collateral as received, to payment of the principal and interest of the note according to the terms of the note, the balance in its hands would have been $2,621.33 instead of $1,304.76, as reported. It is said that it did in fact so credit receipts, but that a part of its claim against Andrews was an item'of $1,250, a commission charged him for the renewal of a note of $100,000, February 5, 1902, and "charged to the account of collateral on March 18,1902. Deducting this item leaves a balance of $1,371.33, which is $66.57 more than the amount reported. The evidence is that on or about February 5,' 1902, Mr. Andrews directed the charge for the commission to be made, and that a letter and statement of account were sent to him. The account so presented was:

“February 5, 1902.

“ Frank C. Andrews

“ To Union Trust Company, Dr.

“ For interest on $100,000 note to date Feb. 5,1902, December 5 to February 5, 44$............................ $764 40’

‘ ‘ For commission as agreed for 4 mos. extension of $100,000 note............................................... 1,250 00

“Total-...........-........................$2,014 40”

The accompanying letter read as follows:

“ Dear Sir: In accordance with your instructions, we have prepared and hand to you herewith a bill of the interest on the installment of your note which became due today, and for the commission of this company for the renewal thereof, the total amount being $2,014.40. We would be greatly appreciative of your check in payment thereof.”

No reply was received. The matter was carried along until March 18th, at which time it was charged up to the account of Mr. Andrews and paid out of the proceeds of the collateral. At that time no bonds had been sold, but the proceeds of sale of the stock of the Detroit Journal Company were received on March 18, 1902. The record leaves it uncertain whether the $100,000 referred to is a part or installment of the $400,000 lent December 5, 1901. By counsel for appellants the fact is assumed, and by counsel for complainant such assumption is declared to be wholly unsupported by evidence. The fact may be immaterial. It does appear that the $400,000 loan was evidenced by a uote which drew 4£ per cent, interest, but when it became due is not shown. It is not seriously claimed by complainant that the commission charged, treated as exacted for the use of money lent, and added to the interest contracted to be paid, did not amount to the taking of usurious interest upon the $100,000 note. The question debated is whether, the debtor having waived the right to do so, appellants may object. That appellants are neither parties or privies to the contract to pay the loan or the interest thereon is clear. They are, however, privies to the arrangement by which the collateral was deposited as security, and as, admittedly, their beneficial interest is ■diminished by the amount of the commission charged by complainant, and as the exaction was an illegal one, they claim the right to require that the usurious charge be written off by complainant and the fund to be distributed be that much increased.

It is contended, further, that the agreement to pay the commission is separate and distinct from the agreement fo pay the loan and the interest reserved in the note, and ■that the collateral was held as security for repayment of the loan only. On the part of complainant, it is Urged that the bill of complaint set out the sum of money remaining in its hands, that the answers of appellants admitted the fact to be as stated, that upon filing a bill of inter-pleader no issue can be made as to a further or other fund or sum than is stated in the bill. To this it must be replied that the bill is not strictly a bill of interpleader, and has not been in the proceedings taken so regarded. The averments of the bill make it clear that defendants, are not rival claimants of a fund in the hands of complainant. The prior rights of the Detroit United Railway to-the proceeds of certain of the bonds is stated. The beneficial interest of appellants to so much of the fund as remained after satisfying prior demands, including that of complainant, is made clear. Appellants are therefore directly interested in the question of how much the custodian of the fund paid to itself. The bill prays for an accounting. True, the answers of appellants admit, upon information and belief, the allegation concerning the amount on hand for distribution. It must be held, however, that the relations of complainant to the fund and to-the assignees thereof are such that it is under obligations to submit its actions in the premises to investigation. It has done so and the facts, already stated, have been made to appear. It remains to determine whether appellants, may, because of what is so made to appear, object to the. item charged for commission. This does not involve, necessarily, any question concerning the enforcement of' the statute against usury. The holder of the collateral pledged as security for a debt, having undertaken in a court of equity to account to other creditors of its debtor who have succeeded by assignment to the beneficial interest in the collateral, subject to the payment of the debt secured, owes a duty to show that it has taken from the fund no greater sum than was secured by the deposit. In such a case, it being made to appear that the debt secured, with the interest reserved, has been paid, and that a further sum, which, treated as interest, is usurious, which is not a charge connected with the' debt secured, which it is claimed the debtor, by a separate and distinct agreement made after his assignment of the collateral, promised to pay, has been added to the debt and, without direction of the debtor, paid out of the fund, the complainant has failed in' proof of right to subject the fund to such charge. It is found, therefore, that the sum remaining in the hands of complainant after payment of its debt was $2,621.33, and the decree will be so modified.

3. After Andrews’ debt to complainant was paid, and from June 2, 1902, to March 11, 1903, complainant received, at brief intervals, money from sales of securities hereinbefore described. It made no considerable disbursement until December 30, 1903. On June 1, 1903, an order of court was made, reciting “that the fund in complainant’s hands as set forth in its bill of complaint do remain in its custody until the termination of this suit, or until the further order of this court.” Its custody of the fund was at all times lawful, its duty was to pay upon proper demand, it owed no duty to invest. Uniformly, while making proper credits upon its books, it placed the money received with its general funds and loaned it at interest, during the entire period, at the rate of 6 per cent, per annum. It is in evidence that banks in the city of Detroit pay upon deposits of public moneys a rate of 2 per cent, per annum, payable monthly; that they pay upon deposits left for three months 3 per cent.; and that, where no express agreement to pay interest is made, none is paid. The position of counsel for appellants is thus stated in the brief:

“ We have never objected, and do not now object, to its (complainant’s) custody of the fund. If we had objected to the fund remaining in its custody, we would have asked the court to order it to bring the money into court. What we object to is its use of the money for its own profit.”

Again:

“We contend that the Union Trust Company should be charged interest at the rate of 5 per cent, per annum upon proceeds of the bonds sold after payment of said loan, from the date of receipt of proceeds of' each sale to December 30, 1903, and upon the respective balances in its possession, after the several payments made by it under orders of the court to the date of each payment.”

Complainant does not contend that it should not pay interest. It does contend that the rate of 2£ per cent., fixed by the court, should not be increased. It is therefore unnecessary to enter upon a discussion of the duties and liabilities of the various classes of trustees, or to consider any liability of complainant beyond the limits of the demand made by appellants. Plainly, complainant was not a stakeholder. It is equally clear that the fund was impressed with some of the characteristics of a trust fund and that complainant was the trustee. To hold that the complainant had the right to speculate for its own profit with the fund is to relax an elementary rule resting in sound public policy and rarely, if ever, varied to meet the facts of particular or peculiar cases.

The argument that complainant might have kept the money by itself as a mere custodian of the fund, or have paid it into court, in which cases no profit whatever would have accrued, has never, so far as I have examined the authorities, been admitted to diminish recovery of the profit actually received by the trustee, or, as an alternative, the legal rate of interest. Complainant did use the fund to its profit, and the only question presented is .whether, it appearing that it received more than 5 per cent, interest, a decree that it account for 5 per cent., or for a less rate, shall be entered. It is claimed by counsel for complainant that it is impossible to determine the exact profit made, but that it was less than 5 per cent. It is pointed out, also, that it was allowed no compensation. The record contains no evidence upon the subject of proper compensation. A contention made for complainant, which at first blush appears to have some merit, viz.: that appellants knew, or are presumed to have known, about the use made of the money and the facts concerning the going rate of interest upon funds deposited in banks and used as these moneys were used, and are therefore estopped to contend for a higher rate of interest, is, after all, essentially unsound. Mere noninterference does not imply a waiver of legal rights even if the receiver of the City Savings Bank could expressly waive them. Under the circumstances, this court feels compelled to apply the rule requiring complainant to account for interest upon the fund and at the rate of 5 per cent., that being the minimum statute rate of interest. No computation of interest is undertaken. Counsel will undoubtedly agree upon a computation of the amount to be paid over by complainant in accordance with this opinion, and the decree below will be modified in accordance therewith, and a final decree will be entered in this court.

Appellant Preston National Bank will recover from complainant the costs of this appeal.

McAlvay, Montgomery, Hooker, and Moore, JJ., concurred.