Smith v. Union Guardian Trust Co. , 271 Mich. 118 ( 1935 )

The plaintiff, Herbert W. Smith, of Port Huron, on December 1, 1926, executed a series of first mortgage six and one-half per cent. serial gold bonds, totaling $75,000, and to secure the payment thereof he executed a trust mortgage on December 20, but as of December 1, 1926, on certain real estate to the Union Trust Company, now Union Guardian Trust Company. The bonds were payable in part on December 1, 1928, and every six months thereafter, except that the final payment of $33,000 was to be made on December 1, 1936. After certification by the trustee, they were sold to the general public. Payments were made of those maturing on December 1, 1930, and prior thereto, amounting to $9,000. All interest coupons due prior to September 1, 1931, were paid.

On September 15, 1931, a bondholders' protective committee was formed, of which the defendants Peck, McCallum and Langan are members, under an agreement entered into by all of the bondholders except the defendants Andres, Miller and Munnecke, who each own a $1,000 bond, and bonds in the amount of $3,100, the owners of which could not be ascertained.

Being unable to secure the deposit of all of the bonds, the protective committee sought relief under the provisions of Act No. 114, Pub. Acts 1933. A supplemental indenture was prepared, to be executed by the mortgagor and the trustee, which, after reciting the execution of the trust mortgage and the real estate described therein, and that $66,000 of the bond issue was yet outstanding, and that upwards of 51 per cent. of the holders of the bonds, who owned more than four-fifths of those outstanding, had agreed in writing to the execution thereof, provided:

1. That the maturity of all outstanding bonds be fixed at December 1, 1946.

2. That the interest rate be reduced from six and one-half per cent. to four per cent. per annum.

3. That all interest due from and including September 1, 1931, and including December 1, 1933, be canceled.

This proposed agreement was submitted to the public trust commission, as required by Act No. 89, Pub. Acts 1933, and approved and accepted by it on August 16, 1933. It was then presented to the trustee, and it declined to execute it for the reason that all of the bondholders had not deposited their bonds with the committee and that, unless the provisions of said Act No. 114 were broad enough in their scope to authorize the amendment to the trust mortgage as proposed, it was without the authority or power to do so.

These facts were set up in the bill of complaint, and a declaration of rights, construing said Act No. 114 and declaring that the proposed agreement is within its terms and, when executed, will be binding upon all of the holders of said bonds who do not present their claims to the court in the manner provided for therein, was prayed for.

On petition of the attorney general, he was permitted to intervene as a party plaintiff. After the submission of proofs, the trial court found that Act No. 114 was constitutional and valid, but that the provisions in the supplemental agreement were not within the purview and scope of the act. A decree was entered in conformity therewith, from which this appeal has been taken.

The first section of the act referred to the acute financial and economic condition which had arisen in the State, thus creating a public emergency, and stated that in order to protect the public welfare, peace, health and safety, and to conserve, safeguard and protect the depositors in banks and the holders of securities in the nature of trust mortgage bonds, it was declared necessary to provide ways and means to conserve the value of such bonds, and for that purpose the police power of the State was invoked.

The second section defines the terms "trust mortgage," "trust indenture," "trustee," and "bonds" secured by a trust mortgage. The third and fourth sections are set forth in full in the margin.^* The attorney general urges that the words "or other payments" in the third section, which we have caused to be italicized, should be construed as referring to the rate of interest provided for in the trust mortgage. We cannot place such a construction upon them.

In Detroit Trust Co. v. Stormfeltz-Loveley Co., 257 Mich. 655 (88 A.L.R. 1263), handed down on April 4, 1932, more than 14 months before this statute was enacted, this court in an exhaustive opinion, written by Mr. Justice BUTZEL, discussed the rights of persons holding bonds secured by trust mortgages, and the conclusion was reached that such rights are contractual and are protected by the provisions of both the Federal and the State Constitutions.^* With this opinion presumptively before the legislature, it seems clear that, if it determined that it had the power and authority to affect such rights in the manner disclosed by the supplemental indenture, express language would doubtless have been used therefor and its intent not left dependent upon the construction to be placed upon the words "or other payments."

The purpose of the act is clearly expressed in the first section thereof. It was deemed necessary "to provide ways and means to conserve the value of such bonds." While "it is a familiar principle of law that, in construing a statute, we must consider the occasion of its enactment and the purpose to be accomplished" (Bennett v. Michigan Pulpwood Co., 181 Mich. 33,40), this court may not read into it provisions which affect both the vested and future interests of bondholders unless the intent to do so be fairly expressed therein.

In our opinion the statute did not authorize the inclusion in the supplemental agreement of the provisions therein relating to interest, and for that reason the action of the trustee in declining to execute it was warranted. In reaching this conclusion it must be understood that we are not passing upon, or deciding, whether the act would be constitutional if it expressly provided for the modification of the trust mortgage in the manner disclosed by the supplemental agreement.

Section 6 of the act reads as follows:

"From and after the first day of March, nineteen hundred thirty-five, this act shall cease to be in force:Provided, That any action taken under the provisions of this act shall be in force and effect until maturity of various issues."

As further proceedings under it may not be taken in this case, it is unnecessary to discuss or pass upon the constitutionality of the provision requiring dissenting bondholders after notice to "apply to a court of chancery" to have a determination of "their claims therein," as provided for in the third section of the act.

A decree may be here entered dismissing the bill of complaint. No costs will be allowed.

POTTER, C.J., and NORTH, FEAD, WIEST, BUTZEL, BUSHNELL, and EDWARD M. SHARPE, JJ., concurred.

^* Act No. 114, Pub. Acts 1933.

SEC. 3. Whenever fifty-one per cent. of all holders and the holders of more than four-fifths in amount of all bonds secured by a trust indenture, deed of trust or trust mortgage upon real estate, or leaseholds, or upon real estate and other property, situated in this State, shall hereafter agree with the grantor or mortgagor named in such deed of trust or trust mortgage, by instrument, or instruments, in writing, to extend the time for the payment of the principal of such bonds, or the interest thereon, or both principal and interest, or to modify or change the manner, time or amount of sinking fund payments, or otherpayments, provided for in such deed of trust or trust mortgage or bonds, the provisions of such agreement shall become binding upon the holders of all the outstanding bonds secured by such deed of trust or trust mortgage upon approval thereof, as provided in this act, by the trustee named in such deed of trust or trust mortgage: Provided, That at least ten days before such agreement is presented to such trustee for approval, a copy thereof, together with a notice of the time when and place where such agreement will be presented to such trustee for approval, shall be sent by registered mail, with postage fully prepaid, by such grantor or mortgagor, to each of the holders of such bonds as shall not have assented to such agreement, and as shall be known to said grantor or mortgagor, at the last known postoffice address of such holder, if such grantor or mortgagor has knowledge of such last known address, and that a copy of such agreement and notice shall also be published at least once in a newspaper printed and circulating in the county in which the real estate covered by such deed of trust or trust mortgage is situated at least ten days before such agreement is presented to such trustee for approval. If there is no such newspaper in such county such publication may be made in any newspaper in the State circulating in such county. Proof of such mailing and publication shall be made by affidavit which shall be annexed to the amendment to such trust deed or trust mortgage provided for in this act. It shall not be necessary to publish in such copy of said agreement the signatures thereto or the names of the persons, firms or corporations who have signed the same. Such trustee may approve such agreement at any time within fifteen days after the time specified in such notice for the presentment thereof for approval: Provided, That at any time during such fifteen day period the holder or holders of such bonds as shall not have assented to such agreement may apply to a court of chancery in the county in which the real estate covered by such deed of trust or trust mortgage is situated and have a determination made of his or their claims therein, and the court in its discretion may make such order or decree in the premises as shall be fair and equitable under all the circumstances of the case: And provided further, That the provisions of such agreement shall thereafter apply to all bonds alike, without preference of one over another. Any bondholder who fails to make application as herein provided shall be presumed to assent to the provisions of said agreement.

SEC. 4. An amendment to such trust deed or trust mortgage embracing the terms of such agreement shall hereafter be executed by the grantor or mortgagor and the trustee named in the original trust deed, or trust mortgage, or his, its or their successors, which amendment, shall be recorded in the office of the register of deeds of the county where such real estate is situated, in the same manner as mortgages upon real estate may be recorded, and when so recorded the same shall thereafter constitute notice to all persons of the contents of such amendment.

^* U.S. Const. art. 1, § 10; Mich. Const. 1908, art. 2, § 9. — REPORTER.