Chapple v. Merchants' Nat. Bank

• Decision Date: 09 October 1933
• Parties: CHAPPLE v. MERCHANTS' NAT. BANK.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

284 Mass. 122

187 N.E. 232

CHAPPLE

v.MERCHANTS' NAT. BANK.

Supreme Judicial Court of Massachusetts, Essex.

Oct. 9, 1933.

Report from Superior Court, Essex County; Wilford D. Gray, Judge.

Action by William D. Chapple, administrator with the will annexed of the estate not already administered of Annie G. Spinney, deceased, against the Merchants' National Bank. The action was heard in the superior court without a jury on an auditor's report. From a judgment for plaintiff for $178,076.40, defendant appeals.

Affirmed.

R. H. Wiswall, of Salem, and W. D. Chapple, of Boston, for plaintiff.

R. G. Dodge and J. M. Raymond, both of Boston, for defendant.

PIERCE, Justice.

This is an action of contract or tort to recover for losses incurred by the plaintiff's testatrix and her estate arising out of alleged misconduct of one R. A. Punchard who was an assistant cashier of the defendant.

The case was referred to an auditor who filed a report. Thereafter the case came before a judge of the Superior Court sitting without a jury. The plaintiff introduced the auditor's report and rested. The defendant introduced no evidence. Each party submitted requests for rulings and the plaintiff also submitted a motion for judgment in his favor. The judge found the facts were as stated by the auditor in his report, and found and ruled that in so far as the auditor made findings of fact as inferences from other facts found they were correct; that the plaintiff was entitled to recover in accordance with the auditor's findings, and ordered ‘judgment for the plaintiff on the Auditor's Report, with interest at six per cent. from the dates upon which the respective remittances reached the bank in accordance with the second or alternative method set forth in the Auditor's Report.’ The parties filed a stipulation agreeing upon the amounts of interest ‘computed upon the respective amounts found for the plaintiff and upon the credits allowed to the defendant in accordance with the first method of computation of interest set forth in the Auditor's Report and also in accordance with the second or alternate method,’ which the judge adopted as the correct method.

The defendant duly excepted ‘to the denial by the Court of its requested rulings Nos. 1 to 20, inclusive, 22, and 24 to 42, inclusive,’ to the ruling ‘that the inferences drawn by the Auditor from the facts found by him are correct; and to the order of judgment for the plaintiff on the Auditor's Report with interests computed in accordance with the second method set forth in the Auditor's Report.’ The judge, ‘At the request of the defendant and with the assent of the plaintiff,’ reported the case to this court ‘such judgment to be entered as the law requires.’

The auditor's report discloses the following facts: The plaintiff, on June 15, 1931, was duly appointed by the Probate Court for the County of Essex administrator with the will annexed of the estate not already administered of Annie G. Spinney who died February 11, 1930, testate. The defendant is a banking corporation duly established under the laws of the United States and having its place of business in Salem, Essex County. Ralph A. Punchard, of Salem, was on March 13, 1930, appointed by said Probate Court executor of Mrs. Spinney's will and held that office until he was removed therefrom on May 25, 1931, by order of the court. Punchard was also assistant cashier of the bank for approximately ten years ending in May, 1931. ‘During the period concerned in this action the bank had a permit from the Federal Reserve Board, dated December 4, 1918, under Act of Congress of December 23, 1913, chapter 6, section 11, granting to the bank ‘the right to act as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics, or in any other fiduciary capacity in which state banks, trust companies, or other corporations which come into competition with national banks are permitted to act under the laws of the state of Massachusetts.’' During this period, conforming to the practice of numerous other banks in the county of Essex, the defendant bank ‘for the accommodation of customers and as a benefit to itself in meeting competition and attracting and holding depositors, maintained a department for effecting the purchase or sale of securities for persons desiring such service.’ Punchard as one of two assistant cashiers of the bank was in charge of this department from 1923 until May, 1931. ‘All persons seeking such service were referred to him.’ In the case of purchase or sale of stocks a ‘service charge’ was made, and in the case of bonds a regular broker's commission was charged. ‘The cost of securities so purchased * * * was charged by the bank to the customer and billed to the bank by the brokers, who looked to the bank for payment’; and the ‘proceeds of securities so sold were remitted by the brokers to the bank.’ ‘It was within Punchard's authority and a part of his duties as head of this department to deal with and apply funds remitted to the bank from brokers representing the proceeds of the sale of customers' securities.’

The defendant bank was also the depositary in Salem of the New England Telephone & Telegraph Company. It therefore created a deposit account ‘for the sale and purchase of ‘rights' on the stock of the telephone company, Boston Edison rights and other rights.’ In this branch the bank, not acting as the agent of the customers, bought or sold the rights and paid for them with checks signed by Punchard, agent, or deposited money to the credit of that account. This account was called the ‘R. A. Punchard, Agent Account’ because Punchard as an officer of the bank ‘had full control’ of it. Punchard had ‘no legitimate personal interest in the account’ and ‘acted as the agent of the bank.’ ‘Withdrawals from this account could be made only by checks signed by Punchard, Agent, or by charge tickets signed by him or by any other officer of the bank. The money credited to this account, not segregated in any way, was mingled with the general commercial funds of the bank.’

Mrs. Spinney was a widow, confined to her home. She and her husband had been customers of the bank for a considerable time prior to the death of her husband and thereafter she continued as one of its customers. The bank and the judge of probate recommended Punchard ‘as an excellent man to take care of her affairs' and he became her ‘trusted man of business.’ From May 1, 1929, to October 26, 1929, she had a safety deposit box at the bank which could be opened by her key and a guard key at the bank. Punchard, as an officer of the bank, ‘had, properly and regularly, such a guard key.’ Between October 26, 1929, and April 9, 1930, Mrs. Spinney frequently sent her niece to this safe deposit box. On these occasions Punchard selected ‘a time when the special attendant or guard of the boxes was off duty,’ left the niece in the front part of the bank, used his guard key and Mrs. Spinney's key to open the box, and took advantage of the opportunity to remove from it such bonds and securities as he desired. On some occasions he removed securities from the inner box in the niece's presence, laid them to one side or put them in his pocket, saying to the niece ‘that Mrs. Spinney had requestedsome dealing with those securities.’ Mrs. Spinney died on February 11, 1930, leaving a will under which Punchard was appointed executor by the Probate Court. From April, 1930, as executor Punchard had occasion to go to the safety deposit box without the attendance of any other person. Punchard disposed of the securities, which were either bonds, apparently negotiable, or stock certificates indorsed by Mrs. Spinney in blank, or by him as executor, by sending them to Hornblower and Weeks to be sold. This firm was used by Punchard, as officer in charge of the defendant's securities department, for a very large number of transactions other than the Spinney matter, many of them being business transactions properly authorized. Another firm of brokers had been regularly employed by the bank and for this reason the bank president, learning of the matter in the fall of 1929, had told Punchard not to employ Hornblower and Weeks except when requested to do so by a customer. Punchard disregarded this order and continued to employ that firm without the knowledge of any officer of the bank. However, all the business was effected by these brokers for the account of the bank, and in ‘a space of only six months from May 11, 1929 over one hundred letters and statements were sent addressed to the bank and were received at the bank including nine letters calling attention to overdue balances. During this period also cashier's checks were drawn payable to Hornblower & Weeks and there were entries relative to Hornblower & Weeks in the general ledger of the bank.’ Punchard would get hold of the mail and deliver the brokers' checks to the receiving teller, would direct that they be deposited to the credit of accounts of various depositors from which he, by virtue of his official position, had made irregular withdrawals. On many occasions the teller was directed to credit the ‘Punchard, Agent,’ account. The proceeds of some sales were traced not otherwise than as deposits to the defendant's credit in the Federal Reserve Bank. At other times Punchard directed the brokers to use the proceeds to purchase securities which the defendant was under obligation to deliver to customers, but which obligation it had not fulfilled because Punchard, the one to act in the premises, had stolen the money paid over for the purpose or was short in customers' accounts. ‘No other officer or representative of the bank participated in any way in the transactions described * * * except tellers, bookkeepers or clerks performing their routine duties without knowledge of any irregularity.’

The auditor found that in sending securities for sale Punchard ‘acted...