Commissioner of Banks v. Chase Securities Corporation. Mary B. Brandegee v. Same.

• Decision Date: 18 September 1937
• Citation: 10 N.E.2d 472,298 Mass. 285
• Parties: COMMISSIONER OF BANKS v. CHASE SECURITIES CORPORATION. MARY B. BRANDEGEE v. SAME.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

298 Mass. 285

10 N.E.2d 472

COMMISSIONER OF BANKS v. CHASE SECURITIES CORPORATION. MARY B. BRANDEGEE v. SAME.

Supreme Judicial Court of Massachusetts, Suffolk.

September 18, 1937

March 2, 1936.

Present: FIELD DONAHUE, LUMMUS, & QUA, JJ.

Sale, Of securities, What constitutes, Place of sale, Transfer of title, Validity, Ratification, Repudiation. Sale of Securities Act. Conflict of Laws. Contract, Performance and breach, Implied. Corporation, Transfer of shares, Dividend "Rights." National Bank. Constitutional Law Impairment of the validity of contracts. Evidence Presumptions and burden of proof. Tender. Words, "Sale," "Direct."

Statement by FIELD, J., as to the right of a purchaser of securities sold in violation of the sale of securities act to repudiate the purchase and recover the price paid.

Evidence, that a purchaser in this Commonwealth ordered of a New York corporation at its place of business here and paid for here shares of a

New York national bank, that the corporation delivered to the purchaser here a receipt of a New York depositary representing shares of the bank and its own shares in combination, the certificates for which were in the possession of the depositary, and that the purchaser accepted delivery of such receipt as performance of his order, warranted a finding that a sale of such receipt and the shares it represented took place here and was subject to G.L. (Ter. Ed.) c. 110A, although the receipt was issued from New York and the shares had been transferred into the purchaser's name and the certificates therefor were held by the depositary in New York.

A delivery within this Commonwealth of a receipt of a depositary which operated as an equitable assignment of corporate shares represented by such receipt, certificates for which in the assignee's name were in the possession of the depositary, was a "sale" here of "securities" within the meaning of G.L. (Ter. Ed.) c. 110A. In order to be exempt from the application of G.L. (Ter. Ed.) c. 110A under

Section 3 (g) thereof, securities issued by a trust company of another State must be those "representing an interest in, or direct contract right against," the trust company. An incidental implied contract right against a trust company of another

State which held securities only as a depositary and issued a receipt for them was not such a "direct contract right" as would bring the receipt within the exemption of Section 3 (g) of G.L. (Ter. Ed.) c. 110A.

That shares of corporate stock were sold, and were required by contract to be sold, only in combination with shares of a national bank did not so restrict the transferability of the national bank shares in violation of

Federal law as to exempt the sale of the corporate shares, or of a receipt representing both shares, from the application of G.L. (Ter. Ed.) c. 110A.

Although shares of a national bank and of a business corporation, its affiliate, were combined by contract in 1917 to be held or sold as a unit, a sale of such a unit in 1929 was not in performance of such contract so as to be excluded by the provisions of Section 2 of St. 1921,

c. 499, from the application of c.

110A, added to the General Laws by

Section 1 of said c. 499.

The application of G.L. (Ter. Ed.) c. 110A to a sale in this Commonwealth of shares of a foreign corporation in combination with shares of a national bank did not, in violation of the Constitution of the United States, art.

1, Section 10, impair the obligation of previous contracts, one of which was contained in that corporation's charter, requiring both shares to be held or sold in combination.

Compliance with Section 4 of G.L. (Ter. Ed.) c. 110A requiring the filing with the commission of public utilities of a sworn statement relating to securities to be sold, was not shown by proof that information which might have been shown by such a sworn statement was in the commission's files and otherwise available to them if it did not appear that, as permitted by the statute, they had accepted the information thus in their possession in lieu of the statement required by the statute.

The burden of proving that the commission of public utilities had accepted, under Section 4 of G.L. (Ter. Ed.) c. 110A, information respecting a security to be offered for sale in lieu of the statement required by that section was upon the seller.

Acceptance in this Commonwealth of delivery of a "duplex" certificate for combined shares of a foreign corporation and a national bank, as compliance with a previous purchase order made here for the national bank shares, constituted a sale here to which G.L. (Ter. Ed.) c. 110A was applicable as to the corporate shares.

The sale of stock of a nonbanking corporation and of a national bank in combination under charter and contract restrictions that neither stock could be sold separately was an indivisible transaction, and a violation of G.L. (Ter. Ed.) c. 110A as to the stock of the corporation vitiated the entire transaction. The burden of proving that a purchaser of securities sold in violation or

G.L. (Ter. Ed.) c. 110A had so conducted himself after the purchase as to preclude him from repudiating it and recovering the purchase price, was upon the seller.

A purchase of stock sold in violation of G.L. (Ter. Ed.) c. 110A was not precluded from repudiating the purchase and recovering the purchase price by voting as a stockholder and accepting dividends without knowledge of facts showing the violation or of facts putting him on inquiry with respect thereto; he was under no duty to use diligence to discover a possible violation of the statute. The tender necessary to entitle a purchaser of stock sold in violation of

G.L. (Ter. Ed.) c. 110A to repudiate the purchase and recover the purchase price must be such as will satisfy the requirements of equity and fair dealing without denying to the purchaser the protection which the statute was intended to afford.

After a sale of stock in violation of G.L. (Ter. Ed.) c. 110A, a tender of the same shares with the benefits derived therefrom was not insufficient so as to bar an action for the purchase price because of depreciation in value, or of changes in capitalization, corporate purposes and restrictions upon the sale of the stock which became effective after the purchase.

In tendering benefits received, as a prerequisite to enforcement of a right to recover the price paid for stock sold in violation of G.L. (Ter. Ed.) c. 110A, the purchaser was not required to have exercised rights, issued by the corporation to him as a stockholder, to subscribe for stock in another corporation at a certain price and to tender stock thus procured, but properly sold the rights and tendered what was received from such sale.

A slight error in amount in tendering benefits received, as a prerequisite to enforcement of a right to recover the price paid for stock sold in violation of G.L. (Ter. Ed.) c. 110A, was waived by nonobjection.

TWO ACTIONS OF CONTRACT. Writs in the Municipal Court of the city of Boston dated August 13, 1934.

Upon removal to the Superior Court, the actions were heard without a jury by Weed, J., who found for the plaintiffs in the sums, respectively, of $21,983 and $27,230 with interest. The plaintiffs and the defendant alleged exceptions.

J. B. Abrams, (T.

A. Mullens & A.

Garceau with him,) for the plaintiffs.

J. L. Hall, (M.

Jenckes & R. Donaldson with him,) for the defendant.

FIELD, J. These two actions of contract, brought by writs dated August 13, 1934 were tried together by a judge of the Superior Court sitting without a jury. The plaintiff in the first case is the commissioner of banks in possession of the Lowell Trust Company (herein referred to as the trust company). The plaintiff in the other case is Mary B. Brandegee. The defendant in each case is the Chase Securities Corporation, a corporation organized under the laws of the State of New York (herein referred to as the corporation). Each action is brought to recover the purchase price of stock in the defendant corporation (together with stock of the Chase National Bank) purchased from said corporation by the trust company in the first action and the plaintiff in the second action and is based on the ground that the sale of such stock was in violation of the sale of securities act. Each declaration is in two counts: the first, a count alleging the sale of such stock in violation of the statute; the second, a count for money had and received. In each case the defendant pleaded a general denial and ratification. The trial judge filed "Findings" in which he found generally for the plaintiffs, made rulings of law and specific findings of fact, and granted and denied requests for rulings made by the plaintiffs and by the defendant. The cases come before us on the defendant's exceptions to the exclusion of evidence, to the granting of the plaintiffs' requests for rulings, to the refusal to grant requests for rulings made by it, "to the rulings of law made in . . . [the] decision and to the findings of fact therein contained so far as they are not supported by the testimony and exhibits in the cases," and to the denial of the defendant's motions to reopen the cases for the introduction of further evidence; and on the plaintiffs' exceptions to the exclusion of evidence and the denial of their requests for rulings. The plaintiffs' exceptions are waived if the exceptions of the defendant are overruled.

The defendant's bill of exceptions contains the "Findings" of the judge and all the evidence material to the exceptions. Most of the evidence is in effect summarized in the subsidiary findings of the judge and need not be stated separately. Moreover, the questions of law involved in the defendant's contentions...