Goodwin v. Simpson
| Decision Date | 17 September 1935 |
| Parties | GOODWIN v. SIMPSON et al. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Report from Superior Court, Suffolk County; Hammond, Judge.
Suit in equity by Robert E. Goodwin, trustee, against James E Simpson and others. On reservation and report.
Decree in accordance with opinion.
J. B. Jacobs, of Boston, for plaintiff.
J. F Bassity, of Boston, for defendants.
The plaintiff as trustee in bankruptcy of the New England Investors' Shares, Inc., a Massachusetts corporation formerly called New England Investment Trust, Inc., and hereinafter called the corporation, now presses this suit only against the defendants Swift and Talbot to recover for losses to the corporation alleged to have been caused by their negligence and by improper payments out of the corporate funds made or permitted by them. It is not now argued that they were guilty of actual fraudulent intent.
The cause is before us by report of the trial judge without decision, upon the pleadings and three master's reports and interlocutory decrees relative thereto. The evidence is not reported, and the master states in his third report that the conclusions of his first and second reports are based solely upon his subsidiary findings. We are therefore not bound by the master's conclusions, and it becomes our duty to decide the case solely upon the subsidiary findings and proper inferences therefrom. Nichols v. Atherton, 250 Mass. 215, 217, 145 N.E. 277; Robinson v. Pero, 272 Mass. 482, 484, 172 N.E. 599; MacLeod v. Davis (Mass.) 195 N.E. 315. This is rendered more difficult than need be because the basic findings are not made in narrative or consecutive form, but consist of a series of isolated and disconnected statements scattered through three reports and intermingled with ultimate conclusions. As to some questions involved, the basic findings are meagre, and more in the nature of subordinate conclusions than of precise findings of fact. It is difficult to reconcile some of the findings with others.
The general nature of the business carried on by the corporation is explained in Commonwealth v. Benesch (Mass.) 194 N.E. 905, and need not be restated. The defendant Swift was the vice president and a director during the entire period of the corporation's activities. The defendant Talbot was a director from September 20, 1927, and treasurer from November 7, 1927, up to the time of the filing of the bill.
Inasmuch as the corporation was engaged in a business in which it solicited the handling and investment of the money of others, the finduciary obligations of its officers are not different from those of corresponding officers of a banking institution. See General Mortgage & Loan Corp. v. Guaranty Mortgage & Securities Corp., 264 Mass. 253, 261, 162 N.E. 319. The defendants recognize this in their brief. These obligations extend beyond good faith and freedom from evil intent and include the duty to exercise that degree of care, attention, and even good judgment which a competent business man would exercise with reference to his own affairs. Greenfield Savings Bank v. Abercrombie, 211 Mass. 252, 97 N.E. 897,39 L.R.A. (N. S.) 173, Ann.Cas. 1913B, 420; Cosmopolitan Trust Co. v. Mitchell, 242 Mass. 95, 118, 136 N.E. 403; Prudential Trust Co. v. McCarter, 271 Mass. 132, 137, 171 N.E. 42.
The plaintiff's most important contention is that the defendant Swift is liable for the sum of $219,643.60 as the loss sustained by the corporation by reason of its failure to purchase promptly the underlying securities to cover collateral trustee shares which were sold on the instalment plan. Apparently this Benesch to act as general manager of the business, but without any formal vote to that effect. The failure to purchase the underlying securities as fast as collateral trustee shares were sold seems to have been due primarily to Benesch, though the fact must have been known to the treasurer Simpson, and there was a record of it in the books. The directors ‘ never received any operating statement.’ There are other findings in general terms such as that the directors ‘ failed to exercise diligence and * * * care,’ and similar statements, but we regard these as conclusions of the master from the more specific facts found. If they are not, it is impossible to tell to what they relate or what particular item they affect.
On the other hand, Swift was a practising lawyer. His work for the corporation seems to have been primarily as an adviser in legal matters rather than in any managerial or financial capacity. He faithfully attended every meeting of the directors and investigated and considered such matters as were brought before the board and voted thereon in good faith and as he believed for the best interests of the corporation. He did not know that any collateral trustee shares had been sold on the instalment plan until August, 1927, when he learned of it through his bank shortly before the meeting of the directors in September. He believed that all legal matters were being submitted to him when in fact they were being concealed from him by Benesch and Wells, the president. The board of directors had not authorized the sale of these shares on instalments nor was any plan for such sales submitted to them, and the approval of the department of public utilities had not been obtained. Swift was not informed and did not believe that Benesch had anything to do with the management of the corporation until September 20, 1927. When he first learned of the sales on instalments he inquired of Benesch. Benesch told him there were only five or six instances, and he believed that statement. He remonstrated with Benesch and asked him to put a stop to it. Together with Talbot, he caused an investigation to be made and an accountant to be employed for that purpose, and the sale of shares on instalments was stopped and Benesch and Simpson were forced out of the corporation.
It is apparent that the gist of this charge against Swift consists only in his failure to know earlier than he did know what an investigation into the books and affairs of the corporation would have discovered and in his trusting other people more than in the light of subsequent disclosures now appears to have been wise. He was not in constant personal contact with the business where he would be likely to learn how the sales were being made unless he did undertake an investigation into that matter, and there are no findings of facts...
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