Howard v. Barnstable County Nat. Bank of Hyannis
| Decision Date | 28 June 1935 |
| Citation | 197 N.E. 40,291 Mass. 131 |
| Parties | HOWARD v. BARNSTABLE COUNTY NAT. BANK OF HYANNIS. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Exceptions from Superior Court, Suffolk County; Greenhalge Judge.
Action of contract or tort by Frank B. Howard against the Barnstable County National Bank of Hyannis, which was heard without a jury. Finding for defendant, and plaintiff saves exceptions.
Exceptions overruled.
T. E Norris, of Boston, for plaintiff.
A. W. Blackemore, of Boston, for defendant.
The plaintiff was a depositor in the defendant bank and also its debtor on a note given for money borrowed. The defendant on June 1, 1931, applied the deposit of the plaintiff on account of the note. The plaintiff brought this action to recover for damages alleged to have resulted from the appropriation of the deposit to the debt. The case was tried before an auditor whose findings of fact were under the terms of the order of reference to be final. A judge of the Superior Court on facts found by the auditor found and ruled that because of false and fraudulent statements made by the plaintiff the defendant was warranted in rescinding its contract with the plaintiff and in applying the funds of the plaintiff in its possession toward the payment of his overdue note and that the plaintiff was not entitled to recover. The case is here on exceptions to the findings and rulings of the judge.
The plaintiff, who was a manufacturer operating a factory at Sagamore, in October, 1930, opened an account with the defendant bank by making a deposit of $1,000 which was loaned to him by the bank on his note dated October 14, 1930, and payable on February 14, 1931. He had made this arrangement with the president of the bank and after he had signed the note and mailed it to the bank he was told by the president that the directors had found fault because a financial statement had not been furnished by the plaintiff. Thereupon the plaintiff on October 14, which was the date of the note, signed a statement purporting to show his financial condition. Under the by-laws of the bank a discount committee consisting of the president, cashier and seven directors was empowered to discount notes and the board of directors had the power to approve or disapprove of the report of the discount committee as to notes discounted. The transaction was ratified by the directors after the receipt of the plaintiff's written statement. It was the practice of the bank to give notes a serial number as soon as they were accepted by the bank and the plaintiff's note was given a serial number.
Shortly before February 14, 1931, the due date of the note, the plaintiff wrote to the bank asking that the loan be extended in the full amount. The defendant's cashier in reply wrote that the directors felt that a substantial payment or payment in full should be made and that the plaintiff's account at the bank did not warrant the accommodation which had been extended. The bank sent a committee to interview the plaintiff at his factory. The committee made a hasty examination of the plant, counted the machines there and was assured by the plaintiff that the machines in the factory belonged to him and were free from encumbrance. He also told the committee that conditions with him were substantially the same as when the loan was first made in October. The auditor found that so far as the items on the financial statement given in October are concerned conditions were substantially unchanged. The committee reported the result of the interview to the discount committee. The discount committee decided to extend the loan for thirty days and the plaintiff gave a new note dated February 14 for the same amount, payable on March 16. This was approved by vote of the directors and the note was given a serial number. The auditor found that in granting the renewal the defendant relied in part on the financial statement which the plaintiff had given in October and in part on the report of the committee which had inspected the factory and interviewed the plaintiff in February.
When the second note fell due on March 16 the plaintiff telephoned the bank, talked with the cashier about the note and was told by the latter that the note ‘ was taken care of.’ The plaintiff was not asked to sign a new note or to pay any discount and nothing was further said or done by him with reference to the note until about May 24. At that time he was at the bank and the cashier said there was a note ‘ that hasn't been attended to’ and said he would send a note to the plaintiff to be signed and returned. A note for $1,000 dated back to March 16 and payable in ninety-one days was sent to the plaintiff and he signed and mailed it to the bank. This note was not given a serial number and was not entered on the discount ledger nor was the transaction approved by the discount committee or by the board of directors. A charge for the discount of the note was entered on the plaintiff's account and notice of it sent to the plaintiff on May 27. On June 1 an entry was made that the charge was an error and notice of this was sent to the plaintiff. On the same day the defendant without prior notice to the plaintiff applied the balance in the plaintiff's deposit account to the note dated February 14. On the following day the note antedated March 16 was returned to the plaintiff. On June 17 the plaintiff paid the balance of his indebtedness to the bank.
The auditor found that the financial statement made by the plaintiff when the first note was given and relied on in part by the defendant in accepting the renewal note ‘ was inaccurate in many particulars.’ He found that there was not sufficient evidence to judge of the accuracy of the item for all the machinery then in the factory. The plaintiff had purchased in 1926 seventy-six machines for $10,200, giving back to the seller a mortgage for $9,200 payable in weekly instalments of at least $40. In March, 1931, there was a balance of $2,700 unpaid on the mortgage. The financial statement did not show any balance due on the mortgage and the question ‘ Are any of the above assets pledged’ was answered ‘ None.’
The plaintiff owned another factory in Middleborough and the statement bore a notation that the Middleborough plant was ‘ not included in the statement.’ The plaintiff contended before the auditor that all the machines under mortgage had been transferred to the Middleborough plant. The auditor found however that a substantial number of the machines covered by the mortgage was in the Sagamore factory when the financial statement was made, that the plaintiff had a substantial equity in them amounting approximately to three fourths of their cost to him, and that their value plus the value of thirty-three other machines owned by the plaintiff outright ‘ while less than $15,000.00, was near enough to that value so that the plaintiff's estimate of $15,000.00...
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