Innerarity v. Merchants' Nat. Bank

• Decision Date: 31 May 1885
• Citation: 1 N.E. 282,139 Mass. 332
• Parties: INNERARITY and others v. MERCHANTS' NAT. BANK.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

139 Mass. 332

1 N.E. 282

INNERARITY and others

v.MERCHANTS' NAT. BANK.

Supreme Judicial Court of Massachusetts.

Filed May, 1885.

E.D. Sohier and F.L. Hayes, for plaintiffs.

L.S. Dabney, for defendants.

DEVENS, J.

This action is in tort for the conversion of 455 hogsheads of sugar, 444 of which had constituted a part of the cargo of a vessel called the J.H. Lane, and 11 of which had constituted a part of a cargo of another vessel called the Unity. The questions as to the latter lot will not require separate consideration, if it shall be determined that, as to the larger lot, the plaintiffs are not entitled to maintain their action. The sugars shipped by the J.H. Lane were, by a bill of lading, consigned to Benjamin Burgess & Sons, and purported to be shipped by their order. Burgess & Sons had possession of the bill of lading, with authority to sell the sugars which were pledged by them to defendants, and the bill of lading thereof delivered for a loan of $43,000, as hereafter stated, which loan has not been repaid. The defendants had no actual notice or knowledge that said sugars were not the property of Burgess & Sons, or that they were in any respect the agents of other parties.

On the twenty-third day of March, 1883, B.F. Burgess, who was the senior member of the firm, and was also a director in the defendant bank, entered into an agreement with the president for a loan of $43,000 on a pledge of the sugars. The president had authority, in the intervals of the meetings of the board of directors, to make such loans, which were afterwards usually, although not always, laid before the board at its usual meeting, and subjected to its approval.

On the twenty-sixth of March the directors had a meeting, and this, with other proposed loans, was laid before them and approved. At this meeting Burgess was present, but it did not appear what part he took thereat. The loan was made, to be secured by the bill of lading of the sugars, which was indorsed to the bank, and the note of Burgess & Sons was given, of the date of March 23d, the day of the transaction with the president; but the proceeds were not carried to their credit untilMarch 26th. This transfer by Burgess & Sons of the sugars was a fraud upon the defendants; but it is not contended that it in any way failed to carry a full title in pledge to the defendant bank, unless, under the circumstances, it is to be charged with the knowledge of Burgess. The plaintiffs requested the presiding judge to rule that if Burgess was present as a director when said loan was acted upon by the board of directors, his knowledge of the plaintiffs' title to the sugars, and that the firm of Burgess & Sons had no right to pledge them, was the knowledge of the defendant bank. This ruling was refused by the presiding judge, who found for the defendants.

While the knowledge of an agent is ordinarily to be imputed to the principal, it would appear now well established that there is an exception to the construction or imputation of notice from the agent to the principal in case of such conduct by the agent as raises a conclusion presumptive that he would not communicate the fact in controversy; as when the communication of such a fact would necessarily prevent the consummation of a fraudulent scheme the agent was engaged in perpetrating. Kennedy v. Green, 3 Mylne & K. 699; Cave v. Cave, 15 Ch.Div. 639; In re European Bank, L.R. 5 Ch.App.Cas. 358; In re Marseilles Ext. R. Co. L.R. 7 Ch.App.Cas. 161; Atlantic Nat. Bank v. Harris, 118 Mass. 147;Loring v. Brodie, 134 Mass. 453.

One of the most recent cases on this point is Dillaway v. Butler, 135 Mass. 479. A., to whom B. was indebted, advised C. to lend money to B. on the security of a mortgage of personal property, and acted as C.'s agent in completing the transaction. With the money thus obtained, B. paid A. the debt he owed him. Both A. and B. acted in fraud of Gen.St. c.118, §§ 89-91, but C. had no knowledge of the fraud. Held, that the knowledge of A. was not in law imputable to C., although A. had acted for C. in the negotiation. But the question in the case at bar is not so much what are the responsibilities of a principal for an agent, as whether Burgess can be considered in any proper sense as an agent for the defendant bank in the transaction of the loan, even if directors are ordinarily to be treated as such. The plaintiffs seek to impute to the corporation knowledge of a fraud, because in a contract made avowedly, not for it, but for himself, and necessarily acting adversely to its interests, a director was aware that he was committing a fraud. This, in effect, is to say that there can be no transaction between a bank and one of its directors, in which, so far as the transfer of property is concerned, the bank can be protected, if there is fraud on the part of the director; and that the bank can never discount paper on which one of its directors is a party, and retain the position of an...