Jones v. Swift

• Decision Date: 08 April 1938
• Citation: 15 N.E.2d 274,300 Mass. 177
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: ANNIE K. JONES v. WALTER BABCOCK SWIFT & others.

300 Mass. 177

15 N.E.2d 274

ANNIE K. JONES v. WALTER BABCOCK SWIFT & others.

Supreme Judicial Court of Massachusetts, Norfolk.

April 8, 1938

December 10, 13 1937.

Present: RUGG, C.

J., FIELD, LUMMUS QUA, & COX, JJ.

Bona Fide Purchaser. Pledge. Trust, Pledge by trustee, Following trust property.

A transaction, by which shares of stock, held by a trustee and wrongfully pledged by him to secure a loan made to him for the benefit of a second trust of which he was also trustee, were delivered after his death, through the possession of his executor and of his successor as trustee of the second trust to the beneficiary of that trust upon the beneficiary's paying the amount of the loan, did not constitute that beneficiary a purchaser for value of the shares as against the beneficiary of the first trust.

PETITION IN EQUITY filed in the Probate Court for the county of Norfolk on May 1, 1935.

From a final decree entered after a hearing by McCoole, J., the respondent Swift appealed.

J. G. Brackett, for the respondent Swift. D. K. Mackay, for the petitioner.

R. I. Hunneman, for the respondent Johnson.

COX, J. This is an appeal from a decree of the Probate Court which runs against the respondent Swift alone. The petition, when filed, named as respondents Leila M. Johnson, individually and as executrix of the will of her husband Laurence H. H. Johnson, John G. Brackett, as trustee under a written declaration of trust for the benefit of the now respondent Swift and others, and the American Telephone and Telegraph Company. The respondent Swift, hereinafter referred to as Swift, was not then named as a party. This petition alleged in substance that, prior to and up to the time of his death, Laurence H. H. Johnson, hereinafter referred to as Johnson, held certain assets in trust for the petitioner, including twenty shares of the capital stock of the respondent telephone company; that Johnson commingled these shares with his own assets, converted and wrongfully pledged them as security for a personal loan; that the respondent executrix received these shares or shares into which they had been transmuted, as also did said Brackett, as trustee; and that the petitioner had never received them. Thereafter, motions were allowed, joining Swift and the Boston Safe Deposit and Trust Company as respondents, and dismissing the petition as to the telephone company and Brackett, as trustee, and also adding allegations to the effect that Swift, the donor of the trust of which Brackett was trustee, received said shares specifically or as transmuted and that they were in the possession of the Boston Safe Deposit and Trust Company. The new prayers were that the added respondents be ordered to turn over said shares specifically or as transmuted and all dividends received. No decrees appear to have been entered following the allowance of these motions. All of the respondents appeared and filed answers, Swift alleging, among other things, that he was a bona fide purchaser of the stock referred to in the petition, without notice of any defect in its title.

The case was tried upon an agreed statement of facts which permitted the drawing of inferences and also upon oral and documentary evidence. The judge filed no findings of fact. The decree ordered Swift "to provide and transfer to the petitioner . . . twenty shares of the common stock of the American Telephone & Telegraph Company and that said respondent Walter Babcock Swift pay to said petitioner" $495.

"Although no statement of the findings of material facts was filed by the trial judge, the entry of the decree imports the finding of every fact essential to the right entry of that decree permitted by the evidence. It is for this court in a proceeding of this nature (see Drew v. Drew, 250 Mass. 41, 43) to review the evidence and decide the case on its own judgment as to facts as well as law. But under the familiar rule, where, as in the case at bar, conflicting oral testimony has been heard, the finding of the trial judge as to facts either expressly made or necessarily implied from his disposition of the case, will not be reversed unless plainly wrong. Glazier v. Everett, 224 Mass. 184 . Star Brewing Co. v. Flynn, 237 Mass. 213 , 216." Durfee v. Durfee, 293 Mass. 472 , 477. See Malden Trust Co. v. Brooks, 291 Mass. 273, 279; Bratt v. Cox, 290 Mass. 553 , 557.

Johnson was trustee under a written "Trust Deed" executed by Swift in 1907. Among the trust assets were five hundred shares of the common stock of the American Telephone and Telegraph Company, the certificates representing which stood in Johnson's individual name. This number of shares was reduced to four hundred, "pursuant to the terms of said trust." On April 8, 1932, Johnson sold sixty of these shares without reporting the sale to Swift, who knew nothing of it until after Johnson's death. It is not known what disposition was actually made of the proceeds of this sale. Johnson never purchased any shares of telephone stock to replace the shares that were so sold or any part of them. He always paid amounts to Swift which were the equivalent of all dividends declared on the number of shares for which he was properly accountable as trustee. For convenience, shares of stock of the telephone company are hereinafter referred to as telephone stock.

Prior to April 27, 1932, the New England Trust Company, hereinafter described as the trust company, held two notes, both of which were signed by Johnson individually, one representing a loan of $25,000 which was "for the sole benefit of the Swift Trust," and one for $40,000 which was for a personal loan. There is no provision of the trust that authorizes the trustee to borrow money. As a part of the collateral for these loans, the trust company, prior to April 27, 1932, held one hundred fifty shares of telephone stock. On that day, Johnson deposited with the trust company two hundred seventy additional shares of telephone stock as a part of the collateral for these two loans. Later the trust company released fifty of the four hundred twenty shares. Included among these two hundred seventy shares were twenty shares, the two certificates representing which stood in Johnson's name individually, although these twenty shares equitably belonged to the petitioner; and also ten shares which Johnson held as trustee under still another trust, the certificate for which, however, stood in his name individually. Johnson had acted as a trustee "in fact" for the petitioner since 1911, at least, when he purchased twenty shares of telephone stock for her account with money supplied by her. The certificates representing these twenty shares are traced, from the date of their purchase, into the hands of Swift, when they were transferred to him as hereinafter appears. The petitioner had no knowledge that these twenty shares were so pledged by Johnson until sometime before this petition was brought. Up to the time of Johnson's death, he always accounted to the petitioner for the dividends declared on these twenty shares and reported annually to her that he held them in trust for her. On October 5, 1931, he executed an instrument purporting to transfer to the petitioner these twenty shares, and this instrument, together with other securities belonging to her, was found in his safety deposit box after his death, which occurred on June 24, 1934. She has never received these twenty shares or their equivalent.

The officials of the trust company never knew that the $25,000 loan was obtained by Johnson "as trustee for the Swift Trust," but always regarded it as his personal loan; and Swift never knew, prior to Johnson's death, that this loan had not been obtained by Johnson in his name as trustee, or that the stock so pledged as part of the collateral for said loan had not been issued in his name as trustee under the trust indenture; "but except as set forth above the loan was made with the knowledge and consent of said Swift."

After Johnson's death, Brackett, the new trustee under the Swift trust, and the respondent Johnson discovered that there were only three hundred seventy instead of four hundred shares of telephone stock pledged as collateral at the trust company, it being assumed by them that the three hundred seventy shares belonged to the Swift trust. The new trustee was unwilling to execute a note for the $25,000 loan, taking the position that he had no authority to do so. A conference was held at the trust company on October 25, 1934, at which the petitioner was not present or represented, for the purpose of arranging a transfer of the telephone stock, which all parties present assumed belonged to the Swift trust, subject to the rights of the trust company. It was "arranged" that the respondent Johnson "should deliver to said Brackett as trustee for said Swift said three hundred seventy shares of stock including said certificates . . . [which belonged equitably to the petitioner] upon payment by him [Swift] of said loan of $25,000." Swift signed a note for $26,000 the proceeds of which, so far as needed, paid the $25,000 note, the balance being paid to Swift. The respondent Johnson executed an assignment of the shares and power of attorney to effect their transfer; the certificates were passed by the treasurer of the trust company to the respondent Johnson, by her to the new trustee, and by him to Swift. The three hundred seventy shares of telephone stock were transferred in due time to Swift's name and the certificates were deposited as security for his $26,000 note. On October 25, 1934, the average value of telephone stock was $110.94 per share. These three hundred seventy shares are now held by the respondent Boston Safe Deposit and Trust Company as collateral for a loan made by it to Swift, a part of the...