Mullen v. E. Trust & Banking Co.

• Decision Date: 04 December 1911
• Citation: 81 A. 948,108 Me. 498
• Parties: MULLEN v. EASTERN TRUST & BANKING CO.
• Court: Maine Supreme Court

81 A. 948

108 Me. 498

MULLEN

v. EASTERN TRUST & BANKING CO.

Supreme Judicial Court of Maine.

Dec. 4, 1911.

Report from Supreme Judicial Court, Penobscot County.

Action by Helen A. Mullen against the Eastern Trust & Banking Company. On report. Judgment for plaintiff.

Action of deceit against the defendant corporation, the trustee in a certain trust mortgage given to it by the Ounegan Woolen Company, a corporation, for falsely certifying certain bonds, purporting to have been issued by said Woolen Company, as secured by said mortgage.

Plea, the general issue with brief statement alleging as follows:

"(1) That it never declared to the plaintiff nor to any one representing her that it was the owner or holder of the two bonds referred to in plaintiff's writ and which plaintiff declares were purchased by her of said defendant, and that it did not request the plaintiff to purchase said bonds of it.

"(2) That the plaintiff did not bargain with the defendant to buy of it, nor did the plaintiff buy of the defendant, the said two bonds, upon the terms or in the manner alleged, and the defendant denies that plaintiff paid it $1,000, or any other sum, for said two bonds as plaintiff alleges she did."

At the conclusion of the evidence, the case was reported to the law court for determination.

Argued before WHITEHOUSE, C. J., and SAVAGE, SPEAR, CORNISH, BIRD, and HALEY, JJ.

Joseph F. Gould, for plaintiff.

E. C. Ryder, for defendant.

CORNISH, J. Action of deceit against the defendant, the trustee in a certain trust mortgage, for falsely certifying certain bonds as secured thereby.

This raises the question, novel in this state, as to the legal liability of a banking corporation in certifying trust bonds.

It appears in the case at bar that the stockholders of the Ounegan Woolen Company on August 3, 1899, voted to authorize the directors "to raise funds for the use of the company by the issue of bonds to an amount not exceeding fifty thousand dollars, to be secured by mortgage upon the mill property of the company, the rate, time and all unspecified details of the bonds and mortgage to be left with the directors."

On August 22, 1899, the directors, in pursuance of this authority from the stockholders, voted "to issue ninety bonds of the denomination of five hundred dollars each, all payable to the Eastern Trust and Banking Company, trustee, or bearer, in ten days from the date thereof, dated September 1, 1899," etc. The mortgage provided that a certificate of the following tenor signed by the trustee should be indorsed upon each bond:

"Trustee's Certificate.

"The undersigned trustee named in the within bond and in the mortgage therein referred to hereby certifies that said mortgage has been delivered to it as trustee, and this bond is one of the series of ninety bonds secured thereby.

"Eastern Trust & Banking Company, Trustee.

"By ——, Secretary."

Each bond also provided as follows: "This bond shall not become obligatory until it shall have been authenticated by certificate endorsed thereon of said Eastern Trust & Banking Company, trustee, above named."

The mortgage was duly executed, the 90 bonds of $500 each, numbered from 1 to 90, and aggregating $45,000, were duly executed by the officers of the Woolen Company, duly certified by the trustee and sold. No question is raised as to the validity of these bonds or of the trust mortgage securing them.

Later, ten other bonds, each of the par value of $500. numbered from 91 to 100, inclusive, and in all respects like the original 90, except that they purported to be of a series of 100 bonds, were placed upon the market. They were duly signed by the officers of the Woolen Company, and on the back of each was the following certificate signed by the defendant:

"Trustee's Certificate. "The undersigned, trustee, named in the within bond and in the mortgage therein referred to, hereby certifies that said mortgage has been delivered to it as trustee and this bond is one of the series of one hundred bonds secured thereby.

"Eastern Trust & Banking Company, Trustee.

"By. G. B. Canney, Secretary."

The plaintiff, through her husband, as her agent, in November, 1901, purchased two of these bonds, Nos. 93 and 94, from A. H. Brown, who was the treasurer of the Woolen Company, and also manager of the Old Town branch of the Eastern Trust & Banking Company.

Interest was paid upon these spurious bonds during five years, the last coupon being met on September 1, 1906. Soon after that time the Woolen Company became insolvent, and its affairs were settled up by the defendant as receiver. It was then that the plaintiff was informed of the overissue, and discovered that her bonds were void, and she made demand upon the defendant for repayment the last of December, 1906.

The plaintiff introduced evidence to show that in the sale of the bonds Mr. Brown was acting for the Trust Company and not for the Woolen Company, but we deem this contention immaterial. The basis of recovery is the false representation contained in the trustee's certificate; and whether the purchase was made directly from the trustee or from the Woolen Company cannot affect the rights of the parties.

What duty did this trustee owe to the purchasing public in certifying these bonds, and has there been a breach of that duty?

It is apparent that such certificate is no merely formal matter. It goes to the very essence of each bond, and no bond is binding until it is thus authenticated. The certificate is the royal stamp that makes it not only current, but valid. Its purpose is to guarantee, not the value or sufficiency of the property behind the bond, but the validity of the bond itself as a legal instrument and the fact that it is secured by the trust mortgage. It is made with the full understanding and expectation that it is to be acted upon and relied upon by all would-be purchasers, and therefore it is the duty of the trustee to ascertain the truth of the facts to which it certifies. It makes false statements at its peril. All the necessary sources of information are accessible to it, and it is compensated for its services. In this case the fee was $100 for certifying the 90 bonds. Under these circumstances, the responsibility rests upon the trustee to authenticate no bond that should not be authenticated, and to be sure that all the statements in the certificate are true in fact.

It cannot be denied that the certificate on the two bonds in suit was false. No mortgage had ever been delivered to the trustee to secure these bonds, and there was no series of 100 bonds secured by any mortgage whatsoever. Their issue had never been authorized by the directors. All these facts could have been ascertained, and the invalidity of the bonds have been established by a slight examination of the Woolen Company's records on the part of the defendant. Instead, its approval and guaranty are indorsed upon the bonds, and the purchasing...