New England Trust Co. v. Bright

• Citation: 274 Mass. 407,174 N.E. 469
• Parties: NEW ENGLAND TRUST CO. v. BRIGHT et al.
• Decision Date: 02 February 1931
• Court: United States State Supreme Judicial Court of Massachusetts

274 Mass. 407

174 N.E. 469

NEW ENGLAND TRUST CO.

v.BRIGHT et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Feb. 2, 1931.

Appeal from Superior Court, Suffolk County; Bishop, Judge.

Suit by the New England Trust Company against Elmer H. Bright and others, in which defendants filed a cross-bill. Both the original bill and cross-bill were dismissed, and both parties appeal.

Affirmed.

J. M. Morrison, of Boston, and R. N. Daley, Jr., of South Boston, for plaintiff.

M. Jenckes and R. Wait, both of Boston, for defendants.

CARROLL, J.

This suit in equity was heard by a judge of the Superior Court on the original bill and cross bill. The parties agreed that the securities enumerated in the original bill to be delivered by the defendants had been delivered to the plaintiff, that the remaining securities mentioned in the cross bill had been sold, and if the defendants are entitled to recover on their cross bill, such recovery should be in the sum of $11,773.69, with interest. Both the original bill and cross bill were dismissed. The plaintiff and defendants appealed.

The plaintiff is a trust company. The defendants are stockbrokers in Boston. The judge found that on March 1, 1929, the firm of Clement, Parker and Company, stockbrokers, was dissolved. John F. Barry was a member of this firm and on its dissolution he became a member of the defendants' firm. A so called ‘customer's man,’ by the name of Palfrey, a bookkeeper, Poor, and other employees of Clement, Parker and Company entered the service of the defendants. For a time the Clement, Parker and Company office was continued as a branch of the defendants, but on or about June 14, 1929, it was given up and thereafter Barry, Palfrey and the other employees of Clement, Parker and Company were located at the defendants' offices. Palfrey continued with the defendants until August 1, 1929, when he became an employee of another brokerage concern. The plaintiff had in its employ since 1903 one Morrill; he became its assistant treasurer in 1920; in June, 1929, he was appointed assistant vice-president in charge of the credit department.

It was the practice of the plaintiff to receive orders from its customers for the purchase or sale of securities, causing the orders to be executed through some brokerage house, the deposit accounts of the customer being charged with the amount of the purchases or credited with the proceeds of the sales. Morrill, with other employees of the plaintiff, had authority to conduct these transactions. Palfrey, who was well known to Morrill, handled many such transactions while employed by the defendants as well as in his former employment. It was known to the plaintiff's president that Morrill was buying and selling securities for customers through Palifrey. When such orders were given the purchaser's name was not disclosed to the brokers, except when a transfer of stock was called for. Morrill had no authority to buy securities on the credit of the plaintiff in his own name. No notice was given the defendants of this limitation on Morrill's authority, but it was found that the defendants knew or should have known of this limitation of authority. For years prior to 1929, Morrill traded in stock for his own account; many of these sales and purchases were made through Clement, Parker and Company and later through the defendants. These transactions of Morrill were made on the plaintiff's credit in the same manner as if made for a customer. Morrill also carried with the defendants a margin account in his own name. He suffered losses in October, 1929, and at this time he confessed to the plaintiff's president what he had been doing. The plaintiff repudiated the purchases made by Morrill in its name but for Morrill's own benefit, as unauthorized; the defendants demanded payment for the securities purchased by Morrill on orders given them by Morrill in the name of the plaintiff, contending they were made in good faith.

All of the securities listed in the memorandum attached to the findings of material facts were purchased by Morrill from the defendants by orders in the plaintiff's name, but in reality for his own benefit. As to the question of the defendants' knowledge that Morrill in buying on the credit of the bank was buying for himself, the evidence was conflicting. It is set out in the findings in detail. It appeared that a transfer of certain items from the plaintiff's account to that of Morrill was made on the books of Clement, Parker and Company by direction of Palfrey after conferring with Morrill, and Palfrey knew that Morrill had purchased these items for his own benefit and not for the plaintiff's customers. This transfer was in March, 1929. This transfer on the books of Clement Parker and Company was known not only to Palfrey but to Poor and Barry. Because of a questionnaire to be sent out by the New York stock exchange the plaintiff's account on the defendants' ledger was credited F. O. M. with the amount of the purchases and on the same day Morrill's personal account was debited with the same. This change in the account to F. O. M. was made on March 29. It also appeared that in July, 1929, ‘preparations were in progress to meet another questionnaire.’ The checking up of the plaintiff's memorandum statement ‘caused uneasiness on the part of Morrill.’ He complained to Barry and on August 30 an account was opened on the defendants' books entitled ‘New England Trust Co. Spec. Acct.’ To this account from the regular account of the plaintiff were transferred eight items, all of which except three were stocks purchased in the name of the plaintiff but for Morrill's own benefit, and thereafter all transactions originating with Morrill ostensibly for the plaintiff, were carried to this account. ‘Confirmation slips, statements of individual transactions and monthly statements of the special account were sent to the plaintiff, addressed ‘New England Trust Co. Spec. Acct.’ and, by Morrill's direction to the mailing clerk, reached him unopened and were not seen by other officials of the plaintiff.' Between March first and late in August ‘the orders handled by the defendants and charged to the plaintiff's general account were substantial.’ They averaged about ten a day, and the daily balances varied from a few dollars to many thousand dollars. On July 31, 1929 the plaintiff owed the defendants $35,284.52. On September 13 stock to the amount of $21,430 was purchased ostensibly for the plaintiff but in reality for Morrill. During September and October the transactions on Morrill's orders in the plaintiff's name were about fifteen and at least one half of these were for Morrill; the daily balance of this special account containing the transactions of Morrill ‘was never less than $30,000, and for the most part considerably exceeded that figure.’ The securities here in question were carried by the defendants ‘for considerable periods of time without requests for deliveries and without settlements and were still so carried on October 29, 1929.’

It was found that Palfrey before he was employed by the defendants and while working for Clement, Parker and Company, knew that Morrill was from time to time purchasing securities in the plaintiff's name, although in reality for himself. Palfrey knew that these purchases were not authorized. While Palfrey was employed by the defendants he knew that certain items in issue were made by Morrill for himself and it was ruled that Palfrey's knowledge was to be imputed to the defendants and was fufficient to put the defendants upon inquiry as to all subsequent purchases, that although some...