Nowell v. Equitable Trust Co.

• Decision Date: 20 September 1924
• Parties: NOWELL et al. v. EQUITABLE TRUST CO. et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

249 Mass. 585

144 N.E. 749

NOWELL et al.

v.EQUITABLE TRUST CO. et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Sept. 20, 1924.

Report from Superior Court, Suffolk County; Frederick Lawton, Judge.

Action of contract by James Nowell and others, as copartners under the firm name and style of Lee, Higginson & Co., against the Equitable Trust Company and another. Verdict was directed for the named defendant. On report. Judgment on the verdict.A. A. Schaefer, of Boston, for plaintiffs.

C. S. Hill, of Boston (F. B. Bonner, of Boston, on the brief), for defendants.

RUGG, C. J.

This is an action of contract. The declaration alleges that the plaintiffs issued a letter of credit to the J. F. Mosser Company, Inc., engaged in trade in Argentina, in the sum of $50,000; that that company contemporaneously executed an agreement with the plaintiffs to furnish to them funds to meet all drafts drawn by it against the letter of credit one day before maturity; that thereafter, for a valuable consideration, the Equitable Trust Company and the Mosser Company executed and delivered to the plaintiffs a written guaranty of the complete performance by the Mosser Company of its agreement with the plaintiffs; that the Mosser Company failed in the performance of its agreement by not providing funds to meet certain drafts drawn by it against the letter of credit; wherefore the defendants owe the plaintiffs stated amounts. The Mosser Company did not appear and has been defaulted. The Equitable Trust Company alone makes defense. Its answer is a general denial, payment, and discharge of its obligations, if any be proved, by conduct of the plaintiffs.

The case was tried to a jury. At the conclusion of the evidence a verdict was directed for the defendant and, at the request of the parties, the case was reported upon a stipulation that, if upon the admissible evidence the plaintiffs are entitled to recover, judgment may be entered for them in such sum as this court may determine.

The material evidence was that the letter of credit was issued in the regular course of the business of the plaintiffs as bankers, whereby they authorized the Mosser Company to draw upon them at ninety days sight for any sum or sums not exceeding $50,000 for the invoice cost of quebracho extract, bills of lading to order of plaintiffs to be attached to draft, duplicate invoice and consular invoice with copy of bill of lading to be sent directly to plaintiffs, with other stated conditions. On the back of a duplicate copy of the letter of credit was an agreement directed to the plaintiffs and signed by the Mosser Company, wherein the latter agreed to furnish them on the day before the maturity of any acceptance under the letter of credit funds of the same amount. There also was recognition and admission of the plaintiffs' ownership of all goods and the proceeds thereof for which they might come under engagement in virtue of the letter of credit, and possession of all bills of lading for and insurance on such goods, with power to sell. In the event of the plaintiffs entrusting such goods to the Mosser Company for sale or otherwise, it consented that they might repossess themselves of the same or any proceeds thereof, to be applied on its indebtedness to the plaintiffs, and, in case of insufficiency to meet same, to pay the amount forthwith, together with other undertakings not pertinent to the present issue. This agreement throughout was subsidiary and ancillary to the furnishing of funds to meet drafts drawn against the letter of credit. It had to do also with the relations of the parties to the goods which it was the obvious purpose of the letter of credit to enable the Mosser Company to import. Physically attached to this agreement was a guaranty reciting the consideration of one dollar in hand paid by the plaintiffs, the receipt of which was acknowledged, whereby the Equitable Trust Company did ‘guarantee, promise and agree to and with’ the plaintiffs that the Mosser Company would perform its agreement with the plaintiffs. This guaranty was signed in the name of the trust company by one Pratt, its treasurer. The present action is brought on this guaranty.

[3][4] The defendant has argued that Pratt had no authority to execute the guaranty in its name. It is doubtful whether this point is open under an answer in which there is no denial of the signature or of the authority of the officer affixing it. G. L. c. 231, § 29; Kendall v. Carland, 5 Cush. 74. Without discussing that point, there was evidence of the authority of Pratt. There was testimony that he had signed other instruments of like nature in the name of the trust company with the knowledge of its president and other officers. That testimony was competent as tending to show an established course of business. The by-laws of the defendant were not inconsistent with such authority. Under R. L. c. 116, §§ 7, 8, now G. L. c. 172, §§ 12, 13, it was within the power of the trust company to authorize the treasurer to execute contracts in its name. Testimony, to the effect that the president of the defendant in the early negotiations with the plaintiffs concerning the liability on which the present action is founded made no question of the authority of Pratt and did not disavow it, was competent on this point. It had also some tendency to show ratification of his act even if originally without authority. Boice-Perrine Co. v. Kelley, 243 Mass. 327, 331, 137 N. E. 731, and cases there collected. Conferring of such authority was within the power of the defendant. The whole matter was a fact to be determined by the jury. Produce Exchange Trust Co. v. Bieberbach, 176 Mass. 577, 58 N. E. 162;Beacon Trust Co. v. Souther, 183 Mass. 413, 67 N. E. 345;Forgeron v. Corey Hill Garage, Inc., 247 Mass. --, 144 N. E. 383, and cases there collected; Merchants' Bank v. State Bank. 10 Wall. 604, 19 L. Ed. 1008. The case at bar is distinguishable from Sears v. Corr Manuf. Co., 242 Mass. 395, 136 N. E. 266, and similar on the brief), for defendants.

The delivery of the documents of title of the goods imported upon the strength of the letter of credit by the plaintiffs to the Mosser Company and the taking in place thereof of trust receipts did not operate as a complete or pro tanto release of the obligation of the guarantor of the letter of credit. The principle that surrender by a creditor of security for its debt without the consent and to the injury of the surety releases the surety to that extent has no application to the facts here disclosed. The relation between the plaintiffs and the Mosser Company was that of banker and importer, the banker furnishing the letter of credit whereby the purchase of the imported goods may be accomplished and the importer taking all the risks and being entitled to all of the profits of the transaction. The delivery of physical possession and the documents of title by the banker, who is the owner of the imported goods, to the importer in return for trust receipts is the customary course of the business. That is manifest from numerous decisions, where the nature of the relation between the banker and importer and of trust receipts has been explained. Moors v. Wyman, 146 Mass. 60, 15 N. E. 104;People's National Bank v. Mulholland, 224 Mass. 448, 451, 113 N. E. 365;Id., 228 Mass. 152, 155, 117 N. E. 46, and cases collected; Brown v. Green & Hickey Leather Co., 244 Mass. 168,138 N. E. 774;T. D. Downing Co. v. Shawmut Corp., 245 Mass. 106, 139 N. E. 525, 27 A. L. R. 1522. There is nothing on this record to indicate that the guaranty was not signed by the defendant with reference to this well understood course of conduct between the banker and the merchant. The agreement of the Mosser Company, which was guaranteed by the defendant, contains express reference to the event that the plaintiffs might entrust the imports to the Mosser Company for sale or otherwise. This reference plainly incorporates into the guaranty that method of transacting the business. In such circumstances delivery of the documents of title by the plaintiffs to the Mosser Company in return for its trust receipts was not a surrender of security contemplated by the guaranty. The title remained in the plaintiffs under the trust receipts. It seems manifest from this record that the guaranty was made with reference to that course of trade and that the defendant cannot complain of it.

[6][8] The defendant urges that the contract of guaranty was ultra vires the trust company. As matter of pleading, that defense ought to have been set up in the answer. This point seems not to have been expressly decided hitherto by this court, although mentioned incidentally. It is the necessary result of recognized general principles. Contracts of a corporation commonly are presumed to be within its lawful power until the contrary is made to appear. Illegality of a contract, unless of such nature as to shock the conscience or to be inherently wrong, or unless patent upon the plaintiff's own case, usually must be pleaded. G. L. c. 231, § 28; Granger v. Ilsley, 2 Gray, 521;Suit v. Woodhall, 116 Mass. 547;Nashua & Lowell Railroad v. Boston & Lowell Railroad, 157 Mass. 268, 272, 31 N. E. 1060;Worcester v. Worcester & Holden Street Railway, 194 Mass. 228, 80 N. E. 232;O'Brien v. Shea, 208 Mass. 528, 534-536, 95 N. E. 99, Ann. Cas. 1912A, 1030;Whittingslow v. Thomas, 237 Mass. 103, 129 N. E. 386;Coughlin v. Royal Indemnity Co., 244 Mass. 317, 138 N. E. 395;Express Co. v. Railroad Co., 99 U. S. 191, 199, 25 L. Ed. 319;Railway Co. v. McCarthy, 96 U. S. 258, 267, 24 L. Ed. 693;Providence Engineering Corp. v. Downey Shipbuilding Corp. (C. C. A.) 294 Fed. 641, 659;Jacobs v. Monaton Realty Investment Co., 212 N. Y. 48, 56,105 N. E. 968;Knapp v. Tidewater Coal Co., 85 Conn. 147, 81 Atl. 1063.

The defense of ultra vires is not open merely because under the terms of the report based upon the stipulation of the parties it is provided that ‘if upon the...