Smith v. Bank of New England

• Decision Date: 16 March 1900
• Citation: 70 N.H. 187,46 A. 230
• Parties: SMITH et al. v. BANK OF NEW ENGLAND.
• Court: New Hampshire Supreme Court

46 A. 230

70 N.H. 187

SMITH et al.

v. BANK OF NEW ENGLAND.

Supreme Court of New Hampshire. Hillsboro.

March 16, 1900.

Exceptions from Hillsboro county.

Bill by Anna L. Smith and others against the Bank of New England. From a decree in favor of plaintiffs, defendants bring exceptions. Overruled.

Bill in equity, brought by the holders of secured certificates of deposit issued by the Union Trust Company, to recover from the defendants upon a contract made by them with the Union Trust Company on March 29, 1892, for the benefit of all parties who should become in any wise interested in the subject-matter of the contract. In this contract the defendants agreed, among other things, "that said trustees [the defendants] shall not certify or countersign any certificates for which they do not hold securities, whether of real-estate mortgages, or bonds, or tax-sale certificates, or shares of stock in incorporated Iowa banks, or both, of the value of ten (10) per cent. in excess of the certificates so countersigned. Such securities, notes, bonds, warrants, bank stock, and certificates shall be rated and held only at their actual worth, to the best of their Judgment, and in no case beyond their par value." The plaintiffs' evidence tended to show that, after making the contract of March 29th, the Union Trust Company deposited with the defendants 180 shares of stock of the First National Bank of Ida Grove, Iowa, of the par value of $100 each, $68,000 (par value) of the gold certificates of the Farmland Securities Company of Iowa, and $20,000 (par value) of the certificates of the preferred shares in the Farmland & Live-Stock Company, Kansas City, Mo.; that the defendants' officers, .in rating these securities for the purposes for which they were to hold them, relied entirely on the representations of the officers of the Union Trust Company, and made no independent investigation as to their value; that at the time these securities were taken, and until shortly before its failure in June, 1893, the trust company stood high in the West, and especially in New Hampshire, as a safe, prosperous, and well-managed financial institution; and that the officers connected with it and in charge of its affairs, both here and there, were generally regarded as entirely responsible and trustworthy men, upon whose representations reliance could be placed. During the period covered by the contract other well-mannged banks in New Hampshire, and men of good financial standing in this state, took large amounts of other kinds of securities of the Union Trust Company, with collateral, all of which proved to be worthless at the time of the failure of the company, except in one instance, where about forty per cent. of the collateral was realized. It did not appear whether any of these institutions made any independent inquiry as to this collateral. It appeared that the Farmland Securities Company and the Farmland & Live-Stock Company were paper corporations, and never had any actual existence, and that a slight investigation would have disclosed this fact, "if it had been made where these companies were understood to be located; that the stock of the Ida Grove National Bank had some value at one time, but that it went into voluntary liquidation, and that the defendants never discovered this fact, or made any effort to discover it; that other stock of the same company had been taken soon after the contract was made, and at that time it was worth more than par, but it had been withdrawn, and other securities substituted in its place under the trust agreement; that the defendants had no actual knowledge or information that the Ida Grove Bank was going or had gone into voluntary liquidation, but made no inquiries into these facts, and no facts were brought to their attention that would put them on inquiry, unless the fact that the shares of stock of the bank stood in the name of the Union Trust Company, trustee, should have put them upon inquiry; that the bank went into voluntary liquidation by vote of its stockholders in Ida Grove, April 12, 1803; that, if the defendants had known of it, they could probably have realized the value of the stock; that the defendants countersigned about $70,000 worth of certificates on the strength of this collateral, which were outstanding and unpaid on July 1, 1803," at which time this collateral was absolutely valueless, and the Union Trust Company was in the hands of a receiver, its assets being barely suflicient to pay the expense of administration. The officers of the defendant company testified that they believed, from the representations made to them by the officers of the Union Trust Company, and what purported to be copies of the records of their incorporation and organization, which they produced, that the Farmland Securities Company and the Farmland & Live-Stock Company were regularly and properly organized, and that they had the assets certified to be held by them in their certificates of stock and in the trustee's certificate indorsed upon them. Seven specific questions were submitted to the jury. The first three were, in substance, were the defendants negligent in approving (1) the $18,000 stock of the Ida Grove National Bank, (2) the gold certificates of the Farmland Securities Company, (3) the certificates of preferred shares of the Farmland & Livestock Company. The next three were, in substance, were the defendants negligent in managing (1) the stock of the Ida Grove National Bank, (2) the gold certificates of the Farmland Securities Company, (3) the certificates of preferred shares of the Farmland & Live-Stock Company. The seventh question was whether the defendants were negligent as to their management of the stock of the Ida Grove National Bank in reference to perfecting their title, and having it transferred to them on the books of the bank. The jury answered all these questions in the affirmative.

The jury were instructed as follows: "The contract of March 20, 1802, made it the duty of the defendants to rate all securities offered to them for approval at their actual value at the time they were offered, and provided that they should not be liable for errors of judgment in making this valuation. So the question is, did the defendants approve these securities at their actual worth, to the best of their judgment? If the defendants' officers fairly exercised their judgment when they rated these securities as they did, they have performed their duty in regard to approving securities. But they did not fairly exercise their judgment if they neglected to use due care in investigating the value of these securities,—that is, to make such an inquiry into their value as men of average prudence, placed in the same situation as the evidence shows you the defendants were placed in, would have made; for the defendants are held to have knowledge of all facts and circumstances which they might have known by the exercise of due care—that is, such care as men of average prudence, under precisely the same circumstances, would have used. But if the defendants' officers made such inquiry, and fairly acted upon it, then the defendants have fairly exercised their judgment, and have performed their whole duty. On the question whether they made such investigation as a reasonably prudent man would have made, you will consider, along with all the other evidence in the case, the sources of the defendants' information, and the weight a reasonably prudent man would have placed on the statements of the officers of the Union Trust Company. The fact that the reputation of the Union Trust Company was good did not relieve the defendants from the duty of approving the securities which they accepted; indeed, it did not increase or diminish their duty. But this good reputation is evidence for you to consider along with all the other evidence in the case, both on the question of whether the defendants used due care in approving these securities and in managing the trust fund. By the contract of March 29th the defendants undertook to hold the securities deposited with them for the benefit of the certificate holders, and this undertaking carried with it the duty to use such care in the management of these securities after they received them as a reasonably prudent man would use under the same circumstances; and in considering this question you should take into account, together with all the other facts and circumstances in the case, the purposes for which the defendants were holding them, and that the defendants were not to collect interest or dividends upon them unless the Union Trust Company made default in payments to...