Snow v. Merchants Nat. Bank of New Bedford

• Decision Date: 24 June 1941
• Parties: SARAH H. SNOW v. THE MERCHANTS NATIONAL BANK OF NEW BEDFORD.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

309 Mass. 354

35 N.E.2d 213

SARAH H. SNOW v. THE MERCHANTS NATIONAL BANK OF NEW BEDFORD.

Supreme Judicial Court of Massachusetts, Bristol.

June 24, 1941

October 28, 1940.

Present: FIELD, C.

J., DONAHUE, DOLAN COX, & RONAN, JJ.

Bank and Banking. Fiduciary. Agency, Scope of authority, Deceit. Contract Performance and breach. Evidence, Opinion: expert Cumulative. Practice, Civil, Exceptions: whether error harmful. Error, Whether harmful. Witness, Expert.

Although, on uncontradicted findings by an auditor, a finding was warranted that a bank officer acted within his ostensible authority for it in his dealings respecting investments with one of the bank's customers, an elderly widow uninformed in financial matters, a further finding would not have been warranted that the bank through the officer was guilty of any deceit or bad faith toward the customer or breach of any contract to give her sound, unbiased advice.

Uncontradicted findings by an auditor would not have warranted a finding that a bank, in buying and selling securities for an elderly widow, uninformed as to financial matters, through an investment department which it maintained under an arrangement with an investment concern, was acting, or could reasonably have been thought by the customer to have been acting, in a fiduciary capacity toward her.

No prejudicial error appeared in the exclusion of certain evidence after it had been admitted de bene, where it appeared that it was merely cumulative on an issue in effect treated by this court as having been proved by the excepting party.

No error appeared in the exclusion of opinion testimony on the ground that the witness was not qualified.

CONTRACT OR TORT with a declaration as amended in three counts. Writ in the Superior Court dated November 1, 1933.

The case was tried before Dillon, J., who ordered a verdict for the defendant and reported the case.

J. C. Jones, Jr., for the plaintiff.

J. C. Reilly, (J.

D. Kenney with him,) for the defendant.

DOLAN, J. This is an action of tort or contract which arises out of various transactions between the plaintiff and the defendant as a result of which the plaintiff claims to have been damaged. The declaration is in three counts.

The first count is in contract and alleges in substance that the defendant, standing in a fiduciary relationship to the plaintiff, undertook to give her sound and unbiased advice with reference to securities and investments, that for its own secret profit it established a bond department "so called," and wholly unmindful of the existing fiduciary relationship, and its contractual obligations, entered into contracts or arrangements with a brokerage firm (Harris, Forbes & Company, Incorporated) through which it secretly profited in connection with the purchase and sale of securities by the plaintiff made upon unsound and biased advice of the defendant, to her loss. The second count is in tort and contains allegations which are substantially the same as those in the first count. The third count alleges deceit in that the defendant made fraudulent representations which the plaintiff relied upon to her own detriment and the defendant's gain. The defendant's answer is a general denial. The case was referred to an auditor who found for the defendant. Thereafter the case was tried to a jury on the auditor's report and other evidence introduced by the plaintiff. The defendant offered no evidence either before the auditor or at the trial before the jury, and during the course of the trial before the jury the plaintiff excepted to the exclusion of certain evidence. At the close of the plaintiff's case the defendant rested and moved that a verdict be directed for it. The motion was allowed, and the case now comes before us on the report of the judge.

The evidence in its aspect most favorable to the plaintiff would warrant the jury in finding the following facts: The plaintiff is a widow seventy-seven years of age. She had no "school education" after she was "sixteen" and married when she was "twenty-one." She became a widow in 1905. By inheritance she was possessed of various stocks and bonds. From 1881 up to 1932 she had banking connections only with the defendant. She was not well informed in the matter of investments. She did know that bonds were better than stocks "because if a firm went out of business the money for the bonds was paid before the money for the stocks." She cut coupons on bonds when due. She did not know what an "overdraft at a bank is.

" From 1927 to 1932 she had no particular knowledge of the securities involved. She had some knowledge of "one or two of the . . . old things . . . [she] inherited." She did not know how to find the price at which bonds or stocks were selling. She had visited certain stock exchanges.

One Leland became president of the defendant bank a few years before 1927. Prior to that time the plaintiff consulted with one Mosher, who was then president of the bank, about buying and selling securities. It was her custom to take all papers sent to her about the purchase of stock to Mosher. "She took his advice" which was freely given and just as freely accepted and acted upon. Mosher introduced the plaintiff to Leland when he became president of the bank and said, in effect, that Leland, as representative of the bank, would take care of her. Leland asked her to come to him if she needed his or the bank's assistance. Thereafter, and until some time in April, 1932, the plaintiff consulted Leland with regard to her financial affairs and transactions and relied upon his advice relative to the purchase and sale of securities. She always consulted him at the bank. He never visited her home. There was no evidence that any of the directors of the bank knew, either before or after April 4, 1927, that the plaintiff was receiving advice from Leland and was relying on him for advice in relation to buying and selling securities, though they knew that prior to 1927 the bank's customers habitually sought advice of its officers as to investments. On April 4, following a vote of March 22, 1927, the directors of the bank established a "bond department" in accordance with a plan submitted to them by Leland. This action was recommended by Leland to save the time of bank officers, much of which had been consumed formerly by persons seeking advice with regard to investments. The directors knew that the function of the new department was to deal with investments for the bank's depositors.

The bond department, also known as the "investment department," was organized under the terms of an agreement with the brokerage house of Harris, Forbes & Company,

Incorporated, by which the department was to be in charge of an agent of the latter. The defendant agreed to provide space in the bank and also clerks and stenographic help when needed. On sales made to the bank's customers the Harris Forbes company was to pay commissions to the bank. From April, 1927, through April, 1932, the bank received $23,850.29 in these commissions, which included $1,353.40 on sales made to the plaintiff. There was no discussion between her and Leland with reference to the payment of commissions by the Harris Forbes company to the bank. It was also agreed that, if the Harris Forbes company business increased in New Bedford through the bank's customers, "the bank would receive participation in selling group issues put out by Harris Forbes." It did receive such "participations, and this compensation was over and above the ordinary commission allowed the ordinary stock broker." Bonds purchased by the bank under the selling group arrangement were in some instances bought for its own account, and in others were disposed of by the bond department. "In some instances some of the bonds purchased under these selling group arrangements were disposed of by sale by the bank" to the plaintiff. There is no evidence that the price paid by her for these bonds exceeded the market price at the date of purchase by her. Some of the directors knew that the bank was receiving commissions on sales to the bank's customers from Harris, Forbes & Company, Incorporated. Earnings of the bond department were entered in the bank's general ledger. Monthly statements from the Harris Forbes company to the bank showed in detail the commission it paid the bank when the plaintiff was "buyer or seller." On April 12, 1927, the bank had given the plaintiff a receipt for her securities which read, "to be held at present and probably sold a little later by Mr. Leland." The receipt was signed "The Merchants National Bank of New Bedford, by L. A. Potter."

It was the practice of the bank, prior to 1927, to charge a commission for purchases of securities made for its customers, but up to that time none of the statements received by the plaintiff indicated that the defendant was charging her commissions on purchases made for her. After the establishment of the bond department and the plaintiff had made purchases of securities, the sales to her would sometimes be confirmed...