Tremont Trust Co. v. Noyes

• Decision Date: 13 September 1923
• Citation: 246 Mass. 197
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: TREMONT TRUST COMPANY v. GILBERT H. NOYES & others.

246 Mass. 197

TREMONT TRUST COMPANY v. GILBERT H. NOYES & others.

Supreme Judicial Court of Massachusetts, Suffolk.

September 13, 1923

April 12, 1923.

Present: RUGG, C.

J., BRALEY, CROSBY PIERCE, & CARROLL, JJ.

Bills and Notes Consideration, Validity. Fraud. Trust Company. Evidence Presumptions and burden of proof. Estoppel. Agency, Fraud of agent. Corporation, Officers and agents. Contract, What constitutes, Implied.

The active manager of a trust company, who was one of its vice-presidents, a member of its board of directors and of the executive committee of the board, caused his son, its treasurer fraudulently to fill in blanks, in a note signed by another member of the executive committee and sent to the treasurer for the purchase of shares of its stock, so that the amount was ten times what was authorized by the signer and the note was a joint and several instead of the single obligation authorized, and then signed it himself and caused it to be signed by six other directors, upon representations that it was to be used to purchase shares of stock which he had been carrying in his own name for the company. The note then fraudulently was placed in the savings department of the trust company in payment of a personal note of the manager secured by an unrecorded mortgage of real estate and the note and mortgage were given up by the company. In an action by the trust company against the makers of the note, a verdict for the plaintiff against the active manager of the trust company and verdicts for the other defendants were ordered. Held, that

(1) A verdict properly was ordered for the plaintiff against the active manager, there being no evidence to rebut the presumption of fact that the note was issued for a valuable consideration as to him, and there being express evidence showing such consideration; and he being estopped by his own conduct to deny his liability;

(2) If it was found that the treasurer in the fraudulent transactions as to the note was acting solely as an officer of the plaintiff and not in an independent fraud for his own or his father's benefit, the plaintiff was bound by his acts and could not recover against the makers other than the active manager;

(3) If it was found that the treasurer was a mere tool of his father, the active manager, or acting in collusion with him for his benefit and thus committing an independent fraud on his own account although in the interest of another, the father and son alone represented the plaintiff in the transaction and, although they were perpetrating a fraud, the plaintiff could not claim the advantages of their fraudulent acts without assuming the imputation of their knowledge, and all the other makers of the note would be exonerated;

(4) The verdict for the defendants other than the active manager properly was ordered;

(5) The fact, that the plaintiff gave value for the note in suit by the surrender of the earlier note of the active manager secured by the unrecorded mortgage, was not sufficient to show that it was a holder in due course, such surrender being a part of the fraudulent scheme to which the other makers of the note were not parties;

(6) The defendants other than the active manager were not bound to put the plaintiff in statu quo by restoring to it the note and unrecorded mortgage which had been surrendered for the note in suit.

At the trial of the action above described, it appeared that the entries on the books of the plaintiff as to the transactions relating to the note were made by an employee who received the note and filed it in the savings department, and there was evidence that he was in charge of the savings department but there was no evidence touching his authority or official position as to the business of the plaintiff except the testimony of the fraudulent treasurer to the effect that in all matters relating to this note the employee acted under his direction. It also appeared that the investment committee of the plaintiff approved of the note, but not until forty-five days had elapsed after it had been discounted by the plaintiff. Held, that the circumstances, under which the entries were made on the books of the plaintiff and the note was approved by the security committee, did not relieve the plaintiff of the necessity of bearing the burden of the fraud of the treasurer and of the active manager when it sought to collect the proceeds of the note resulting therefrom.

In the circumstances above described, the fact that some of the signers of the note were members of the plaintiff's executive committee did not relieve the plaintiff from the fraud of its agent or agents.

At the trial of the action above described, it appeared that, after the treasurer of the plaintiff fraudulently had filled in the blank spaces in the note above the signature of the member of the executive committee who had delivered it to him for another purpose, the treasurer presented it to other members of the committee for their signatures and at the same time presented to them and procured their signatures upon a trust agreement, to which the plaintiff was not a party, placing the shares of stock, which, it was represented, were being taken over from the active manager, in the name of such manager as trustee to receive the dividends, to pay them on account of the note and interest, and, when the note was fully paid, to divide the shares among those named as beneficiaries under the agreement. The member who originally had delivered the note in blank to the treasurer was named in the body of the agreement as a beneficiary, but he did not sign it and knew nothing of it. Held, that, in the circumstances, the fact that the others signed the agreement did not make them liable as makers of the note.

One of the makers of the note was another son of the active manager of the plaintiff and also was its general counsel. Over two months after the note was discounted by the plaintiff and nearly a month after it was approved by the plaintiff's investment committee, he cooperated with his father in a letter to the commissioner of banks in which occurred the statement: "Complying with your request, I am here, to the best of my knowledge and belief, naming the makers, amounts and particulars of the notes about which you have made inquiry from me. Note of . . . [naming those whose signatures were upon the note] in the sum of $25,000. The makers are all known to you." Held, that such participation alone did not estop the general counsel from relying on the defences available to the defendants other than the active manager.

The plaintiff was not a holder in due course of the note as to any defendant except the fraudulent active manager,

Upon the evidence above described, the action could not be maintained either upon a count in the declaration alleging that at the request of the defendants the plaintiff had applied assets of its savings department to the purchase of shares of its stock for them and that the defendants had received such shares and severally had agreed to pay the plaintiff therefor, nor upon a count alleging that the plaintiff had paid money "to the use of" the defendants.

CONTRACT against Gilbert H. Noyes, Simon Swig, John P. Feeney, David I. Robinson, Michael Regan, Harry Roberts, Frederick E. Pierce and Louis Swig, with a declaration, as amended, in three counts. In the first count the plaintiff declared against the defendants as makers of the promissory note described in the opinion. In the second count the plaintiff alleged, "that at the request of the defendants it applied assets of its savings department of a value of $25,000 to the purchase of two hundred shares of its stock for the defendants, and the defendants received said shares and severally agreed to pay the plaintiff therefore the sum of $25,000 with interest on demand," which they had failed and refused to do. In the third count, the plaintiff claimed $25,000 as money paid by the plaintiff "to the use of" the defendants. Writ dated August 15, 1921.

The defendant Robinson died, and the action was discontinued as to him. In the Superior Court, the action was tried before Morton, J. Material evidence is described in the opinion. At the close of the evidence, the judge ordered a verdict for the plaintiff against the defendant Simon Swig for $26,250 and for the defendants Noyes, Feeney, Regan, Roberts, Pierce, and Louis Swig and reported the action to this court for determination, with the stipulation that, if his rulings were correct, judgments were to be entered on the verdicts; and, if his rulings were wrong, there was to be a new trial.

The pertinent statutory provisions in the General Laws being in every material particular the same as those in force at the date of the note, the statutory references in the opinion for the sake of convenience are to the General Laws only.

The case was submitted on briefs.

R. G. Dodge & R.

S. Wilkins, for the plaintiff.

H. Le B.

Sampson & M. A. Shattuck, for the defendant Noyes.

J. H. Vahey & P.

Mansfield, for the defendant Feeney.

F. J. Lawler, for the defendant Pierce.

G. L. Mayberry, L.

A. Mayberry & W.

F. Levis, for the defendant Louis Swig.

RUGG, C.J. This is an action of contract. There are three counts in the declaration. The first count is on a joint and several promissory note dated January 7, 1919, signed by all the defendants as makers, payable to the order of the plaintiff. The second count alleges that the plaintiff at the request of the defendants applied $25,000 of its savings department assets to the purchase of two hundred shares of its stock for the defendants, which the defendants received and agreed to pay to the plaintiff therefor on demand, and that demand has been made and payment refused. The third...