Union Old Lowell Nat. Bank v. Paine

• Decision Date: 04 June 1945
• Citation: 318 Mass. 313,61 N.E.2d 666
• Parties: UNION OLD LOWELL NAT. BANK v. PAINE et al. BROWN et al. v. UNION OLD LOWELL NAT. BANK.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

318 Mass. 313

61 N.E.2d 666

UNION OLD LOWELL NAT. BANK

v.PAINE et al.

BROWN et al.

v.UNION OLD LOWELL NAT. BANK.

Supreme Judicial Court of Massachusetts, Suffolk.

June 4, 1945.

Action of contract or tort by Union Old Lowell National Bank against F. Ward Paine and others, and an action by Paine, Webber & Co. against Union Old Lowell National Bank, and action by Frank H. Brown and others against the Union Old Lowell National Bank. The cases were referred to an auditor who filed a report. The bank filed a motion in each case for judgment on the auditor's report and such motions were allowed, and Paine Webber appeals.

Affirmed.Appeals from Superior Court, Suffolk County; Cabot, Judge.

Before FIELD, C. J., and LUMMUS, QUA, and WILKINS, JJ.

W. P. Everts, of Boston, for Paine and others.

W. B. Luther, of Boston, for Union Old Lowell Nat. Bank and R. B. Walsh.

WILKINS, Justice.

Union Old Lowell National Bank (hereinafter called the bank) brings an action of contract or tort against the members of a firm of stockbrokers, known as Paine, Webber and Company (hereinafter called Paine Webber), for money had and received or for conversion of securities. Paine Webber brings an action of contract against the bank for the purchase price of certain bonds. The cases were referred to an auditor, who filed a report. It was then stipulated that his findings of fact should be final. The cases were recommitted three times to the auditor, who filed three supplemental reports, the first and second of which were in effect superseded by the third, to which were appended objections brought in by Paine Webber, and a summary of evidence on certain issues pursuant to court order. The bank filed a motion in each case for judgment on the auditor's report. The motions were allowed by a judge, who in the action by the bank against Paine Webber ‘found’ for the plaintiff on the contract counts, and in the action by Paine Webber against the bank ‘found’ for the defendant. Paine Webber appealed. G.L.(Ter.Ed.) c. 231, § 96.

The auditor's report was in effect a case stated, and the action of the judge thereon an order for judgment in each case. Edinburg v. Allen-Squire Co., 299 Mass. 206, 207, 12 N.E.2d 718;Mason v. Wylde, 308 Mass. 268, 270, 32 N.E.2d 615. The scope of review in this court upon a case stated has been repeatedly decided. It was the duty of the judge, and is now our duty, to enter the correct judgment on the auditor's report. Redden v. Ramsey, 309 Mass. 225, 227, 34 N.E.2d 648;Battista v. F. W. Woolworth Co., 317 Mass. 179, 57 N.E.2d 552. We are in the same position as to both fact and law as was the judge below. Howell v. First of Boston International Corp., 309 Mass. 194, 196, 34 N.E.2d 633. The auditor's findings of subsidiary facts must stand unless there was no evidence in law sufficient to warrant them, but conclusions of fact by way of inference from such findings are open to revision here. United States Fidelity & Guaranty Co. v. English Const. Co., 303 Mass. 105, 108-110, 20 N.E.2d 939;Keefe v. Johnson, 304 Mass. 572, 573, 24 N.E.2d 520;Galluzzi v. City of Beverly, 309 Mass. 135, 34 N.E.2d 492;Lewis v. Conrad & Co., Inc., 311 Mass. 541, 542, 543, 42 N.E.2d 732;Mahoney v. C. & R. Const. Co., 311 Mass. 558, 559, 42 N.E.2d 255;Harsha v. Bowles, 314 Mass. 738, 739, 740, 51 N.E.2d 454;Caissie v. Cambridge, 317 Mass. 346, 347, 58 N.E.2d 169;Benjamin Foster Co. v. Commonwealth, 318 Mass. 190, 61 N.E.2d 147. Cases relied upon by the bank as plaintiff as tending to support the proposition that upon a case stated this court is bound by the trial judge's inferences of fact unless unwarranted in law may no longer be cited as authorities to that effect, as was pointed out in United States Fidelity & Guaranty Co. v. English Const. Co., 303 Mass. 105, 109, 20 N.E.2d 939. See Howell v. First of Boston International Corp., 309 Mass. 194, 196, 34 N.E.2d 633.

The First Case.

The auditor found that ‘upon all the evidence * * * every allegation of fact contained in the bank's declaration is borne out by the evidence.’ This places upon us the burden of searching through the declaration, and segregating the allegations of fact. For many years one Ivan O. Small was vice-president of the bank, and in connection with his duties from time to time received from its customers securities for ‘holding, exchanging or selling * * * and reinvesting the proceeds for the benefit of said customers.’ Two such customers were Mrs. Katherine L. Welch and Miss Mary E. Lennon, who, on various dates between September 12, 1933, and June 6, 1934, delivered to Small ‘as representative’ of the bank certain bonds ‘for the purpose of exchange or sale and reinvestment.’ Without the authority or knowledge of the bank or of these customers, as Paine Webber ‘through their agents well knew,’ Small pledged the bonds with Paine Webber as collateral security for a margin account he opened. From time to time beginning in September, 1933, Paine Webber, upon the orders of Small, sold certain bonds, and out of the proceeds bought for Mrs. Welch and Miss Lennon other bonds, some of which were respectively given to them and some of which were sold for reinvestment. In July, 1934, Mrs. Welch and Miss Lennon discovered that their bonds had been pledged, and demanded them and their respective balances of uninvested proceeds from Paine Webber, who complied as to the bonds still in their possession, but refused to pay the balances. Mrs. Welch and Miss Lennon then demanded the amounts of the balances from the bank, which thereupon paid them. As conclusions of law, it is alleged that Paine Webber was liable to Mrs. Welch and Miss Lennon for money had and received to their use, ‘the right to receive which * * * passed’ to the bank, and that the bank, ‘by reason of said payment, succeeded to all the rights' of Mrs. Welch and Miss Lennon against Paine Webber. The allegations of law we may disregard as surplusage. Jones v. Dow, 137 Mass. 119, 121;Gallo v. Foley, 299 Mass. 1, 4, 11 N.E.2d 803;O'Connor v. City of Brockton, 308 Mass. 34, 37, 30 N.E.2d 842. Moreover, upon a case stated, all questions of pleading ordinarily are waived. Nowell v. Equitable Trust Co., 249 Mass. 585, 596, 144 N.E. 749;Markus v. Boston Edison Co., 317 Mass. 1, 7, 56 N.E.2d 910. The only question open is whether the plaintiff can recover in any form of action. G. E. Lothrop Theatres Co. v. Edison Electric Illuminating Co., 290 Mass. 189, 191, 195 N.E. 305. This rule applies to the report of an auditor whose findings of fact are final. Kennedy v. B. A. Gardetto, Inc., 306 Mass. 212, 220, 221, 27 N.E.2d 957, 129 A.L.R. 453.

The auditor's original report contained further findings. Small was ‘executive’ vice-president of the bank, in charge of its management and carrying out policies under the direction of the president, John Sawyer, and had practically exclusive control of buying and selling securities for the bank's customers. In 1933, Small embarked upon ‘a scheme of fraud and deception,’ to make which effective it was necessary to keep the transactions secret from the bank officials, and at the same time preserve a feeling by customers that Small was in fact acting as vice-president and as the bank's authorized agent. Accordingly, he ‘abandoned’ an account with Paine Webber which required no collateral, and on August 21, 1933, opened the margin account with Paine Webber. The account was first entitled ‘Ivan O. Small C/o Union Old Lowell National Bank, Lowell, Massachusetts.’ Later the words ‘Customers' A/C’ were added after ‘Ivan O. Small.’ Still later, on April 3, 1934, Small sent to one Gately, an employee of Paine Webber in charge of the margin department, the following letter: ‘Dear Sir: The account standing in the name of Ivan O. Small ‘Customers Account’ on Paine Webber & Co. books is simply a clearing account for securities bought and sold for my customers. Yours very truly, Ivan O. Small.' This was sent because of an inquiry made of Small ‘evidently by Gately’ following a discussion by two partners of Paine Webber arising out of a question asked by their auditor. ‘It is perfectly apparent from an examination of the account itself, even prior to the writing of the letter of April 3, 1934, that the account * * * was, in fact, a margin account, that Small was using the securities entrusted to him by the customers of the bank for his own purposes and to his own ends and that this situation was known to responsible employees of Paine, Webber & Co.’ One Holdsworth, a salesman of Paine Webber, was introduced at the bank by Small to Mrs. Welch and Miss Lennon as ‘a very able representative of Paine Webber’ who would work with Small to try to increase the value of their securities and their income. In reliance thereon Mrs. Welch and Miss Lennon ‘entrusted to Small as vice-president of the bank, as Holdsworth well knew, their securities for purposes of investment. Holdsworth at all times knew that Small was engaged in doing and assisted in the concealment of the affairs and manipulations of Small from the bank. * * * Small's position as vice-president of the bank was known to Paine, Webber & Co. He was regarded by Holdsworth as ‘the king who could do no wrong.’ As executive vice-president Small was possessed of wide powers.' The securities purchased in the account were uniformly inferior, and ‘sounded definite and continued warnings to Paine, Webber & Co. that Small was engaged in speculation.’ Paine Webber allowed Small to make withdrawals both by check and in cash. In January, 1934, the mailing address of statements of the account was changed from Small in care of the bank to Small's private post office box in Chelmsford. After July, 1934, when Small went to Arizona and the bank notified Paine Webber that Small had resigned as vice-president, the statements were held in the office of Paine Webber under direction of Holdsworth. There was no ‘revelation’ to the bank of the existence of the account by Paine...