Fillebrown v. Hayward , 190 Mass. 472 ( 1906 )

Braley, J.

In accordance with a stipulation of the parties the findings of fact in the first paragraph are to be taken as true. If so, it follows that during a period of nearly two and one half years in which the defendant was treasurer of the corporation her salary was increased annually by vote of the board of directors, until it reached an amount which the plaintiffs contend was largely disproportionate to the value of any services rendered.. But if the amount of compensation compared with her actual duties seems to be unduly large, yet it is stated in these findings that she and the directors acting in good faith regarded the salary as a fair valuation of her services to the company, which during this time was doing a profitable and extensive business. Being a domestic corporation, and no vote of the stockholders or by-law appearing which limited their power, the directors had authority to establish a reasonable salary for the. services of the treasurer. Pub. Sts. c. 106, § 23. Tripp v. Swanzey Paper Co. 13 Pick. 291. Von Arnim v. American Tube Works, 188 Mass. 515.

That she was a member of the board, which also included her daughter, would not invalidate its action, for there is no evidence of any purpose to appropriate corporate px-ofits unlawfully under the guise of salary, the abstraction of which would impair either the solvency of the company, or the right of minority stockholders to a reasonable division of surplus earnings in dividends. Gay v. Fair, 175 Mass. 521, 527. Von Arnim v. American Tube Works, ubi supra.

If the money thus obtained had been taken wrongfully, the corporation, or upon its bankruptcy the plaintiffs, could recover back any excess beyond such sum as would have afforded a reasonable remuneration during the time she perfoxmxed the duties of the office. But as no fx-aud, actual or constructive, is found, and the transaction was entex'ed into honestly, the defendant is not obliged to make any reimbursement. Fort Payne Rolling Mill v. Hill, 174 Mass. 224. Marlborough Association v. Peters, 179 Mass. 61. King v. Cram, 185 Mass. 103, 104.

The question, however, of most consequence remains for consideration, concerning which the stipulation further provides that the facts set forth in the second paragraph of the findings are to be deemed true, unless modified or reversed by the evidence which has been reported on this part of the appeal. Unless plainly wrong these findings are to be considered as conclusive. Skehill v. Abbott, 184 Mass. 145, 147.

After the period of service had expired to which reference already has been made, the defendant having resigned her offices as treasurer and director sold her stock in the corporation to one Cable, who then was not only treasurer and president, but with the acquiescence of the directors also acted as manager of the corporation with a general control of its affairs.

If thereafter there was any failure on the part of the board of directors properly to discharge the functions of their office this delinquency is not shown to have been brought to the knowledge of the defendant.

Upon the purchase of this stock Cable made a large money payment and gave her his promissory notes for the balance, so divided that one of them should mature at the beginning of each month for a period of five years.

It was undisputed that upon these notes as they severally matured at least the sum of $13,000 was paid by checks drawn by him from time to time on the treasury of the corporation. The books of account disclose in detail the number and amount of these checks, and a balance was always struck by crediting as expense a lump sum sufficient to offset the debit items.

In his dealings, although in a few instances he caused the checks to be made payable to the order of the bookkeeper who indorsed them either to himself or to the defendant, and upon one occasion the check was made payable directly to her order, this course of dealing was uniformly followed. An examination properly conducted would have shown that when these monthly payments were received as between Cable and the company his account would have appeared to have been constantly overdrawn, but the defendant had no actual knowledge of this condition of affairs, or that the money she was receiving came clandestinely from the corporation rather than lawfully from him. The plaintiffs strenuously contend that notwithstanding this, the form of the checks should have suggested to her that he was misappropriating the funds of the company, and therefore she should be charged with constructive notice that he was using corporate assets for the payment of his maturing notes.

The early doctrine on this subject so far as it relates to negotiable paper is found in Ayer v. Hutchins, 4 Mass. 370, 372, and in Thompson v. Hale, 6 Pick. 258, 261, where it is said that circumstances which ordinarily would excite the suspicions of a reasonably prudent and careful man were sufficient to put the party receiving negotiable paper not overdue upon his inquiry as to suspicious defects or infirmity of title in the prior holder. See also Cone v. Baldwin, 12 Pick. 545, 546.

The rule thus formulated gave way later to what has been called the modern doctrine, that neither knowledge of suspicious circumstances, nor doubts as to the genuineness of the title, nor gross negligence on the part of the taker either singly or together are sufficient to defeat the holder’s recovery, unless amounting ■ to proof of want of good faith. Smith v. Livingston, 111 Mass. 342. Freeman's National Bank v. Savery, 127 Mass. 75, 79. Boston Steel & Iron Co. v. Steuer, 183 Mass. 140. Massachusetts National Bank v. Snow, 187 Mass. 159. Goodman v. Harvey, 4 Ad. & El. 870. Murray v. Lardner, 2 Wall. 110. Hotchkiss v. National Banks, 21 Wall. 354. Lytle v. Lansing, 147 U. S. 59. Jones v. Gordon, 2 App. Cas. 616, 628, 629. See also Jones v. Smith, 1 Hare, 43.

At the time the first note of the series matured and the first check in payment was given the St. of 1898, c. 533, commonly known as the negotiable instruments act, now R. L. c. 73, had become operative. By § 56 of the original act, now § 73 in the revision, the common law rule shown by these decisions relating to implied notice to the purchaser for value of negotiable paper of a defect in the title of a previous owner was codified. The plaintiffs, therefore, cannot recover the proceeds of the checks unless the defendant took them in bad faith, and this inquiry is a question of fact. St. 1898, c. 533, § 56. First National Bank of Chelsea v. Goodsell, 107 Mass. 149. Smith v. Livingston, 111 Mass. 342. Freeman's National Bank v. Savery, 127 Mass. 75. Spaulding v. Kendrick, 172 Mass. 71.

If each check was signed by him as treasurer this of itself was not such an affirmative representation as to indicate that he was acting in a fiduciary capacity by which his authority was restricted and limited, as authority to draw and issue checks in the name of the corporation was incidental to his office, and the holder in due course of business would receive them under a presumption that they were issued lawfully. Shaw v. Spencer, 100 Mass. 382, 393. Merchants' National Bank v. Citizens' Gas Light Co. 159 Mass. 505, 507. O'Herron v. Gray, 168 Mass. 573. Compare Kneeland v. Braintree Street Railway, 167 Mass. 161, 162.

While the defendant may be held to have known that by purchasing her stock Cable had acquired control of the corporation, there does not appear to have been any reasonable ground for an assumption on her part that its business under his management was not profitable, or had been impaired and then ruined, until the company’s assignment for the benefit of its creditors was announced. Before her retirement for at least two years they had been associated in conducting its business affairs, and neither during this period nor after her withdrawal is it shown that there was anything in his conduct indicating to her that he was dishonest or incompetent. There was therefore no reason why she should not have retained her confidence in him, and even if her former experience had made her familiar with the duties of. the office which he held, it could be found that she received the checks without realizing the possible fact that notwithstanding their form they were drafts upon the funds of the company in payment of her own debt.

It is more than probable that as note after note matured and payments were made in this manner she gave no thought to the general transaction except to get her pay, but, if so, she still may have inferred that the money so appropriated was in payment of his own salary, or otherwise was being withdrawn lawfully. See Fay v. Nolle, 12 Cush. 1, 16,17. But while she may have been incautious and unsuspecting where others more accustomed to mercantile affairs might have been mistrustful, there is no evidence that at any time she was possessed of any knowledge of what undoubtedly to a certain extent was an embezzlement on his part, or that, having doubts as to how he obtained the money, she deliberately decided for her own advantage not to make any inquiries to ascertain why instead of paying with checks drawn on a bank account of his own, or in money, he used checks issued by him as treasurer, although if such conduct had been shown then it might be inferred that she ignored significant facts with a purpose to know anything more, and this would have been enough to indicate that suspecting something was wrong, she intended to avoid the effect of the evidence. Kettlewell v. Watson, 21 Ch. D. 685, 706.

But having taken before maturity for a valuable consideration negotiable paper which was regular upon its face, without knowledge of any defect in the title, even if there might have been some circumstances which would have raised doubts in the mind of a more prudent person, the defendant’s right to retain the proceeds of the cheeks cannot be divested without proof that she knew, or in the face of facts sufficient to put her upon inquiry purposely refrained from knowing of the fraud of Cable; although if obliged to bring suit upon the checks, after evidence had been introduced in’ defence that they had been fraudulently issued, the burden would have remained upon her to prove that she was a holder in good faith and for value. Bill v. Stewart, 156 Mass. 508. Massachusetts National Bank v. Snow, 187 Mass. 159. Holden v. Phœnix Rattan Co. 168 Mass. 570. Tatam v. Haslar, 23 Q. B. D. 345.

While the form of procedure does not change this rule, we fail to find anything in the evidence reported sufficient to modify or overcome the conclusions of fact reached by the tidal court, which determined that the defendant had sustained this burden.

jDecree affirmed.