Putnam v. Handy

247 Mass. 406 | Mass. | 1924

Braley, J.

The defendant having waived his exceptions to the master’s report and not having appealed from the interlocutory decree confirming the report, the question for decision is, whether, on the pleadings and the report, with such reasonable inferences of fact therefrom as the trial court could draw, the final decree should be reversed. Forino Co. Inc. v. Karnheim, 240 Mass. 574, 580.

The plaintiff is the duly appointed trustee in bankruptcy of the United States Leatheroid and Rubber Company, a domestic corporation which was adjudged a bankrupt on May 4, 1921. The defendant, who was a director and president of the company, while not responsible for errors of judgment, was a fiduciary charged with the duty of caring for the property of the corporation and of managing its affairs honestly and in good faith. If this duty has been so violated as to result in impairment of assets, or loss of its property, or of profit to himself, he can be compelled to make full restitution. United Zinc Co. v. Harwood, 216 Mass. 474, 476, and cases cited, Lazenby v. Henderson, 241 Mass. 177.

The company, which the master finds “ at all times . . . was insolvent,” owed the defendant over $80,000, and on February 11, 1921, with knowledge of the company’s financial condition, and of the indebtedness due to other creditors, he caused all its tangible personal property except that which was covered by mortgage to be attached, and a keeper placed in charge.

It may be said at the outset that in what subsequently took place under the attachment, Handy is bound by the knowledge of his counsel within the scope of his employment. Raynes v. Sharp, 238 Mass. 20.

Handy’s counsel on March 17, 1921, requested the attaching officer to sell the property, attached in the action against the corporation, as perishable under G. L. c. 223, § 88. The officer’s return shows that under the proceedings required by § § 89, 91, 92, Handy chose one of the appraisers who had been the keeper, the officer chose an appraiser “ to represent the defendant, the defendant not appearing,” and also selected the third [the corporation] appraiser. The defendant company, an interested party, was entitled under § 89 to notice of the proposed sale. Pollard v. Baker, 101 Mass. 259, 261. But the master reports that he cannot determine whether the directors had such notice, and he finds that of the appraisers, the appraiser selected by Handy was alone qualified to determine the value of the property. It is also found that the company did not defend the action, and that counsel were not retained to protect its interests. The master further finds that in fact the property was not perishable, and the expense of a keeper was merely nominal. In this connection, and as bearing on the conduct of Handy, the following finding is made: “that the usual method of conducting a sheriff’s sale of goods in attachment is to post a notice, but that sometimes, though not often, a sale is advertised ... in the newspapers, but . . . the only notice was by posting in the town hall . . . forty-eight hours before the sale.” It appears from further findings, that the property, which was worth $10,043.21, was valued by the appraisers at $4,195, and was sold for $4,200 to an office associate and stenographer of defendant’s counsel. A corporation known as the Middlesex Rubber Company had been organized in the meantime by defendant’s counsel, to which the purchaser at the sale transferred the “ merchandise formerly owned” by the Leatheroid Company. Immediately following this transfer defendant’s counsel, who was the mortgagee in possession under foreclosure of a mortgage on the real estate and machinery of the Leatheroid Company, executed and delivered to the Middlesex Company a lease thereof, the rental being fixed at an amount equal to the interest on the bonds of the Leatheroid Company, to secure which the mortgage had been given. The bankrupt corporation, stripped of all available assets, thereupon ceased to transact business, and the Middlesex Company took possession of all its real and tangible property. The defendant was a holder of certain of the bonds secured by the mortgage, and the transactions above described enabled him even if he was not a director, officer or stockholder in the Middlesex Company, to obtain in common with other bondholders, the payment of interest as it fell due on the bonds.

What has been said sufficiently shows, that the interests of the corporation, which the defendant was bound reasonably to protect, and conserve, he deliberately sacrificed, or as stated in the report, he did not care “ what happened to the assets of the company.” United Zinc Co. v. Harwood, supra. Allen-Foster-Willett Co. petitioner, 227 Mass. 551. Cosmopolitan Trust Co. v. Mitchell, 242 Mass. 95, 120.

It is contended by the defendant, that the officer’s return showing his action on the attachment, which included the appraisal, is conclusive, and cannot be collaterally attacked. It is true, that in the absence of fraud, an officer’s return as between the parties and their privies, is conclusive as to all matters which are properly the subject of a return by him. United Drug Co. v. Cordley & Hayes, 239 Mass. 334. Crocker v. Baker, 18 Pick. 407, 412. But in the present case the entire proceedings were originated, and conducted by the defendant in such a manner, as to cause a very substantial loss to the company whose interests as we have said he was bound reasonably to protect. The officer’s return under such circumstances affords no justification for his own misconduct.

It is next contended, that, the corporation being without a remedy, the plaintiff cannot prevail. It is settled however that on the record the corporation would have been entitled to relief. Von Arnim v. American Tube Works, 188 Mass. 515. United Zinc Co. v. Harwood, supra. Cosmopolitan Trust Co. v. Mitchell, supra.

The trial court not only rightly declined to give the defendant’s first, second, third, eighth and ninth requests, but was justified in ordering the defendant to pay the plaintiff $5,843.21, the difference between the amount received at the sale by the officer and the value found by the master, with interest from March 30, 1921, the date of the sale. The decree must be affirmed with costs of the appeal.

Ordered accordingly.