USCA1 Opinion

United States Court of Appeals

United States Court of Appeals
For the First Circuit
For the First Circuit
____________________
No. 94-1670
INN FOODS, INC.,
D/B/A U.S. FOOD SERVICE,
Plaintiff, Appellant,
v.
EQUITABLE CO-OPERATIVE BANK,
Defendant, Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
___________________
____________________
Before
Torruella, Chief Judge,
___________
Cyr and Stahl, Circuit Judges.
______________
____________________
Peter L.

Koff with

whom Robert

J. Diettrich and

Davis, Malm

______________
____________________
___________
D'Agostine, P.C. were on brief for appellant.
________________
Antoinette D. Hubbard with whom Judith Gail Dein and Warner
______________________
_________________
______
Stackpole were on brief for appellees.
_________
____________________
February 1, 1995
____________________

STAHL,
STAHL,

Circuit Judge.
Circuit Judge.
______________

Plaintiff-appellant

Inn

Foods,

Inc. ("Inn Foods"), secured a default judgment in the

amount

of

$1,084,524.13

("Atlantic").
of assets

against

Brands,

Inc.

During discovery to determine the availability

to satisfy

the judgment,

Atlantic's president, Paget T.

a

Atlantic

$523,744.18

check"), payable

United

States

Inn Foods

learned that

Hodge ("Hodge"), had indorsed

Treasury

to Atlantic, for deposit

check

("Treasury

into his personal

account

at

defendant-appellee

("Equitable").

Equitable Co-operative

Bank

In the present case, Inn Foods seeks to reach

and

apply a never-asserted cause of action for conversion of

the

Treasury check

Equitable.

that

it contends

Atlantic has

against

Atlantic has never filed such a claim nor has it

ever indicated an

intent to do so.

Following cross-motions

for summary judgment, the district court entered judgment for

Equitable.

We affirm.
I.
I.
__
FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
________________________________________
In

the early

1980's,

Hodge

formed

Atlantic,

closely held corporation based in Boston, Massachusetts, with

Hodge serving as Atlantic's
of

Atlantic

obtained from

was
the

food

president.

distribution.

Department of

The primary business

In

1988,

Defense Personnel

Atlantic
Support

Center ("DOD") a contract to supply frozen vegetables to DOD.

Atlantic subcontracted some of

-22

its supply obligations to Inn

Foods,

a California-based

agreed

to provide

vegetables

to

wholesale

portion of

DOD,

thus

breached

supplier,

the contracted-for

partially

contract obligations with DOD.

food

fulfilling

which
frozen

Atlantic's

In November of 1988, Atlantic

its contract with Inn

Foods by failing

Foods for the vegetables it had delivered

to pay Inn

to DOD.

Inn Foods

then sued Atlantic for the amount due and, in March of

1989,

obtained a default judgment.

In

their

discovery

efforts

seeking

assets

satisfy the judgment, Inn Foods learned the following.

to

Hodge

maintained a personal checking account at Equitable, where he

had

been

regular

customer
knew

for

that

more

years.

officials

Atlantic.

On December 8, 1988, Hodge appeared at Equitable's

office in

Lynn, Massachusetts, where he

Treasury check which was

for

the vegetables actually

Equitable
personal
check

accepted
account.

The next

Equitable

for

Equitable's

Reserve
account.

Bank

DOD by

deposit

then issued

Hodge's account

of

Eventually,

Boston,

Inn Foods.

into

to Hodge

England in

day, Equitable took the Treasury

Federal

of

indorsed to himself

supplied to

Bank of New
debited

president

in partial payment to Atlantic

check

Equitable

payable to the

$450,000.

the

the

was

ten

Equitable

the

Hodge

than

Hodge's
a bank

the amount of
accordingly.

check directly to
which

Hodge withdrew

credited
from his

-33

personal account the balance

of the funds obtained

from the

Treasury check.
By
and

deposition,

treasurer,

Arthur

Equitable's senior
E.

Horgan, testified

"uncomfortable" about the Hodge

the

sum involved and the

Treasury
Horgan

check

into his

"contacted

personal

counsel

Equitable's
and

Hodge

and

resolution stating
Treasury
check

into

received

his

Atlantic

that he

personal

a resolution

was

had deposited the

account.
they

has authority

that Hodge

check and

he

As

a result,

suggested

we

get

vote from the company indicating

president, James

requested that

that

transaction in light of both

fact that Hodge

something, a certificate of
that

vice president

to

transact

G. Perkins, then
provide

was authorized

("resolution"),

called Hodge

written

had authority to

account.

business."

corporate
indorse the

to deposit

Thereafter,
dated

the

Perkins

December

17,

1988,

and

secretary,

signed by
which

Wallace

stated

Johnson, the

that

the Board

corporation's

of

Directors

of

Atlantic had unanimously:

VOTED:
That, Paget Hodge,
_____
President of Atlantic Brands,
Inc. is hereby authorized to
endorse
on
behalf of
the
Corporation any checks to his
order, said checks being drawn
or endorsed payable to said
Corporation, and deposit said
checks to his personal account.

-44

After
present action

Atlantic

defaulted, Inn

Foods

against Equitable and others1

judgment.

As

alluded

recovery

against

to above,

Equitable

First, Inn Foods argues

has

Inn
two

brought the

to satisfy its

Foods's

theory

of

principal

elements.

that Atlantic has a cause

of action

for conversion against Equitable under Mass. Gen. L. ch. 106,

3-419(1)(c).2

Second, as a judgment creditor, it seeks to

reach

and apply

Atlantic's unfiled

conversion claim.3

As

noted, Atlantic has never filed such a claim, nor has it ever
indicated
motions
court

an intent to do

so.4

for summary judgment.

denied

From the

Inn

The

parties entered cross-

After a hearing, the district

Foods's motion

and

bench, the court ruled that

not a forgery

"the [i]ndorsement was

and [Hodge] had apparent

[Atlantic] ratified his authority."

granted Equitable's.

authority and indeed

Alternatively, the court

____________________
1. Equitable is the only
appeal.

defendant that is a party

to this

2. This is a diversity-based action and both parties agree

that Massachusetts law applies.
This case is, in part,
governed by the Uniform Commercial Code ("the Code") as
adopted by Massachusetts and appearing at Mass. Gen. L. ch.
106.
References to this statute will be by section number
only.
3. Mass. Gen. L. ch. 214,
3(6) authorizes an action
creditors to reach and apply an unsatisfied debt.

by

4. From the record, it appears that Atlantic ceased to

function as an ongoing enterprise before the default judgment
occurred. As for Hodge, he was a named defendant below, but
failed to answer. Service of process on Hodge was made at
the Wormwood Scrubs prison in London, England.
-55

ruled that Inn

Foods could

putative cause of action.

not reach

and apply

Atlantic's

This appeal followed.

II.
II.
___
DISCUSSION
DISCUSSION
__________

Inn

Foods now

cause of action for

Hodge had

argues that:

(1)

nor apparent authority

the Treasury check and deposit it into

and (b) Atlantic did

of

apparently

action to reach

resolve
Atlantic

interesting
unsettled

to indorse

his personal account,

not ratify Hodge's actions; and

unfiled

Although the appeal raises a

issues,

questions

some
of

the appeal by concluding

ratified Hodge's

(2) it

and apply Atlantic's

cause of action for conversion.

number

conversion against Equitable because (a)

neither actual

may assert an

Atlantic has

of

which

involve

Massachusetts

that, as a

indorsement.

law,

we

matter of law,

Before

discussing

ratification, we recite the standard of review.

A. Standard of Review
______________________
Summary

judgment is

appropriate

when the

record

reflects "no genuine issue as to any material fact and

. . .

the moving party is entitled to judgment as a matter of law."

Fed. R.

Civ. P.

summary

judgment

56(c).
is

de
__

Our
novo.
____

review of
See,
___

an order
e.g.,
____

granting

Vasapolli v.
_________

Rostoff,
_______

39 F.3d

record in

27,

32 (1st

the light most

Cir. 1994).

favorable to the

We

review the

nonmoving party,

-66

and

we indulge

favor.

all

reasonable inferences

in that

party's

Id.
___

B. Ratification
________________
Inn
that Hodge was
to

Foods's conversion theory rests on the premise

not authorized to indorse

the Treasury check

himself for deposit into his personal account.

Under the

Code, conversion takes place when an instrument "is paid on a

forged

indorsement."

generally
where

3-419(c)(1).

been interpreted to
negotiable instrument

"unauthorized"

This

section

has

permit actions for conversion

has been

or a "forged" indorsement.

paid on

either an

D & G Equip. v.
_____________

First Nat'l Bank of Greencastle, 764 F.2d 950, 955

________________________________
1985)

(collecting

cases).

Signatures

on

(3d Cir.
commercial

instruments are "presumed to be genuine or authorized."

307(1)(b).5

Under

may be ratified"
but do not

the Code,

"[a]ny unauthorized

by the principal.

decide that Inn Foods

3-

signature

3-404(2).

We assume

met its initial burden

of

establishing that Hodge's signature on the Treasury check was

unauthorized when

presented.

Thus, we proceed

directly to

the question of whether Atlantic ratified Hodge's signature.

Unless

they

are

displaced

by

provision, general common law principles, including

particular
those of

____________________
5. The presumption remains "unless and until evidence is
introduced which would support
a finding of its nonexistence."
1-201(31).
-77

agency,

supplement the

Code.

1-103;

see also
___ ____

Terry v.
_____

Kemper Ins. Co., 456 N.E.2d 465, 467 (Mass. 1983) (Code does
________________
not

displace

settled

Massachusetts
express

or

principal

principles

law, ratification
implied

and,

must have

as

of agency
of an

Under

agent's acts

general

full knowledge

law).

may be

proposition,

of all

the

material facts.

See, e.g., Puritan Medical Ctr. v. Cashman, 596 N.E.2d 1004,

___ ____ _____________________
_______
1008 (Mass.

1992);

Perkins v.
_______

(Mass. App. Ct. 1981),

Rich,
____

415 N.E.2d

895,

aff'd, 429 N.E.2d 1135 (Mass.

_____

898

1982).

Massachusetts courts, however, do not always require that the

principal have
when the

actual knowledge.

There

principal "purposely shut[s]

information within

Cir. 1985) (quotation omitted);

1008

(ratification

directors have

his eyes to

his own possession and

v. Interstate Equip. Leasing Corp.,

________________________________

at

may be ratification

may

be

means of

control."

760 F.2d 364,

Torpey
______
365 (1st

see also Puritan, 596 N.E.2d

___ ____ _______
implied

"knowledge of such facts

where

corporation

or circumstances as

would put a reasonable person on inquiry and which would lead

to full discovery") (quotation omitted).
Inn Foods argues that
of any

indication that

because the record is devoid

Atlantic had

facts, no ratification occurred.

We

full knowledge
do not agree.

of the
We think

the only reasonable conclusion to be drawn from the record is

that
least

Atlantic ratified
sufficient

to

the

transaction with

satisfy

the

knowledge

"deliberate

at

ignorance"

-88

standard
itself

recited

above.

speaks directly to

Treasury check transaction.

to both indorse checks
deposit those

The

language

of the

the two critical

elements of the

The resolution authorizes

on behalf of the corporation,

checks into

his personal account.

the resolution was dated nine days after Hodge

Treasury check to Equitable.
resolution as well

resolution

as the

Hodge
and to

Moreover,

presented the

At a minimum, the terms of

surrounding circumstances

the

should

have alerted Atlantic's directors that "something was afoot,"

Perkins, 415 N.E.2d at 898 (quotation omitted), especially in
_______
light of the

directors' duty to keep themselves

the corporation's affairs.

informed of

See, e.g., Puritan, 596 N.E.2d at

___ ____ _______

1008;6 Perkins, 415 N.E.2d at 898.

_______
Inn Foods
resolution

does

makes the

not ratify

additional argument
the Treasury

that the

check transaction

because its language is cast in prospective terms only.

Even

if we

that

were

to agree,

ratification can

Massachusetts

be implied when a

law makes

clear

principal with knowledge

____________________
6.

The Puritan court noted that the failure of directors to

_______
discharge their duty of supervision does not always lead to
ratification.
Puritan, 596 N.E.2d at 1008.
In Puritan, a
_______
_______
corporation's director sought to interpose ratification as a
defense to self-dealing.
The present case involves an
entirely different set of circumstances as a third party,
Equitable,
sought assurances from
Atlantic as to the
authority of Hodge, an Atlantic agent. Under these facts, we
think
Atlantic would
be
estopped from
denying
the
applicability of the duty to supervise.
-99

makes no effort to repudiate a

transaction.7

Co.
___

842

v.

Shir,
____

Restatement

of

3 N.E.2d
Agency

unauthorized transaction

841,
2d
can be

94

(Mass.
("An

Irving Tanning
______________
1936); see
___

affirmance

inferred from a

also
____
of

an

failure to

repudiate it.").
a

principal fails to disavow

such
to

The rationale for this rule is plain.

promptly an act

a failure both thwarts

mitigate

the

When

of his agent,

a damaged third party's ability

effects

of

an

unauthorized

act

and

perpetuates an inference of authority reposed in the would-be

agent.

See Boice-Perrine Co.

___ _________________

(Mass. 1923).
dispute

v. Kelley, 137
______

N.E. 731, 733

Again, we do not think there can be reasonable

that

Atlantic

ratification and,

had

sufficient

knowledge

there is no indication in

for

the record that

Atlantic ever sought to repudiate this transaction.

In
ratify

by

short,
either

resolution)

or

not

Atlantic
acting (as
acting

Treasury check

transaction).

conclusion:

Atlantic

deposit.

Because Hodge's

had sufficient
it

purported

(thereby

knowledge
to

acquiescing

to

do in

the

in

the

Either route leads to the same

ratified

Hodge's

indorsement

and

signature was authorized, Atlantic

____________________
7. On this point, we disagree with Inn Foods's contention
that Puritan, 596 N.E.2d at 1008, should be read as requiring
_______
that a benefit accrue to the principal from the disputed
transaction before an implied ratification can be found.
While benefits received are certainly strong evidence that
the principal acquiesced in the agent's transaction, other
Massachusetts cases make clear that ratification can take
place in the absence of such a benefit.
See, e.g., Boice___ ____ ______
Perrine Co. v. Kelley, 137 N.E. 731 (Mass. 1923).
___________
______
-1010

has

no conversion

cause

of action

against Equitable

and,

thus, Inn Foods's claim must fail.

III.
III.
____
CONCLUSION
CONCLUSION
__________
For the

reasons discussed

above, the decision

the district court is

Affirmed.
Affirmed
________

Costs to appellee.
Costs to appellee
_________________

of

-1111