Conolly v. Foster

Olsen, J. ■ Defendants appeal from a judgment in plaintiff’s fafvor for $37,250.02. The errors assigned are that the court erred in not directing a verdict in favor of defendants and in denying defendants’ motion for *9 judgment in their favor notwithstanding the verdict. If at the close of the evidence there was not sufficient evidence to take the case to the jury, or if the evidence conclusively showed that plaintiff was not entitled to recover, then it was error not to direct a verdict for defendants and error not to grant judgment notwithstanding the verdict. The defendants are copartners engaged in the stock brokerage business under the firm name of Paine, Webber & Company. They are members of the New York Stock Exchange and other exchanges, and maintain branch offices in St. Paul, Duluth, and other cities. Plaintiff traded in stocks and bought stocks on margin. For several years prior to the fall of 1921 he conducted his sales and purchases at the Duluth office of defendants and had an account in that office. About that time plaintiff removed to St. Paul. He then transferred his account and his margin securities to the defendants’ St. Paul office. He was a friend of Mr. Byrne, the manager of the St. Paul office. Before he transferred his account he had signed and delivered to defendants, at their Duluth office, the usual signature card of brokers’ customers. The card contained the usual agreement that the brokers, Paine, Webber & Company, might at any time sell the stocks held as margin, without notice, whenever their market value did not exceed 10o per cent of the debt secured thereby. This card remained at the Duluth office until this action was brought. It is difficult to see how the fact that this card was never transferred to the St. Paul office has any importance. It remained in the hands of defendants at all times and stated the terms on which they were acting for plaintiff. There was no interruption in the relation of the parties or in the transactions between them by the transfer of the account from one office to the other. Plaintiff testified that in 1927 he was asked to sign such a card at the St. Paul office and refused. Such request presumably was made because the employe in the St. Paul office who made it did not know that defendants already had such a card in their possession. There is evidence that during all his dealings with defendants, whenever purchases of stock were made for plaintiff, he received *10 written report thereof upon which was contained the printed notice and conditions that plaintiff was to keep good a satisfactory margin, and that defendants, whenever they deemed it necessary for their protection, should have the right in their discretion to close the account by sale of the securities, without notice or any demand for more margin. Plaintiff testified that at the time he transferred his account to the St. Paul office, he said to his friend Mr. Byrne: “If I open this account here I expect to trade quite a bit, and it will be an open account. Now, in regard to the matter of protection, marginal requirements and so on, I will expect ample protection from you and your company in this St. Paul office”; and Byrne said: “Al, you can absolutely depend upon that. Any time your account needs bolstering I will give you ample time to protect yourself.” Plaintiff then said: “That is fair enough. I will have the account transferred.” From the time his account was transferred to the St. Paul office plaintiff continued to trade actively in stocks. The stock market crash came during the last week of October, 1929. At the close of the market on October 28 plaintiff owed defendant on open account $492,000 in round numbers. Defendants held stocks as margin in this account of the then market value of about $155,000 over and above this debt. The principal value of the stocks held as margin consisted of 11,084. shares of SteAvart-Warner stock, which had closed at $47 per share. On the morning of October 29 the market price of Stewart-Warner stock suddenly dropped to $31 per share, showing a loss of over $177,000. There Avere declines in all other stocks held as margin, so that on that morning plaintiff’s margin Avas some $47,600 less than Avhat he OAved the defendants. Plaintiff was an experienced stock trader. He Avas promptly informed on the morning of October 29 of the crash in stock prices and that Stewart-Warner stock was doAvn to $31 per share. He denies that he was told that his account was “under water,” that is, that the value of his margin Avas below his indebtedness. He admits that he Avas told his account was in bad shape, that something *11 should he done, and that there was talk about selling some of the Stewart-Warner stock. A simple mental calculation on his part, which he Avas fully competént to perform, no doubt informed him at once that there was a depreciation of over $177,000 in the value of his Stewart-Warner stock and that his account was “under Avater.” What he did, as testified by him, Avas to authorize the sale of 500 shares of Stewart-Warner stock at $32 per share. This Avould not have appreciably benefited his account. If he had sold all of his Stewart-Warner stock at $32 his account Avould still have been “under water.” The only effect of selling 500 shares, or any shares, would be to protect the stock sold from further depreciation. Knowing as he did that his SteAvart-Warner stock had so depreciated that his account Avas “under Avater,” Ave think it Avas incumbent on the plaintiff promptly to- do something more than authorize the sale of 500 shares — an empty ceremony so far as restoring the depleted margin. The only way the account could have been bettered at that time would be by paying in more margin, either in cash or additional securities. Plaintiff denies that any call Avas made on him for further margins, but it is apparent that the object of Mr. Byrne in calling him that morning was to have something done to take care of the account. Plaintiff had already received the market report from another employe in the office before Mr. Byrne called him. Opportunity to protect his account was given him on the morning of October 29, as sliOAvn, and he failed to do so then or thereafter. Whether the talk between plaintiff and Mr. Byrne at the time the account Avas transferred to the St. Paul office modified the contract between the parties and entitled plaintiff to notice and opportunity to protect his account is a close question. But if it did, prompt action on the part of the plaintiff, Avhen he Avas informed that his account Avas in bad shape and beloAV requirements, Avas nevertheless necessary. Stock transactions of this kind, where large amounts are involved and on a fluctuating market, require very prompt action'. By a sudden and decisive drop in market values an emergency is created, and almost immediate action is required. Minnesota L. O. Co. v. Collier W. L. Co. 4 Dill. 431, *12 17 Fed. Cas. p. 447, No. 9635; Schaefer v. Dickinson, 141 Ill. App. 234. Defendants commenced to sell plaintiff’s Stewart-Warner stock on October 29 and sold all of it on October 29 and 30. It was sold in small lots not exceeding 500 shares each, in a fluctuating market in which there was some recovery from the price of $31 per share. The average price obtained was $38% per share. This resulted in a balance in plaintiff’s favor of $49,552.95 over and above his indebtedness to defendants, taking into account the market value of the other securities held in the account as of October 30. Plaintiff was informed on October 30 that some 4,400 shares of his stock had been sold and that all of it had been ordered sold. He said he had not authorized such sale and wanted to know who had ordered the sale. Mr. Byrne stated he had. Plaintiff then directed Byrne to cancel the order to sell any more stocks. This was in the afternoon of that day, and either all the stock had already been sold or the direction to sell no more stock was not carried out. On November 4 plaintiff ivas furnished a report of all sales made. On November 11 he was furnished a full statement of his account. There was an error in this account as to the price received on one sale, afterwards rectified. On December 7 plaintiff asked for and received from defendants $10,000 in cash (by check) and ordered defendants to transfer his account to Farnum, Winter & Company, another brokerage firm. This was done by delivering to ■ Farnum, Winter & Company some 1,700 shares of stock, other than Stewart-Warner stock, then held by defendants in the account, and paying to that company a balance of $4,361.88. The cash so paid to plaintiff and the cash and stocks turned over to Farnum, Winter & Company discharged the $49,552.95 credit which plaintiff had in his account with defendants at the close of business on October 30, except the one item of error in the account before mentioned, which was thereafter paid. From October 30, when plaintiff learned of the sale of his stock, until December 7, he permitted the account to stand as it was. He *13 made no demand on defendants or any repudiation of the sales. He testified that he intended to hold the stock as an investment and had no intention of selling it. Had plaintiff continued to hold the stock, as he says he intended to do, he would have suffered the same consequences as owners of stocks generally suffered who continued to hold their stocks. Ratification means confirmation; to approve or sanction a previous unauthorized act done in behalf of the one ratifying. Each case depends upon the facts and the character and nature of the subject matter. These parties were dealing in a specialized and hazardous business. The defendants so handled the business that by the close of October 30, in the midst of wild market fluctuations, plaintiff’s account was changed from a liability of $47,666.72 to a credit of $49,552.95. All this was known to plaintiff when he received the statement of his account on November 11. He remained silent thereafter until this action was brought on December 9. He availed himself of the improved condition of his account, and when at his order the account was transferred, he owned outright some $15,000 in money and securities of the value of more than $34,000, and accepted this money and the securities. On November 13 and 14 Stewart-Warner stock could have been purchased in the market for substantially less than the amount plaintiff received from the sale on October 29-30. The identical shares have no significance. Had plaintiff on November 11 or 12 promptly repudiated the sale made, defendants could have repurchased the same number of shares at a substantial profit to plaintiff. In Clews v. Jamieson, 182 U. S. 461, 484, 21 S. Ct. 845, 854, 45 L. ed. 1183, 1194, it is said: “The failure of the complainants to repudiate the action of their agents in the sale immediately after it was reported to them would operate as a ratification.” This was a sale by brokers of shares of stock. See also Robbins v. Blanding, 87 Minn. 246, 91 N. W. 844; Guy T. Bisbee Co. v. Granite City Inv. Corp. 159 Minn. 238, 199 N. W. 14; Leviten v. Bickley, M. & W. Inc. (C. C. A.) 35 F. (2d) 825; *14 Burnham v. Lawson, 118 App. Div. 389, 103 N. Y. S. 482; Violett v. Horbach, 119 App. Div. 373, 104 N. Y. S. 249; Smith v. Hutton, 138 App. Div. 859, 123 N. Y. S. 656, 203 N. Y. 594; Manning v. Heidelbach, 153 App. Div. 790, 138 N. Y. S. 750; Schaefer v. Dickinson, 141 Ill. App. 234; Lunn v. Guthrie & Boyle, 115 Iowa, 501, 88 N. W. 1060. We hold as a matter of law that by his failure to act and to repudiate the sale of his stock for some four weeks’ time, and by accepting the proceeds of such sale, under the circumstances shown, plaintiff ratified the sale and cannot now recover. Judgment reversed with directions to cause judgment to be entered for the defendants.