Goodbody v. Margiotti

Opinion by Mr. Justice Stern, On June 25, 1931, defendant opened an account with plaintiffs, depositing $2,500 as margin. Various stocks were bought and sold for the account, resulting in a profit to defendant. On July 6 all the stocks in the account had been sold and there was a cash credit to defendant amounting to $3,505.51. On July 6 and 7 plaintiffs purchased for defendant upon his orders 500 shares of Radio Corporation, 500 shares International Telephone & Telegraph, and 500 shares American Foreign Power. After these transactions the balance due by defendant to plaintiffs was $45,019.49. In the afternoon of July 7, Condon, the representative of plaintiffs with whom defendant had been dealing, told him over the telephone that the market had dropped *532 considerably on that day. Defendant, as he alleges, instructed Condon to sell all the stocks in the account at the opening of the market the next morning, and said he would send a check for whatever debit balance would result. The market opened still lower on the morning of July 8, and continued to fall during that day. After the close of the market on July 8 Condon, according to defendant’s version, telephoned to him and told him of the increased loss that had occurred, and stated he had not executed defendant’s order to sell out the securities because he thought the drop in the market was only a temporary flurry. Defendant rebuked Condon and said that if the order to sell had been carried out the loss would have been less, that the loss up until the opening of the market that morning was his own, but the subsequent loss was plaintiffs’. Defendant claims that Con-don assented to this and made an offer to defendant that if the latter would withdraw his order to sell the securities and let the account run on, plaintiffs would carry it without requiring further margin until such time as the market came back, and plaintiffs would handle it in such a way that neither of the parties would have any loss. Defendant agreed to this arrangement. Condon denies that defendant on July 7 gave an order to sell the stocks the following morning, or that any agreement was made on July 8 as asserted by defendant. Had the securities been sold when the market opened on July 8, the debit balance due by defendant to plaintiffs would have been $2,671.66; between then and the close of the day the further decline in the value of the stocks amounted to about $2,000. After July 8 the market dropped more or less steadily. During the period from August until December, 1931, plaintiffs bought and sold for the account various stocks; they assert this was done in pursuance of orders given by defendant from time to time, and that they sent to him confirmations of these purchases and sales and also monthly statements of the account. Defendant claims he did not order any *533 purchases or sales of additional securities after July 7, that he repudiated these transactions, and that he made objection to Condon in regard to the statements of account, but Condon constantly reassured him by telling him the agreement of July 8 was in full force and effect between the parties, and the confirmations and statements were rendered only as a matter of form. Defendant asserts that Condon’s authority was orally confirmed by one of the partners of plaintiffs’ firm, who also expressly ratified the arrangement made by Condon. Condon and the partner in question deny these allegations. Since defendant failed to margin the account as repeatedly demanded by plaintiffs, the latter sold out the last of the securities on March 14, 1932; the result was a debit balance from defendant to plaintiffs of $32,-601.12, to recover which sum, with interest from that date, plaintiffs brought the present suit. Defendant, relying upon the alleged agreement of July 8, 1931, which in effect guaranteed him against any loss, not only denied all liability to plaintiffs, but set up a counterclaim to recover the $2,500 deposited by him in opening the account. The jury found for defendant and awarded him a verdict of $3,018.38, being the amount of the counterclaim with interest. Plaintiffs filed a motion for judgment n. o. v., which was overruled by the court below, and a rule for a new trial, which was discharged upon defendant’s filing a remittitur of the verdict in his favor on the counterclaim. The record of the trial is extremely voluminous, due to the fact that a large part of the testimony was irrelevant to the real issues between the parties, and another large part, though perhaps technically admissible, was unnecessary and probably confusing rather than helpful to the jury in their consideration of the case. Although neither in the pleadings nor at the trial did either of the parties contend that the transactions between them were unlawful, the court below, in its opinion, came to the conclusion that the account represented *534 merely a wagering contract designed for an ultimate settlement between the parties on the basis of market differences and without any bona fide intent that the securities should actually be bought and sold. The court therefore held that neither party could recover from the other, and for this reason defendant should remit the verdict in his favor for the amount of the counterclaim. While, for reasons hereinafter stated, defendant cannot recover his counterclaim on any proper theory of the case, the court was in error in concluding that the account was other than a legitimate one between broker and customer. Not only were all of the stocks in fact bought and sold, but there is not a scintilla of evidence that either party had any intent to the contrary. That the securities traded in may have been speculative, that the account was carried on margin, and that defendant’s intention no doubt was to buy and sell the stocks as opportunity for profit arose rather than to hold them for any extended period of time as investments, are not factors which, either singly or collectively, invalidated the transactions: Stewart v. Parnell, 147 Pa. 523; Peters v. Grim, 149 Pa. 163; Hopkins v. O’Kane, 169 Pa. 478; L. H. Taylor & Co.’s Assigned Estate, 192 Pa. 304; Young, Smyth, Field & Co. v. Glendinning, 194 Pa. 550; Fearon v. Little, 227 Pa. 348. Plaintiffs contend that even if, as defendant asserts, he ordered them on July 7 to sell the securities, they were not legally bound to execute the order, there being then a deficit in the account, and they had the right to exercise their own judgment in regard to disposition of the collateral. Without passing upon this question, it is sufficient to say that according to defendant’s testimony plaintiffs did not refuse to accept the selling order on that ground or any other, and, while defendant apparently does not claim that Condon expressly agreed to sell the stocks, a jury might be permitted to infer, from the account of the conversation as given by defendant, that Condon at least impliedly assented and gave *535 defendant reason to feel assured the order would be carried out. Under such circumstances plaintiffs were obliged to make the sale, and upon their failure to do so they became liable to defendant for whatever damages were suffered by him. Assuming, therefore, as we must for purpose of this review, that defendant’s version of the facts is the correct one, he was justified in taking the position, as he did in his telephone conversation with Condon on July 8, that the loss up to the opening of the market on that day was his own, but all subsequent loss was plaintiffs’. It is our opinion, however, that the alleged agreement of July 8 was a nudum pactum because it was not supported by consideration. There may have been a motive for plaintiffs to have made it, as, for example, the desire to please a customer, but it is consideration and not motive that is necessary to support a contract. Defendant urges that the consideration consisted in his willingness not to insist upon the carrying out of the sale order, and his waiver of the right to claim damages. The order, however, had expired; plaintiffs had defaulted in executing it, creating in defendant a right to recover compensation for the breach. An analysis of the situation indicates that the waiver of this right would not serve as a consideration for the contract which plaintiffs are alleged to have made. As the market stood at the opening on July 8 defendant had lost his original deposit of $2,500 and an additional sum of $2,671.66, or a total of $5,17Í.66. All that plaintiffs gained by the arrangement was that defendant agreed -not to hold them responsible for the additional loss of $2,000 which had resulted during the day. In return for this, according to defendant, plaintiffs agreed to relieve him of the loss theretofore incurred by him of $5,171.66, to assume the loss of $2,000 from which he claimed to be exempting them, and to make themselves responsible for '' any future loss that might occur; on the other hand, all profits were to belong to defendant. In other words, so far from plaintiffs’ receiving the benefit of a waiver of *536 damages, they not only, by their guarantee against all loss, reassumed liability for the damages which defendant was “waiving,” but undertook to indemnify him against all past losses and possible future ones. Moreover, it is obvious that the alleged opportunity given to plaintiffs to work out the situation by buying and selling securities in defendant’s account but on their own responsibility cannot be deemed to constitute a consideration to plaintiffs, since in any event they could have speculated in securities on their own account and did not need any permission from defendant to that end. In short, mere arithmetic establishes that the alleged consideration for plaintiffs’ guarantee was not a detriment to defendant nor a benefit to plaintiffs. The agreement of July 8, as pleaded and testified to, was therefore unenforceable, and did not, from a substantive standpoint, affect the rights or obligations of the parties; it did not deprive defendant of his right to claim damages nor did it make plaintiffs insurers to defendant against loss on the account. It must be added, however, that the testimony of both parties in regard to it was properly admitted as evidence bearing upon the subsequent relations and transactions between the parties; whether such an agreement was in fact made is extremely important as determining the controverted facts which are the real issues between the parties as hereinafter pointed out. From an analysis of the facts, even if defendant’s version be correct, it is clear that although plaintiffs may have been at fault in not carrying out the alleged sale order of July 7, this would not disentitle them to recover at least the sum of $2,671.66 which defendant would have owed them even had the order been executed. Defendant cannot by plaintiffs’ default put himself into a more advantageous position than he would have occupied had the default not occurred. The only penalty plaintiffs would be obliged to suffer by reason of their breach would be the loss occurring to defendant by rea *537 son thereof after the opening of the market on July 8. Plaintiffs occupied toward defendant a double relationship — that of agent and principal (Robinson v. Ungerleider, 31 3 Pa. 301), and that of creditor-pledgee and debtor-pledgor (Otis v. Medoff, 311 Pa. 62). In the latter capacity defendant owed plaintiffs, on the morning of July 8, $45,019.49, for which the securities were held as collateral. If as agents they failed to carry out an order of defendant, he became entitled to set off against the advances which had been made by plaintiffs for his account a sum equal to the damage suffered by him through their default, but they did not thereby lose the right to recover anything at all from defendant. Even if a broker converts a customer’s securities and thus breaches his duty as pledgee, the customer can do no more than offset against the broker’s claim for advances and commissions the damages resulting by reason of such conversion: Otis v. Medoff, supra. Since the agreement of July 8 did not, for the reasons stated, impose any obligation upon plaintiffs to indemnify defendant against all loss, defendant in any event would be liable to plaintiffs for the sum of $2,671.66; for the same reasons he cannot recover the $2,500 originally deposited by him as margin and which had been lost by him prior to the morning of July 8. The ultimate issues of fact which will have to be determined at a re-trial are these: (1) Did the defendant order his account sold on July 7 as claimed by him, and did Condon impliedly accept the order? If so, defendant would not be responsible for any loss caused by the retention after the morning of July 8 of the securities which were then in the account. (2) Were the securities which were purchased and sold after July 8, or any of them, purchased and sold upon orders of defendant or at plaintiffs’ own risk and without authority from defendant? If the latter, then he cannot be held responsible for losses resulting in the account from such additional purchases and sales as were made without his au *538 thorization. (3) Were the monthly statements of accounts objected to by defendant, or were they received by him under such circumstances of express or tacit acquiescence as would give to them the legal effect of accounts stated? If the latter, defendant would be es-topped from denying the liability asserted by plaintiffs in such statements. As the case goes back for a re-trial, probably most of the questions raised by the assignments of error will not again occur, and therefore do not need present discussion. However, some of them may be briefly referred to. Plaintiffs contend the record discloses that neither Condon nor John L. Goodbody had authority to make the alleged agreement of July 8 so as to obligate plaintiffs thereby, and it should have been so declared as a matter of law. In view of the fact that we have held that the agreement did not bind plaintiffs because of lack of consideration, the question of the authority to make it becomes academic. The court below permitted an extensive cross-examination of plaintiffs’ witness Condon upon matters as to which he did not testify in chief and which really constituted the gist of defendant’s case. While the latitude to be allowed in cross-examination is largely within the discretion of the court, it should not be permitted to a point where the orderly sequence of the trial is disturbed and an unfair disadvantage imposed upon the other party: Hughes v. Westmoreland Coal Co., 104 Pa. 207; Thomas & Sons v. Loose, Seaman & Co., 114 Pa. 35; Glenn v. Phila. & West Chester Traction Co., 206 Pa. 135. Objection is made to the charge of the learned trial judge in stating to the jury that they might render a verdict for defendant in the amount of his counterclaim provided they found he had ordered the account sold out and plaintiffs had failed to execute the order. This was incorrect in view of what has already been said. We have pointed out that the failure of plaintiffs to execute *539 the sales order of July 7 would not prevent them from recovering at least the amount which would have been due them even if they had carried out the order. The court below sustained objections to the admission of certain exhibits offered by plaintiffs, consisting of a letter written to defendant by one of the partners of plaintiffs’ firm, and confirmations of open orders for defendant’s account. Defendant did not admit having received these communications but plaintiffs testified to the mailing system employed by them, and the writer of the letter testified he had signed it and put it in course of mailing. It having been shown by plaintiffs that under their office routine these communications would have been mailed in regular course, and it having also been shown that although there was a return address on the back of the envelopes they were not sent back by the post office, the mailing of these exhibits was sufficiently proved to justify the introduction of copies in evidence, it becoming then a question for the jury to determine whether or not they were actually received by defendant. Finally, plaintiffs urge it should not have been required of them by the learned trial judge to prove the purchases and sales of securities made after July 8, 1931, since the fact was not properly denied in the pleadings. The affidavit of defense, in answer to the paragraph of the statement of claim setting forth these purchases and sales, alleged that “Defendant further says that he has endeavored to ascertain whether or not such purchases and sales were actually made, but that it is impossible for him to obtain such information or verify such statements, and therefore, he denies the same.” This was not a sufficient denial to make it obligatory upon plaintiffs to offer proof of the fact. The Act of June 12, 1931, P. L. 557, requires defendants to make a reasonable investigation and this must be alleged; nor does the amendatory Act of July 12, 1935, P. L. 666, make any change in this particular respect. The order of the court below overruling plaintiffs’ motion for judgment n. o. v. is affirmed, but the order mak *540 ing absolute plaintiffs’ rule for a new trial unless defendant file a remittitur is reversed, and plaintiffs’ rule for a new trial is now made absolute unconditionally. See, also, opinion sur petition for reargument, page 560a.