Simpson v. Bright

Pierce, J. The plaintiff in the action entitled Laura E. Simpson v. William E. Bright, Harold C. Sears and Albert B. Curtis, copartners, doing business at Boston and elsewhere under the firm name and style of Bright, Sears and Company, is the wife of the plaintiff in the action entitled Edwin A. Simpson v. William E. Bright, Harold C. Sears and Albert B. Curtis. The defendants in both actions are the plaintiffs in the suit in equity against Edwin A. Simpson, Laura E. Simpson and Bertha L. Currie. After the filing of answers in the actions and in the suit, the cases were referred to an attorney at law with direction that he, as auditor and master, hear the cases together, examine the vouchers and evidence, find the facts, and state the accounts. At the conclusion of the hearings, the auditor found for the plaintiff in each action, and the parties then agreed “in the presence of the court” that the “Laura E. Simpson case is to be submitted on the auditor’s report, all questions of law being open to either party, except that such evidence as is contained in the stenographic report, and as either party may deem material, is to be read to and furnished the court in excerpt form, on the question only as to the intention of the parties and their agents relating to actual purchases or sales, and, in relation to such intention, whether there was or was not reasonable cause of belief.” “In the presence of the court” it then was also agreed that the “Edwin A. Simpson case is to be submitted on the auditor’s report, all questions of law being open to either party.” These actions then were heard by a judge of the Superior Court without a jury, in accordance with the foregoing agreements of the parties. The master duly filed a report in the suit in equity, heard by him with the actions referred to him to hear as auditor. The plaintiffs made objections and filed exceptions based thereon to certain findings of fact and rulings of law contained in the report. The record discloses a “Final Decree” dismissing the bill with costs, but aside from inference there — 322 — is nothing in the record of appeal to indicate that there ever was a hearing on the exceptions, that they were overruled, or that a decree was ordered or passed confirming the report. The pertinent, undisputed facts, common to each action and to the suit in equity, found by the auditor and master, in substance are as follows: On October 18, 1917, Edwin A. Simpson made a deposit of $500 with the defendants, through their Lowell office, for the purpose of opening an account for the purchase and sale of stocks and other securities. During the period beginning about October 18, 1917, and ending about August 19, 1919, Simpson gave to the defendants various orders for the purchase and sale of stocks and other securities on his said account. About April 26, 1918, he opened a second áccount, known to the defendants as "Edwin A. Simpson Account No. 2,” and dealt on said accounts during the period beginning April 26, 1918, and ending February 25, 1919. On April 30, 1921, statements of the defendants to the plaintiff Edwin A. Simpson at different times show a balance on accounts 1 and 2 in favor of Simpson amounting to $37,242.70. On June 11, 1918, Edwin A. Simpson, influenced by a desire to benefit his wife or of gain to himself or by both motives, in the belief that profits would follow from stock operations in the future as profits had resulted in the months since October, 1917, opened an account in the name of his wife, Laura E. Simpson, by the purchase of two hundred shares of stock at a cost of $20,825. At the same time, at the request of the defendants’ manager, Simpson procured the signature of his wife to a statement drafted by the manager in the following words: "June 10, 1918. Messrs. Bright, Sears & Co., Lowell, Mass. Gentlemen: — I hereby authorize you to accept any orders from E. A. Simpson for my account to buy or sell, deliver or receive any securities for my account. Also to pay any amount that may be due.” At the same time the manager drafted another statement, which Simpson signed, reading as follows: "June 10, 1918. Messrs. Bright, Sears & Co., Lowell, Mass. Gentlemen: — I agree to protect the account of Laura E. Simpson and to keep the same properly margined, and in case of any decline — 323 — I agree to assume all financial responsibilities.” An account called the “Laura E. Simpson Account” was entered on the books of the defendants, and operations were conducted therein beginning June 11, 1918. On July 5, 1918, Simpson directed the transfer of $15,000 from his own account “No. 1” to the Laura E. Simpson Account, and the defendants did so. On April 11, 1919, he directed the defendants to transfer from his account “No. 1 ” to the Laura E. Simpson Account $10,000, and the defendants did so. At different times betweén April 1, 1919, and January 14,1921, Simpson paid in cash to the defendants to be credited to the Laura E. Simpson Account $50,000. On April 22, 1920, he delivered to the defendants $10,000 of 4|’s of 1928 Liberty bonds, and on April 26, 1920, other bonds of the same issue of the face value of $3,000, making $13,000 face value of bonds which the defendants then had on hand to the credit of this account. These bonds were left with the defendants at their request as collateral to the account, were retained thereafter by the defendants, and were in their possession on February 25,1921, the date of the writ in the Laura E. Simpson case. Laura E. Simpson had no means of her own when the Laura E. Simpson Account was opened; she herself never gave any orders to buy or sell on this account, was not present at any time in the defendants’ office in Lowell, and never talked about the business either with the defendants’ manager Woodward or with any of the defendants. After this account had been opened, Simpson directed that all transactions which he should have with the defendants should be upon the Laura E. Simpson Account unless otherwise specified. Laura E. Simpson herself never paid the defendants any money or banded to them any collateral, and they never received any money or any collateral on this account from any person other than Simpson. So far as orders to buy or to sell were given by Simpson on this account, such orders were given orally and were reduced to writing, either by the manager Woodward or by some subordinate in the Lowell office; so reduced they were transmitted by telegraph over the private wire to the Boston — 324 — office, or were telegraphed directly to the defendants’ New York correspondents. From October 18, 1917, to April 30, 1921, Simpson withdrew no cash from his account except as he had directed the transfer of the $15,000 and the $10,000 to the Laura E. Simpson Account. In February, 1921, the defendant Sears or Bright, manager Woodward and Simpson had a conference at the Lowell office of the defendants. At that time Simpson’s credit balance shown on the books of the defendants was about $28,119.16 on account “No. 1,” and $1,973.54 on account “No. 2.” On April 30, 1921, the date when the last statement was rendered to Simpson by the defendants before the date of the writ in the case of Edwin A. Simpson, on May 6,1921, the total credit balance in favor of Simpson was approximately $30,092.70. To this credit balance the master and auditor adds $6,285.45, which represents on the last named date interest on the credit balance, the then market value of certain bonds, and interest on that valuation which the reports find the defendants had on hand subject to the order of Simpson. At the conference in February, 1921, the defendants presented figures which purported to show the state of the Edwin A. Simpson Account “No. 1 ” and Account “No. 2” of the Laura E. Simpson Account, and of the Bertha L. Currie Account, and called upon Simpson to increase the margin on these accounts by payment of cash or by the deposit of further collateral. They asserted and made claims that Simpson was responsible for an existing debit balance on the Laura E. Simpson Account and for an existing debit balance on the Bertha L. Currie Account, which Simpson had guaranteed, and demanded that these accounts should be consolidated with his own two accounts and all four be treated as one. So consolidated the defendants claimed the amount owed by them to Simpson was about $2,000. Simpson did not assent to the claims and demands of the defendants, and on February 25, 1921, presumably in consequence of these demands, caused his wife to begin an action of contract under G. L. c. 137, § 4, as amended St. 1926, c. 353, against the defendants to recover payments to the — 325 — amount of $94,730.80, alleged to have been made on wagering transactions. By writ dated May 6, 1921, Edwin A. Simpson brought an action at common law against the defendants to recover the sum of $37,242.70, as being the balance due him on the accounts in his name. On October 21, 1921, the defendants filed their bill in equity charging that the accounts standing in the name of Edwin A. Simpson and in the name of Laura E. Simpson “constitute one single, indivisible and entire account belonging to said Edwin A. Simpson, and that it is inequitable and unjust that said Edwin A. Simpson be permitted to maintain two separate actions at law on the same account.” The bill further charged that Simpson had guaranteed in writing the account of one Bertha L. Currie; that he is hable to the defendants on his said guarantees of the accounts of Laura E. Simpson and of Bertha L. Currie and that the defendants are entitled to reimburse themselves out of the balance in favor of Simpson to the extent that the accounts of Laura E. Simpson and of Bertha L. Currie show balances due the defendants. The bill prayed that Edwin A. Simpson and Laura E. Simpson be enjoined from proceeding further in the actions at law brought by them respectively, and that the rights of all parties be determined in this suit. As stated above, the bill, without an interlocutory decree overruling the exceptions and confirming the master’s report, was dismissed with costs by a final decree. The master and auditor in each action and in the suit in equity, stating that the findings were “included in my respective reports in each of the three cases,” found the course of business in the transactions between Bright, Sears and Company and their customers Edwin A. Simpson, Laura E. Simpson and Bertha L. Currie was the same in each case and was substantially as follows: “Edwin A. Simpson, whether on his own account as principal or on account of Laura E. Simpson as her agent or on account of Bertha L. Currie as her agent, gave or authorized in Lowell an order to buy or to sell a certain number of shares of a certain stock. This order was given to and accepted by Bright, Sears and — 326 — Company at their Lowell office, and forwarded from there to their Boston office, or, at times, directly to their New York office. Sometimes the order was executed on the Boston stock exchange and sometimes on the New York stock exchange. Whether Bright, Sears and Company placed the order in Boston or in New York depended somewhat upon the number of shares covered by the order. In most instances in the cases before me the order directed the purchase or sale of one hundred shares or some multiple thereof. The brokers consequently placed upon the New York exchange most of the orders given or authorized by Simpson. A ‘round lot’ on the New York exchange consists of one hundred shares or some multiple thereof. A ‘round lot’ on the Boston exchange consists of fifty shares or some multiple thereof. When the number of shares does not conform to these requirements on the respective exchanges the lot is called an ‘odd lot’ on that exchange. Orders for a ‘round lot’ are placed in the stock exchange and, after execution of them, receipts and deliveries are made in accordance with the practice of the exchange through the stock exchange clearing house. Under the practice of each exchange deliveries are to be made on the next regular clearing day . . . usually the day following the transaction.” “When the transaction is on Friday or Saturday the next regular clearing day is on the following Monday, unless it is a holiday. (The regular day may not be ‘more than four days after the making of such purchase or sale. ’ G. L. c. 137, § 4.) ” “The purpose of the clearing house is to simplify the work of its members. All ‘round lot’ transactions are reported to the clearing house by the brokers who make them. The clearing house officials compare the reported transactions and notify the members of the number and kind of shares which the member is to deliver or to receive and the name of the other member to whom the delivery is to be made or from whom a delivery is to be received. By this method each member is relieved of the burden ■ of going to each other member with whom he has had a transaction in shares and tendering to him or receiving from him a certificate for the shares covered by the transac — 327 — tian. Instead of this laborious process the member, having received his instructions from the clearing house, delivers only the balance of any particular shares sold by him and delivers said balance to another member designated by the exchange officials. . . . When the sale and purchase is of an 'odd lot’ the brokers in the transaction must attend to the deliveries themselves. The transaction does not go through the clearing house.” The master and auditor, in each action and' in the suit in equity, in the application of the practice of the stock exchange in Boston and New York, found “that Bright, Sears and Company placed upon the Boston Stock Exchange some of the orders received from Simpson which [they] . . . executed in accordance with the practice of said exchange and placed upon the New York Exchange the majority of the orders received from him .... The . . . [defendants’] brokers transmitted to their New York correspondents the orders which were to be executed in that city”; and further that Bright, Sears and Company’s correspondents in New York executed these orders (with a single exception) [which was delayed through accident] in accordance with the practice of the stock exchange and notified Bright, Sears and Company that the transmitted order had been executed ... . The transactions, whether placed in Boston or in New York, were made in accordance with the terms of Bright, Sears and Csmpany’s employment so far as concerned the quantities and kinds of shares and the prices at which they were to be bought or sold. The New York correspondents caused the order to be executed on the New York stock exchange by buying or selling according to the order, making this transaction with some other member of that exchange who was acting for his own principal.” Upon the findings by the auditor, the judge in the Superior Court found and ruled in the action at law by Laura E. Simpson, as follows: “The facts found by the auditor which were uncontroverted establish that the defendants actually executed the orders of the plaintiff by making actual purchases or sales of the securities ordered bought — 328 — or sold, in accordance with the practice of the stock exchange.” The master in the suit in equity found that "Throughout the entire period covered by these four accounts no certificate for shares bought was received by Edwin A. Simpson or by Laura E. Simpson or by Bertha L. Currie, nor was any certificate tendered to any one of these persons by the” plaintiffs in the suit in equity; and he also found that "Neither Edwin A. Simpson nor Laura E. Simpson nor Bertha L. Currie ever requested that a certificate be delivered to any one of them, nor did any one of them expect to receive a certificate at any time.” Upon the facts he reported he further found in substance that Simpson as agent for Laura E. Simpson and Bertha L. Currie intended there should be no actual purchase or sale, and because Laura E. Simpson and Bertha L. Currie "did not own the securities ... at the time of the contract of sale or of giving of the order to sell,” (G. L. c. 137,' § 6,) ruled that this fact was prima facie evidence that within the meaning of the statute there was an intention that there should be no actual purchase or sale and that there was reasonable cause to believe that the defendants knew said intention existed. Based upon his findings in the action by Laura E. Simpson the auditor ruled in that action: (1) “that 'actual purchase or sale’ as the words are used in the statute means a present transaction and not a contract to buy or sell for future delivery”; and (2) “that the defendants must have had at all times within their own possession and control sufficient certificates of the particular stock bought on the plaintiff’s order to deliver to her upon payment the number of shares ordered by her, and also enough shares to deliver to every other customer in that same stock a certificate for the shares bought by that customer.” The judge in substance adopted the rule (2) above stated. The ruling is vital, and the accuracy of it is determinative of that action at law, in view of the auditor’s finding that the evidence did not "justify” him in concluding that the requirements of the rule above stated were satisfied. The ruling evidently is based upon Fiske v. Doucette, — 329 — 206 Mass. 275, and like cases which were decided before St. 1919, c. 247, was enacted. R. L. c. 99, §§ 4, 7, contained no legislative provision as to what should be deemed an actual purchase or sale within the statute. It is plain and indisputable that an act of legislation duly adopted is binding upon the courts, whatever the old law might be. And with this rule in mind we are brought to the consideration of G. L. c. 137, §§ 4, 6. R. L. c. 99, § 4, now, as amended by St. 1919, c. 247, § 1, G. L. c. 137, § 4, contains at the end thereof the paragraph which follows: “If a purchase or sale of the securities or commodities ordered to be bought or sold is made by the person so employed on a stock exchange or board of trade, and other purchases or sales of such securities or commodities are made on the same day on such exchange or board by such person for others in due course of business, and the balance of such purchases or sales of securities or commodities is received or delivered by such person by direction of the clearing house of such exchange or board on the day when such purchase or sale or contract therefor is made, or on the regular clearing day of such exchange or board next thereafter, which clearing day shall in no event be more than four days after such purchase or sale, or contract therefor, is made, such purchases and sales shall be deemed actual purchases and sales within the meaning of this section.” In the above paragraph the words “purchase or sale . . . made by the person so employed” are taken to mean a purchase or sale effected through the broker, individually or through an agent of that broker, and to apply to all kinds of purchases and sales. That a broad interpretation should be given to the quoted words in furtherance of the manifest purpose of the amendment is made clear by the provisions of St. 1926, c. 353. Wilson v. Head, 184 Mass. 515. Weisberg v. Hunt, 239 Mass. 190, 199. The ruling of the judge, subject to the exception of the defendants, that “there is no evidence . . . upon which a finding of fact could be made, that the balance of purchases or sales of these securities or the commodities ordered by the plaintiff to be bought or sold were received or — 330 — delivered by the defendants by direction of any clearing house, or exchange or board of trade within the time specified in the last sentence of G. L. c. 137, § 4,” is manifest error. The master and auditor’s findings upon this point are explicit to the effect that the purchases and sales and deliveries were made in accordance with the practice of the stock exchange, and that the deliveries were made on the day following the transactions unless that day was Friday or Saturday, and, if so, they were made on the next regular clearing day, which would be the following Monday unless that day was a holiday. To sustain this ruling of the master, auditor and judge would be to ignore the words and to emasculate the manifest intent of the statute. The contracts of purchase and sale made by Simpson as agent on behalf of Laura E. Simpson and Bertha L. Currie were not infractions of G. L. c. 137, § 4; (see now St. 1926, c. 353). It follows that in the case of Laura E. Simpson v. William E. Bright, et ali., the defendants’ request for a ruling, that “on all the evidence in the case the plaintiff cannot recover,” should have been given, and the exception saved to the refusal so to rule must be sustained and judgment entered for the defendants. As this case cannot be tried again on the theory of a violation of G. L. c. 137, § 4, it is unnecessary to consider the remaining exceptions by the defendants therein. In the action of Edwin A. Simpson v. William E. Bright, et ali., the request of the defendants for a ruling that “on the facts found by the auditor the plaintiff is not entitled to recover” was refused rightly, and the exception saved to such refusal must be overruled. We assume without decision that the entry of the final decree in the suit in equity entitled William E. Bright, et ali. v. Edwin A. Simpson, Laura E. Simpson and Bertha L. Currie was an implied overruling of the exceptions of the plaintiffs and a confirmation of the master’s report. American Circular Loom Co. v. Wilson, 198 Mass. 182, 200. Fuller v. Fuller, 228 Mass. 441. Cali v. Caliri, 254 Mass. 488. G. L. c. 231, § 124. The rulings excepted to in the exceptions numbered 4, 9, 10, 11, 12 and 13 were erroneous for the — 331 — reasons stated. We find no error in the implied decree overruling the exceptions numbered 1, 2, 3 and 7. The cardinal prayer of the bill, “That the rights of all parties, both plaintiffs and defendants, be considered and determined . . . in this suit and that this court enter a decree herein showing the amounts, if any, due from plaintiffs to defendants or any of them, and the amounts due from defendants or any of them to plaintiffs,” will be attained by the order that the exceptions in the action of Edwin A. Simpson be overruled; by the order that the exceptions in the action of Laura E. Simpson be sustained and judgment in that action be entered for the defendants; and by the entry of a decree that the bill in equity be recommitted to a master to determine what sum is due the defendant Edwin A. Simpson after deducting from $36,378.15 — the sum found by the master to be due him on June 30, 1921 — the sums due the plaintiffs on that day on the guaranties of Edwin A. Simpson in behalf of Laura E. Simpson and Bertha L. Currie, having regard to the then value of the securities held by the plaintiffs on the Laura E. Simpson account, which value, not specifically ascertained, is found by the master to reduce the debt due Edwin A. Simpson to a sum between $5,000 and $6,000. The decree is reversed and the case is to stand for further hearing in the Superior Court in conformity with this opinion. Ordered accordingly.