Hathcock v. MacKubin

Adkins, J., delivered the opinion of the Court. This is a suit by a customer against brokers for loss resulting 'from an alleged failure by the brokers to execute the order of the customer to sell certain stocks which the brokers were carrying for the customer on a margin account as follows: 25 shares Bethlehem Steel; 25 Radio; 25 General Roods; 25 Reynolds Tobacco B.; 25 United States Pipe & Foundry; 125 Packard Few. The appellees, brokers, on the afternoon of Monday, October 21st, 1929, called on Hathcock, the appellant, for $1,400 additional margin. On the following morning, October 22nd, 1929, about 9.45 a. m., the appellant got in touch with John Mothershead, a representative of appellees at appellees’ office in Washington, and, after some discussion in regard to the call for additional margin, appellant told Mothershead that he had decided to get out of the market, and that, while he disliked to sell at present prices, to protect himself he wanted stop loss orders put in at one point below the closing prices for the previous day, and Mothers-head refused to accept stop loss orders, saying the he could not be bothered with them.

Appellant then said, “If you can’t handle the stop loss orders, place orders to sell out all of my stocks at the opening of the market.” This meant, according to appellant, that the orders were to be executed as soon as the market opened at 10 a. m. or as soon thereafter as possible on October 22nd, 1929, on the New York Stock Exchange. On the advice of Mothershead that the market would weaken at the opening on account of accumulated orders to sell, appellant changed his order and directed sales to be made “shortly after the market opened,” and at his request gave him a list of the securities. On ⁷² October 24th, 1929, appellant received from appellees a confirmation of the sale of 25 shares of Reynolds Tobacco B. at 57, with a net credit to appellant of $1,419.88. The confirmation was dated October 23rd, 1929.

Appellant received this confirmation on October 24th, 1929, and at once went to appellees’ Washington office to make inquiry. He arrived at the office at 11 .a. m. and told Mothershead he had received the confirmation, and asked what he had done about the other stocks. “He told me that he had not sold them because he had been so busy taking care of accounts which were in worse condition than mine, he had not had time to devote to my account.” He said nothing further about the Reynolds stock. Appellant became quite angry, and went down to the telegrapher and decided “that I had better sell out the. remainder of my holdings. * * * I proceeded to write out orders for the sale of the other stocks which I held.” In answer to a question by the court “You mean you gave the firm of Mackubin, Goodrich & Company on that date a new order to sell the rest of your stock?” he replied, “Yes, sir.” Q. You gave that direct to the telegrapher. Ans.

Yes, to sell two lots of this. I started to sell them all. I gave orders to sell one hundred and twenty-five shares of Packard and twenty-five shares of General Foods.” He said the reason he gave the orders direct to the telegrapher was that Mothershead had neglected to execute the orders he had given two days previously, and on the 24th broke off their conversation by going to the telephone to answer a call, “so that I had nothing to do but go back to the telegrapher and give the telegrapher the orders.” The orders were made out on blanks which were on the telegrapher’s desk, and the orders “were written orders directing Mackubin, Goodrich to sell the stock immediately.” After he had gone home on October 24th, appellant got a report from Mothershead as to the price received for the stocks sold that day, as reported to him. There seemed to be some error in the price reported for the General Foods, which Mothershead had adjusted; but he was unable to get an adjustment of what appellant thought was an error in the price for part of the ⁷³ Packards, although complaint was made to the New York Stock Exchange, to which the exchange replied to appellant in a letter of January 6th, 1930.

Appellant testified that his claim in the present case was predicated entirely on the failure of appellees to execute the orders of October 22nd, 1929; that he made no claim on account of the Reynolds stock; that the later dealings with regard to the Packard stock and the General Poods stock were for the purpose of minimizing the loss that would occur either to the appellees or to the appellant. It is not perfectly clear from the record just when appellant notified Mothershead ho intended to hold him responsible. He said on cross-examination that it was not in the conversation above referred to on the 24th, that he took “the position that any further dealings with those securities were Mackubin, Goodrich’s risk,” that appellant “had nothing further to do with this account.” “Q. At that time you gave orders to the telegrapher, I believe you said? Ans.

I decided at that time that the best thing for me to do was to minimize the loss by selling out everything that I could sell out. Q. So at that time you abandoned any claim for their failure to carry out your order of October 22nd? Ans. Most certainly not, no sir.

Q. Didn’t you say that you decided to minimize your loss and sell the stock for the best price you could get? Ans. I certainly said that and that is exactly what I mean. Q. You did give orders to sell two of those securities, Packard and General Poods?

Ans. Yes. Q. Why didn’t you give orders to sell the other three ? Ans.

The prices were sagging quite markedly at that time and I thought may be in half an hour or three quarters of an hour there would be a better tendency and I could get a better price, I decided to sell these two and wait a little while before I put in an order to sell the others. Q. You decided not to sell the others ? Ans. Yes, sir.

Q. You were waiting for an improvement and get better prices? Ans. Yes, sir. Q. In spite of your order of the 22nd you continued to deal with these securities and to give orders to sell or hold them as you thought was the wisest ⁷⁴ course to pursue?

Ans. I assumed it was the wise thing to do to save as much of the account as possible after I found Mr. Mothershead did not take sufficient interest to execute my orders.” So far as the record discloses,'it was not until after the above occurrences, and after appellant received a call dated October 24th for additional margin, that he indicated to Mothershead that he intended to hold him responsible. After the receipt of that call by appellant, Mothershead communicated with him, telling him that his account was approximately wiped out, and that, unless he received more margin, he would sell out some more of the stocks. In response to which appellant said: “I told him that the responsibility was in his hands; that I had previously given orders for him to sell the stocks and that his failure to do so had resulted in a loss to me; that the panicky condition of the market on the 24th led to a situation I couldn’t help myself, and so I considered he was fully responsible and I would hold him for the result of his negligence.” The three items which appellant had not ordered sold on October 24th were later sold by appellees (the last on October. 29, 1929), because he refused to put up any more money for margin?

After the stocks were all sold and Mothershead demanded payment of $224.71 for a balance which he claimed appellant owed on the account, appellant told him that, if he would adjust that Packard transaction, it would take care of the balance. At that time, apparently, there was no suggestion by appellant of any counterclaim by reason of the failure of appellees to execute the order of October 22nd. Indeed appellant testified that no claim for a definite sum was made until this suit was instituted. His attorney testified, however, that the details of appellant’s claim were made known to appellees’ attorney in the latter part of Hovember, 1930.

The above statement of facts is taken from the testimony of the appellant. At the conclusion of his testimony the court granted a prayer for a directed verdict in favor of the defendant, on the ground that there was no evidence legally ⁷⁵ sufficient to entitle the plaintiff to recover. This was the subject of plaintiff’s fourth bill of exception. There were three relating to- rulings, on evidence.

The first was to the refusal to admit over objection a paper purporting to be plaintiff’s computation of the amount claimed by him to he due. The third was to the refusal to admit the docket entries. Both of these were unimportant in the view we take of this case, and need not be considered. The second was to the refusal to admit a letter from appellee’s Washington attorneys to appellant’s attorney.

The ruling was correct. The letter clearly was written with a view to- a possible waiver by each party of any claim against the other and was, in the nature of a suggestion of compromise. In considering the prayer for a directed verdict, thei only question seriously argued by appellee, and the only one that could be, was that of ratification. On plaintiff’s testimony, defendants were clearly liable for their failure to execute plaintiff’s order to sell on October 22nd, 1929, which they accepted, unless their conduct was subsequently ratified by the plaintiff.

There was no express ratification, and the contentions of the appellant are: (1) That whether or not the subsequent conduct of the appellant amounted to a ratification was a question which should have been submitted to the jury; (2) that it was the duty of appellant to minimize the loss, and what he did in reference to- the sale of the stock after the failure of appellees to execute his order of October 22nd was done for that purpose, and cannot be said as a matter of law to have operated as a ratification. And in support of these contentions he cites the following cases: Sparling v. Wade, 210 App. Div. 774 , 206 N. Y. S. 379. In that case there was a conflict of testimony, and therefore a jury question. So, also, in Hershey v. Hanauer, 108 Wash. 498 , 185 P. 627 , which was an unauthorized sale.

Appellant’s quotation from Allen v. McConihe, 124 N. Y. 342 , 26 N. E. 812, 813 , expressly distinguishes between a, case when the legal title to shares of stock is in plaintiff and ho has control of it (in which case he should sell within a reasonable time, or permit ⁷⁶ his agent to sell, so as to render the loss as slight as possible) and cases like the present, where “there was no way in which he could sell it, except through his brokers, without paying its purchase price, taking the certificates, and then selling them, which he was imder no obligation to do for the protection of his defaulting agents.” In Ramsay v. Miller, 202 N. Y. 72 , 95 N. E. 35 , the trial court directed a verdict for the plaintiff, thus excluding the defense of ratification. On appeal the court said there was enough evidence of ratification to be submitted to the jury. Hurdy v. Taylor, 181 N. Y. 231 , 71 N. E. 977 , decides nothing except that recovery cannot be had on wager contracts. Bur horn v. Lockwood, 71 App. Div. 301 , 75 N. Y. S. 828, appeal dismissed in 177 N. Y. 539 , 69 N. E. 1121 , was a case of short sale of stock which the customer informed broker was unauthorized.

Held,'that it could not be said as a matter of law that failure to return an account of sale subsequently sent by broker operated as an acquiescence or ratification of the unauthorized sale. In Hopkins v. Clark, 7 App. Div. 207 , 40 N. Y. S. 130, there was a conflict of testimony on the question of ratification. It was a ease of an alleged unauthorized purchase of bonds. One question was whether plaintiff with knowledge of all the circumstances and a reasonable time for consideration had ratified.

In Hirsch v. Deschler, 231 App. Div. 237 , 247 N. Y. S. 143, broker was instructed by customer to sell out when his margin was impaired. The market broke and customer demanded of the branch manager of the broker that the account be sold out. The branch manager replied he “would sell nothing, he had nothing to do' with selling and if Deschler wanted to sell he should give his own orders to the selling clerk,” which Deschler did not do. The broker sued for .amount due on the account. .The court in that case seems to have thought that the customer should have saved himself by doing what the manager told him to do.

Except on that theory, the statement that it was the duty of Deschler to have sold his securities at the time when Hirsch, the broker, broke the agreement, is inconsistent with the ruling ⁷⁷ in Allen v. McConihe, supra, and in Smith v. Sutton, 138 App. Div. 859 , 123 N. Y. S. 656, affirmed in 203 N. Y. 594 , 96 N. E. 1130 . Hirsch v. Deschler was affirmed in 257 N. Y. 570 , 178 N. E. 799 , but on