Gervis v. Kay
| Decision Date | 26 November 1928 |
| Docket Number | 120,121 |
| Citation | 294 Pa. 518,144 A. 529 |
| Parties | Gervis v. Kay et al |
| Court | Pennsylvania Supreme Court |
Argued October 4, 1928
Appeals, Nos. 120 and 121, March T., 1928, by plaintiff and defendants, from orders of C.P. Allegheny Co., July T., 1926 No. 4415, refusing judgment n. o. v., and granting new trial in case of A. A. Gervis v. Alfred G. Kay et al., doing business as Kay, Richards & Company. Affirmed.
Trespass for conversion of stock. Before MARTIN, J.
The opinion of the Supreme Court states the facts.
Verdict for plaintiff for $19,925. Both plaintiff and defendants appealed.
Error assigned in No. 121 was refusal of judgment for defendants n. o. v., quoting record.
The appeal of defendants from the refusal of the court below to grant them judgment n.o.v. cannot prevail; nor can the appeal of plaintiff from the award of a new trial. The orders are affirmed in both appeals.
Error assigned in No. 120 was granting of new trial, quoting record.
Earl F. Reed, of Thorp, Bostwick, Stewart & Reed, with him Simon Sher, for plaintiff appellant. -- The court below, as we view it, properly charged the jury on the question of damages at the trial: Class & Nachod Brewing Co. v. Giacobello, 277 Pa. 530.
The relationship between a broker and his customer in a margin transaction being that of pledgor and pledgee, is certainly one of trust: Berberich's Est., 264 Pa. 437; Vosburgh's Est., 279 Pa. 329.
In this state, once the conversion is established, the well settled rule in Pennsylvania is applicable; this fact of conversion has been settled by the jury in appellant's favor. Appellees had no authority to sell: Learock v. Paxson, 208 Pa. 602; Sproul v. Sloan, 241 Pa. 284; Sterling's Est., 254 Pa. 155; Berberich's Est., 264 Pa. 437.
Donald Thompson, of Calvert, Thompson & Berger, for defendants and Alfred G. Kay et al., appellants. -- A broker who holds stocks of a customer on margin account is of course a pledgee. When he sells those stocks, however, he may be acting in either one of two capacities. If he makes the sale, either rightfully or wrongfully, because he thinks the customer's margin does not justify him in carrying the account any longer, he manifestly purports to exercise his rights as a pledgee and acts accordingly. If, however, he makes the sale upon the supposed order of his customer, whether correctly understood or not, it is just as clear that he purports to act as his customer's agent, although he may act negligently.
If this appeal involves the law of pledgor and pledgee, attention is called to Granger v. Fidelity Trust Co., 198 Pa. 428.
The only case directly in point which we have been able to find, involving a broker and his customer, is Hanks v. Drake, 49 Barbour (New York) 186.
It seems clear to us that the proper decision of this case turns on the law not of pledges but of principal and agent.
It is a general rule, of constant application in the law of agency, that he who, voluntarily and with knowledge of the facts, accepts the benefit of an act purporting to have been done on his account, by his agent, thereby ratifies it and makes it his own as though he had authorized it in the beginning: Danish Pride Milk P. Co. v. Marcus, 272 Pa. 340; Walker v. Harbison, 283 Pa. 111; Sloan v. Johnson, 20 Pa.Super. 643.
Before MOSCHZISKER, C.J., FRAZER, WALLING, SIMPSON, KEPHART, SADLER and SCHAFFER, JJ.
This is an action to recover damages for an alleged conversion of two hundred shares of the common stock of the Mack Truck Company, pledged by A.A. Gervis plaintiff, to Kay, Richards & Co., a partnership, defendants, and held by them to secure the unpaid balance of the purchase price advanced to plaintiff, who acquired the stock on margin through defendants' brokerage office. The verdict was against defendants; a new trial was granted, and plaintiff has appealed from that order. Defendants also have appealed, contending that they are entitled to judgment n.o.v. We shall dispose of both appeals in this opinion.
Plaintiff, who carried a considerable number of corporate securities with defendants on margin, purchased, in that way, the stock here in controversy; a few days later he instructed defendants to sell these shares if the price advanced to 142 3/8 or if it declined to 137 3/4; concerning this there was no dispute at the trial. The controversy was as to whether Gervis subsequently cancelled his selling order, thereby depriving defendants of authority to dispose of the stock in question, as they did later, at the price of 142 3/8. Plaintiff contended that he called at the office of defendants and left an order cancelling the whole of his prior direction to sell; on the other hand, defendants contended that only the "stop-loss," or lower price, part of the original order was cancelled, while the original instructions to sell at 142 3/8 were allowed to stand. This issue was submitted to the jury, which found for plaintiff. Accepting the fact, thus established, that defendants by mistake wrongfully sold plaintiff's stock, the question before us on the latter's appeal, which we shall consider first, is, What rule as to the measure of damages controls? for, since the court below certifies that what it conceived to be the trial judge's incorrect charge on this point was the sole reason which moved it to grant a new trial, the appeal from its order to that effect properly presents a reviewable question: Class & Nachod Brewing Co. v. Giacobello, 277 Pa. 530, 537; March v. Phila. & West Chester Trac. Co., 285 Pa. 413, 417.
As just indicated, the judge presiding at the trial had a different theory from that subsequently adopted by the court below in making the order about to be reviewed; he charged that, should the jury's finding favor plaintiff, the latter would be entitled to recover "the highest market value of the stock from the time of the [wrongful] sale until the date of trial," adding, "There is no doubt that [such] is the rule of law in Pennsylvania . . . applicable to the measure of damages; there is no other rule, -- no middle ground [seems] possible in this case." On consideration of defendants' motion for a new trial, however, the court below reached the conclusion that the above instruction was incorrect; that, since defendants had "acted in the exercise of a supposed authority to sell" (though, according to the verdict, they were mistaken in this), the trial judge should have followed the ordinary rule on the measure of damages, i.e., the market value at the time of sale, with interest to the date of trial, and should have instructed the jury thus to adjust plaintiff's loss. In this connection, it is to be noted that plaintiff purchased the stock in controversy, through defendants, at 139 3/4, and defendants sold it for him at 142 3/8, though without authority. Hence the transaction showed no immediate loss, but a profit of about $500; and, as plaintiff says in his brief, if the market value at the time of the wrongful sale is the criterion to adopt in measuring damages, -- the theory on which the court below granted the new trial, -- it would be a useless thing to try this case again, for, on that theory, plaintiff's damages would be merely nominal.
In disposing of the motion for a new trial, the opinion of the court below, dealing with the question of the proper rule to be followed in measuring the damages, states conditions of controlling importance, namely, that, on the evidence under review, "there was no conversion of the stock in the ordinary sense that it was misappropriated to defendants' use, either by way of pledge to secure their own debts . . . or by the application of the proceeds of the sale for their own protection against a falling market"; further, that "this case presents . . . an element not found in the decisions relied upon by the plaintiff . . . [for here] the sale was made by the defendants in a mistaken exercise of their capacity as agents and not in the exercise of their supposed rights as pledgees," adding, "There is thus eliminated from the case the recognized basis upon which the rule [allowing as damages the highest market value prevailing between the date of the conversion and the date of the trial] depends, -- a breach of good faith and common honesty or a violation of the trust imposed upon . . . pledgees, -- and it leaves in the case, as the only basis for recovery, a negligent act, done without wrongful intent . . ., occuring through a misunderstanding."
We agree with the court below that the instructions to the jury on the measure of damages did not reach the justice of the situation presented by the evidence; but we are not convinced that the rule suggested by that tribunal, in its opinion granting a new trial, is the proper one to apply to the circumstances of this case. There is another rule, however between these two, which more justly meets the situation here involved than either of them; and the principle of this other rule, we think, should be applied to the present case. The rule we have in mind, known as the New York Rule, endeavors to do exact justice, as nearly as may be, to both sides; so it ordains that, while the injured party shall recover the full amount of his loss directly consequent upon the wrongful act, yet it is his duty to minimize that loss as much as is reasonably possible. While this rule may have been stated somewhat differently in later New York cases, Baker v. Drake, 53 N.Y. 211, 217, puts it in the form which most strongly appeals to us for application to a case like the one at bar. It is there said: "If, upon becoming informed of the sale, [the purchaser] desired, . . . he had a right to disaffirm the sale and require defendants to replace the stock; if they failed...
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