Deyo v. Hudson

Citation122 N.E. 635,225 N.Y. 602
PartiesDEYO et al. v. HUDSON et al.
Decision Date25 February 1919
CourtNew York Court of Appeals

OPINION TEXT STARTS HERE

Appeal from Supreme Court, Appellate Division, Third Department.

Action by Israel T. Deyo and others against Charles I. Hudson and others as copartners under the firm name of C. I. Hudson & Co. From a judgment of the Appellate Division, Third Department (174 App. Div. 746,161 N. Y. Supp. 494), which reversed a judgment of nonsuit at Trial Term (89 Misc. Rep. 525,153 N. Y. Supp. 693), granted after special findings by the jury under section 1187 of the Code of Civil Procedure, and unanimously directing a judgment for plaintiff on such finding, defendants appeal. Judgment of Appellate Division reversed, and judgment of nonsuit affirmed.Nathan L. Miller, of Syracuse, for appellants.

Harvey D. Hinman, of Binghamton, for respondents.

POUND, J.

This is an action to recover damages for deceit. Many of the material facts are in dispute, and plaintiffs' version alone is stated. The plaintiffs, with William B. Carver, were law partners in Binghamton. Defendants are stockbrokers. Their principal office is at No. 36 Wall street, New York, but they have branch offices in Binghamton and other cities. Their business is extensive. They have memberships in the New York Stock Exchange and other desirable connections. The law firm looked after estate matters and trust funds and attended to investments for clinents. Many securities were intrusted to them, on which they collected the interest, received payments of principal, and made reinvestments. In August, 1910, Carver confessed to Deyo that he had, since the preceding March, been speculating on margins in the stock market through defendants' Binghamton office, and had stolen and lost more than $20,000 of their clients' money. Carver had a high standing in the community, and passed as eminently respectable. He then closed his account with defendants, and his peculations were made good. Plaintiffs had to decide what to do with him. To drop him from the firm might cause a scandal, and their feeling toward him seems to have been sorrow rather than indignation. Deyo in this connection, about November 1, 1910, interviewed Mitchell, the manager of defendants' Binghamton office. Mitchell regarded Carver as a good customer, one of a chosen dozen about there, and had in March written to his firm that:

‘Our new customer, W. B. Carver, will make a good trader and pay big commissions if he gets away right; he expressed great faith in Mr. Hudson's opinion; have looked him up and find that his father left him a lot of money, and that he has a large law practice.’

Deyo testified that:

‘I said to Mr. Mitchell that: ‘My junior partner has been speculating here in your office; he has lost every dollar he had; he has stripped himself completely; he has lost what he had over here. As a member of our firm he has to do with a great many trust funds; we are handling a great deal of money and securities for clients, and our clients would not trust us, and very properly, if they understood that any member of our firm, or any man connected with the office, was engaged in that line of business; and that Col. Hitchcock and myself are considering the matter of retaining him in the firm. We will not retain him in the firm or permit him to be connected with the office if he engages in that sort of business.’ I said to him that Carver had promised that he would not, which was true. I told him that Carver was a valuable man in some ways in the office; that he was a very accurate man and very painstaking man, and that he could earn a living there, but I didn't know where he could earn a living elsewhere. And that question was up, that Col. Hitchcock and I were discussing, as to whether we should retain him in the firm or not, and said, ‘What I want you to do, I want you to let me know if he comes back here to do any more trading on your board.’ In speaking about handling trust funds or funds belonging to estates, Mitchell replied, ‘Oh, that is all right.’ He said We never take on a customer on a marginal account who occupies a trust position like,’ he said, ‘a bank clerk,’ and he used the expression, ‘insurance clerk,’ and I said, ‘Yes; that is the case exactly; we are handling a large amount of trust funds and moneys belonging to other people;’ and my recollection is, although I would not testify to it positively, that I also told him in that connection that he had not only stripped himself of everything he had, but that he had also lost everything that his wife had, what little she had. When I said to him that he has lost everything he has got, he said, ‘I am surprised; I supposed he was a very wealthy man, and his father was a rich man, and he was very wealthy,’ I said, ‘No, Mr. D. H. Carver was not a wealthy man and he left practically little to Will, but whatever he had is gone; he has lost it over here, and I want you to let me know if he comes back here to do any more trading in your office,’ and he replied that he would so so. And that was the substance of our conversation. * * * I told him that when we discovered it that we had concluded to notify Carver that he could not remain in the firm or connected with the firm in any capacity whatever; but that he had promised that he was through with that, and we were reconsidering the matter of retaining him in the firm.'

At that time Mitchell knew that Carver had reopened his account with the defendants in a small way. When he gave Deyo assurances that he would report any further trading by Carver he misstated his existing intention. He did not intend to tell Deyo anything on the subject. Deyo listened with credulity and the plaintiffs decided to keep Carver in the firm. On November 26, 1912, Carver disappeared. Then it was found that he had resumed both his peculations and his speculations and had appropriated securities belonging to clients of his firm and cash received by the firm for clients, amounting to more than $50,000. He had with money thus obtained purchased and sold through the defendants on margins, stocks of the aggregate value of nearly $10,000,000, cotton in the aggregate value of more than $1,000,000, and grain of the aggregate value of about $800,000. Defendants' commissions on these transactions were about $11,000. Mitchell had not only failed to inform Deyo that Carver had resumed trading in defendants' office, but had effectively aided Carver in concealing the fact, explaining in a letter to his principals that--

‘His [Carver's] law partner is a strict church man and does not believe in gambling. This is a small town, and accounts must be kept very quiet.’

He also took payments from Carver in currency instead of checks, and on one occasion positively assured Deyo that Carver had not resumed trading.

Plaintiffs sue to recover from defendants the loss that they have sustained by Carver's defalcations. Upon the trial the court reserved. its ruling upon the defendants' motion for a nonsuit, and submitted special questions to the jury. The first question was as follows:

‘Did the defendants or defendants' employés, while acting within the scope of their employment, knowingly make to the plaintiffs false statements or misrepresentations as to existing facts, or knowingly conceal existing facts which the defendants; and, if so, were the same made and the circumstances, to have disclosed to the plaintiffs; and, if so, sere the same made and done with the intention that the plaintiffs should rely thereon; and did the plaintiffs rely on such false statements, misrepresentations, or concealments in continuing the law partnership of Deyo, Hitchcock & Carver with William B. Carver as a member; and were injury and damage to the plaintiffs the natural and probable results of such false statements, misrepresentations, or concealments; and were such injury and damages received by the plaintiff?’

The jury answered this question in the affirmative. Other questions, seven in number, related to the amount of damages growing out of the misappropriation of the funds of each client whose money had been taken, and were also answered by the jury in plaintiffs' favor. The court thereafter granted the defendants' motion for a nonsuit, and directed the entry of judgment against the plaintiffs for the dismissal of the complaint and thd costs of the action. An appeal was taken to the Appellate Division, where an order was unanimously made, first reversing the judgment appealed from, and, secondly, directing judgment on the special verdict in favor of plaintiffs. On such order judgment was entered in the sum of $67,462.45, from which defendants appeal.

[1][2] In reviewing the order of the Appellate Division reversing the judgment of the trial court, although we have a unanimous decision that there is evidence supporting the special verdict, this court will consider the evidence, and will not confine itself to the findings of the jury. The Constitution (article 6, § 9) in effect January 1, 1895, provides that--

‘No unanimous decision of the Appellate Division of the Supreme Court that there is evidence supporting or tending to sustain a finding of fact or a verdict not directed by the court, shall be reviewed by the Court of Appeals.’

The provisions of the Code (section 1187) for nonsuit after special verdict were added by chapter 946, Laws of 1895, in effect January 1, 1896, and were not in the minds of the members of the Constitutional Convention when the unanimous decision rule was formulated. They now read as follows:

‘When a motion is made to nonsuit the plaintiffs or for the direction of a verdict, the court may, pending the decision of such motion, submit any question of fact raised by the pleadings to the jury or require the jury to assess the damage. After the jury shall have rendered a special verdict upon such submission or shall have assessed the damage, the court may then pass upon the motion to nonsuit or direct such general verdict as...

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