Marye v. Strouse

• Decision Date: 20 January 1880
• Citation: 5 F. 483
• Parties: MARYE v. STROUSE.
• Court: U.S. District Court — District of Nevada

5 F. 483

MARYE v. STROUSE.

United States Circuit Court, D. Nevada.

January 20, 1880

Kirkpatrick & Stevens and Lewis & Deal, for plaintiff.

Jonas Seely, for defendant.

HILLYER D.J.

This is an action to recover a balance alleged to be due upon a mining-stock account. The complaint alleges the purchase upon defendant's request of a large amount of mining stocks the expenditure of money for telegrams in connection with the buying and selling of the stocks; the advancing of money on purchases, and the agreement of defendant to pay interest thereon at the rate of 2 per cent. per month. It also contains a number of counts upon accounts stated. The answer puts in issue the purchase of 500 shares of Franklin stock at three dollars per share; denies the correctness of the charges for telegrams, and any agreement to pay interest at the rate of 2 per cent. per month. These are the only issues raised. The facts bearing upon each point can be best stated as it is decided, both for convenience and to avoid repetition. The facts in regard to the purchase of the Franklin stock are that the defendant requested the plaintiff's assignors, Frankel & Block, stock brokers, to buy for him 500 shares of Franklin, at a limit of three dollars per share. Frankel & Block purchased in the San Francisco stock board next day, in the usual way, 125 shares of Franklin, that being all that could be obtained at three dollars per share. At the same time Frankel, one of the members of the firm, being a large owner of Franklin stock turned over to Frankel & Block, for the purpose of filling the defendant's order, 375 shares of Franklin at three dollars per share, which were then applied by the firm to that purpose, and were charged to the defendant with the usual commissions and telegrams. The defendant never received the stock into possession, and never assented to this mode of filling his order; nor did he know it had been so filled until about the time of bringing this suit.

The rule of law applicable to this state of facts is settled. An agent employed to buy cannot become the seller, in the absence of his principal's assent, given upon full knowledge of the facts. Frankel & Block, as agents of Strouse to purchase, could not be the sellers. It is not claimed that there was any fraud in fact here, but evidence establishing the transfer of the stock to have been bona fide, and for a fair price, is unavailing. The inquiry does not reach the question whether there was or was not fraud in fact. It stops when it is ascertained that the agent was both buyer and seller. The law then declares the sale invalid, if the principal elect to so consider it, not because all sales so made are in fact fraudulent, but because it will not permit any trustee or agent to purchase on account of another that which he sells on account of himself. It does not permit the agent to be lead into temptation by an act which raises a conflict between his integrity and his self-interest.

The supreme court of the United States announced this doctrine in very strong terms and with unanimity in Michoud v. Girod, 4 How. 503. The current of authority in England, as well as here, is all the same way. 4 Kent's Com. (7th Ed.) 475; Conkey v. Bond, 34 Bar. 276.

The manner in which the stock passed from Frankel to Frankel & Block, and from them to Strouse, does not, in my judgment, essentially alter the case. The fact that an account may have been stated between the defendant and Frankel & Block, in which this item of 500 shares of Franklin was included, does not bind the defendant, if he stated the account in ignorance of the facts. It appears that Frankel & Block never informed the defendant how the purchase had been made, and that the defendant did not, in fact, know of it until at or about the time of bringing this suit. The charge in the account which was rendered to defendant, being for 500 shares of Franklin at thee dollars per share, gave him no information in regard to the person from whom the stock was purchased. The charge was for a quantity and for a price within the limit of his order, and he may, and naturally would, have supposed it had been filled in the regular way.

There was nothing to put him on inquiry, and he may now open the account for fraud, actual or constructive. So any payments the defendant may have made in ignorance of the facts cannot be binding upon him, however appropriated, so as to prevent him from avoiding the transaction when he discovers the truth.

So far, then, as the 375 shares are concerned it seems clear that there is no liability on the defendant's part; but that he is properly chargeable with the 125 shares, which were regularly purchased in the board, has hardly been seriously contradicted. It was suggested, however, that the order for 500 shares might and ought to be regarded as an entire contract, and that the defendant was not bound to take less than the whole 500 shares. A sufficient answer to this position is that, upon receiving the defendant's order to buy 500 shares at a limit of three dollars, the undertaking of Frankel & Block, as brokers, was not to deliver the whole absolutely, but to buy so much as could be bought in the regular way below or at the limit. Moreover, there are no circumstances in this case showing, or tending to show, that the defendant regarded the purchase of the whole number of shares as essential to the value of a part. An ordinary broker's contract for the buying of stock, each share of which has a distinct and independent value, cannot be regarded as entire. The result upon this stock transaction is that the defendant is entitled to a credit for 375 shares, at three dollars per share, for commissions, and for interest thereon, at the rate of 2 per cent. per month, from September 28, 1874, down to the -- day of --, 187-, and at 10 per cent. per annum thereafter, so long as those rates have been charged against him in the account sued on.

The charges for telegrams were made in this way: Frankel & Block were in the habit of receiving orders daily for the purchase and sale of mining stocks. It often happened that a number of orders would be sent to San Francisco in one dispatch. In such case the practice was to charge each customer having an order therein 75 cents, (that being the proper charge for a single telegram of 10 words,) although suchcustomer's proportion of the actual cost was often, if not always, much less. Sometimes a single order would be sent for one customer, and then the actual cost of the telegram was charged. But how often this may have been done in defendant's case nowhere appears. No effort was made to keep an account of the sums actually paid out for telegrams about his business. The plaintiffs defend these charges on the ground that they are in accordance with an established custom of mining stock brokers. The testimony fails to bring knowledge of this custom, if any, home to Strouse. He never agreed to the charges, nor did Frankel & Block ever inform him of their character. He himself denies any knowledge of the custom, if it be a custom.

I think, also, that the testimony fails to show that the alleged custom had existed so long, and was so generally known, that the defendant ought to be presumed to have had knowledge of it, and to have contracted with reference to it. The only evidence on this point is that of Mr. Frankel.

In answer to the question whether this mode of charging 'was a custom among the brokers, and was well known,' his answer is 'I tell everybody; make no bones about it. ' Again he answers: 'It (the mode of charging) is well known; we don't make any bones about it-- tell everybody. ' This shows that there was nothing clandestine about the charges, but does not show a certain and uniform custom among brokers which was known to both parties.

A custom or usage like this, of charging customers, in addition to commissions, not merely the actual cost of telegrams, but an arbitrary sum, ordinarily much more than the actual cost, if it can be considered reasonable, ought to be established by very satisfactory proof, and it should also appear that both parties had knowledge of it.

Strouse says he expected to pay the actual cost of the telegrams about his business, but nothing more. There is, however, no proof showing what the real cost was. It being conceded that the charge is excessive, unless supported by custom, the burden of showing what the real cost of telegrams was is on the plaintiffs. But this has not been done, and the charge must stand or fall as a whole. I do not think it can be sustained on the ground of custom. Nor do I think that in reference to these charges the defendant has lost his right to object to them because he may have stated an account including them, or because payments made by him may have been appropriated by Frankel & Block to their payment.

For this reason the account as rendered to defendant contained the usual charge of the telegraph company for a dispatch of ten words or less, viz., 75 cents, and while the charge was false in fact it would appear to the defendant to be true so long as he remained ignorant of the broker's habit of charging. Until this became known to him there was nothing on the face of the account calling for objection by him. As to usage, see Renner v. Bank of Columbia, 9 Wheat. 581; Bowling v. Harrison, 6 How. 248; Pierpont v. Fowle, 2 W.&M. 23.

The only other portion of the account objected to by the defendant consists of the various charges for interest, at the rate of 2 per cent. per month, which he asserts are illegal, because no agreement in writing has ever been made to pay that rate.

The plaintiff claims that all items of interest accruing prior to August 1, 1875, are included in a number of accounts...