80 F. 665 (6th Cir. 1897), 305, Leahy v. Lobdell, Farwell & Co.

Docket Nº:305.
Citation:80 F. 665
Case Date:May 17, 1897
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

Page 665

80 F. 665 (6th Cir. 1897)




No. 305.

United States Court of Appeals, Sixth Circuit.

May 17, 1897

Lobdell, Farwell & Co., of Chicago, who were plaintiffs in the court below, brought this suit against the defendant, Leahy, a resident of Muskegon, Mich., for the purpose of recovering a balance alleged to be due them on account of certain dealings in stocks and bonds. In 1893, and for several years previous thereto, Lobdell, Farwell & Co. were engaged in the business of buying and selling stocks and bonds as brokers for other parties, and also in buying and selling stocks and bonds on their own account. Among others who had bought and sold stocks and bonds through them as brokers was the defendant, Leahy, who is plaintiff in error here. This dealing was for the purposes of speculation on the part of Leahy. On the 26th day of January of the year above mentioned, after some preliminary conversation between the parties in reference to a sale by Lobdell, Farwell & Co. to Leahy of a certain amount of bonds of the Metropolitan West Side Elevated Railroad Company of Chicago, and some stock of that company, the right to which passed to the holder of the bonds, and certain stock of the West Side Construction Company, also of Chicago,-- being a corporation organized for the purpose of building the road of the Metropolitan West Side Elevated Railroad Company,-- Leahy signed and delivered to Lobdell, Farwell & Co. a certain instrument in writing of that date, addressed to them, of which the following is a copy:

'As per my talk with you this morning, please reserve for me $25,000 (par value) of the bonds of the Metropolitan West Side Elevated Railroad Company, at par, and charge my account. With these bonds you are to allow as a bonus 25 per cent. of my subscription, or 62 1/2 shares of the stock of the Metropolitan West Side Elevated Railroad Company. Also, as talked this morning, you are to allow me to have 25 shares of the stock of the West Side Construction Company, on which 40 per cent. has been paid, the cost of which ($1,000) you will also charge to my account, with interest. The stock of the Metropolitan West Side Elevated Railroad Company, I understand, is not yet issued, and

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when it is issued it will be issued to a trust company in New York, whose receipts will be issued therefor. This will be perfectly satisfactory to me, as stated.'

This proposition was accepted, and Leahy paid down, as part of the purchase price, or as a margin to carry the stocks and bonds,-- it is uncertain which,--the sum of $2,500.

From the bill of exceptions it appears that evidence was given by Leahy upon the trial in the court below tending to show that, at the time of his purchase of the stocks and bonds mentioned in the instrument above set forth. Lobdell, Farwell & Co. agreed to carry those stocks and bonds for him for a year at least, and, if his necessities required it, for another year longer, upon the terms of his paying to them interest at the current business rate. The plaintiff below denied the making of this agreement. The bonds and stocks thus purchased by Leahy belonged to Lobdell, Farwell & Co., and were not bought by them as brokers. In July following Lobdell, Farwell & Co. wrote Leahy that, on account of the high rates of interest prevailing, they would have to charge a commission of 1/2 per cent. per month on all open accounts in addition to regular charges for interest, and on the 26th of July Leahy replied as follows:

'When I purchased the bonds, you stated that you would carry them a year or two, if necessary, at the regular interest rates, which were six per cent. at that time, and, when you advanced to seven per cent. I supposed you were paying more, but when you come to double it, I must say it is too high. You certainly made a good profit on the bonds when you sold them, and I do not believe you should charge a commission at this time when so many are losing money, myself among the number.'

At the date of this purchase, other accounts between the parties, growing out of the purchase and carrying of stocks and bonds for Leahy by Lobdell, Farwell & Co., were still open. This transaction of purchase and sale of the bonds and stock of the Metropolitan West Side Elevated Railroad Company, and of the shares of stock of the construction company, was entered upon their books by Lobdell, Farwell & Co. in their general brokerage account with Leahy, and subsequently they rendered successive statements of account, in which these bonds and stocks were intermingled and treated as being subject to the same conditions as other purchases of bonds and stock which they had made for Leahy; and evidence was given upon the trial from which the jury might have found that the defendant, Leahy, assented to this mode of treating the bonds and stock in controversy, and that the parties, subsequently to the contract of sale, had an understanding and an agreement that these bonds and stock should stand in the same situation, and subject to be treated in like manner, with bonds and stock which Lobdell, Farwell & Co. had, as brokers, bought and were carrying for Leahy.

In the early summer of 1893 the financial troubles of that year began, and the stocks and bonds of all kinds which Leahy then had in the hands of Lobdell, Farwell & Co., among them those purchased of them as above stated, quite rapidly depreciated. That depreciation went on to such an extent that, in the latter part of July, Lobdell, Farwell & Co. wrote to...

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