Leahy v. Lobdell, Farwell & Co.

• Citation: 80 F. 665
• Decision Date: 17 May 1897
• Docket Number: 305.
• Parties: LEAHY v. LOBDELL, FARWELL & CO.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

80 F. 665

LEAHY v. LOBDELL, FARWELL & CO.

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 &amp 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 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 the plaintiff in error, calling his attention to the financial situation, and stating, in substance, that they desired additional margin on his account, and on the 2d day of August they addressed to him the following letter:

'We wrote you some days ago, asking for additional margin on your account, and telling you the condition of the market. The borrowing power of all stocks and bonds has declined very seriously, even while actual quotations have, perhaps, not changed a great deal. Alley stock has been offered here quietly at 65, with no public bids. Probably the stock would be sold around 60, if forced, although we do not know of any such bid at the moment. In figuring your securities at the close of the month, we have figured Alley stock at 60, Metropolitan 5's at 70, and Construction Company at 75, although these prices are nominal. Figuring them at these prices would leave a deficiency on your account of about $3,000. As a matter of fact, we are unable to borrow more than 40 on Alley stock, 50 on Metropolitan 5's, and 60 on Construction stock. As things are now, it looks as though we would be obliged to sell out all securities which we hold that are not properly margined, and write you this letter to tell you the condition, and ask you, if you are not able to give us cash, to give us mortgages, or good notes, or some other securities, which will be enough to be good security for at least $5,000. We trust you will respond to this at once, and let us know what we shall do. If you are unable to give us this security, it looks now as though we will be obliged to sell the securities for what they will bring, although we should dislike to do so very much, if it can be avoided. When the market turns up again, we will probably be able to return you whatever security you may give us. Do no fail to reply to this at once upon receipt.'

Other correspondence ensued immediately thereafter, and on August 14th Lobdell, Farwell & Co. sent the following letter to Leahy:

'Please wire us upon receipt of this letter, in case you are not able to make the raise talked of in former letter, and we will sell the securities which we are now carrying for your account. We have an opportunity to sell Metropolitan bonds at 65 with the stock, and the 25 Construction stock at 60. Alley 'L' sold to-day at 55, and we may be able to work this off at the same price, although it is not certain. If this deal is to go, we will have to make it at once. You will please wire us to-morrow, authorizing us to make the sale, in case you cannot put up the other security.'

And again, on the 17th, the following:

'We have been unable to find a buyer for your Alley stock since the receipt of your telegram. We have to-day, however, a probable buyer for 100 shares at 50. We have, also, an opportunity to sell the $25,000 Metropolitan bonds with the stock bonus at 65, and the 25 Construction stock at 60. Please wire us as early as possible to-morrow if we shall make this sale, or whether you have succeeded in making your arrangements for additional collateral.'

To this last letter Leahy, on the 18th of August, made the following reply:

'Your letter received, and would say in reply that I do not wish to sell Metropolitan bonds and stocks that go with them at present. I wired you a few days since to sell Alley 'L' stock at best price.'

On the same day Lobdell, Farwell & Co. addressed to him the following letter:

'We have to-day closed out your account at the following prices, and inclose herein memorandum showing the balance due us. We closed out 100 shares of Alley 'L' stock at 50, 25,000 Metropolitan bonds with their stock rights at 65, and 25 Construction Company at 60. In making a lump sale of these securities, at this price, you have obtained more than they could be peddled out for. We trust you will be able to secure us the balance due us.'

Leahy replied to this on the 19th of August, as follows:

'Yours of 18th inst., stating that you had closed out one hundred shares of Alley 'L' stock at 50, and twenty-five thousand Metropolitan bonds with their stock rights at 65 and twenty-five shares Construction Company stock at 60, and inclosing memorandum, received. I authorized you to sell the Alley 'L' stock, but you had no authority from me to sell...