Crehan v. Megargel

• Citation: 235 Mass. 279,126 N.E. 477
• Parties: CREHAN v. MEGARGEL et al.
• Decision Date: 20 March 1920
• Court: United States State Supreme Judicial Court of Massachusetts

235 Mass. 279

126 N.E. 477

CREHAN

v.MEGARGEL et al.

Supreme Judicial Court of Massachusetts, Suffolk.

March 20, 1920.

Report from Superior Court, Suffolk County; Robert F. Raymond, Judge.

Action by Mark H. Crehan against Roy C. Megargel and others. On report, with alternative findings, by a justice of the superior court, to the Supreme Judicial Court. Judgment ordered for plaintiff.

S. R. Wrightington, of Boston, for plaintiff.

Wilford D. Gray, of Boston, for defendants.

DE COURCY, J.

The plaintiff's alleged claim grows out of certain stock transactions handled by the defendants as his brokers. They are a limited partnership, organized under the laws of the State of New York, having their principal office in New York City, with branches in Boston and Chicago. Prior to the opening of his account with them the plaintiff had a margin account with Nickerson & Co., a stockbrokerage house in Boston. In April, 1916, on orders given by him, the securities which he had on margin were transferred from Nickerson & Co. to the defendants; the latter paying to Nickerson & Co. the amount of the indebtedness for which the plaintiff's securities were held as margin.

The plaintiff's account with the defendants was a margin account, and ran until December, 1916. He visited their Boston office practically every day. Most of the orders to buy and sell were signed in the plaintiff's name by one Kane, an employé of the defendants, whose advice he followed. During the summer, fall and early part of the winter, the market was falling; in December the defendants called upon the plaintiff for additional margin; and upon his failure to comply, they sold or pretended to sell practically all of his securities during that month.

The plaintiff does not make his claim under the so-called Statute. Wagerine Contract R. L. c. 99. He brings his action to recover the value of the securities received by the defendants from Nickerson & Co.; and certain items of cash and securities subsequently delivered to them by the plaintiff, and dividends credited to him on the books of the defendants.

The oral contract between the parties as found by the auditor, was in substance as follows:

‘The defendants agreed to, and did in fact, accept from the plaintiff through deliveries made by Nickerson & Co., certain of the shares of stock described in the account annexed to the plaintiff's declaration. They agreed to, and did in fact, pay Nickerson & Co. the amount that the plaintiff was indebted to Nickerson & Co. at the time of the transfer of the account. The plaintiff understood that in order to finance this transaction, the defendants would be obliged to borrow a substantial amount from some bank. This the defendants did, and the plaintiff assented to the use of such securities as the defendants deposited as collateral security for such loans. The defendants agreed that all of the securities delivered by Nickerson & Co., and any other assets which thereafter entered into the plaintiff's account, should and would be carried by the defendants to the credit of the plaintiff as marginal security for whatever trading in stocks the plaintiff might carry on through the defendants as brokers. They agreed to execute such orders to buy or sell as the plaintiff might give, so long as the plaintiff kept his margin good. The plaintiff, on his part, agreed to maintain at all times the amount of margin required by the defendants, and to be bound by the lawful rules and customs of the stock brokerage business.’

Among the securities transferred from Nickerson & Co. to the defendants were 7,300 shares of Butte & Superior; and he bought 300 shares while his account was with them. By June 20, they had not in their possession or control any of this stock; although no orders to sell it were given by the plaintiff or Kane. The evidence tended to show that this stock was used to make deliveries on the ‘Armstrong’ account, which was always a ‘short’ account, and was manipulated by the defendant Coombs. But even if we assume, as the auditor finds (so far as it is a question of fact), that the defendants, through the ‘short’ sales in the Armstrong account, ‘converted, either under the Massachusetts or New York law, all of the plaintiff's shares of Butte & Superior delivered to them as margin to their own use,’ he cannot...