Esmar v. Haeussler

• Decision Date: 05 April 1938
• Citation: 115 S.W.2d 54,234 Mo.App. 217
• Parties: WILLIAM ESMAR, APPELLANT, v. W. C. HAEUSSLER AND ALBERT M. KELLER, JULIA B. RADFORD AND MERCANTILE-COMMERCE BANK AND TRUST COMPANY, EXECUTORS OF THE ESTATE OF G. A. RADFORD, RESPONDENTS
• Court: Missouri Court of Appeals

115 S.W.2d 54

234 Mo.App. 217

WILLIAM ESMAR, APPELLANT, v. W. C. HAEUSSLER AND ALBERT M. KELLER, JULIA B. RADFORD AND MERCANTILE-COMMERCE BANK AND TRUST COMPANY, EXECUTORS OF THE ESTATE OF G. A. RADFORD, RESPONDENTS

Court of Appeals of Missouri, St. Louis

April 5, 1938

Appeal from Circuit Court of City of St. Louis.--Hon. O'Neill Ryan, Judge.

AFFIRMED.

Judgment affirmed.

Forest P. Tralles for respondents.

(1) The initial relationship between customer and broker is that of principal and agent, the broker sustaining the same quasi trust relationship that all agents sustain to whom money or property is entrusted by principals for the purposes of the agency. Haight and Haight v. Freese Co., 190 N.Y 540; Marvin v. Brooks, 94 N.Y. 71; Foley v Hill, 2 H. L. Cas. 28. (2) When the customer orders a purchase "on margin," which is one where he provides only a part of the purchase price, the broker, in providing the remaining funds, does not act as agent of the customer. The relationship of debtor and creditor arises between the customer and his broker, and the status becomes that of pledgor and pledgee. Matter of Mercantile Trust Co., 210 N.Y. 83; Small v. Housman, 208 N.Y 115; Keller v. Halsey, 202 N.Y. 588. (3) The right of brokers to exact agreements from customers authorizing bulk rehypothecation of customer's securities for an amount in excess of any one customer's debit balance is thoroughly sustained by the authorities. Meyer on Stockbrokers and Stock Exchanges, sec. 108, page 436; In re Toole, 274 F. 337; Papadopoulos v. Bright, 264 Mass. 42; Furber v. Dane, 203 Mass. 108; Byrne v. Werdenfeld, 113 A.D. 457; Schofield v. Jackson, 99 Conn. 515. (4) The law does not require delivery of stock certificate purchased on margin to the customer by the broker and redelivery by the customer back to the broker as pledgee. Skiff v. Stoddard, 63 Ky. 198; Markham v. Jandon, 41 N.Y. 235; Brown v. Warren, 43 N.H. 430; Providence Thread Co. v. Aldrich, 12 Rhode Island 77; Story on Bailments, section 297. (5) It is customary for brokers in their dealings with other brokers not to divulge the name of their principals, but to make all purchases and sales in their own names. Allen v. McConihe, 124 N.Y. 342; Caswell v. Putnam, 120 N.Y. 157; Meyer on Stockbrokers and Stock Exchanges, sec. 49, page 275; Horton v. Morgan, 19 N.Y. 170; Rogers v. Thomson, 215 A.D. 541; Zimmerman v. Weber, 135 A.D. 428. (6) A written agreement authorizing the broker to rehypothecate the customer's securities without limit as to amount would justify a purchase through another broker on margin. The effect of such a purchase would be in all respects the same as if the securities were bought outright and subsequently rehypothecated. Meyer on Stockbrokers and Stock Exchanges, pages 286-287; Rothschild v. Allen, 90 App.Div. (N. Y.), 233; Horton v. Morgan, 19 N.Y. 170; Rogers v. Thomson, 215 App.Div. (N. Y.), 541; Sexton v. Kessler, 225 U.S. 90, l. c. 97; Richardson v. Thaw, 209 U.S. 365.

Charles A. Lich and Louis L. Hicks for appellant.

(1) The relationship existing between the appellant and respondents in this case is one of a fiduciary character and the action to set aside the account and to reopen the same on the ground of fraud and mistake was properly instituted and brought. Lipkien v. Krinki, 192 A.D. 257 (N. Y.); Haight v. Freese, 190 N.Y. 540; Jewell Realty Co. v. Dierks, 18 S.W.2d 1043; Morgan v. Jaudon, 40 How. Pr. (N. Y.) 366, 378; 9 C. J. 511, and cases cited; Buffington v. Green, 285 S.W. 531; Des Jardins v. Hotchkins, 127 N.Y.S. 504; Kroenberger v. Binz, 56 Mo. 121; McCormick v. Railway, 154 Mo. 191; Carter v. Carter, 129 Mo.App. 467. (2) Appellant's cause of action must be determined under the laws and decisions of the State of New York. Edwards Brokerage Co. v. Stevenson, 160 Mo. 516; Des Jardins v. Hotchkins, 127 N.Y.S. 504 (210 N.Y. 596); Railroad Co. v. Wiggins Ferry Co., 119 U.S. 622; Revised Statutes Mo. 1929, sec. 806; 5 R. C. L. 3, and cases cited under Ann. 12. (3) Over the appellant's objection the court permitted testimony to be introduced as to prevailing custom and usage. S.W. Frt. & Cotton Press Co. v. Stanard, 44 Mo. 71; Ober v. Carson, Excr., 62 Mo. 209; Cowgill v. Jones, 99 Mo.App. 390; Houston v. Mahoney, 219 S.W. 128; Walsh v. Mississippi Valley Transportation Co., 52 Mo. 434; Staroske v. Publishing Co., 235 Mo. 67; Ellenburg v. Love Realty Co., 59 S.W.2d 625. (4) Under the common law and under the laws and decisions of the State of New York no legal purchases of stock or securities were made by the respondents and the respondents are accountable to the appellant for moneys and securities intrusted with them for the purpose of purchasing stocks and securities. Des Jardins v. Hotchkins, 127 N.Y.S. 504; Chap. 11, Rules of New York Stock Exchange, sec. 1; Uniform Stock Transfer Act, sec. 162; 9 C. J. 529; Sheen v. Johnson, 99 Pa. 38; Craft v. Mitchell (Ont.), 14 Dom. L. R. 914; Lipkien v. Krinski (N. Y.), 192 A.D. 257; Nobel v. Kendell, 182 A.D. 801 (225 N.Y. 673); Kinsey v. Meaney, 98 A.D. 420; Clark v. Fisher, 8 F.2d 588 (269 U.S. 570); Thompson v. McCullough, 31 Mo. 224; Houston et al. v. Welch (Mo.), 223 S.W. 1076; Revised Statutes Mo., 1929, sec. 806. (5) The trial court has failed to follow the decisions of the highest courts of the State of New York in the case of Des Jardins v. Hotchkins, and its failure to be guided and governed by and to follow the ruling of said courts contravenes Section 1, Article 4 of the Constitution of the United States. Railroad v. Wiggins Ferry Co., 119 U.S. 622; Green v. Van Buskirk, 7 Wall 145; 5 R. C. L. 7; Railroad Co. v. Cox, 145 U.S. 593; 5 R. C. L. 3; Revised Statutes Mo., 1929, sec. 806; Bank v. Gordon, 6 S.W.2d 60; Ramey v. Railway, 21 S.W.2d 873. Accordingly the broker may not make the purchase on margin, where the securities, instead of being available for delivery to the customer, stand as collateral for the general indebtedness of the broker to the other broker through whom the purchase is made. In support of the foregoing text, Mr. Meyer cites: People v. Meadows, 199 N.Y. 1; La Marchant v. Moore, 150 N.Y. 209; Des Jardins v. Hotchkins, 127 N.Y.S. 504, affirmed 210 N.Y. 596 (142 A. D. 845); Smith v. Clearing House Co., 25 N.Y.S. 261.

McCULLEN, J. Hostetter, P. J., concurs; Becker, J., not sitting.

OPINION

McCULLEN, J.

This suit was brought by appellant, hereinafter referred to as plaintiff, against respondents, who will be referred to sometimes as defendants and sometimes as Paul Brown & Company, to set aside an account stated and for an accounting covering transactions between the parties during the period June, 1929, and September, 1931, involving the purchase and sale of securities. A trial before the court resulted in a judgment in favor of defendants, and the dismissal of plaintiff's petition. Plaintiff took an appeal to the Supreme Court, but that court held it did not have jurisdiction and transferred the cause to this court.

The petition of plaintiff alleges that G. A. Radford, W. C. Haeussler and A. M. Keller, on and prior to July 8, 1933, were partners doing business under the firm name Paul Brown & Company, and engaged as stockbrokers with offices in St. Louis, Missouri; that, subsequent to the filing of this suit, G. A. Radford died, and that A. M. Keller, Julia B. Radford and Mercantile Commerce Bank & Trust Company had been duly appointed by the probate court of St. Louis County as executors of his estate; and that the cause of action as to defendant G. A. Radford has been revived as against the executors.

The petition alleges that in June, 1929, plaintiff employed defendants as his brokers to buy and sell securities for him on margin; that from time to time he deposited moneys with defendants, and gave orders for buying and selling stocks and securities on the New York Stock Exchange and the New York Curb; that defendants reported to plaintiff that they had bought said stocks and securities for him, but that defendants did not purchase stocks for him or in his name, but instead bought the stocks for their own account and in their name through a New York brokerage concern with whom defendants carried on a margin account; that there was no purchase of stocks for plaintiff; that the transactions reported from time to time by defendants and charged against plaintiff in his account were not valid legal purchases; and that plaintiff is entitled to an accounting.

The petition of plaintiff further alleges that, after plaintiff gave to defendants orders to buy securities for him defendants, in every instance within a short space of time thereafter, fraudulently reported to and advised plaintiff that they had purchased for plaintiff's account and risk on the New York Stock Exchange or the New York Curb, as the case might be, the securities which plaintiff had directed defendants to buy; that plaintiff, knowing that defendants were members of the New York Stock Exchange, and being so advised by defendants, believed that defendants were purchasing and had purchased said securities on said Exchange or the New York Curb for his account; that plaintiff had just learned that he was laboring under a mistaken understanding of the facts; and that defendants in no instance purchased said securities for him; that the orders placed by plaintiff with defendants were for execution on the New York Stock Exchange and the New York Curb, both located in the City and State of New York; that said transactions were governed by the laws of the State of New York, and by the interpretations thereof as announced by the courts of that state; that, under the case of Des Jardins v. Hotchkin, decided by the appellate division of the New York Supreme Court, 127 N.Y.S. 504, and affirmed by the Courts of Appeals...