Mercantile Trust Co., N. A. v. Harper

• Decision Date: 04 August 1981
• Docket Number: Nos. 42312,42336,s. 42312
• Citation: Mercantile Trust Co., N. A. v. Harper, 622 S.W.2d 345 (Mo. App. 1981)
• Parties: MERCANTILE TRUST COMPANY, N. A., Executor of the Estate of Edmund Louis Mandle, Plaintiff-Respondent, v. Judith C. HARPER, Paine, Webber, Jackson & Curtis, Inc., et al., Defendants- Appellants.
• Court: Missouri Court of Appeals

Page 345

622 S.W.2d 345

MERCANTILE TRUST COMPANY, N. A., Executor of the Estate of Edmund Louis Mandle, Plaintiff-Respondent, v. Judith C. HARPER, Paine, Webber, Jackson & Curtis, Inc., et al., Defendants- Appellants.

Nos. 42312, 42336.

Missouri Court of Appeals, Eastern District, Division Two.

Aug. 4, 1981.

Motion for Rehearing and/or Transfer to Supreme Court Denied

Sept. 21, 1981.

Application to Transfer Denied Nov. 10, 1981.

William J. O'Herin, St. Louis, Sandford Miller, Clayton, for defendants-appellants.

Richard Stout, Chesterfield, for plaintiff-respondent.

GUNN, Judge.

Plaintiff Mercantile Trust Company, executor of the estate of Edmund L. Mandle, deceased, filed a petition to determine title to property in the probate court of St. Louis County; the probate court certified the matter to the circuit court. The petition named as defendants Paine, Webber, Jackson & Curtis, Inc. (Paine, Webber), Judith C. Henry, now Judith C. Harper (Judith), Robert H. Harper, Judith's husband (Robert), and J & R Transport, Ltd. At issue were the proceeds (some $80,000) from the sale of stocks which Edmund Mandle had owned in his name until his stepdaughter, Judith, holder of a general power of attorney from Edmund Mandle, sold the stocks to Paine, Webber. In turn, Paine, Webber established a joint account with right of survivorship, in the names of Judith C. Henry and Edmund L. Mandle and placed the proceeds from the sale of stocks in the account. The trial court sustained defendant J & R Transport's motion for a directed verdict. The jury returned a verdict in plaintiff's favor in the amount of $80,000, and judgment was entered against the remaining three defendants. The liability of Paine, Webber is premised on breach of its fiduciary duty to Mr. Mandle, while Judith's liability is premised on conversion of assets belonging to Mr. Mandle and breach of her fiduciary duty to him. Robert's liability is based on his status as donee of property obtained in an unlawful manner.

The cynosure of this appeal is the general power of attorney and whether it authorized the disposal of the stock certificates in the manner accomplished. We hold that it did not and affirm the judgment of the jury to the same effect.

On June 12, 1975, Edmund Mandle executed a general power of attorney designating and appointing his stepdaughter, Judith, as his attorney in fact. ¹ We find no hint of undue influence or impropriety in connection with the execution of the power of attorney. The language of the power of attorney was broad providing that Judith, as attorney, could "perform any act ... that I (Edmund Mandle) now have, or may hereafter acquire the legal right ... to ... perform, in connection with ... any ... item, transaction ... or matter whatsoever," and to "perform ... every act ... proper, or necessary to be done, in the exercise of the rights and powers herein granted, as fully to all intents and purposes as I might or could do if personally present." At the time, Mr. Mandle and Judith maintained a joint checking account with Mercantile Trust Co. out of which she paid bills for her stepfather. A joint safety deposit box contained Mr. Mandle's stock certificates.

Beset with a terminal illness Mr. Mandle entered a St. Louis hospital on September 17, 1975. Two days later, Judith presented the power of attorney to White Weld & Company, a stock brokerage firm handling Mr. Mandle's account, and sought delivery to her of the cash and securities in the account. Her request was refused. The following day, September 20, 1975, Mr. Mandle executed a letter addressed to White Weld directing that his account be deposited in the joint account with Judith at Mercantile Trust Co. After telephoning Mr. Mandle, the broker persisted in refusing to deliver the account to Judith. ²

Later in September, 1975, Judith removed Mr. Mandle's stock certificates from the joint safe deposit box at Mercantile. Taking the stock and power of attorney to Paine, Webber, Judith requested that the stock be sold and that a joint account with right of survivorship be established with her and Mr. Mandle and the proceeds placed in the account. Paine, Webber complied with the request inquiring only with Mercantile to determine the "financial and credit responsibility" of Judith and Mr. Mandle.

The following sequence of events then occurred. On October 7, 1975, Paine, Webber sold the stock and placed the proceeds of approximately $80,000 in a joint account for Judith and Mr. Mandle. On October 27, 1975, $1,411.83 was withdrawn from the account in the form of a check payable to Mr. Mandle and Judith. Mr. Mandle died on November 10, and Paine, Webber distributed the remainder of the stock proceeds to Judith as survivor of the joint account. ³ From this account, $41,500 was used to purchase a truck tractor in the name of Judith and her husband (Robert H. Harper), doing business as J & R Trucking; $21,221.99 was used to pay some of Judith's debts.

Mercantile Trust Co., as executor of Mr. Mandle's estate, brought suit against Judith and her husband Robert Harper alleging that they had acquired and converted Mr. Mandle's property pursuant to a power of attorney which was totally void, and against Paine, Webber, alleging that it, knowing Judith to be acting in a fiduciary capacity, had failed to determine whether the power of attorney was proper muniment of authority for the purpose for which it was utilized.

The central issue to a denouement of this case is whether the general power of attorney executed by Mr. Mandle and given to Judith was sufficient investment of authority for a joint account to be opened by Paine, Webber at Judith's behest. The jury specifically found this issue against both Paine, Webber and Judith. Despite a vigorous defense waged by Paine, Webber aimed at casting off the mantle of liability, we conclude that as a matter of law the power of attorney provided no authority for the joint account, thereby affirming the judgment.

First, some basic precepts: the relationship between a stock broker and his customer is that of agent and principal. Owing a fiduciary duty to the customer, the broker has an "obligation to keep the customer fully informed of all facts pertinent to transactions in which the broker is representing the principal, to make full disclosure of all facts which materially affect the subject matter of the agency, and to exercise reasonable care and diligence in the performance of his duties." Roth v. Roth, 571 S.W.2d 659, 668 (Mo.App.1978).

The broker's duty to notify a customer of an action potentially threatening to the customer's interest arises when the broker has "actual or constructive notice of any fact or circumstance which would have put a reasonably careful and diligent fiduciary on notice or suspicion" that a conversion of the customer's assets is intended. Leuzinger v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 396 S.W.2d 570, 577 (Mo. banc 1965).

Trenton Trust Co. v. Western Surety Co., 599 S.W.2d 481 (Mo. banc 1980), establishes that the creation of a joint account in the names of the principal and his agent with funds derived entirely from the principal constitutes a breach of the agent's fiduciary duty and that the depositary bank (or, by analogy, the brokerage firm) may be liable for a loss from an act inconsistent with the true owner's interest in the property.

Overriding these precepts and the question of whether Paine, Webber knew or should have known (and it is apparent under the law that it should have known) that a conversion of Mr. Mandle's assets could have occurred through the establishment of the joint account is the fact that the purported power of attorney did not create any costume of authority for the establishment of the joint account.

Well established rules of interpretation of powers of attorney dictate that broad, all-encompassing grants of power to the agent must be discounted. Restatement (Second) of Agency, § 34, Comment h (1958). Potentially hazardous powers, such as the power to borrow money on behalf of the principal, cannot be inferred from the power of attorney; it must be reasonably clear that the principal intended to grant such power. Id. Language in a power of attorney that apparently grants broad power to convey the principal's property, such as the power to convey "as sufficiently as (the principal) could do personally," is deemed to be mere "window dressing" and must be disregarded. W. Seavey, Handbook of the Law of Agency § 21 (1964).

Court decisions similarly strictly construe general powers of attorney. Over a century ago the United States Supreme Court held that a broad power of attorney to "transact all matter of business" did not empower the agent to sell the principal's stock. Hodge v. Combs, 66 U.S. (1 Black) 192, 17 L.Ed. 157 (1861). It has also been held that an agent holding a broad power of attorney lacks the power to make a gift of the principal's property, unless such power is expressly conferred or arises as a necessary implication from the conferred powers that the agent must be circumspect with regard to the powers created or the lack of them. Von Wedel v. McGrath, 180 F.2d 716, 718-19 (3rd Cir. 1950), cert. denied, 340 U.S. 816, 71 S.Ct. 45, 95 L.Ed. 600 (1950); Hodges v. Surratt, 366 So.2d 768, 773-74 (Fla.App.1978); Annot., 73 A.L.R. 884 (1931). Missouri courts also insist on strict construction of powers of attorney and refuse to infer broad powers from instruments that inadequately describe the property with which the agent is to deal. Prior v. Hager, 440 S.W.2d 167, 173-74 (Mo.App.1969). See Haynes v. Carpenter, 86 Mo.App. 30, 37 (1900) (very broad powers of attorney did not authorize agent to re-loan principal's money after it had been collected).

Prior Missouri statutes apparently required a specific power of attorney to empower an agent to transfer the principal's stock. Title to shares of stock could be transferred by delivery of their...