Sproul v. Sloan
| Decision Date | 28 May 1913 |
| Docket Number | 90 |
| Citation | 241 Pa. 284,88 A. 501 |
| Parties | Sproul, Appellant, v. Sloan |
| Court | Pennsylvania Supreme Court |
Argued October 22, 1912
Appeal, No. 90, Oct. T., 1912, by plaintiffs, from judgment of C.P. Allegheny Co., June T., 1910, No. 324, on verdict for defendant in case of Henry Sproul and H. E. Anderson Partners as Henry Sproul & Company, for the use of Henry Sproul, doing business as Henry Sproul & Company, in the hands of his and their receiver, the South Side Trust Company of Pittsburgh v. John Sloan and Fidelity Title & Trust Company, Committee in Lunacy for John Sloan. Affirmed.
Assumpsit to recover an alleged balance on an account for stock purchased on margin. Before SWEARINGEN, J.
The opinion of the Supreme Court states the case.
The court below directed a verdict for the defendant and judgment was entered thereon. Plaintiff appealed.
Errors assigned were in directing a verdict for the defendant and in refusing to direct a verdict for the plaintiff.
The assignments of error are overruled and the judgment is affirmed.
Warren I. Seymour, of Seymour, Patterson & Siebeneck, for appellants, cited: Gillett v. Whiting, 120 N.Y. 402; Gruman v. Smith, 81 N.Y. 25; Porter v Wormser, 94 N.Y. 431; Wynkoop v. Seal, 64 Pa. 361; Work v. Bennett, 70 Pa. 484; Jamison's Est., 163 Pa. 143; McIntire v. Blakeley, 12 A. Repr. 325.
John M. Freeman, with him D. T. Watson, Robert Woods Sutton and Harry F. Stambaugh, for appellees. -- Where a broker purchases stock to be carried on margin for a customer, the relation of pledgor and pledgee is created: Learock v. Paxson, 208 Pa. 602; Mullen v. Quinlan, 195 N.Y. 109.
The decisions leave no doubt that such a pledging by a broker of his customer's stock for more than is due thereon, is not only a breach of contract, but is a breach of trust and is an illegal conversion: Strickland v. Magoun, 119 A.D. 113; McNeil v. Tenth National Bank, 46 N.Y. 325; Fay v. Gray, 124 Mass. 500.
Before FELL, C.J., BROWN, MESTREZAT, STEWART and MOSCHZISKER, JJ.
Henry Sproul & Company, stock brokers, who were engaged in business in the City of Pittsburgh, Purchased for John Sloan, the appellee, in May, June and August, 1907, fifteen hundred shares of the capital stock of the United Copper Company. This stock was purchased at prices varying from $61.50 to $54 per share, and the brokers agreed to carry it for appellee on a margin of $20 per share, which he deposited with them. As this stock was purchased from time to time the brokers mingled it with other securities under their control, and pledged them to a trust company and bankers as collateral for indebtedness of their own amounting to more than a million and a half dollars. This was without the authority or knowledge of Sloan. In April, 1908, Sproul & Company sold, at $6.25 per share, the stock which they had purchased for the appellee, but which he refused to pay for and take off their hands; and, after crediting him with the proceeds, the margins deposited and the dividends received on the stock, this suit was brought to recover the balance alleged to be due, amounting to $34,214.51, with interest from the date of the sale of the stock. A verdict was directed for the defendant, for the reason, as stated in the opinion of the court denying a new trial and judgment for the plaintiffs n.o.v., that, as Sproul & Company had converted to their own use the stock purchased for the appellee, by hypothecating it for their own indebtedness, they had broken their contract with him and were in no position to demand performance by him. As an authority for so holding, the learned trial judge cited and relied upon Gillett v. Whiting, 120 N.Y. 402. What was there said sustained him, though it was overlooked that subsequently the court of appeals held that the remarks in that case, as to the effect of a broker's conversion of his customer's securities upon his claim against the latter, were upon a question which was not before the court and were, therefore, to be regarded as mere obiter dicta, in conflict with the settled law of the state: Minor v. Beveridge, 141 N.Y. 399. It is not necessary for us to review the New York cases cited by counsel for appellant in support of their contention that the plaintiff below ought to have recovered, for we are of opinion that the view entertained by the court below was the correct one, without regard to the particular authority upon which it seems to have relied.
When Sproul & Company purchased the fifteen hundred shares of stock the legal title to it vested in Sloan, subject to the payment of the balance due by him for commissions and advances made by them. He became the pledgor and they the pledgees of the stock: Learock v. Paxson, 208 Pa 602; Barbour v. Sproul, 239 Pa. 171. Sproul & Company might have used the stock in making a specific loan for the purpose of enabling them to carry the stock for the appellee, but, when they used it for any other purpose, they made an improper use of it, and when they pledged it, with other securities under their control, for their own indebtedness, they unlawfully converted it to their own use: Douglass v. Carpenter, 17 A.D. 329; Strickland v. Magoun, 119 A.D. 113, and 190 N.Y. 545; German Savings Bank v. Renshaw, 78 Md. 475. "One to whom stock has been pledged for a loan has full power to hypothecate it so long as the original pledgor may obtain possession of it upon payment of his debt; but if it has been mingled with the other securities of the pledgee, or has been rehypothecated by him to secure a different or larger debt than that for which it was pledged to him, or if the collaterals have been transferred, but the obligation they were given to secure retained, or if it has been in...
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