Swink & Co., Inc. v. Carroll McEntee & McGinley, Inc.

• Decision Date: 09 July 1979
• Docket Number: No. 78-87,No. 2,78-87,2
• Citation: 584 S.W.2d 393,266 Ark. 279
• Parties: , 27 UCC Rep.Serv. 239 SWINK & COMPANY, INC., Appellant, v. CARROLL McENTEE & McGINLEY, INC., Appellee
• Court: Arkansas Supreme Court

Page 393

584 S.W.2d 393

266 Ark. 279, 27 UCC Rep.Serv. 239

SWINK & COMPANY, INC., Appellant, v. CARROLL McENTEE & McGINLEY, INC., Appellee.

No. 78-87.

Supreme Court of Arkansas, Division No. 2.

July 9, 1979.

Davidson, Plastiras, Horne, Hollingsworth & Arnold, Ltd., Little Rock, for appellant.

Wright, Lindsey & Jennings, Little Rock, for appellee.

FOGLEMAN, Justice.

This litigation arose from dealings in securities in the form of interest-bearing obligations issued by federal agencies in the form of bonds or notes guaranteed by the United States. Carroll McEntee & McGinley, Inc., to which we will refer as McEntee, a corporation with its principal office in New York, is engaged in the purchase and sale of those securities. Swink & Company, Inc., an Arkansas corporation, to which we will refer as Swink, is licensed as a broker-dealer to engage in the sale of municipal and United States government agency issues. McEntee brought this suit against Swink, alleging breach of contract by Swink in three different transactions. When the case was tried to a jury, a verdict was rendered in favor of Swink on two of the transactions and in favor of McEntee on the other. McEntee did not appeal from the judgment against it, but Swink took this appeal from the judgment against it for $33,391.52.

McEntee alleged that Swink sold $2,500,000 in bonds of the Bank for Cooperatives to it by means of a telephone conversation on October 1, 1975, but failed to deliver the bonds on October 2, 1975, in accordance with the agreement. McEntee asserted that it had sent a written confirmation slip to Swink following the telephone conversation, as customary in the trade. Swink contends that the sale never occurred and that, if it did, McEntee is barred from enforcing it by the statute of frauds applicable in cases of purchase and sale of investment securities. Swink denied that the oral conversation ever took place and further denied that any confirmation of such a transaction was received.

Swink first contends that a verdict should have been directed in its favor, asserting that McEntee failed to produce evidence sufficient to establish an enforceable contract under the applicable statute of frauds. Transactions of this sort are usually initiated over the telephone, but the oral agreements made are reduced to writing. The normal practice is for both the purchaser and the seller to produce a confirmation and transmit it to the other. The applicable statute, Ark.Stat.Ann. § 85-8-319 (Addendum 1961), insofar as relied upon by the parties, reads:

STATUTE OF FRAUDS. A contract for the sale of securities is not enforceable by way of action or defense unless

(a) there is some writing signed by the party against whom enforcement is sought or by his authorized agent or broker sufficient to indicate that a contract has been made for sale of a stated quantity of described securities at a defined or stated price; or

(c) within a reasonable time a writing in confirmation of the sale or purchase and sufficient against the sender under paragraph (a) has been received by the party against whom enforcement is sought and he has failed to send written objection to its contents within ten (10) days after its receipt; or

(d) the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract was made for sale of a stated quantity of described securities at a defined or stated price.

Swink contends that McEntee failed to show compliance with either (a) or (c). On the other hand, McEntee contends that the evidence shows that the transaction is not barred by this statute of frauds because there was compliance with subsections (a) and (d). McEntee also contends that appellant is estopped from relying on the statute of frauds on the basis of equitable estoppel.

Robert Polk was employed by Swink as its trader in government securities. Herman Jordan was a salesman and branch manager in the Dallas office of McEntee. James Ruffalo was vice-president and treasurer of McEntee, who supervised the accounting operations of the company at its principal office in New York. Thomas Christman was president of McEntee. Ralph Shay was systems manager of Landart Systems, a wholly owned subsidiary of McEntee, which did data processing for McEntee and others in the Wall Street community. His sole responsibility was for the processing of the business of McEntee. Lauren Boykin was head trader at Swink. He bought and sold municipal and government bonds for the firm and supervised others who did so. Katie Woods (formerly Downs) was manager of the operations section of Swink. Jim Swink was Swink's chairman and chief executive officer.

In considering the question of sufficiency of the evidence, it must be viewed in the light most favorable to appellee and all reasonable inferences must be drawn in its favor. State Farm Mutual Automobile Ins. Co. v. Traylor, 263 Ark. 92, 562 S.W.2d 595. Only the evidence favorable to appellee is to be considered. Milburn v. State, 262 Ark. 267, 555 S.W.2d 946; Neal v. State, 259 Ark. 27, 531 S.W.2d 17. Treated in that manner, the evidence was:

Herman Jordan testified: In transactions of the type involved, a firm like McEntee would be called by a firm like Swink by telephone for a bid or offer on a particular security. A salesman in McEntee's office would call its New York office where its traders would state a bid or offer which would be relayed to the inquirer. If a sale to McEntee was proposed, the customer would indicate his acceptance or rejection. If the offer is accepted, the McEntee salesman would then notify the trader in the New York office. In the trade it is considered that there is an oral contract at that time. The market is so volatile, that prices change from minute to minute, so all dealings are conducted by telephone and all contracts are oral. At the time of the acceptance of the offer, the salesman and the representative of the buying firm agree on a settlement date, i. e., the date the securities will be paid for and delivered. Customarily, that is the day following the acceptance. Each dealer has a clearing bank through which the securities are delivered. Worthen Bank in Little Rock was Swink's clearing bank. Worthen uses the Federal Reserve Bank's wire system to notify purchasers of bond deliveries. Prior to the transaction involved here, Jordan had handled 35 to 40 such transactions with Polk, all of which had cleared satisfactorily. Jordan did not recall having dealt with anyone else at Swink. On the afternoon of October 1, 1975, Polk called Jordan and asked for a bid on $2,500,000 in bonds of the Bank for Cooperatives. Jordan obtained a bid from a trader in McEntee's New York office and relayed it to Polk, who accepted and agreed upon a settlement date of October 2, 1975. The bonds were not delivered in New York as agreed, so the New York office of McEntee asked Jordan to check on the transaction. Jordan called Polk, who did not know whether there was a problem, but promised to check. Polk later advised Jordan that Swink was being failed ¹ by Swink's customer. The New York office advised Jordan daily that the bonds had not been delivered, and Jordan continued to call Polk, who continued to say that Swink was being failed. Eventually Polk promised Jordan that he would talk with Swink's customer to see if partial delivery could be made, and the trade cleared up. Polk did advise Jordan that he was trying to get a partial delivery, but it never took place. Polk later advised Jordan that he had entered into an agreement with Ruffalo to settle the matter by a pair-off. ² Jordan received from McEntee through the mail a written confirmation of the original transaction with Polk on these bonds. McEntee sends written confirmation of all purchases and sales of bonds from the New York office. In the normal course of business, Swink sent written confirmation to McEntee. Jordan had received some from Swink, but did not in every transaction. Polk never denied that the original trade was made as Jordan stated it, in any conversation with Jordan. McEntee's Dallas office never received a confirmation of this transaction from Swink. Jordan had no further involvement in a trade he made unless there was a fail. All of the mechanics of the trade, after the oral contract, are handled in McEntee's New York office.

James Ruffalo testified: An exhibit he identified was a written documentation of the original offer in this trade by Swink, and the purchase by McEntee. This record is the starting point for the computer processing of a trade in McEntee's New York computer. It shows the date, price, settlement date, seller, purchaser and other details of a trade and bears an identifying trade number (this documentation recorded the trade exactly as Jordan had stated it.) In the normal course of business, this document or trade ticket is written by McEntee's trader in the New York office as soon as the trade is made. One copy of this trade ticket is sent to Landart Systems for computer processing. McEntee's New York office received a copy of a written confirmation of the transaction from Landart. It included a computation of the amount due Swink on the trade. In the normal course of business, Landart would have sent the copy of the written confirmation to McEntee's New York office on October 1, the day of the transaction. McEntee stood willing, at all times, to pay Swink the amount due on the trade upon delivery of the bonds. Landart furnishes McEntee with a history report, which records all of McEntee's transactions during the preceding month. This report included the trade in question, giving all the pertinent details. Ruffalo became involved in the matter on October 10. After talking with Jordan, he called Polk, who said he knew ³ the transaction and assured Ruffalo that there was no problem with it. During the next week, Ruffalo talked with Polk daily. In the early part of the week,...