W. E. Richmond & Co. v. Security Nat. Bank

• Decision Date: 28 April 1933
• Parties: W. E. RICHMOND & CO. v. SECURITY NAT. BANK.
• Court: Tennessee Supreme Court

Page 863

64 S.W.2d 863

W. E. RICHMOND & CO. v. SECURITY NAT. BANK.

Court of Appeals of Tennessee, Western Section.

April 28, 1933.

Certiorari Denied by Supreme Court June 24, 1933.

Appeal from Chancery Court, Madison County; V. H. Holmes, Chancellor.

Suit by W. E. Richmond and others, doing business under the firm name and style of W. E. Richmond & Co., against the Security National Bank of Jackson. From the decree rendered, the defendant appeals.

Decree modified in accordance with opinion, and decree affirmed in other respects.

Pearson & Hewgley, of Jackson, for appellant.

W. G. Timberlake, of Jackson, for appellee.

ANDERSON, Judge.

This suit was instituted in the chancery court of Madison county, Tenn., by the complainants, W. E. Richmond, L. E. Richmond, and W. R. Copeland, doing business as stockbrokers in Memphis and Jackson under the firm name and style of W. E. Richmond & Co. against the defendant, Security National Bank, a national banking corporation located in Jackson, seeking to recover the net sum of $509.50, representing the net amount claimed from a sum of $531.70, alleged to have been paid by the complainants to the defendant on June 4, 1930, by mistake. The chancellor awarded the complainant firm a decree for $260 and interest from the 1st day of August, 1930. The defendant prayed and was granted a broad appeal and both complainants and defendant by appropriate assignments of error attack the decree of the chancellor as to the matters decided adversely to their respective contentions.

The controversy between the parties arose out of the attempted sale by the defendant through the complainants as stockbrokers of 20 shares of stock of a Delaware corporation, the corporate name of which was the Fair Stores Company. This stock was held by the defendant bank as collateral for an indebtedness evidenced by a note in the principal sum of $240 due it by one Emanuel Fishman. The indebtedness being several months past due and having received the debtor's consent so to do, the cashier of the defendant undertook to sell the stock with the intention of applying the proceeds to the debt. For this purpose he called the Jackson office of the complainant firm on June 2, 1930, by telephone and directed the complainant's representative to sell 20 shares of the Fair Stores Company at the market price. This order was taken by the telegraph operator in the complainant's Jackson office, the manager being absent at the time.

No stock of a corporation by the name of Fair Stores Company was listed on the New York Exchange, the quotations of which exchange were carried in the complainant's Jackson office, but there was a stock listed on said exchange under the name of the Fair. The latter was an Illinois corporation owning and operating one of the largest department stores in the city of Chicago, and employing an average of in excess of 3,000 people. Its stock had long been listed on the New York Stock Exchange and was the subject of considerable barter and sale among those there trading in corporate stocks.

The Fair Stores Company was a Delaware corporation having no connection whatever with the Illinois corporation doing business under the corporate name of the Fair. By comparison the former was a small organization. Its stock was not listed or dealt in on the New York Stock Exchange. It was dealt in, however, on the local security market in Nashville and quotations of the transactions shown by the Commercial Appeal on June 2, 1930, covering dealings on the local security market showed that the stock of the Fair Stores Company was on that day offered for sale at $11 and that $8 was bid therefor.

Having no knowledge or record of the existence of any such company as the Fair Stores Company, the complainant's representative, who took over the phone the order for the sale of the stock from the defendant's cashier, understood or assumed that the stock intended to be sold was that of the Fair. Nothing said by defendant's representative warranted this assumption. Upon receipt of the order, the operator immediately telegraphed the complainant's New York correspondent, Post and Flag, an order to sell at the market 20 shares of the Fair. Due to the fact that the order was for the sale of less than 100 shares, the complainant's correspondent was unable to effect a sale on June 2, the day on which the order was given, prior to the closing of business on the exchange on that day. Upon being advised of this fact, the complainant was directed by the defendant to execute the order on the next day. Thereupon Post and Flag, acting as the representatives of the complainant, sold on June 3, 1930, 20 shares of the Fair at 26 7/8, realizing a gross amount of $537.50. From this amount taxes of 80 cents and commission of $5, were deducted, leaving a net amount arising from the sale of $531.70.

The complainant on the same day advised defendant of the result of the sale by a telephone communication from the Jackson office and also by mail from the Memphis office. The substance of the advice and notice was to the effect that the complainant had sold for the account of the defendant 20 shares of the Fair at 26 7/8 realizing the net amount above indicated after deduction of taxes and commission. Thereupon the defendant drew its draft on complainants at Memphis, Tenn., for $531.70, attaching thereto the certificate for 20 shares of stock of the Fair Stores Company which had been issued to Emanuel Fishman and which the defendant held as collateral, securing the indebtedness of said Fishman to it. The certificate bore a blank form for its assignment and transfer, which had been signed by Fishman and the genuineness of his signature thereon was guaranteed by the bank as evidenced by an endorsement on the certificate signed by the defendant by its assistant cashier.

The draft was presented to and paid by complainants in Memphis under the belief that the certificate attached thereto represented the 20 shares of stock in the Fair which its New York representatives had sold on the day before, pursuant to complainant's order above referred to. The complainant's Jackson representatives never saw the certificate of stock or the draft.

The defendant was advised on June 5th by its Memphis correspondent that the draft drawn by it on the complainants had been paid and the proceeds credited to the defendant's account. Thereupon the defendant charged the amount of the draft to its Memphis correspondent and passed a credit through its books indicating that the Fishman note had been paid and at the same time issued its cashier's check in the sum of $271.70, representing the difference between the amount of Fishman's debt and the proceeds of the draft referred to. This check was not, however, delivered to Fishman at that time but was held by the defendant until July 13th or 14th, on one or the other of which dates it was delivered to Fishman and paid by the defendant upon his indorsement.

In the meantime, in the regular course of business, the complainant had forwarded to its New York representatives, Post and Flag, who had executed the order of sale on June 3d, the certificate of stock it had received from the defendant upon payment of the latter's draft. It seems that the complainant carried an open account with Post and Flag, and, in the regular course of business between these two firms, kept on deposit as collateral with them stocks of various kinds and descriptions. This collateral was from time to time replenished or sold as the necessity of the business demanded. The certificate for 20 shares of the Fair Stores Company was sent along with a number of other certificates of stock having no connection with the transaction here involved.

When the sale of 20 shares of the Fair was made by Post and Flag on June 3d, that firm thereupon and thereafter carried the complainants as short in that stock to the extent of 20 shares. When the stock of the Fair Stores Company was received, not having had an order to sell and not having sold any stock of this company, Post and Flag apparently assumed that it had been sent by complainants along with other stocks which accompanied it, to be held as collateral for the complainant's account; and it accordingly carried the complainant's account as being long to the extent of 20 shares of stock in the Fair Stores Company pending further instructions from the complainant as to the disposition to be made of the stock. It appears that according to the custom of this character of business that when a dividend is declared on stock held by a broker, he verifies his record for the purpose of ascertaining the identity of the customer entitled to the dividend. A dividend was declared on the stock of the Fair some time in July, and, upon investigating its records for the purpose above mentioned, Post and Flag discovered that the complainants were short 20 shares of this stock and wired the complainants to this effect. The records of the complainants in Memphis with respect to the transactions were balanced and upon receipt of this advice from Post and Flag they checked the items back and discovered the mistake in the identity of the stock which they had ordered Post and Flag to sell and that which they had received from the defendant bank. The complainant thereupon promptly notified the defendant bank through its Jackson office, which notice was confirmed by a letter dated July 21, 1931, advising defendant of the mistake and that on account thereof the defendant's account was short 20 shares of stock in the Fair and that complainant held the 20 shares of stock in the Fair Stock Company subject to the defendant's instructions and requesting that the complainants be notified quickly as to how the defendant wished the matter handled. When this information was received, the defendant's cashier who handled the matter was absent on a vacation and the complainants were advised by another representative of the defendant that...