Hoffman v. Livingston

Headnote

Principal and, broker—when fiduciary relation exists between—when commissions not recoverable, •services rendered by broker being of no value, but mode of transacting business having been left to him.—Jury trial ordered on reversal.

The action is brought by the plaintiff, a stock broker, against the defendant as his principal, claiming a balance of the account against her, which wholly consists of charges for services under the name of commissions.

The contract between the parties was made at two interviews between them, and is stated by the plaintiff in substance as ■ follows : The defendant at the first interview said that she had been trading in stocks and had lost $800 on one hundred shares of stock in another office, and asked the plaintiff if he would take her account in his office. He told her he would consult with his partner and see what he thought of it, and would let her know. In two or three days after this he told the defendant that he had seen his partner, Mr. Ryan, who did not care about speculating, not being in the

office himself, but that the plaintiff had made arrangements with him to take it in the office on his own responsibility. He then told her that the New York Exchange imposed a condition of one-eighth per cent, each way to a party not a member of the Stock Exchange. She said she understood this—that she had speculated in stocks before, and did not wish him to buy or sell stocks, and to hold on to them, but desired him to make her account active, by buying and selling stocks at small differences where larger ones could not be gotten. Plaintiff told her he would require a letter from her holding herself liable for the transactions he made, and she said she would sign such a letter, provided he would draw it up and send it to her, and that she wished to begin with a deposit of §1,000. He asked her whether she wanted to limit him to any amount of stocks to be bought or sold. She said no, that must be conducted according to his own judgment and to the best of his ability—that she left it wholly to him as to when to buy stocks and when to sell them, and what amounts.

The letter was prepared by the plaintiff, sent to and signed by the defendant, being ante-dated three or four days. The defendant does not vary the plaintiff’s narration of what occurred at these interviews, except as to how long and what experience she had had in stock speculations.

The court, at General Term, said : “It is plain from the verbal arrangement between the parties, as also from the whole case, that the plaintiff’s partner was a member of the Stock Exchange, and that the plaintiff was not a member, but conducted the business through the agency of his partner, while he took upon himself the whole responsibility and secured the profits. It is presumed it was for this reason that he told the defendant that the Stock Exchange imposed a commission of one-eighth per cent, each way to a party not a member

of the board. The phraseology here used is significant, Could any one doubt that if the plaintiff had been dealing with a person of experience, and accustomed to habits of business, the question would have been asked what was meant by such a statement ? For what purpose was the account taken by one member of a firm of brokers, who was not a member of the Board, while the other was a member and attended the Exchange to buy and sell upon orders, unless there might be a commission each way to a party not a member of the Stock Exchange ? This certainly was not a statement which would be likely to inform the defendant that she would be obliged to pay plaintiff a conqunission of one-eighth per cent, on each transaction, and goes far to support her assertion under oath that in her interviews with the plaintiff the subject of paying a commission was never mentioned. The first information as to the commission charge the defendant had, was by a letter from Mr. Anderson, and such was her confusion and simplicity that she sent the letter to the plaintiff, her agent, confessing that she could not understand it, and asking him to see Mr. Anderson, her friend, and explain to him.

“ The grqund of defense relied upon to defeat this action is, that under the verbal contract as stated by the plaintiff, he had failed to transact her business confided to him with that amount of prudence, ordinary skill and diligence which she had a right to expect at his hands, and that therefore he is not entitled to his commissions for that service. The want of ordinary skill and diligence in every case must in a great measure depend not only upon the ability of the parties and their knowledge and experience in dealing with the subject in hand, bn t also the character of the engagement under which the parties act. It is stated by the plaintiff “that he asked her whether she wanted to trust him as to any amount of stocks to be bought or

sold; she said that must be conducted according to his own judgment and to the best of his ability—that she left it wholly to him when to buy and when to sell.” It seems to us that the relation established between the parties was of a fiduciary character and largely imposed confidence and good faith in discharge of the duties assumed by the plaintiff. The defendant is a woman not usually accustomed to dealings of this kind, and the conduct of the parties in these interviews shows her implicit trust in her agent. It is true he represents her as claiming to be a stock speculator and having knowledge of the business. In his examination of her as to her experience in stock speculations she states under oath ‘ that she had only one transaction with Mr. Colvill, who had bought a hundred shares of Western Union four or five times, which took about two years to do it in.’

“ The assertion of the plaintiff as to this employment to manage the business in his own way without interference as to the limit of the amount of stock to be bought or sold, is claimed to be a justification of the manner in which he transacted the business, whether or not it resulted in his or his principal’s loss. By an analysis of the accounts taken from the plaintiff’s books by competent evidence, the following clearly appears:—

“The first transaction by the plaintiff in his employment took place on August 17, the date of the guaranty letter, and the last on December 27, same year. There were one hundred and seventy-eight purchases and one hundred and seventy-eight sales in one hundred and eleven days, which shows more than three operations per day. At the close of the account, on December 27, 1875, the net loss was $4,087.50, and the amount of the commissions was $4,400. This was exclusive of the margin of $1,000 given to the plaintiff at the beginning of the transaction. It also appears from the classifica

tion made that the purchases and sales effected on the same day in which the difference of price does not exceed the commissions is seventy-two. As early as the 15th of September,—less than one month from the beginning of the employment,—the net loss to that date amounted to $868.50, while the commissions charged at the same time footed up to $800, so that all' the ap-* parent loss, except $62.50, consisted of commissions.

From the tabulated accounts—by which the account annexed to the complaint is classified, showing in detail the items of the whole, it is proven that stocks were bought in the morning and sold at the same, or nearly the same price, in the afternoon. The same thing occurred oil the following day, and the same disposition made again in a few hours without regard to the loss suffered by the principal, and the regular fee charged as commission for services. An examination of any of the intermediate dates of the account will furnish the same result. The purchases and sales always about balance each'other. The balances constantly growing against the principal, consist almost entirely of the charges for commissions.

The plaintiff, during the time of these transactions, wholly failed to give the defendant notice and information of the exact condition and state of her account in his hands, by which she could see at any time that in the end it would prove to be an irremediable loss to her and of profit to her agent. This method of doing business pursued by the plaintiff, was condemned by all the experts examined, not only as improper but as against the usual and customary mode of doing business by brokers in such cases.

It being clearly shown by the testimony that in this business the custom was always to give the proper notice of each transaction in detail, the plaintiff 'must be assumed to know it, and to have undertaken to perform

his duty accordingly; failing to do so charges him with neglect of duty.

As matter of fact, the referee has found that the plaintiff did not at any time communicate to her specifically what the. particular charges by way of commissions amounted to, or the fact that the majority of his transactions were effected at so small a margin of difference between the cost of the purchases and the prices realized after sales that no profit could have resulted to the defendant therefrom.

The question is one of due diligence and ordinary skill. Whether or not one has exercised such skill and diligence is usually a question of fact. If it be the result of inattention or incapacity or of an intent to defraud, an omission in either case is equally a breach of plain duty and a grievous wrong to the principal. It is not sufficient that the plaintiff has been guilty of no fraud or of no such gross negligence as could carry with it the insignia of fraud. “The position” says Rapallo, J., in Heinemann v. Heard (N. Y. 35), “cannot be. maintained that fraud on the part of the agent is necessary to subject him to an action for neglecting to perform a duty which he has undertaken” (Story on Agency, §§ 183, 186).

In Denew v. Deverell (3 Campbell, 451), Lord Ellenboboug-h directed the jury that if the plaintiff’s services were found to have been wholly abortive, he was entitled to recover no compensation. He gives this sensible and practical reason for the rule: “I pay an auctioneer for the exercise of his skill in my behalf which I do not myself possess, and I have a right to the exercise of such skill as is ordinarily possessed by men in that profession or businesss. If from his ignorance or carelessness he leads me into mischief he cannot ask for a recompense, although from a misplaced confidence, I followed his advice without remonstrance or suspicion.”

Again, if the duties of a broker are executed in such a manner that no benefit results from them he is not entitled to recover either his commission or even a compensation for his trouble (Hammond v. Holliday, 1 Carr. & Payne, 384).

We are of the opinion that the finding that the defendant acquiesced in what the plaintiff was doing and his manner of doing it cannot be sustained upon well settled principles of law ; that there can be no acquiescence in the absence of material facts which it was the plaintiff’s duty to communicate to the defendant and which duty he failed to perform.