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James Wood General Trading Establishment v. Coe

December 26, 1961


Author: Medina

Before LUMBARD, Chief Judge, and MEDINA and MARSHALL, Circuit Judges.

MEDINA, Circuit Judge.

The defendants, partners of the stock brokerage house of Jacques Coe & Co. appeal from a judgment, rendered after a non-jury trial, in favor of its customer, James Wood General Trading Establishment, a corporation of the Principality of Liechtenstein, in the amount of $34,486.28. The complaint is framed in a double aspect of contract and tort, and is based upon the simple charge that the customer placed a G.T.C. (good until cancelled) order with the brokers to sell 1000 shares of Baltimore & Ohio common stock, then in the custody of the brokers, "when the stock could be sold for more than $58 per share," that the stock sold at prices in excess of 58 on July 25 and 26, 1957, that the brokers failed to sell the stock, and that, as the brokers failed to remind the customer of the G.T.C. order, and as the customer had forgotten about it, his damages should be calculated at the difference between the price at which the stock could have been sold "above 58" and the mean selling price of the stock for the week following the time the customer discovered or finally remembered the G.T.C. order. By that time the stock had taken a precipitous drop. The trial judge took this view of the case, found that both parties had forgotten about the G.T.C. order, and directed judgment against the brokers for the full amount claimed. There is no claim in the complaint that the brokers were otherwise guilty of any breach of their fiduciary or other duties to the customer, or that they failed properly to exercise any power or authority conferred upon them. The failure to sell was, at the trial, ascribed by the customer to the fact that the brokers had also forgotten about the alleged G.T.C. order. The opinion is published at 191 F.Supp. 330.

We find no order to sell the stock, but the granting by the customer of a mere authority or power to sell at "above 58" according to the best judgment or discretion of the brokers. Moreover, we think the finding that both parties forgot about "the order" must be set aside as largely based upon the assumption that a G.T.C. order to sell had been given and upon other misconstructions of the proofs. As we proceed to state the case as disclosed by the evidence, it will appear that the customer was at all times aware of the progress of the market, and that by an exchange of letters of August 5 and 12, 1957, the dealings between the parties had crystallized into a G.T.C. order to sell 500 shares of the B & O stock at 61, and not to sell the other 500 shares, so that in any event, even assuming arguendo that the alleged G.T.C. order was given in November, 1956, and that it was a breach of contract or negligence on the part of the brokers not to sell when the price of the stock rose above 58 on July 25 and 26, 1957, and further assuming arguendo that both parties had forgotten about the alleged original order, the customer's damages should have been limited to the difference between what the stock could have been sold for on July 25 and 26, 1957 and the lowest price to which it fell prior to the new arrangement. It is also clear to us that, even if the brokers had forgotten their instructions and had wholly failed to exercise any judgment or discretion in the matter, there is still lacking any proof that, had they remembered the instructions, and exercised their judgment and discretion, they would have sold the stock on July 25 or 26, 1957. Accordingly, we have concluded that there is no point in remanding the case to permit plaintiff to restate its claim and on a new trial litigate its assertion, in the brief filed with us, that it may be entitled to damages for the failure of the brokers to exercise any discretion that might have been conferred upon them. As the customer suffered no provable damage the complaint must be dismissed.

Jurisdiction is based upon diversity and New York law governs the case, as seems to be conceded by the parties.

The representatives of the parties were Mario Quarti, a resident of Italy, agent of the customer, and Emilio Mauricio Moretti, the brokers' customers' man, located in New York City. They were old friends and had long done business together, as Quarti, on his own account or representing the Liechtenstein corporation, had conducted a series of transactions in the purchase and sale of stocks for profit. The correspondence between these two old friends was in Italian, but the translations received in evidence are stipulated to be in all respects accurate.

In October, 1956 the customer was long 1000 shares of B & O, 4500 shares of Menasco Manufacturing Co., and 500 shares of Vanadium Corporation, all of which stocks were in the custody of the brokers. Moretti made certain recommendations to Quarti concerning the sale of these stocks, and Quarti replied by a letter that has been lost.*fn1 Moretti's reply, by letter of November 19, 1956 repeats the instructions given by Quarti, however, and both sides rely upon it as correctly reflecting the substance of these instructions. The relevant portions of this letter control the case, and they are as follows:

"BO. I enclose two clippings of news published today on BO. As you see, I have not erred too much in predicting that the dividend, which had to be declared these days, would have been probably a little higher than the one of $2.00 of last year. It was in fact $2.50, 50 cents more than last year. At the same time they have declared for next year 1957, four dividends of 50 cents each to be paid quarterly, instead of all in one time. Earnings also have been better; for the first ten months of 1956, about 26 million versus about 21 million for the equivalent period of last year. Result: the stock, which Friday had closed at 52 1/8, went down today to 48 7/8. To this might have contributed the general tone of the market which seems to have been hit today by rumors of possible new hostilities in the Middle East etc. / / I note that you authorize to sell this stock above 58. Unfortunately, I doubt that it will go there soon; but with time I imagine it might be able to do it.

Vanadium. I enclose credit note for a dividend (net $175). The stock, which is still doing very well, as far as earnings are concerned, is now 46. Thank you for the authority to sell it above 49. Except in case of a market crash, I think it could go there soon.

Menasco. Stays still around 5 1/2-5 3/4. It is alright to sell it at 6 1/4 or better. Being to some good extent the beneficiary of our defensive preparations (airplanes) I think it will go there, maybe rather soon." (Underscoring as in letter.)

Upon the receipt of these instructions the brokers did not proceed to place orders on the floor of the New York Stock Exchange to sell any particular number of shares or to sell any shares whatever of the customer's B & O, Vanadium and Menasco stocks, and of course no monthly confirmations of such orders were sent to the customer as there were no such orders to confirm. In December, 1956 Vanadium broke 49 and the 500 shares were sold by the brokers in 100 and 200 share blocks at prices ranging from 49 3/4 to 50 1/2; notations of these sales were sent and the receipt thereof acknowledged. In January, 1957 Menasco broke 6 1/4 and the 4500 shares of Menasco were sold by the brokers in 100, 200, 300 and 600 share blocks at prices ranging from 6 1/4 to 6 1/2, notations of these sales were also sent to and received by the customer.

In his letter of November 19, 1956, quoted above, Moretti noted the authority to sell B & O "above 58," and he added "I doubt it will go there soon." He proved to be right about this, and B & O remained throughout the first six months of the year 1957 just about where it had been in the previous November, or lower. There is no dispute about the fact that both Quarti and Moretti were watching the market quotations of B & O and Quarti knew that the stock had not been sold and that it had not reached 58.

On July 16, 1957 Moretti wrote to Quarti as follows:

"* * * BO goes well, and is now 55. There is a possibility - only a possibility - that they may increase the dividend, which is 50 cents quarterly, to perhaps 60 or 70, or that they may give, towards November, an extra dividend of $1.00. My opinion in this respect is that it would be well to sell around 58-60. But, since I remember that you received the information, when you bought it, from London, I think it would be well that you should consult again London to know what they think now of BO, and at what price they would sell it. * * *" (Underscoring as in letter.)

This letter was received by Quarti prior to July 25 and 26, 1957 when B & O rose above 58, and Quarti was aware of the fact that there were sales on those two days at prices ranging between 58 1/8 and 58 1/2. The trial judge properly found that the customer's 1000 shares of B & O could have been sold on those two days at 58 1/8. But Quarti expressed no dissatisfaction and sent no further instructions until August 5, 1957. The reason is apparent on the face of Quarti's letter of August 5, 1957. He expected the stock to go higher; he had received favorable news from his correspondent in London, "all roses and flowers"; he admitted he was tempted to cable to sell at 58, but he is now thinking in terms of "above 60" or "let us say 60 net for me."

As soon as Moretti received Quarti's letter of August 5, 1957, he wrote on August 12, 1957 accepting Quarti's "idea," and the next day an order was placed G.T.C. to sell 500 shares at 61, which would net the customer "something more than 60." The only inference to be drawn as to the remaining 500 shares is that they were to be held to be sold later at a price higher than 61, if it could be obtained. Monthly confirmations of this ...

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