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Hanover National Bank and the Consolidated National Bank, certain stock certificates, which were the property of their customers, who had not authorized the pledge. Of these certificates for 300 shares of Columbus & Hocking coal and iron stock had been sent to the firm for sale by a customer who had no account with them. The other securities consisted of shares of Union Pacific common and American Telephone stock, which had been sent to the firm by customers who had open accounts with them as margin for their accounts, but under special agreements with them that they should be held as special trust deposits, and not used without further notice. The referee further found that the bankrupts had no personal knowledge of the hypothecation of this stock, but that the same was made by the cashier of the firm and his assistants, who had general authority to select the securities hypothecated for loans, and who did not know of the arrangement that the securities were not subject to such hypothecation. The referee reported that this action was a transfer of the broker's special property in the securities, but had been made by the bankrupts' clerks without their authority, was not made with fraudulent intent to hinder, delay, or defraud, and hence was no objection to their discharge, although if the bankrupts had authorized or known of the hypothecation their discharge must have been denied to them.

Roger Foster, for bankrupts.

Joline, Larkin & Rathbone (Arthur H. Van Brunt and Henry V. Poor, of counsel), for objecting creditors Collins and Baldwin. James, Schell & Elkus (James N. Rosenberg and Robert P. Levis, of counsel), for objecting creditors Wernz et al.

HOLT, District Judge. I think that the bankrupts should be granted their discharge in this case, but on somewhat different grounds from those stated by the referee in his report. I think that the customers' stock pledged was not the bankrupts' property, and that its transfer was not with intent to hinder, delay, and defraul the bankrupts' creditors, within the meaning of the provision of the bankrupt act relating to the grounds for opposing a bankrupt's discharge. The stock was the customers' property. If the bankrupts had what is called a special property in it, in the way of a lien upon it, I do not think that that is what is referred to in the bankrupt act as the bankrupt's property. Moreover, if its transfer was with an intent to defraud anybody, it was with an intent to defraud the particular customer, and not the entire body of creditors. The ground upon which the referee has granted the discharge, that the stock was pledged by employés of the bankrupts, and not by the bankrupts themselves, and that therefore the bankrupts had no intent in the matter, and therefore are not barred from a discharge by such act, seems to me untenable. The employés who pledged this stock were given complete control of the business of borrowing money for the firm on securities. If such employés, having such general authority, had in fact transferred the bankrupts' property with intent to defraud the bankrupts' creditors, I think that the bankrupts' discharge would have been barred.

On the grounds stated, the referee's report is confirmed, and the discharge granted.

BERRY et al. v. CHASE.

(Circuit Court of Appeals, Sixth Circuit. June 11. 1906.)



One who has dealt with an agent cannot upon discovery of an undisclosed principal hold both the agent and the principal liable on the contract, but must elect between the two, and, an election once made, he must abide by it.

[Ed. Note. For cases in point, see vol. 40, Cent. Dig. Principal and Agent, §§ 513-520.]


In passing upon a motion to instruct a verdict it is not the province of the judge to weigh the evidence, but if there is any evidence which, with the inferences that may legitimately be drawn therefrom, would warrant a verdict in favor of the party against whom the motion is made, such motion should be overruled. A mere scintilla of evidence, however, is not enough to prevent the withdrawal of the case from the jury.

[Ed. Note. For cases in point, see vol. 46, Cent. Dig. Trial, §§ 376-380.] 8. CONTRACTS-LAW GOVERNING-SALE OF STOCKS.

An order to buy or sell stock on the New York Stock Exchange is governed as to the legality of the transaction by the law of New York, and not by that of the place where the order is given.

[Ed. Note.-For cases in point, see vol. 11, Cent. Dig. Contracts, §§ 455-461.]


An order to sell stocks for future delivery, intended to be executed on the New York Stock Exchange, when executed creates a valid contract, unless both parties joined in the intention that there should be no delivery, but merely the payment of the difference between the market and the contract price.

[Ed. Note.-For cases in point, see vol. 24, Cent. Dig. Gaming, § 22.] 5. BROKERS-SALE OF STOCKS-QUESTIONS FOR JURY.

Evidence considered, and held sufficient to require the submission to the jury of the questions whether a transaction between defendant and a firm of brokers in Tennessee was a sale of stocks by defendant to the firm, or an order by defendant to sell the stock on his account, and, if the latter, whether it was agreed or contemplated that the sale should be made on the New York Stock Exchange.

Error to the Circuit Court of the United States for the Western District of Tennessee.

Leopold Lehman, for plaintiffs in error.
T. K. Riddick, for defendant in error.

Before LURTON, SEVERENS, and RICHARDS, Circuit Judges.

LURTON, Circuit Judge, delivered the opinion of the court. The plaintiffs below were a firm of stockbrokers engaged in business in New York. The action was brought to recover an alleged loss arising upon a sale and purchase of Northern Pacific stock by direction of a firm of stockbrokers doing business at Memphis under the firm name of Schloss, Miller & Malone. The defendant W. J. Chase is sued as the undisclosed principal for whom the Mem

146 F.-40

phis brokers acted. There was evidence tending to show that the plaintiffs sold on March 30, 1901, on a New York Exchange, 25 shares of Northern Pacific stock for and on account of Hogan & Co., a firm of Memphis stockbrokers. There was also evidence that before delivery Hogan & Co. dissolved, Hogan dying. Their unfinished business was transferred to the firm of Schloss, Miller & Malone. May 8th and 9th there was a great flurry in Northern Pacific stock, and plaintiffs called upon Schloss, Miller & Malone to deposit $20,000 to protect their previous short sale. Instead of doing this, they directed plaintiffs to buy on the market 25 shares against the 25 shares sold. This was done, at $325 per share. The difference between the price at which plaintiffs had sold and at which they bought was $5,762.50. This loss was realized May 9, 1901, and Schloss, Miller & Malone notified. Thereupon they Thereupon they notified plaintiffs that their principal was the defendant, W. J. Chase, and asked that the matter be taken out of their account and charged against W. J. Chase. Although thus notified, some time in May or June of 1901, that Schloss, Miller & Malone claimed to be acting for the defendant, Chase, and although requested to take the trades out of the account of Schloss, Miller & Malone, and charge the loss up to a theretofore undisclosed principal, plaintiffs did not do so, and in October of 1901, the account being still unsettled, they claim to have assigned the claim as a claim against Schloss, Miller & Malone to one John P. Darwent, with the right to bring suit in their name against said Schloss, Miller & Malone, or any undisclosed principal they might have. In November following Darwent elected to sue Chase, and this suit was started. Jacob Berry & Co. had no reason to suppose that Schloss, Miller & Malone were not dealing for themselves, or, if they did, they had no knowledge of the undisclosed principal until after they had realized the large loss for which they sue. But the law is that, when there is an undisclosed principal behind, he may be made liable, although he was never given credit by the seller, provided the circumstances are not such as to make such a result unjust or inequitable. But one who has dealt with an agent cannot upon discovery of an undisclosed principal hold both the agent and the principal liable. He must choose between the two, and an election once made he must abide by it. Mechem on Agency, §§ 695, 696, 698, 700; Fradley v. Hyland (C. C.) 37 Fed. 49; Tuthill v. Wilson, 90 N. Y. 423; Silver v. Jordan, 136 Mass. 319; Ahrens v. Cobb, 9 Humph. (Tenn.) 643; Curtis v. Williamson, 102 B. L. R. 57; Smithurst v. Mitchell, I El. & El. 622. At the close of the plaintiffs' evidence, and after the defendant, W. J. Chase, had testified, but before the defendant had notified the court of the conclusion of his evidence, the trial judge stopped the case, and instructed the jury to return a verdict for the defendant. Exceptions were duly reserved. The ground upon which the instruction was based was, as stated by the trial judge in his charge, as follows:

"Two questions present themselves to my mind that bar the plaintiffs' right of recovery. The first is that this stock was not bought at the direction of Mr. Chase. Schloss, Miller & Malone directed the buying of that stock at their motion. The second is, it is a Tennessee contract. Mr. Chase made his

contracts and agreements here with Hogan & Co., and their contract was assumed or transferred by some process to Schloss, Miller & Malone.

Mr. Chase is concerned, he had no further connection with any brokers, or any contracts except to sell that stock, and if they sold it themselves, and It went to New York, it would be a New York contract between these brokers and the New York brokers, but as between Mr. Chase and the New York brokers it is a Tennessee contract, and, being a Tennessee contract, all that is necessary under the law of Tennessee to avoid liability is to show by the proof that one of the parties to the transaction treated it as merely dealing in futures, in which the party bought or sold, but was not to deliver or receive, and in this case I shall hold the plaintiff has no right of action. That being so, I direct you, gentlemen of the jury, to return a verdict for the defendant."

For the plaintiffs in error, it is now insisted that the court erred in taking the case from the jury, and that there was some substantial evidence upon which the jury might reasonably have found that Schloss, Miller & Malone were authorized to buy as they did 25 shares of Northern Pacific stock on May 9, 1901, for account of W. J. Chase, and also some evidence that the contract was not a Tennessee but a New York contract. An attentive consideration of the evidence leads us to an agreement with this contention.

In passing upon a motion to instruct a verdict it is not the province of the judge to weigh the evidence. In Mt. Adams In Mt. Adams v. Lowery, 74 Fed. 463, 477, 20 C. C. A. 596, we gave elaborate consideration to the difference between the function of a judge when acting upon a motion for a new trial because the verdict is against the evidence and a motion to instruct for want of evidence. In the latter case we said: "His duty is to take that view of the evidence most favorable to the party against whom the motion is made to direct a verdict-and from that evidence, and the inferences reasonably and justifiably to be drawn therefrom, determine whether or not, under the law, a verdict might be found for the party having the onus. If not, he should, upon the ground that the evidence is insufficient in law, direct a verdict against that party. That there is a mere scintilla of evidence is not enough to prevent the withdrawal of the case from the jury. Such evidence is insufficient in law because so insufficient in fact."

This has been many times reaffirmed and applied by this court. Travelers' Ins. Co. v. Randolph, 78 Fed. 754, 24 C. C. A. 305; Standard Acci. Co. v. Sale, 121 Fed. 666, 57 C. C. A. 418, 61 L. R. A. 337; Shugart v. Atlanta, etc., Ry. Co., 133 Fed. 505, 66 C. C. A. 379.

If we look to the evidence tending to show that Schloss, Miller & Malone had authority from the defendant to sell and buy 25 shares of Northern Pacific stock on the Exchange in New York for and on account of the defendant, Chase, we find: (1) That either Hogan & Co., stockbrokers at Memphis, or Schloss, Miller & Malone, who succeeded to their unfinished trades or deals with or in behalf of Chase, did sell on or about March 30, 1901, 25 shares of Northern Pacific stock at 94 and a fraction. (2) Whether the alleged sale of such shares were made by Hogan & Co. or by Schloss, Miller & Malone is not clear. So far as it is of importance, there was a question for the jury as to whether the sale was made by the one or the other. There was evidence that Chase sold to Hogan & Co. 25 shares of that stock at 94 and something. This Chase testified to. This Chase testified to. He also swore

that when he did he had no such shares, and had no intention to deliver, and no expectation that he would be called upon to deliver. In short, he sold what he did not have with no purpose to obtain and deliver, and no agreement on his part that he would buy and deliver. According to his view of the matter, he merely intended to make a bet on the rise or fall of the stock, and receive or pay the difference as it might turn out. Now, if there was no evidence conflicting with this, the contract was a Tennessee contract, and governed by the law of Tennessee. For the purpose of breaking down all gambling contracts, the Tennessee statute (section 3166, Shannon's Code) provides that any contract for the sale of products or bonds or stocks shall be deemed a gambling contract and null and void "when either of the contracting parties have had no intention or purpose of making actual delivery or receiving the property in specie." This statute seems to make a contract void regardless of the good faith of one of the parties, if the other had no purpose to receive or deliver. McGraw v. City Produce Exchange, 85 Tenn. 572, 578, 4 S. W. 38, 4 Am. St. Rep. 771; Allen v. Denham, 92 Tenn. 257, 265, 266, 21 S. W. 898. Upon the question as to whether Chase sold to Hogan & Co., or authorized Hogan & Co. to sell 25 shares of Northern Pacific stock on his account, there was conflicting evidence. Thus the witness A. E. Malone, surviving member of the firm of Hogan & Co. and a member of the New York firm of Schloss, Miller & Malone, testified that before dissolution of that firm it had sold 25 shares of Northern Pacific stock on account of W. J. Chase to an unknown purchaser through a firm of New York brokers known as Parnell & Higman. There was also evidence tending to show that this sale is what is called in the parlance of such dealings a short sale, and that no delivery had been made when Hogan's death brought about a dissolution of Hogan & Co. Thereupon Malone, the surviving member, gave notice that it was desirable that all unclosed "trades" and ledger balances should be transferred to Schloss, Miller & Malone. There was evidence that Chase wrote under this written notice a request as follows:

"A. W. Hogan & Co.: Please transfer open trades and ledger balance to the firm of Schloss, Miller & Malone without additional cost.

"Yours truly,

W. J. Chase."

From this the jury might infer that whatever deals or trades were unclosed on books of Hogan & Co., and whatever ledger balance there was affecting him, should be transferred to and carried out by Schloss, Miller & Malone. That Hogan & Co. did sell 25 shares of Northern Pacific stock short on account of W. J. Chase is the positive testimony of the surviving member of that firm. Mr. Schloss, of the firm of Schloss, Miller & Malone, was asked:

"At what price originally did Mr. Chase through you sell this stock?"

He answered:

"Well, he did not sell it through us. He sold it through Hogan & Co., and we acquired the short side of it by instruction and consent of Mr. Chase. It was in the neighborhood of 94 or 95. Whatever that amount was, was taken over at the same figures by Schloss, Miller & Malone."

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