Stix Friedman & Co. v. Fidelity & Deposit Co. of MarylandStix Friedman & Co. v. Fidelity & Deposit Co. of Maryland
Plaintiff Stix Friedman & Company, Inc., brought suit against its insuror, defendant Fidelity & Deposit Company of Maryland, to recover on an insurance policy for loss sustained by plaintiff through its alleged good faith acceptance of allegedly altered stock certificates. A jury returned a verdict for plaintiff in the sum of $25,000. Plaintiff voluntarily remitted $5,310.68 making a total of $19,689.32 in its favor. Thereafter, the trial court granted defendant’s motion for judgment in accordance with its motion for a directed verdict at the close of all the evidence on the ground that the evidence failed to show that the certificates had been altered or fraudulently altered. The trial court, in the event its judgment was reversed on appeal, further denied defendant’s alternative motion for a new trial. Plaintiff appeals, contending the trial court erred in granting defendant’s motion for a judgment notwithstanding the verdict. Defendant appeals claiming that if the trial court erred in granting the motion for a judgment notwithstanding the verdict, it also erred in denying defendant’s alternative motion for a new trial.
In the pertinent portion of the insurance contract defendant agreed “to indemnify and hold harmless the Insured for: . Loss sustained by the Insured through the insured’s having, in good faith and in the course of business, purchased or otherwise acquired, accepted or received, or sold or delivered, or given any value, extended any credit or assumed any liability, on the faith of, or otherwise acted upon, any securities, documents or other written instruments which prove to have been (a) counterfeited or forged . or (b) raised 1 or otherwise altered or lost or stolen . . .” The dominant issues in the trial and on appeal are whether plaintiff sufficiently proved (1) that the instruments in question were “altered,” (2) that plaintiff accepted the instruments “in good faith” and (3) that plaintiff suffered a “loss” as a result of its good faith acceptance of the altered instruments. In summary the facts are that plaintiff agreed to allow another brokerage company to exchange stock certificates held by plaintiff as collateral, that as part of the exchange plaintiff accepted two certificates representing 2,000 shares of stock in “Information Management International Corporation” apparently believing them to be certificates for “Information International Corporation” (the word “Management” had been crossed out in pencil), and that the stock actually received was worth much less than the stock plaintiff apparently thought it was getting. Because the issues involve whether plaintiff made a submissible case, we review the facts in detail.
Plaintiff Stix Friedman & Company, Inc., is a stock brokerage firm owned by William Stix Friedman. In 1972 the company was a member of the New York Stock Exchange but was principally engaged in trading over-the-counter securities.
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Plaintiff
A letter drawn up by Friedman and signed by White dated January 26,1972, set out the amount plaintiff would be paid for each draft it cleared for White & Company. The letter also states that White and Company agrees to let plaintiff “have some extra collateral in the amount of $15-20 thousand in the event that from time to time one of your drafts may not clear.” Pursuant to this agreement White & Company delivered to plaintiff 600 shares of Sea World, Inc., stock, which at that time had a value in excess of $20,000. Although at one point Mr. Friedman stated that the agreement outlined in the letter had not been modified, he later acknowledged that it was his understanding with Mr. White “after this letter” that the collateral was also to be held for other transactions such as sales. In other words, Friedman believed the collateral was a margin on White & Company’s account. He also testified that it was the custom in an account such as this not to release the collateral stock if there is a debit balance. Mr. White, on the other hand, testified that plaintiff was holding the collateral solely to cover the situation where a draft would not be picked up by a broker on the other side of the transaction. After numerous transactions between these parties White & Company owed plaintiff in excess of $20,000 in February 1972. This debit balance arose because White & Company was often slow in delivering certificates of volatile stock to plaintiff.
On or before February 25, 1972, Mr. White proposed to exchange the Sea World, Inc., stock held by plaintiff as collateral for some other stock. Friedman said his company frequently permitted such an exchange. He also testified that White proposed to deliver 2,000 shares of “Information International” stock in exchange for the Sea World, Inc., stock. Friedman checked the value of 2,000 shares of Information International and found it to be worth about $25,000 on February 25, 1972. White, however, testified that he had proposed to substitute “Information Management International” stock for the Sea World, Inc., stock. Two thousand shares of Information Management International Stock was worth about $310.68 on February 25, 1972.
When the stock certificates were delivered by White & Company, Mary Charyle Weber, whose deposition was read into evidence, worked for plaintiff taking in and sending out stocks and bonds. She stated that if the validity of a security was doubtful in some way that she had primary responsibility to decide whether or not to accept it and if she had a question she would consult her supervisor. In response to a question about “what specific instruction did you get at Edward Jones and Company [her previous employer — also a stock brokerage company] and at Stix Friedman with regard to the receiving and classifying of securities, documents,” she stated, “If
In an effort to prove that its acceptance of the certificates in question was in good faith, Friedman testified that it was the practice of stock brokers to accept a stock certificate with a marking on it under circumstances where the name of the company had been changed or where there was a merger with another company. Newly printed certificates after the change were not always available. On cross-examination, he admitted that in this instance his clerks were “probably not as diligent or as sophisticated as they should have been.” As to whether the appearance of penciled lines on the front of the certificate were “red flags” to investigate the issue, he replied, “I suppose there were a lot of red flags on that certificate. I’m not questioning that.”
On the other hand defendant’s expert witness testified that the practice followed throughout the brokerage industry was never to accept certificates like those in this case without determining that a name change had been recorded in a regular trade publication such as “Standard & Poor” digest or in “trading sheets.” Witness Weber, plaintiff’s receiving clerk, had found no listing of such a change and had failed to communicate this to Mr. Friedman.
“When the party having the burden of proof has adduced substantive evidence on a pleaded issue, that issue should be submitted to the jury and it is reversible error to direct a verdict against that party .
Guided by these principles, we first consider whether the certificates in question were “altered” within the meaning of the insurance policy. The trial court held that the certificates had not been so altered. Plaintiff contends the definition of “altered” adopted by the trial court and defendant is incorrect. The allegedly erroneous definition, borrowed from contract and negotiable instrument law, appears in Instruction No. 4 and states that “an alteration is an act done upon a written instrument by a party thereto or by a person claiming thereunder which changes its language so as to materially affect the rights and obligations of the parties.” This definition would be proper if plaintiff were seeking to be discharged from a contract because of a material alteration in the terms of an agreement made on a written contract by the other party
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but it is not proper where the only issue is whether these certificates have been “raised or otherwise altered” within the meaning of this insurance policy. The policy does not require that the alteration be material. It is designed to protect plaintiff from losses arising from plaintiff’s good faith acceptance of documents which have been “(a) counterfeited or forged ... or (b) raised or otherwise altered or lost or stolen without any requirement as to the degree or type of alteration involved. These certificates were “altered” within the meaning of the insurance policy. The trial court erred in ruling otherwise. The judgment for defendant cannot be sustained on this ground. But this does not end our inquiry. If the action of the court in sustaining the motion for judgment notwithstanding the verdict is supported by any of the grounds raised by defendant in its motion, carried forward in its brief and would support a judgment in its favor, the trial court judgment will be affirmed.
McClellan v. Highland Sales & Investment Co.,
Plaintiff accepts defendant’s definition of good faith as “an absence of all information or belief of facts that would render the transaction unconscientious.”
Gray v. Clement,
Whether plaintiff’s acceptance of these certificates was in good faith as defined above depends on plaintiff’s evidence of the reasonableness of its actions under the circumstances. The question for this court is not whether there is more evidence of good faith than of bad faith (obviously there is much evidence that plaintiff’s action was not reasonable); the issue is only whether there is substantial evidence of good faith. Mr. Friedman testified that brokers sometimes accept securities with marks on them, such as when there has been a name change. Mrs. Weber also said certificates like the ones in question had been “okay” in other circumstances and that within her experience it had never been the case (before this case) that such altered documents were not valid. But these witnesses never stated that they or any other broker would accept such altered documents without first verifying the fact of a name change. Mr. Friedman acknowledged that he sometimes relied on assurances from other brokers but he never said he or any other broker would rely on assurances from Mr. White, a person whom Mr. Friedman admitted had a bad reputation for truthfulness in the investment community. The evidence that brokers sometimes accept certificates with marks on them, that plaintiff had never before had a problem with altered documents and that Mr. Friedman would rely on the assurances of another broker does not rise to the level of substantial evidence of reasonableness and good faith. The trial court judgment for defendant is sustainable on this ground on the facts of this case.
The judgment is affirmed.
Notes
. Webster’s Third New International Dictionary gives as one definition of the word “raised,” “to add fraudulently to the face value of (a bank check or other negotiable paper) by altering the writing, figures, or printing in which the sum payable is shown.”
. Mr. Friedman testified that “[a]n over the counter [stock] is one that is not listed on any national exchange. For instance, the banks in St. Louis, none of them are listed on a national exchange. Anheuser Busch is not listed. On the other hand there are many, many smaller companies, many of which are trading, for less than a dollar a share that are trading over the counter.”
. Dunlap was not available to testify at the time of trial.
. “We say
substantial
evidence, because the ‘scintilla’ doctrine is no longer the rule in this jurisdiction.” Lamm, J. in
Williams v. Kansas City Southern Ry. Co.,
.
See,
§ 400.3-406 and § 400.3-407 RSMo 1969;
First National Bank of Fredonia v. Meadows,