Goodbody v. Margiotti

I dissent from the majority opinion. Its reversal of the court below is based on two propositions: (1) that "defendant relied upon the alleged agreement of July 8, 1931, which in effect guaranteed him against any loss," and (2) that this "alleged agreement was a nudum pactum because it was not supported by consideration." Both these propositions are, in my judgment, untenable. Defendant's whole reliance was not on that agreement.

Plaintiffs' claim is logically divided into two parts: (a) for losses arising from the decline in stocks which it bought at defendant's request prior to July 8, 1931, and (b) for losses arising from the decline in stocks which it bought on defendant's account after that date. In defense of (b), i. e., the latter portion of plaintiffs' claim, defendant offered testimony that purchases of these stocks were made without his authority. This raised an issue of fact. The majority opinion says that when this case is re-tried, one of the issues will be: "Were the securities which were purchased and sold after July 8th or any of them, purchased and sold upon orders of defendant or at plaintiffs' own risk and without authority from defendant?" That issue was submitted to the jury at the first trial and my attention has not been called to any error in the manner of its submission sufficiently substantial to justify a reversal.

In defense of (a), defendant pleaded the agreement of July 8th. Whether or not this agreement is a "nudum pactum" is entirely a question of law, and on that question I think the authorities do not support the majority opinion. I believe that in holding the agreement of July 8th a "nudum pactum" the majority opinion takes too narrow a view of consideration. It says: "Mere arithmetic establishes that the alleged consideration for plaintiffs' guarantee was not a detriment to defendant nor a benefit to plaintiffs." There are considerations which constitute the vital element in contracts and yet which are not measurable by arithmetic. Consideration in contracts does not have to be expressed in dollars. The consideration in the contract of July 8th was not an arithmetical one. Williston in his new work onContracts (revised edition), Vol. 1, sec. 102, says: "The requirement ordinarily stated for the sufficiency of consideration to support a promise is, in substance, a detriment incurred by the promisee or a benefit received by the promisor at the request of the promisor. . . . It would be a detriment to the promisee, in a legal sense, if he, at the request of the promisor and upon the strength of that promise, had performed any act which occasioned him the slightest trouble or inconvenience, and which he was not obliged to perform [citing cases]. Thus abstaining from smoking and drinking, though in fact in the particular case a benefit to the promisee's health, finances, and morals and of no benefit to the promisor is a legal detriment and if requested as such is sufficient consideration for a promise. . . . Detriment, therefore, as used in testing the sufficiency of consideration means legal detriment as distinguished from detriment in fact. It means giving up something which immediately prior thereto the promisee was privileged not to do or refrain from doing. . . . That the promisor desired it for his own advantage and had no previous right to it is enough to show that it was beneficial." In the agreement of July 8, 1931, (assuming such an agreement to have been entered into, and the jury so found, as under the evidence it had the right to do), we have both a benefit to the promisor (plaintiffs) and a detriment to the promisee (defendant).

The situation between the parties on July 8, 1931, was as follows: Plaintiffs possessed certain stock which they had purchased for defendant. This stock was then worth $5,171.66 less than they had paid for it. Defendant had deposited $2,500 when he opened the account so that by his paying them $2,671.66 they would have suffered no loss by their dealings with him up to that time. This sum defendant presumably was able to pay. But by their failure to execute defendant's July 7th order (which he testified he gave them) to sell the stocks in question at the opening of the market on July 8th, the stocks had further depreciated in value about $2,000. This was a loss which would be visited upon plaintiffs if the stocks standing in defendant's name had then been "dumped on the market." Defendant was in a position to make plaintiffs do this. Had the transaction between plaintiffs and defendant ended then and there and the stock been sold, defendant would have "been out" a total of $5,171.66 (including his original "margin" of $2,500) and plaintiffs would have "been out" $2,000.

According to defendant's testimony, plaintiffs' representative, Condon, thought it would be better for bothplaintiffs and defendant not to close out this account but to hold the stocks for an expected rise. Condon's proposition to defendant was in substance as follows: Withdraw your order to us to sell the securities and let the account run on; we will carry it without requiring further margin until such time as the market comes back. We will handle it in such a way that neither of us will have any loss. When defendant consented to that offer, plaintiffs were relieved of the necessity of paying $2,000 which their failure to sell the stocks on the morning of July 8th had obligated them to do if defendant had persisted in the carrying out of his order to sell. Had the stocks later returned to the value they had on the morning of July 8th and had then (after so returning to their former value) been sold, plaintiffs would have gained $2,000 by defendant's forbearance in withdrawing at the close of the market on July 8th his order to sell. What they actually gained by the agreement of July 8th was relief from the necessity of then charging off against themselves a loss of $2,000. On July 8th it appeared to be in the interest of plaintiffs to have defendant enter into the agreement their agent proposed. The agreement was entered into; it was supported by a consideration, and was therefore not "nudum pactum." The consideration as to the promisors was the prospect, then apparently reasonable, of recovering in a market rise the loss of $2,000 resulting from the July 8th decline, by securing defendant's permission to let the account stand undisturbed. The majority opinion says: "It is obvious that the alleged opportunity given to plaintiffs to work out the situation by buying and selling securities in defendant's account but on their own responsibility cannot be deemed to constitute a consideration to plaintiffs, since in any event they could have speculated in securities on their own account and did not need any permission from defendant to that end." Reasons readily come to mind as to why plaintiffs would prefer to maintain the July 8th status quo of defendant's account with themselves as defendant's agent than become the principals themselves in respect to an identical account.

The consideration as to defendant was the detriment suffered by him in being put to the inconvenience and annoyance (as the event abundantly proved) of still carrying his margined account with the plaintiffs. A detriment sustained by a promisee at the request of a promisor will give rise to a legal liability. Defendant permitted the relationship of principal and agent to continue as between him and plaintiffs with all the risks that that relationship entailed. That the risk was a substantial one, the present litigation attests. If, for example, in the first instance plaintiffs had asked defendant's permission to buy stocks in the market ostensibly as his agent but actuallyon plaintiff's own account, and had promised some benefit to defendant in "consideration" of his granting that permission, there is no doubt that defendant's lending his name for that purpose would have been a sufficient detriment or inconvenience to him to have made them liable to him for the benefits promised under the resulting contract. If A lends his name to B for any legitimate business purpose and B promises him compensation therefor, a valid contract arises from such facts. On the other hand, if B said to A, "I will speculate in the stock marketin my own name and give you a share in my gains therefrom," A would have no recoverable claim against B no matter how great B's gains might be, for the agreement would be nudum pactum, A having by such arrangement been put to no inconvenience whatsoever and therefore sustained no detriment. In the instant case defendant could have said to plaintiffs: You pay your share of the loss up to date and I will pay mine, and then I will retire from the market and have no more annoyance from this transaction. At plaintiffs' request, so defendant testified, the latter refrained from doing this. This forbearance on his part supplied the necessary element of consideration.

Williston on Contracts (revised ed.), Vol. 1, sec. 103C, cites with approval the following quotation from Finlay v.Swirsky, 103 Conn. 624, 131 A. 420: "Consideration is defined as a benefit to the party promising, or a loss or detriment to the party to whom the promise is made." Williston, in section 115, says: "It is an 'elementary principle that the law will not enter into an inquiry as to the adequacy of the consideration.' This rule is almost as old as the law of consideration itself. In Sturlyn v. Albany, Cro. Eliz. 67, it is said: 'When a thing is to be done by the plaintiff, be it never so small, this is sufficient consideration to ground an action.' Therefore anything which fulfills the requirements of consideration will support a promise whatever may be the comparative value of the consideration, and of the thing promised. Thus allowing a defendant to weigh boilers is sufficient consideration for a promise to give them up in good condition, or accepting services bargained for even though valueless in fact, and surrendering a document though it has no value is sufficient consideration for a promise to pay a large price. . . . Discharging a debt barred by the Statute of Limitations, giving up an option the day before its expiration after acknowledging inability to exercise it, or naming a child in accordance with the wishes of the promisor, are sufficient considerations, and other illustrations might easily be given of the principle that adequacy of consideration is immaterial [citingPresbyterian Board v. Smith, 209 Pa. 361, 58 A. 689]." In the latter case this court held that a test of good consideration for a contract is whether the promisee, at the instance of the promisor, has done, forborne or undertaken to do anything real, or whether he has suffered any detriment, or whether in return for the promise he has done something that he was not bound to do or has promised to do some act or has abstained from doing something. If any of the elements of such test be established the consideration becomes sufficient to support a promise although its inadequacy may be grossly disproportionate to the promise. The law does not consider such inadequacy.

This court in York Metal Alloys Co. v. Cyclops Steel Co.,280 Pa. 585, 124 A. 752, in an opinion by Mr. Justice SADLER, said: " 'There is a consideration if the promisee, in return for the promise, does anything legal which he is not bound to do, or refrains from doing anything which he has a right to do, whether there is any actual loss or detriment to him or actual benefit to the promisor or not': 13 C. J. 316. 'Refraining from bringing a suit may furnish a consideration. The actual forbearance, or the promise to forbear, to prosecute a claim on which one has a right to sue is universally held to be a sufficient consideration': 13 C. J. 344." In Shaw v. Philbrick,129 Me. 259, 151 A. 423, the Supreme Court of Maine said: "In the judicial reports, running parallel with decisions wherein consideration is based on benefit to the promisor, are decisions that when on the part of the promisee, who was under no duty to do so, there has been an act, or omission to act, at the request of the promisor and upon the strength of his promise, which act or omission occasioned the promisee disadvantage, trouble, or prejudice, though slight and not actually harmful, there is legal value. In a legal sense, there is detriment. And detriment constitutes a valuable consideration." In Weigand v. Standard Motor Co.,109 Pa. Super. 256, 167 A. 493, that court said: "There may be a consideration without the accrual of any benefit at all to the promisor. If the promisee has suffered any detriment however slight, or though he has suffered no real detriment, if he has done what he was not otherwise bound to do, in return for the promise, he has given a consideration and the court will not ask whether the promisor was benefited. . . . The disadvantage suffered by plaintiff or the benefit derived by defendant was on either phase sufficient consideration for the promise of the defendant motor company." In Hind v. Holdship, 2 Watts 104, this court held: "It is sufficient that a slight benefit be conferred by the plaintiff on the defendant or a third person; or even if the plaintiff sustain the least injury, inconvenience or detriment, or subject himself to any obligation, without benefiting the defendant or any other person. It is not essential that the consideration should be adequate in point of actual value. The law does not weigh thequantum of consideration, having no means of deciding on that matter; and it would be unwise to interfere with the facility of contracting, and the free exercise of the judgment and will of the parties. The law allows them to be the sole judges of the benefits to be derived from their bargains, provided there be no incompetency to contract, and the agreement violates no rule of law."

In Hamer v. Sidway, Exr., 12 L.R.A. 463, the Court of Appeals of New York, in an opinion by Judge PARKER, held that a minor's abstinence from intoxicating liquors and tobacco, and from swearing or playing cards or billiards for money, is a good consideration for a promise by his uncle to pay him a sum of money. Judge PARKER quoted with approval the following definition of "consideration": "A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. Courts will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party, or is of any substantial value to anyone. It is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him." He then citesParsons on Contracts, as follows: "In general a waiver of any legal right at the request of another party is a sufficient consideration for a promise." He also cites 2 Kent, Com., 12 ed., 465, as follows: "Any damage or suspension, or forbearance of a right will be sufficient to sustain a promise." He quotesPollock on Contracts, page 166: " 'Consideration' means not so much that one party is profiting as that the other abandons some legal right in the present, or limits his legal freedom of action in the future, as an inducement for the promise of the first." It was held in that case that plaintiff, having restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle's agreement, and now having fully performed the conditions imposed, is entitled to the $5,000 promised him. Judge PARKER cites the case ofTalbott v. Stemmons (Ky.), 5 L.R.A. 856, in which the appellate court of that state held that a promise by a person to give $500 to his grandson at his death if the latter will never take another chew of tobacco or smoke another cigar during the promisor's life, was supported by sufficient consideration. In the case of Lindell v. Rokes, 60 Mo. 249, it was held that abstinence from the use of intoxicating liquors furnished a good consideration for a promissory note.

On another accepted theory also, the agreement of July 8th can be sustained as a valid contract. This theory was recognized by the Court of Appeals of New York in the following two cases: Rogers v. Wiley, 131 N.Y. 527, and Emery v. Wilson,79 N.Y. 78.

In the former case the Court of Appeals of New York held that where one party is engaged in a business venture with another, from which he may retire at will, his continuance therein is a sufficient consideration to uphold a promise to allow him an advantage not embraced within the terms of the original contract. In such a case it may be inferred that the promisee continued in the business upon the strength of the promise. In this case, defendants were stockbrokers and sold certain shares of stock short for plaintiff, under an agreement which required plaintiff to keep on deposit a certain percentage of the amount necessary to make good the short sale, defendants to give reasonable notice of want of sufficient margin and of their intention to buy in if the requisite margin was not made good. The stock having advanced, plaintiff in various interviews informed defendants that he had concluded to close his short account and go long on the stock, but was dissuaded therefrom by them; they finally agreed that if the stock went up to a price specified, which would have exhausted the margin, they would not close plaintiff out but would carry the stock for him until he could get out all right; plaintiff thereupon consented to leave the matter as it was. The stock continued to advance but did not go above the price named. Defendants bought in at a price which about exhausted the margin, without notice to plaintiff; upon receiving notice of the purchase he repudiated it. The market subsequently declined and plaintiff directed defendants to buy to cover the short sale, to sell the securities held as a margin and to account; this they declined to do. In an action to recover damages it was held that defendants' promise to carry the stock without further margin gave a right to recover, whether considered as an agreement with a sufficient consideration or as a waiver of notice to furnish more margin, or as an estoppel; in either case the purchase was unauthorized and plaintiff was entitled to recover the difference between the amount paid on such purchase and what the stock might have been bought for when plaintiff gave directions to purchase.

In the latter case the Court of Appeals of New York held that where one consents to continue the relationship of partners, in consequence of the promise of the other partner, there is a sufficient consideration to maintain an action based on the promise of the latter. Judge DANFORTH, who wrote the opinion for the court in that case, said: "He [the plaintiff] was under no obligation to remain in the firm, and it is not unreasonable to infer that the plaintiff consented to continue a member of the co-partnership in consequence of the defendant's promise, and that the promise of defendant was made to induce that consent. There was then a reciprocal agreement between the parties."

On still another theory the agreement in question can be sustained as a valid contract. That theory finds expression in several cases in this jurisdiction. In Whitehill v. Schwartz,27 Pa. Super. 526, that court held that if there is a real contention between the parties, modification of the existing contract, to settle the differences, is supported by the reciprocal benefits which follow. In Dreifus, Block Co.v. Salvage Co., 194 Pa. 475, 45 A. 370, this court held that parties may at any time rescind their previous understanding and substitute another therefor where some consideration appears, and the new contract will take the place of that formerly entered into. See also Flegal v. Hoover, 156 Pa. 276,27 A. 162; Thompson v. Stone, 43 Pa. Super. 69. This court also held in McNish v. Reynolds, Lamberton Co., 95 Pa. 483, that an agreement to an extension of time for performance by one is enough to support the supplemental understanding.

Not subscribing to the basic finding on which the majority opinion rests its conclusion, to wit, that the agreement of July 8, 1931, between plaintiffs and defendant was nudum pactum, I must dissent from that conclusion. As in many other cases^* which have during late years been before us in actions between stockbrokers and their customers, the controlling issues here are issues of fact, the testimony on the respective sides is conflicting and what weight is to be given that respective and conflicting testimony is exclusively for the jury to say.

I think the court below reached a correct conclusion and I would not disturb its judgment.

Mr. Chief Justice KEPHART and Mr. Justice BARNES concur in this dissent.

^* See Newburger v. Eckerson, 318 Pa. 72, 177 A. 797, and Sisneyv. Diffenderffer, 323 Pa. 337, 185 A. 830.