Appeal from the Order of the Court of Common Pleas, Civil Division, of Northampton County, at No. 1981-C- 119.
William E. Taylor, III, Philadelphia, for Dean Witter Reynolds, Inc.
Edward J. McKarski, Easton, for Joseph M. and Cheryl L. Genteel.
Wickersham, Beck and Cercone, JJ.
[ 346 Pa. Super. Page 338]
Before us are consolidated cross-appeals from two orders of the Court of Common Pleas of Northampton County.
[ 346 Pa. Super. Page 339]
Appellant in Nos. 2466 and 2763 Philadelphia 1984 is Dean Witter Reynolds, Inc. [hereinafter "Dean Witter"]. Appellants in No. 2786 Philadelphia 1984 are Joseph and Cheryl Genteel.
This non-jury case began as a mortgage foreclosure action brought by Dean Witter against the Genteels. The mortgage at issue was given by the Genteels after a check issued to Dean Witter by the Genteels' corporation, J.C. & C. Coins, Inc., bounced. Subsequently, the Genteels asked the lower court to void the mortgage on the basis of fraud and/or duress, and counterclaimed for damages due to the trading losses suffered by J.C. & C. Coins in the commodities future market.
To understand this case, we must examine the prior relationship between Dean Witter and the Genteels. In the early 1970's, Joe Genteel became interested in collecting coins. In approximately 1978, he began purchasing and selling scrap gold and silver, and during 1979, he netted substantial profits from the buying and selling of scrap metal. In early 1980, the Genteels did two things of interest herein: they formed a corporation, J.C. & C. Coins, Inc., and they left their home in Roseta, Pennsylvania, for a vacation in Hawaii. While in Hawaii, they became acquainted with Mr. Jack Leslie, a fellow vacationer from Omaha, Nebraska. It so happened that Mr. Leslie was a commodities broker in gold and silver and an employee of Dean Witter. Upon exchanging information about their respective jobs, Mr. Leslie suggested to the Genteels that they set up a "hedging account" with Dean Witter, to protect their silver inventory.
After their return to Roseta, Joe Genteel contacted Mr. Leslie in Omaha and discussed silver prices and opening a hedging account. Ultimately, the Genteels decided to open a hedging account for J.C. & C. Coins, Inc. at Dean Witter, with Mr. Leslie as their account representative. What occurred in the next three months was disputed at trial, but the lower court found that:
[ 346 Pa. Super. Page 3407]
. . . . [S]everal forms were sent from Mr. Leslie to the Genteels who signed them where X's appeared, and returned them, in blank, to Mr. Leslie, along with a check for $20,000.00. The account was opened in the name of J.C. & C. Coins, Inc., based on Mr. Genteel's existing inventory of 2,000 ounces of silver.
8. The forms returned by the Genteels were completed at the Omaha, Nebraska office with inaccurate information. Most particularly, the commodity account information held out J.C. & C. Coins, Inc. as a smelter, refiner and producer of coins, with a net worth of $1,440,000.00 and net income in excess of $200,000.00. [The Genteels] did not receive copies of the forms sent to Omaha. Other forms and disclosure statements sent to the [Genteels] were not read by them.
9. [Dean Witter] allowed trading to commence April 21, 1980, without verification as to the accuracy of the information on the account application. Mr. Genteel continued to call Mr. Leslie on a regular basis following the opening of the account, but stopped opening and reading daily and monthly reports sent to him by [Dean Witter] because he didn't understand them.
10. Mr. Genteel relied on and trusted the handling of his account by Mr. Leslie, and when asked to send him $10,000.00 on a margin call the end of April, did so. On or about May 14, 1980, [Dean Witter] received a Dunn & Bradstreet report informing it that the information in the commodity account application could not be verified. In spite of this, the account remained open and active.
11. While the account was active, Mr. Genteel's silver inventory did not exceed 5,000 ounces. Mr. Leslie exercised control over trading in the account except for two contracts each near the end of April and May. The trading in the account was excessive in light of [the Genteels'] investment objectives.
12. Analysis of the trading in the account of J.C. & C. Coins, Inc., reveals the following:
[ 346 Pa. Super. Page 341]
(a) the account was opened April 21, 1980, and closed June 5, 1980;
(b) there was a closing debit balance of Sixty-One Thousand Nine Hundred Nine and 96/100 ($61,909.96) Dollars;
(c) there were profits of Fifty-Three Thousand Six Hundred Two and 20/100 ($53,602.20) Dollars and losses of One Hundred Forty Two Thousand Nine Hundred Twenty ($142,920.00) Dollars;
(d) commissions were paid in the amount of Seven Thousand Eight Hundred Ninety ($7,890.00) Dollars and fees in the amount of Ninety-Two and 75/100 ($92.75) Dollars indicating a total loss of Ninety-Seven ...