The New York herald., 1877-10-02
gcratetl
A WALL STREET CASE.

SHORT SALES CONTRACTS NOT RECOGNIZED
OR PROTECTED BY THE LAWS OF MAssAcHU-
sETTs-MTroATIoS GROWING OUT OF THE
FAMOUS NORTHWESTERN CORNER"
BosToN, Oct. l. 1871
case OF peculiar interest," from tho fact that IL Is
tho first ever brought by parties who caught In
the Northwestern corner' on the memorable 'Black
Friday" of 1872, has just been heard and passed upon
in the Suffolk County Supreme Cour. II action
brought by William B. Leonard and another against
John Hartt and another, executors OF the will
OF John !. Demeritt, and apart from the
interest attached to IT, described above Is also
Important, because OF the fact that tho general prnc
pies Of law that contract which Is good in local.
ity is good everywhere finds here one OF its few
ccptions In the State OF New York the law does not
render void voidablo contracts account OF the
vcndcr at the time OF making such be-
ing the posscssor OF stocks certificates
stocks, while the Massachusetts, laws require ownor-
ship possession ut the time tho contracts made
This case had boen referred to Hon. Richard Onley
as an auditor, who submitted tho facts, which, In
brief that the plaintiffs in 1872 were partners
doing business as brokers in Wall street, Now York.
Prior to that time the defendants testator John T.
Domcrtt, had employed them, in their business, and
had made sales and purchases Of stock through
them. On the 25th OF October, 1872, the plaintiffs
received ana executed order from Demcritt to soil
.shortn 100 shares OF the s'eonmon, stock OF tho
Chicago aud Northwestern Railway, and on tho Goth
they received and executed order sell another 100
shares. The first was sold at S18 per share and tho
latter ut $S211.
In the case OF Knowton VS.. Fitch 81 n. f., 26s
Judge Rapalo described these by remark
ing that short sale was salo boiore purchase with
view OF buying In, when the market should fall, at
lower price han that at which the sale was made
that the price rose tho result was loss and II II tell
profit. The auditor in tho present case, finds that
in snort" salos The seller Is neither required to
part with the stock sold. Tho sellers broker bor-
the stock and pays the agreed price, generally
certified check. The borrower or lender may at
time close III the ns ono % and
not returned the lender has right To buy In tho
stock at the market lrcc, and IN cas-, OF an advance
TO charge tho borrower with tho difference with
this course Domeritt was familiar.
On November %, 1877, George Osgood Co., OF
whom the plaintiffs mad borrowed the sIock called for
It's return Since November 20 tho stock had been
rapidly rising, and on the 2ls 22d and I'D tho PLAIN
tils Addressed numerous letters and tclegrans to
Demertt, asking him TO como and settle cover
his margins Tho plaintiffs received no reply, and
they proceeded 10 act on Demerts previous general
instrucLonso use their discretion IN the projection
OF his interests. On November %, therefore, they
bought 100 shares at $50 and on November 26 100
more at Sl75 per share and with these 200 ropucod
the stock borrowed from Osgood Co. The loss
tho transact xl6625. The plaintiffs had pre-.
balance Of 81. .924 rs 10 the credit OF Dcmeri
The balance them was, therefore, $14 200 ~ und
this the sum- with Interest," sought 70 DO recovered
against Demcritps estate.
The deiondants set up scveral defences In their
answer The first that tho sales were Illegal; II
illegal that the plaintiffs Jailed TO give duo notice
to Demcritt to make his margin good (thorc being
evidence that tho letters and teiegrams were deliv
srod that In default thereof the plaintiffs would
buy IN stock to replace that borrowed; that there
notice the plaintiffs were only bound TO furnish
spreerrodr stock which sold at SS7 rs on November
% and 25 instead OF common and that the plain
tins bought stock for less price in transactions Of
their tho Same day. There also doOlara-
ton In set-on for the 81 024 xs had and received by
tho plaintiffs to the deieudxnts' uso Tho auditor
found that tho plaintiffs entitled to recover
the sum Of SIS $40 09, but the recomnitted
for him to rep0rI the evidence, which he did.
Coming before the Supreme Court tho case was
opened 10 jury and the report OF the auditor sub
mittcd Tho defendants counsel c0ntcndcd and argued
that although such transaction IT proved, was au-
th0rzcd by the statute Of New YORK which permitted
stock jobbing such shortn sales, stl court OF
Massachusetts bound by comfy to enforce
contract herc there bong an express statute OF tho
State prohibiting such transactions and apart from
ouch siaiutc the transaction being contrary TO public
policy and good morals
IL was commended and argued ut length by the coun
sol for the plaintiffs that such contract not H.
legal and that IL could DO enforced by the Massa.
chusctts courts; that being valid in New York whore
where the remedy is sought In the New York case
already referred to the Court held that long
transactions not prohibited by law there Is nc
reason for relieving either party from the RESPONSE
bilities which he incurs by engaging Ia thcm.
The Court Judge Lord, ruled that tho action coult
not bo maintained aud directed verdict for the
iendants IL is possible that tho may go to tn,
full bench exceptions to the ruling Of the presiding