The sun. [volume] (New York [N.Y.]) 1833-1916, 1910-08-20
BUYING srorK ON MARGIN.

I 4 decision Of Interest 10 stock brokers
| anil their customers Who buy shares on
margin was handed dow ny the Appellate
! Di,i<io Of TIE supreme Court. Firsi he
/ partusEt. In the case OF John D. Mcintyre
| against Cutard y. whitney and lames
Gs-aRhty. ropartners. and iayard l.. Leck.
assignee Tor the benefit of the creditors OF
the Copartnership. The court decides that
where the brokers convert stock puTrhsssSi
Tor the customer and The customer has paid
4 additional MARGINS after the conversion
! the brokers are responsible foe the value
! % the stock NJ the time Of the COW ersion.
aIthough the stock declined later and the
, customer would not have realized 80 n uch
| on the sioc. bat for the conversion.
The facts Of the case were that the de.
. fendaat brokers hsd converted the stock
witch they arre carving on margin. and
b ~ the time 81 the conversion the Stock VAS
worth ati,UUp. that MCINTYRE thereafter PAID
\ SIS OcO n reduction OF the loan on the -to- \
: without know ledge OF the ConNersion, and
! thai between the discovery oil the conversion
I and q req soma ole time thereafter in Witch
to replace the stock its highest market
I value VAS S.sG25 The customer s'ill ow al
an UNPAID balance or SIS ~ on tho loan
and rendered this amount and demanded
the STOCK but the assignee of the iirru was
unable to deliver be"Guse IN" stoCh was not
an onR the assets.
The case was heard by a referee. who ap-
piled the rule in Baker ~. Drake 80 y. \ u.
, 2lu. and gave the plaintiff judgment Tor
t2S.s?S, less the ti5. 600 still owing. Jusii' .
Miller. who wrote the opinion. remarks that
by the application Of that rule the plant IN
RECEIVERS about one-,hird ~ what he paid
the defendants in cash most Of II after the
conversion, and the defendants po"ket A.
profits the amount which IN" stock declined
after the conversion. or siS.i0o pn NJ
point the Court said
thlnL It may be confidently nsscr ted thA' he
Cour' OF Appeals have never decided a. suggested
that guilty Of ronN eTSion could profit 10y Inc
derIine IN The market value Of the thing converted
bs'ween the ume Of conversion sad the discovery
Of n by The party injured. The general rule 81
damage Of course Is the valve of he thing Ton
vrried at the time and place Of the conversion.
together with Interest thereon from the time Of the
oon' ersion. and that rule should he adopted IN
ne absence Of special circumstances whereby IL
will not afford complete indemnify 10 the In ITrd
party
The early cases made dl>Lncilo- In case the
property converted was ~ nur'uating NaIIe. - a.
tn give the party Injured the advantage ~ ris
Ing market The disunc lion Wss not conrn~d
IN speculative stock transactions. and perceive
M reason for treating such transactions a. s1i
EeneriS. u was nnAlly decided In Markham -.
JAudon ~ y. .aN In the csss ~ q SPECULATIVE
sfocE transaction. thai the customer was entitled
to the highest market nrice % the property b~
tween the time Of the rrS,on and the trial.
The rule vas limited IN Rster ~ Drsae In which
II vsN held that upon discovering The conversion
ne customer could not Nc hy md r1uiCt The de
iendsnt .or 4 coniectIrai loss hascd upon me
highest vslue which the stock might attain over
an INDEFINITE period thereafter but that n ne
wished 20 ontnue the venture snd 20 'harge his
broker for the los. OF speculative profits Wss h'>
duty within reasonable time 20 replace the s'ocs.
nus sNertinE further dsmsgr Judge TsHsllo
diseased the earlier casss.snd y e therefore III
necessary 20 extend IRIS opinion hy rCiCrsn,e %
them from MS discussion - "a apparent ihst ~
i considering solely The rirh' o''he injured Marry
10 recover speculative rron'S IN addition 10 shat
Vas realized ~ the broker rom ne unlawful
sale Apparently ne 'holsht there pss = distlnc
ton be'Ween the purchase ~ s'oc', m margin
for . speculation and rHr'hSse outright Tor IN
yestmen' That distrrrtion vsS -rrudIsted hr
Iudge Peckhar writing 'or the majority ~ the
court In whEh'Ns nana ~ Metropolis no
,a;n
Judge Miller saws that undue prom fnenrs
given - the facr 'hq' on The purchase NJ the
stock thn customer paid onl, 5000 and tho
brokers t'o.os1 resUl'- only m confusion
NJ though
when purchased n. share, e-rs-,- N. main
49, 0ropc . prcCISr' thorgh - rsf -"
aarrt ihs whole purrhs.~ price IN fsc' -
It'd advance me whole 0urchs.c price ~ o.
ing for hist purpose s'oono o. ne defendants .
ThC defendants tNok no rte. - Tho s'~'r' I'm .
Ihrv were ~ all Nfre~ protected " ite margin .
became Impaired hy de~ins In the mari - Nsluc
~ nc shares 'Ney could AWAY, -r'l vUon notice .
'he plairuT am unhli" - rsrrrlN- ROW IN .
principle 'her~ csn ~ ar, ti>rinction hc Hrcn =
nsdEr ~ shares ~ .'cc- 30 = hroas- - -rcu SIS
'or ndysnc.s -iadr ~ him Wa Ohicn % rra,c
'h- purchase ard q plcGg- ~ stoco ~ oiACr --on
.r', - rana FOR IN ordinary loan ~" rs'l' ZION
between 'rr plain. amt me de''udH.'s Va,
hat ~ debtor Anc creditor pl''gor and plcdErr
Tho tact that the defendants purchased the >toot
hem in- right ia convert q 10 'hsl- own 4S- On
ne chance 'aAi u righ' decline N Val = tre-onr
enabling them 20 replace ~ 80 p-oN'
Tho court says tNat drrcadrntiv "'
no tact that - rfle ~ Baker - brake
applied 20 y case Nk" :hts would permit
~ d"fendsn's to retain large pnr' ~ mo
sI'N -eal1et IN 'hs Con,"rsion ~ tho
plain'IN -proper'v tho ir ,usttce n apr'y NJ
q, becomes appar-u' mon further rr'e,
ton The Court continues
~ already stated the ruie Vas inter lc- so.~.- .
20 Furnish Indemnity 10 ne customer 'or me 'os.
Of speculative pyun's u Il ~ cours~ Tor 'Nc cIs
Tome 80 determine for himself whrn ne VIII
terminate bis venture. ne + not obliged 20 Srl'
fauinE market RI' for the iefcrdAn'>.
wrong tnrl would hsv- h-d the plaintrs ,hArrs /
To deliver 20 him upon demand lie could then /
have held them indenniir'y. and the fact maj he
responded very promptly 10 ever" call for add
iionsl margins md when tho assignment aaN
handed thr stoca. strongly tends 10 Indicate hat
hat wss he purpose n he were s~esing 90 hold /
,hr bro for loss OF speculative pronts Z, would
~ eni're,y iust TO require him 20 replace the
stuck Within \ reasonable tine after learning o.
the conversion. 80 as TO limit 'he amount Of svch
speculative loss. and the amount which h. would /
have 10 pay to replace the s,oc~ would furnIsl !
complete Indemnity for the loss o. speculative
profits A Judge nsparo put n IN the csss o.
Make " DTASr ~ would he nAul'es'lv Unfair
30 permit him then 70 lie Nv snd hold 'nr defend
ants 'or NE highest price which ne >ior' rrl-h'
At'sn ovc7 an indefinite psroi t7~rriftr-
But ~ Il very different thing 20 require ma.
having already advanced 5000. he should unon
discovering the conversion advance s""Usn more
or bear an indeb'- in~ss for that anola' Tor
the purpose % replacing the s,ocs In order hat
the broker who vronEfiilv Appropriated Il IN .
his own use might retain from the proceeds 81
the Conversion y sum equal 20 the aroun' 81 tho .
decline after the conversion Tie bare STATE
rnent Of the fact rrfY'eS % The Defendant
wrong hsi prevented ne p.sruf from conuru
Ing his venture a. he intended tn ne va. not
bound 10 eubArS IN nsS venture
Tho .our' p,,ortiIr.ly rwavdaI 40 -.