Case Name: Wahl, Respondent, vs. Tracy and others, Appellants
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 1909-06-03
Citations: 139 Wis. 668
Docket Number: 
Parties: Wahl, Respondent, vs. Tracy and others, Appellants.
Judges: Winslow, C. J. I concur in the views of Mr. Justice Marshall.
Reporter: Wisconsin Reports
Volume: 139
Pages: 668–679

Head Matter:
Wahl, Respondent, vs. Tracy and others, Appellants.
May 11—June 3, 1909.
.'Brokers: Duties: Diligence: Good faith: Purchase of stock: Authority: Revocation: Margins: Breach of authority: Damages.
1. A broker who accepts employment becomes the agent of the employer, and, being intrusted with money for a special purpose, owes his principal the ordinary fiduciary duties of good faith „nd diligence in carrying out his instructions.
,2. A broker employed to purchase is not only to purchase in the manner directed by his principal, with reasonable diligence as to time, but also at the best price obtainable when the purchase is made. \
:3. A purchaser who has employed a broker to purchase may revoke the authority conferred at any time before the broker has in good faith acted upon the order.
4. Where a customer delivers money to a broker to purchase designated stocks, and the broker, in violation of his instructions, acquires a right to obtain stocks corresponding with the customer’s order by putting up margins, it does not follow that it makes no difference to the customer that the transaction is not identical with his directions.
• .5. Where a broker purchases property for his principal for full cash consideration, the property from the time of the purchase is in the broker’s hands free from liability to the general creditors of the. broker, and the broker cannot dispose of it to any person having knowledge of the customer’s rights therein, nor to an innocent purchaser, without subjecting the broker to penal .liability.
6. Where a stock broker who received his customer’s money with directions to purchase specific stocks purchases the stocks on margin through another broker, the customer acquires no legal' right to the possession of those stocks. The selling broker may retain the stocks in his own name, unseparated and unidentified, and exact payment of the balance of the purchase price before delivery. He may also dispose of them in his own name at any time, and, when custom so authorizes, hypothecate them with others, and hence, in case of insolvency of the selling broker, arises liability that the customer can only acquire the particular stocks by paying a second time.
7. A broiler, directed and authorized to acquire a clear title to stocks with money placed with him by a customer, does not execute his authority by a purchase on margin through another broker.
8. In such case the customer, after notice of his principal’s acts, may revoke his order and demand return of his money.
9. Where a customer placed with a broker the money necessary to* purchase certain stocks, and the broker, in violation of Ms instructions, purchases these stocks on m§irgin through another broker, the first broker does not execute his customer’s order until he actually acquires full title to the stocks.
10.In such situation, if the market value had depreciated when the broker actually acquires full title, he has in his hands an amount of his customer’s money which it is not necessary to-expend and which it is his duty to return, and for which the* customer may maintain an action.
Marshall, J., Winslow, C. J., and Barnes, J., dissent.
Appeal from an order of tbe circuit court for Milwaukee-county: Warren D. Tarrant, Circuit Judge.
Affirmed.
Defendants appeal from order overruling a? demurrer totbe complaint, wbicb alleges tbat tbe plaintiff, a surgeon, and unfamiliar with dealings in stocks, between tbe 6th and 20tb day of January, 1908, placed in tbe bands of the defendants, who were stock brokers in New York, tbe sum of $12,800,. with direction to purchase certain specified stock at tbe market price, for cash, such deposit being sufficient for tbat purpose; tbat defendants, in violation of tbe instructions and direction given by plaintiff, and in violation of tbe trust and fiduciary relation between them, gave an order to another broker or brokers to purchase a corresponding amount of the-specified stocks, together with other stocks, for said defend ants, on margin, in blank, they having said stock or securities transferred or delivered to the plaintiff; that they applied in payment of such margin only $3,000 and retained and appropriated the balance of plaintiff’s deposit to their uses; that ■defendants fraudulently represented to plaintiff that, at all times up to the 18th day of February, they had actually pur■chased and fully paid for the stocks ordered for him, and that ■delivery to him was delayed only to enable transfers on the ■books of the company; that not until said 18th day of February did plaintiff learn that defendants had not purchased stocks as directed, but had made the unauthorized purchase •on margins through other brokers; that he then demanded of the defendants the stocks which he had ordered purchased, ■and they accordingly delivered to him on February 28th certificates of stock for that amount; and that between the time •of giving the ordeiífor the purchase of said stocks and such delivery of stock certificates to the plaintiff, the market price thereof depreciated $1,100, for which amount recovery was •demanded.
For the appellants there was a brief signed by Jaclcson B. Kemper, counsel, and oral argument by Mr. Kemper.
Christian Doerfler, for the respondent.

Opinion:
Dodge, J.
It is of course obvious, and appellants in effect -concede, that the complaint categorically alleges a breach by the defendants of their duty to the plaintiff assumed by them by the acceptance of .employment as brokers. By such acceptance they became agents of the plaintiff and, being intrusted with his money for a special purpose, owed to him the ordinary fiduciary duties of good faith and due diligence in carrying out his instructions. Hill v. Am. S. Co. 107 Wis. 19, 81 N. W. 1024, 82 N. W. 691; Isham v. Post, 141 N. Y. 100, 35 N. E. 1084; 1 Dos Bassos, Stock Brokers (2d ed.) 218 et seq. The argument of appellants is, how•ever, that no damage has resulted to the plaintiff by reason <of the failure to purchase stocks exactly as directed, for, had defendants done so, such stocks would have depreciated to the same extent by February 18th, and the effect upon plaintiff would have been the same. We think this contention is too technical and narrow to protect an agent who abuses his fiduciary relation from being called to account. The complaint shows, if nothing more, that the defendants have misappropriated to their own uses over $9,800 of the plaintiff's money for a period of about a month, for which alone would result liability at least for interest, as a profit gained by a trustee through his own wrong. But we think the facts alleged show other pecuniary injury to the plaintiff which would not have resulted from exact performance of defendants' duty. That duty was, of course, not only to purchase in the manner directed by the plaintiff, with reasonable diligence as to time, but also to purchase at the best price obtainable whenever the purchase was made, if there was a fixed market price. Thompson v. Meade, 7 T. L. Rep. 698; Smith v. New York S. & P. C. H. Co. 70 Hun, 597, 25. N. Y. Supp. 261; Taussig v. Hart, 58 N. Y. 425; Larrabee v. Badger, 45 Ill. 440; 1 Dos Passos, Stock Brokers (2d ed.) 207. Meanwhile, and until the broker had in good faith acted upon the order, plaintiff had the right of revocation. Sibbald v. Bethlehem I. Co. 83 N. Y. 378; Rees v. Pellow, 97 Fed. 167. We can view the situation in no other light than that defendants failed to act on plaintiff's order in January, when the money, was delivered to them. Their claim is that by putting up margins they acquired at least a right to obtain stock corresponding with plaintiff's order, and that it makes no difference to plaintiff that the transaction was not identical with his direction. With-this contention we cannot agree. Had the defendants purchased this stock for the plaintiff for full cash consideration, the same would have been his property in their hands as his agents from the time of such purchase, free from liability to the general creditors of the defendants and which, they could not dispose of to any person having knowledge of plaintiff's rights therein, and not even to an innocent purchaser without subjecting themselves to penal liability. Richardson v. Shaw, 209 U. S. 365, 28 Sup. Ct. 512. The rights of one for whom stocks are purchased by a broker for down payment with the client's money present none of the complicated questions as to the rights of the broker in stocks purchased for his client "on margin" discussed in some of the cases cited. When the defendants in fact purchased on margin through another broker a similar amount of stock,, the situation became very different. The plaintiff acquired no right of possession to that stock, whatever legal title the defendants may have acquired; the selling broker had a right, the sale to defendants being on margin, to retain it in his own name, unseparated and unidentified, and to exact payment of the balance of the purchase price before delivery. ITis retention of it in his own name made it entirely possible for him to dispose of it at any time, and, under the customs in New York, he had a right to hypothecate it with others by reason of his large pecuniary interest therein. 1 Dos Passos, Stock Brokers (2d ed.) 251; Skiff v. Stoddard, 63 Conn. 198,. 26 Atl. 874, 28 Atl. 101, 21 L. R. A. 112; La Marchant v. Moore, 150 N. Y. 209, 44 N. E. 770; Markham v. Jaudon, 41 N. Y. 235. Thus, if defendants had become insolvent at any time, plaintiff could only acquire this particular stock by paying for it again in large part; besides which, of course, the selling brokers had the right, at any time when, by fluctuations in the price of the stock, the market value was reduced to the amount of the unpaid purchase price, to sell the-stock completely and cut plaintiff off from all rights therein.
It seems to us very clear that an agent directed and authorized to acquire a clear and complete title to property, with money placed in his hands for the purpose, does not in any respect execute his authority by acquiring such a fragmentary, imperfect, and perilous right therein as this. We deem it clear that had plaintiff, after the transaction, been notified of its details, he could have ignored it completely, revoked his order, and demanded return of his $12,800. When he was prevented from enjoying or exercising that right by the fraudulent misrepresentations of the defendants, he could not be prejudiced therein as against them. He had the right at all times to the refund of his money. By fraud of the defendants he was prevented from knowing of or exercising that right. As a result it must be deemed that, until the agent's authority was executed by the actual acquirement of full title to the stock for him, the defendants were in possession of plaintiff's money under, authority to purchase the specified stock at the best price obtainable. When on Eebruary 18th they did so acquire the stock, they for the first time executed plaintiff's order. At that time the market value of the stock for which they could have obtained it was $1,100 less than the sum which plaintiff had placed in their hands. They had no right to purchase at more than the market price or to turn over stock already held by them. The only logical conclusion is that defendants have in their hands that amount of plaintiff's money which they did not need to expend and which it is their duty to return to him and which he has a right to recover in an action against them.
It is suggested, with much force, that the same liability must result from another view of the transaction, namely: It being defendants' duty to purchase this stock for plaintiff and hold it as his, if their dealing with the other broker was a purchase for plaintiff, as contended by the appellants, and did vest title in him, then it was a misappropriation of his property when the defendants placed it with the selling broker to hold in pledge for their debts. It was an effective disposal of the stock by the defendants so that plaintiff was in effect deprived of it. Under such circumstances it has uniformly been held that the guilty agent is liable for the market price of the stock on the day that he so unlawfully disposed, of it, and that he cannot tender after-acquired stock in discharge of such liability; at most, that the newly acquired stock can be delivered only in mitigation of damages to the extent of its market price at the time of delivery to the principal. 1 Dos Passos, Stock Brokers (2d ed.) 258, 276; Taussig v. Hart, 58 N. Y. 425; Langton v. Waite, L. R. 6 Eq. 165; 28 Am. & Eng. Ency. of Law (2d ed.) 734.
In view of the opinion we have already expressed, that the margin purchase by defendants through another broker was not a purchase for the plaintiff, we need not decide as to the efficacy of the last-stated line of reasoning. It seems, however, to be well supported by authority and to result in a liability if the defendants' contention was sustained that the stock became the plaintiff's at the time of the original transaction.
By the Court. — Order overruling demurrer is affirmed.