Case Name: MAYER et al. v. MONZO
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1912-07-11
Citations: 137 N.Y.S. 616
Docket Number: 
Parties: MAYER et al. v. MONZO.
Judges: 
Reporter: West's New York Supplement
Volume: 137
Pages: 616–627

Head Matter:
(151 App. Div. 866.)
MAYER et al. v. MONZO.
(Supreme Court, Appellate Division, First Department.
July 11, 1912.)
1. Pleading (§ 262*)—Trial Amendment—New or Different Defenses of Counterclaim.
Where the answer, in a stockbroker’s action to recover the balance of an account, set up a counterclaim for a conversion alleged to have consisted in permitting the defendant’s stock to be sold by banks and other institutions with which it had been pledged by plaintiff, a trial amendment, alleging the conversion to have taken place when the stocks were pledged, and to have consisted of the fact that they were commingled with other securities, and that such securities were pledged for a sum in excess "of that which defendant then owed plaintiff, was inconsistent with the counterclaim originally pleaded, and should not have been allowed.
[Ed. Note.—Eor other cases, see Pleading, Cent. Dig. § 801; Dec. Dig. § 262.*]
2. Brokers <§ 24*)—Liabilities—Purchases of Stock on Margin—Conversion.
A broker, who buys stocks for a customer on a margin, is entitled to pledge the stock for the balance due on the purchase price, and his whole duty to his customer is either to have the stocks on hand or under his control, and there is a conversion only upon refusal of the customer’s demand for his stock with a tender of the balance due thereon.
[Ed. Note.—Eor other cases, see Brokers, Cent. Dig. § 19; Dec. Dig. § 24.*]
3. Brokers (§ 37*)—Action—Counterclaim for Wrongful Acts—Sufficiency.
A counterclaim, in a stockbroker’s action to. recover the balance of an account claiming damages for conversion of stock, which does not show that defendant .ever demanded his stock and offered to pay the balance of the amount due thereon, nor that if he had done so the broker had placed himself in such' a position that he could not have repossessed himself of the stock and made delivery, stated no cause of action.
[Ed. Note.—Eor other cases, see Brokers, Cent. Dig. §§ 31-36; Dec. Dig. § 37.*]
Clarke, J., dissenting.
Appeal from Trial Term, New York County.
Action by Marcus Mayer and others against Angelo R. Monzo. From a judgment directed by the court in favor of the" defendant upon his counterclaim for $43,623.81 in an action by stockbrokers to recover the balance of an account, and dismissing the complaint, and from an order denying a new trial, plaintiffs appeal. Judgment and order reversed, and new trial ordered.
•For other cases see same top. c & § number in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes
See, also, 134 App. Div. 961, 119 N. Y. Supp. 512.
Argued before INGRAHAM, P. J., and McLAUGHLIN, LAUGHLIN, CLARKE, and SCOTT, JJ.
Colby & Goldbeck, of New York City (David Leventritt, of New York City, of counsel, and William F. Goldbeck, of New York City, on the brief), for appellants.
Sumner & Perry (Herbert C. Smyth, of New York City, of counsel, and Roderic Wellman, of New York City, on the brief), for respondent.

Opinion:
SCOTT, J.
I dó not think that this judgment can be sustained. The facts have been so carefully and exhaustively stated'by Mr. Justice CLARKE, that it is unnecessary to restate them.
The counterclaim upon which the defendant has recovered was a claim for damages for conversion of stocks, and, as the pleadings stood when judgment was rendered, the defendant relied upon two inconsistent allegations of conversion, one committed on October 22, 1907, and one committed prior thereto. As the answer was originally drawn, the conversion is stated as having taken place October 22d, and to have consisted in permitting the stocks to be sold by banks and other institutions with whom plaintiffs had pledged them. By the amendment, allowed at the trial, the conversion is alleged to have taken place when the stocks were pledged and to have consisted of the fact that they were commingled with other securities; the commingled securities being so pledged for a sum in excess of that which defendant then owed plaintiff.
I think, in the first place, that this amendment was one which should not have been allowed at the trial, for it introduced an entirely new and different cause of action; alleging as the ground for recovery an entirely distinct tort from that which was originally alleged. Passing that objection, however, it is manifest that the cause of action set forth in the amendment was inconsistent with that originally pleaded, for if plaintiffs converted defendant's stocks prior to October 22, 1907, there could have been no conversion on that date, as there was nothing left to convert.
That it is a conversion ipso facto to commingle stocks belonging to different customers and to obtain a loan on all, in excess of the amount due from any one of the customers whose stocks are thus commingled, I do not concede. It is settled that a broker who buys stocks for a customer upon margin, and to whom the customer still owes a part of the purchase price, is entitled to pledge the stocks so bought for so much of the purchase price as his customer still owes. The broker's whole duty to his customer, under such circumstances, is either to have on hand or under his control the stocks which he is carying for his customer; but he is not required to do both—that is, to have the amount of stocks under control and also an equal amount on hand. The customer's right to receive his securities accrues, under such circumstances, only when he tenders the amount he still owes and demands his stock. The refusal of such a demand constitutes the conversion. If the broker has the stock under his control (even if it be pledged), and can resume possession by paying the amount borrowed thereon, not exceeding the amount which the customer owes on account of the purchase, there has been no conversion.
It does not appear that defendant ever demanded his stock and offered to pay the amount which he owed, nor does it appear that, if he had done so, plaintiffs had- placed themselves in such a position that they could not have repossessed themselves of the stock, and made delivery. I am therefore of opinion that no cause of action was made out under the amendment to the answer.
As the reasoning in favor of the affirmance of this judgment rests wholly, or at least principally, upon what I deem to be the erroneous conclusion that the original hypothecation of the stocks was illegal and itself constituted a conversion, it seems to. be unnecessary to discuss the separate charge of conversion contained in the answer as originally drawn.
The judgment and order appealed from should be reversed, and a new trial granted, with costs to appellant to abide the event.
INGRAHAM, P. J., and McLAUGHLIN and LAUGHLIN, JJ., concur.