Court Opinion

ID: 5207156
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:04:51.656964+00
Date Added: 2024-06-11T08:27:18.553237
License: Public Domain

Gaynor, J. (dissenting):
This case has been here twice before (107 App. Div. 265 ; 118 id. 10), but it must now be decided on the present record, and on questions which have not heretofore been disposed of. It should have been dismissed on the last trial. It needs to be reduced to precision.
Tiie plaintiff is a Wall street man and an expert in stock speculation. He not only speculates in stocks himself, but induces others to do so under his tutilage and advice. Among much else of the same kind he has written a book called “ The Study and Science of Stock Speculation”, which lias already passed through its 16th edition. In it he writes of stock speculation by pools, and recurs to the subject under the heading, “ A Further Study of Pool Hethods”. Knowing all about stock pools himself, he teaches others what they are and encourages or allures them into that method of speculation.
The complaint is that on or about January 27th, 1902, the plaintiff employed the defendants as stockbrokers to purchase 1,000 shares of Southern Pacific stock for him on margin at not to exceed $60 a share, and hold and carry the same for him subject to his order for its sale or other disposition ; that the plaintiff agreed to put up money as margin to secure the defendants from loss on account of such purchase and carrying; that the defendants did purchase the said stock for the plaintiff at $60 a share, and carry the same for him, and that he put up with them $10,000 as margin ; that on or about October 17th, 1902, the market price of his said stock being $73 a share, the plaintiff directed the defendants to sell the same for him, which they failed and refused to do; wherefore the plaintiff prays judgment for $23,000, i. e., $13,000 profit on *314the stock by the rise in its price from 60 to 73, and the $10,000 held by the defendants as margin.
This is an ordinary and simple cause of action permitting only proof of the said contract, the purchase and carrying of the stock under it, the refusal to sell and the damages caused thereby. But not only was no such cause of action proved, but no attempt was made to prove it. It had to be abandoned from the outset, for there was no such transaction between the parties. Instead of an agreement to purchase and carry 1,000 shares of stock for the plaintiff and sell them out and deliver them in the market on his order at any time he chose, the plaintiff proved that through the defendants as his brokers he went into a speculative pool, composed of many people, for the purchase and sale of the said Southern Pacific stock to the extent of not less than 200,000 nor more than 400,000 shares, the profit or loss at the end and liquidation of the joint venture to be shared among the members of the pool) that the share or participation he took in such pool and pool stock was 1,000 shares on the basis of $60 a share ; and he was permitted to recover a verdict of $23,000 against the defendants on the ground that he ordered them to sell and deliver the said 1,000 shares of stock for him on the market, i. <?., on the exchange, on October 17th, when it was $73 a share, and they refused, informing him that they could not do so, for the reason that it belonged not to the plaintiff but to the pool. They could not sell it if they wanted to, for all of the stock of the pool was purchased, controlled and sold by the agent and manager of the pool only, and could be purchased or sold by no one else. The plaintiff’s brokers could no more sell the stock of the pool than he could himself.
To come from a general statement to the precise facts (for it seems necessary to state them), the plaintiff, instead of proving the - cause of action alleged in the complaint, was allowed, against the repeated objection and exception of the defendants’ counsel, to present the following case:
He testifies that one of the defendants informed him that a pool to buy Southern Pacific stock was being formed, and asked him to go into it, and he consented to take an interest of 1,000 shares in the pool on the basis of not to exceed $60 a share, which was then about the market price. This, he says, was about January 25th, 1902. On *315February 1st he signed and delivered to the defendants a letter authorizing them to subscribe the pool agreement for him as follows: “ Confirming my talk with your firm, I hereby authorize you to sign the Southern Pacific agreement, to Mr. James R. Keene as agent and manager, for 1,000 shares for my account ”. They thereupon put him in the pool for that many shares, as the regular monthly statement rendered by them to him at the end of February showed by an item of date February 6tli of his said pool interest or participation, viz., “Southern Pac. syndicate for 1,000 shares”. Each monthly statement thereafter contained this same item in the words “ Participation S. Pac. Syn. 1,000 shrs.”, until it was closed out on December 6th, 1902. The account included many other items, for the plaintiff was at the same time speculating in many stocks on margin through the defendants. The plaintiff’s counsel put the pool agreement in evidence'. It showed that the defendants subscribed it for three blocks of stock, one for 30,000 shares and two for 10,000 each, i. e., for 50,000 shares in all. Only brokers signed the agreement; all others came into the pool through them and were represented by them. The plaintiff came in by authorizing the defendants in writing to subscribe the pool agreement for him, as has already been seen. He says that at the time of signing such authorization, and after doing so, “Then I asked what the pool agreement was, and said I would like to see a copy of it. He (one of the defendants) said that it was not ready at that time, and it was only a matter of form anyway, but if I wanted to see it they would show it to me in the course of a few days”. _ "Dp to that time he says nothing had been said of the pool agreement. He says that he afterwards asked the defendants to show it to him, but they did not, and that he never saw it until after this action was brought. But this is no matter; except as it is confirmatory that there is no dispute that the plaintiff knew there was a written pool agreement, of which Keene was the agent and manager, and subscribed to it through the defendants. This is not an action for deceit for statements or concealments in respect of the pool or pool agreement, if there could be any pretense of deceit. The plaintiff did not ask to see the pool agreement before subscribing to it, or inquire as to its nature or contents; he knew perfectly well what a pool agreement was; that it bound all who went into the pool to stand or fall together in the joint venture, and *316share the final profit or loss; that no one could be in it and out of it at the same time. Such agreement was in substance that the subscribers were to purchase not less than 200,000 nor more than 400,000 shares of Southern Pacific stock, and it appointed James R. Keene sole agent and manager of the pool to make such purchases from time to time at his discretion, and to sell at his discretion at any time, the whole or any part of the stock so purchased, the joint speculation or venture to be closed up by April 1st, 1903, or sooner on the request of persons interested in it and representing 60 per cent, of the stock subscribed for; and the profits to be divided pro rata according to the interest of each one in the pool. It was also agreed therein that those in the pool should, upon demand of such agent and manager, as purchases were made from time to time by him, pay to him their pro rata share of the money paid, therefor. The plaintiff says that in the middle of October he told the defendants that he “ wanted to sell the thousand shares of stock ” (i. e., the 1,000 pool shares representing his pool interest or participation) on the market, and that they told him he had no right to do so, that he was bound by the pool agreement. On October 24th the plaintiff wrote to the defendants as follows : “ I notified you about one week since to close out my pool holdings of Sou. Pac., and that if you persisted in holding the stock you are doing so on your own responsibility and risk. I do not wish to press for a cash settlement while the pool is in its present muddled condition, but I shall expect an accounting in due course on the basis of 1,000 shares bought at or below 60 and sold between 73 and 74.”
Although the plaintiff was, therefore, u'ndisputedly in the joint venture or pool, and by this letter acknowledges that an accounting must be had to ascertain the amount that would be coming to him out of the pool, he is allowed to recover in this action, not on the basis of a pool accounting and division, but for the difference between the market price of Southern Pacific stock when he went into the pool, viz;, 60, and its market price when he asked the defendants to sell on the market for him his “ pool holdings ”, viz., 73. It remains to state precisely on what basis, or semblance of basis, this came about.
At the said conversation of the plaintiff and one of the defendants on January 25tli, when • the plaintiff concluded to go *317into the pool for 1,000 shares, he testifies that the following occurred: “ The question of selling it was discussed, if the management of the pool should appear unsatisfactory to me—I ashed him how I would stand if I wanted to sell this stock, and he said I would stand to be the same as if I bought the stock in the open market, that if I became dissatisfied with the way the pool was being conducted, or if for any other reason I desired to get out of this thousand shares, I would have the right to sell a thousand shares, or any part of the thousand, at any time I saw fit.”
This testimony does not make out the contract and cause of action alleged in the complaint. It only evidences what is evidenced at every step in the case, and stands conceded, viz., that the plaintiff was in a pool to buy and sell on speculation, instead of the individual purchaser and owner of 1,000 shares, and that such pool was of course under control and management. Other than this it only evidences a loose and indefinite statement by the defendants concerning the sale or salability of the plaintiff’s interest or shares in the pool. But if an agreement of some kind can be spelled out of it, such agreement is plainly not that alleged in the complaint.
1. The plaintiff and his brokers concededly knew that all shares of stock purchased would be that of the pool or partnership, and held and controlled by it; that the individual members of the pool could not sell and deliver pool stock — that no one could do so except the pool, i. e., through its agent or manager. How then can this testimony be understood or construed as an agreement that the. defendants should sell and deliver on the market or exchange .for the plaintiff his 1,000 shares of pool stock whenever he should so order (even if the words in and of themselves were capable of such a construction) ? It would be impossible for the defendants to do so, and the parties were not agreeing for a thing known to them to be an impossibility. The natural and possible meaning is that the defendants said to the plaintiff that if he got dissatisfied he could sell out his interest or participation in the pool, viz., of 1,000 shares. This he could legally do, of course, but not on the exchange as stocks are sold, and the purchaser thereof would have to step into his shoes in the pool. The stock could not be got out of the pool, or clear of it, unless by theft or fraud. If the defendants did so agree to so sell the interest or participation of the plaintiff, or take *318it off his hands, and broke the agreement, the contract and breach would not be that alleged in the complaint, but an entirely different one. And the measure of damages for its breach would be different. It is obvious without a word of argument that the value of such an interest or participation could not be fixed on the day of its sale and transfer by the market price of the stock on that day; the element that the stock representing such participation interest could not be sold on the exchange by the purchaser of such interest, but would have to abide the future operations and the liquidation of the pool, might make such interest unsalable, or very difficult to sell.
2. But if it were possible to take this vague evidence as making out a contract that the defendants would take the plaintiff out of the pool, and clear of the pool and all of its obligations and risks, whenever he so requested, by taking 1,000 shares of the pool stock out of the pool and clear of the pool, and selling and delivering them on the exchange (a thing impossible and known to the plaintiff to be impossible for them to do), and letting the plaintiff have the profit on them at that time, without regard to his pool associates or the future exigencies of the pool, the contract and breach would still be not that alleged in the complaint, and the measure of damages would still be different. The profit would not be the difference between the market price of the stock when the plaintiff went into the pool and such price when he went out. The pool had been meanwhile buying stock through its agent, and it may be at a higher price than that which existed when the plaintiff went in, so that the average cost would have to be struck to ascertain what the profit on each share was on that day, or whether there was any profit — which the evidence does not disclose. There certainly cannot be an agreement spelled out of this evidence that the defendants were to pay the plaintiff more than his profit in the pool, if it be taken that they did agree to take him out of the pool and give him his profit whenever he saw fit to get out. While the plaintiff voluntarily remained in the pool he would certainly have to abide the result of the pool operations. It can not be spelled out of this evidence that there was an agreement that he could remain in in order to profit by the pool operations, and then go out in case of loss and throw the loss on the defendants.
3. Finally, if it were possible for the plaintiff to get out of the *319pool the 1,000 shares representing his interest, and sell and deliver them on the exchange, and keep the profit thereon, instead of sharing it with his associates in the pool as he was legally required to do, and the defendants made a contract to help him do so, or to act for him in the doing of it, such contract in addition to not being alleged in the complaint would be void. The plaintiff concededly knew in fact, and would have to be deemed as knowing as matter of law, that he was going into a joint venture with others, and that they had to act together, and could not act individually in respect of such joint venture and its interests. This is an everyday elementary proposition. Therefore for the plaintiff to make such an agreement, all unknown to and unsanctioned by his pool associates, would be inconsistent with the pool or partnership, and a fraud upon his pool associates, bio court could recognize such an agreement. For the plaintiff to sell pool shares representing his pool interest free of the pool and keep the profits, instead of all profits being ratably divided among the pool members at the end of the joint venture, if, indeed, they did not meet a loss instead, would be recreant to and destructive of the joint venture. The two things could not exist together. The law is that in going into the pool the plaintiff engaged to be faithful to his associates and abide by the result of joint buying and selling. That is what a pool, partnership or joint venture necessarily is in law, and no one may gainsay it or act contrary to it. The plaintiff makes no pretense that he did not know this, if that could make a difference, bio secret agreement contrary to this trust obligation of the members of the pool could be valid. It would be a breach of trust and void with whomsoever made. The law did not suffer individual members of the pool to make agreements for the sale, or to procure or cause the sale, of any of the pool stock — conceding that they could in some way get it in their hands — for their own purpose or profit.
The undisputed ‘evidence is that all that was said and done, or arranged or agreed, between the parties, was of 1,000 shares of pool stock — stock bought by and for the pool — and not of 1,000 shares bought by or for the plaintiff, or that he owned. The complaint (1) is riot or such a contract or the breach thereof, and (2) if there be such a contract as the plaintiff has recovered on it is a breach of trust and void.
*320, It should be added that if this piece of evidence on which the verdict rests is probative of the contract recovered on, it is then so improbable, contradicted as it is by eveiy known fact and every honest and natural probability in the case, that the learned trial judge was right in not suffering the verdict upon it to stand.
The order should be affirmed.
Order reversed and verdict reinstated, with costs.