Court Opinion

ID: 4496838
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:15:06.215165+00
Date Added: 2024-06-11T15:04:04.047066
License: Public Domain

Arundell,
dissenting: The majority holding of a short sale is based on the negative proposition that the facts do not show that the acts of Ellis and the brokers were not within the authority granted by the petitioner and that their records are not genuine and correct. Stated otherwise, the holding is predicated on a presumption of authority in Ellis and the brokerage firm to act as principal and of *1330entries in accordance with such authority. Against this is the presumption that the brokers were acting as agents. A broker in securities to whom an order to buy or sell is entrusted may not, without the full knowledge and consent of his customer, sell to or buy from himself. Meyer, Law of Stockbrokers and Stock Exchanges, § 51 and cases cited therein. The rules of New York Stock Exchange, with limited exceptions that do not apply here, prohibit a member while acting as a broker from buying or selling for his own account securities for which he or his firm has accepted an order to buy or sell. Ch. XI of the rules of the stock exchange. The effect of the holding in this case is to say that the brokerage firm violated the rules of the exchange, and this I think we should hesitate to do without clear evidence of the fact.
I realize fully that a short sale may be made by one who actually owns securities of the kind he sells. Francis Bartow Farr, Executrix, 33 B. T. A. 557, 561. But a sale of the same kind of securities is not the same as a sale of the specific securities. The latter isi a long sale, even though delivery of the certificates is temporarily delayed. Dee Furey Mott, 35 B. T. A. 195; Ruml v. Commissioner, 83 Fed. (2d) 257. Here, as I understand the facts, the petitioner owned 90,000 shares of duPont stock, the certificates for which were held by a bank as security for a loan. The petitioner contracted to sell 62,500 of those shares to the Christiana Securities Co. for cash.
The course of dealings establishes quite clearly that the shares in the hands of the bank, and not some other shares, were the subject of the contract to sell. The bank was demanding either additional collateral or a reduction of the loan, and petitioner arranged to take up 62,500 shares from the bank upon payment of $2,000,000 which he was to receive from the Christiana Securities Co. He did not arrange with the Christiana Securities Co. to sell it other duPont shares, nor did he contract with any one else to sell the shares held by the bank. It seems to me that this is the only possible conclusion on the facts given in the majority opinion; indeed the majority opinion does not hold otherwise. When petitioner had made the contract his agent carried it out by delivering duPont stock and collecting the sale price agreed upon between the seller and the buyer. This, it seems to me, was an ordinary sale within the rules of the Mott case, supra, and its character was not changed by reason of book entries made by the agent. It is not without significance that all of the transactions within the taxable year shown on the books of Laird, Bissell & Meeds as short sales, except the one here in question, were actually put through as short sales on the floor of the Stock Exchange in the ordinary course of business. This difference in procedure indicates that no short sale was made or intended in *1331connection with tbe shares purchased by the Christiana Securities Co. and leads to the conclusion that the brokers had no intention of buying any stock on their own account, but merely effected delivery to the Christiana Securities Co. of stock sold to that company by the petitioner. Intent to pass title is one of the governing factors in question concerning sales of specific goods. Dee Furey Mott, supra. Petitioner intended and contracted to sell his specific shares to the Christiana Securities Co. I think the majority opinion errs in disregarding the agreement of sale between the petitioner and the Christiana Securities Co. and in putting the decision on the records of the agent.
TurNer and Arnold agree with this dissent.