Court Opinion

ID: 3300420
Source: CourtListenerOpinion
Date Created: 2016-07-05 17:16:52.221694+00
Date Added: 2024-06-11T12:19:44.678797
License: Public Domain

I dissent.
It seems to be conceded, and it could hardly be denied, that the specialist, although an officer of the exchange, acts in the capacity of agent of the brokers who deal in the stocks which he handles; and the broker would ordinarily be liable to the customer for negligence or wilful breach of duty on *Page 629 
the part of the specialist. (See Murphy v. Bishop, 182 App. Div. 805
[170 N.Y. Supp. 342]; Meyer, Stock Brokers and Stock Exchanges, p. 487.) It is true that the defendant entered into an express agreement to be bound by all rules, regulations and customs of the exchange, but a study of the record reveals no custom and no rule to support the finding of the trial court. Indeed, plaintiff admits that no custom exists, not only because of the lack of any positive evidence to that effect, but because the particular situation which existed was without precedent in the San Francisco Stock Exchange, and no custom could possibly have become established. Plaintiff's theory is that the finding is an interpretation of the rules themselves, and that this interpretation is compelled by the necessities of the post-trading system. It is said that the purpose of a suspension of trading is to permit the specialist to make up his book, and that it is essential that this operation be undisturbed. If a new order to buy or sell were forced upon him, his figures would have to be changed, and his computation of a new opening price would be delayed. Exactly the same result would follow, it is contended, by forcing him to accept a cancellation; and the testimony of the specialist is to this effect. But I see no reason for holding that a heavy loss should be borne by a client of a broker because the brokers operating on the exchange have adopted a system which becomes unworkable in an emergency. If the system requires, at the discretion of the specialist, a power to disregard the directions of a client, it is essential that this power be provided by express rule, so that the client may know in advance of the existence of this extraordinary modification of the usual principles of the law of agency. Of course, it is settled that the customer normally has the right to cancel any unexecuted order. (Wahl v. Tracy, 139 Wis. 668
[121 N.W. 660]; Meyer, Stock Brokers and Stock Exchanges, p. 273.) In short, I cannot accept the proposition that the rule contended for must exist because the exchange could not function effectively without it. Our sole inquiry is as to whether such a rule was actually made and became part of the contract of defendant with his brokers. The answer to this inquiry necessitates the application of the ordinary doctrines governing the interpretation of contracts. *Page 630 
There are four rules of the exchange covering the powers of the specialist which are considered by plaintiff to be relevant in this connection. One provides that "all orders . . . must be in the hands of the specialist ten minutes prior to an opening to participate therein". Another provides: "The presentation ofcancellation of orders to the specialist during the five-minute period prior to an opening is subject to the same rules and limitations to which buying and selling orders are subject when presented to the specialist during that period." A third gives the specialist "the right to suspend trading in an emergency"; and a fourth provides that the specialist "may refuse to acceptorders in an emergency". The term "trading" is not defined in the rules, but it can hardly be deemed to include cancellations of orders, the very opposite of trading. The particular ground upon which the lower court seems to have proceeded was that the term "orders" in the fourth rule included "cancellations", and it is upon this rule that plaintiff chiefly relies.
The difficulty with this view is that the very rules which are being interpreted use the terms in a specific and not a general sense, and they distinguish clearly between orders and cancellations. The "five-minute" rule, above quoted, expressly provides that "cancellations of orders" are, under the particular conditions set forth, subject to the same rules and limitations as "buying and selling orders". Nothing could more clearly indicate an understanding of the terms as being distinct and different in their meaning. No reasonable person, reading the rules, and observing this special use of each term, could have any doubt of this intended meaning. Moreover, to refuse to accept an order to buy or sell during a suspension means to delay it until the suspension is over, and to deprive the customer of the benefit of the opening price. Ultimately it is executed and the customer merely loses the advantages which an earlier execution might have given him. But to refuse a cancellation is to act contrary to the customer's directions, and to execute an order which has been revoked. This fundamental difference in their legal effect removes all logical ground for considering that "cancellation" is included within the meaning of "order". But even if it were conceded that there still is uncertainty as to the meaning of the term "orders", *Page 631 
which calls for its construction, it does not follow that the construction must be determined by the alleged necessities of the exchange. The rules were drafted by the members of the exchange, representing all the brokers who did business there, and an ambiguity, if any exists, must be resolved against the brokers. "The language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist . . ." (Cal. Civ. Code, sec. 1654; see Robert Marsh  Co. v.Tremper, 210 Cal. 572 [292 P. 950]; Klapp v. Bache, 135 Misc. Rep. 508 [239 N.Y. Supp. 129]; 6 Cal. Jur. 307; 13 C.J. 544, sec. 516.)
The other ground upon which defendant attacks the judgment is that the broker was guilty of a breach of duty in failing to notify the defendant of the refusal of the specialist to accept the cancellation until about one hour had elapsed. It appears that the defendant was in the offices of the brokers throughout this entire period, and that he continuously requested a report on his cancellation. The explanation offered by the broker is that an unusual volume of business had caused them to utilize their wires almost exclusively for new orders, and that they were too busy with the orders to handle such reports. This is, in effect, to say that the opportunity to accept new and profitable business constitutes a justification for rendering poor service to customers whose business was already undertaken. Unwarranted delay in reporting the status of a customer's orders constitutes a breach of the obligation assumed by the broker, and there can be no doubt, from the explanation given by the brokers, that this delay was unwarranted. The contention that it worked no injury to defendant is absurd on its face. Had he been aware of the circumstances he might have accomplished something in the nature of a cancellation by placing a sell order to offset his buy order; and though he would not have secured the opening price, the order would probably have been executed at a figure near that price.
My conclusion is that the cancellation directed by defendant should have been given effect by the specialist, and that for his unwarranted refusal the broker is responsible as his principal. I am also of the view that the failure of the broker to report promptly to the defendant the fact of this refusal was a breach of the contractual obligations assumed toward him. On both of these grounds defendant was justified *Page 632 
in denying liability for the loss suffered through the executed order to buy. The judgment of the lower court should have been reversed.
Curtis, J., and Seawell, J., concurred.
Rehearing denied.
Seawell, J., Curtis, J., and Langdon, J., dissented.