Court Opinion

ID: 3588828
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:38:01.851329+00
Date Added: 2024-06-11T07:42:00.326575
License: Public Domain

On the trial of this action, the case was submitted to the jury upon the distinct assumption that, as matter of law, the transaction between the plaintiff and defendants constituted between them the relation of pledgor and pledgees, the defendants holding the stock in question, as the plaintiff's property, as security for their advances. And as a consequence of this theory, their sale of the stock without notice to the plaintiff of the time and place of sale, was held a tortious conversion of the plaintiff's property, entitling him to recover the highest value of the stock after such sale. Although the instructions to the jury contained observations upon other points, the substance of the charge was equivalent to a peremptory instruction to find for the plaintiff the full amount claimed (viz., such highest price), since there was no pretense or claim that the defendants gave the plaintiff any such notice.
On the trial, the defendants had offered evidence of an old and well established custom, which authorized persons standing in the relation of the defendants to the plaintiff, to sell out the stocks on the exhaustion of the marginal security, and also to prove that the contract, as testified by the defendant to have been made between the plaintiff and the defendants, is the usual and customary one between brokers and their customers. Such evidence was rejected.
The first, and, doubtless, the most important questions in the case are, whether the court can, upon the proofs, declare *Page 253 
the precise nature and legal effect of the contract between these parties; and if so, was it a contract creating the relation of pledgor and pledgee?
Taking the plaintiff's own account of the transaction. He "ordered the stock purchased" by the defendants; "they were to carry it until he felt disposed to sell it;" "the stock was bought in the usual way, on a margin, put up in their hands for the purpose of carrying the stock;" "they were to furnish the money it takes to buy the stock."
It is entirely obvious that this statement furnishes a very imperfect account of the transaction, and small means of ascertaining its legal effect.
What is a purchase in the usual way on a margin? Without proof of the usages of the business in which the parties are engaged, how shall it be known?
What is "carrying stock" in its connection with such a transaction? Is the word "carry" synonymous with keep or hold; without proof of the usages of that business, who shall say?
Does an agreement to carry stock for another until he is disposed to sell it, import what its terms seem to indicate, an unqualified obligation to make the advance for the purchase of the stock, and continue such advance for years, or for a lifetime, without any right in the purchaser to close the transaction and receive back his money?
What, according to the understanding and intent of the parties, is the real contract indicated by the use of these technical terms?
In my judgment, that mutual understanding and intent is to be gathered from the usages and customs well known and established in the business.
For illustration of the use of such technical expressions, in the terms of which very large and important contracts are made, and yet which are quite unintelligible to the ordinary mind, and indeed to all, except those who are familiar with those usages and customs, and the peculiar meaning, by such usage and custom, those terms acquire, *Page 254 
another example may be readily selected from the transactions of dealers in stocks on speculation, viz.: A, for $500 sells to B a "part" of 600 shares of a specified stock at ninety per cent for sixty days. Will the court undertake to say what that means? Can they judicially expound that contract and declare what was the understanding and intent of the parties, and then what was its legal effect? I think not.
I find the like difficulty in the interpretation and legal effect of an agreement to buy stock on a margin in the usual way, and to carry the same on such margin. Usage and custom is not admissible to control the settled legal force and effect of a contract that is not ambiguous, nor couched in terms of technical, doubtful or unsettled meaning. But usage and custom gives meaning to terms that to one, who is ignorant of the usage, are wholly novel or even unintelligible. It is quite certain that a short phrase of few words, given as a direction to the broker, may have to him, and may be intended to have to him, a meaning so comprehensive as to require a a page to write it out in detail.
In such case, evidence of usage and custom is received, not for the purpose of varying and altering a contract, or overriding rules of law prescribing its effect, but for the purpose of ascertaining and settling what the contract was; what, in point of fact, was the mutual understanding and intent of the parties.
Again, the defendant testified to many details embraced in the arrangement with the plaintiff, in which he was contradicted by the plaintiff; as that the plaintiff was to see to it, that his marginal security was kept good, by which I understand to be meant, so that the market value of the stock, with the margin, should always exceed the cost of the stock by at least ten per cent of the par value. That if the plaintiff suffered the defendants' security to be below that amount (by reason of a fall in the market), the defendants were at liberty to sell the stock at the broker's board immediately, without notice, and some other details.
The judge, in his charge, submitted to the jury the question, *Page 255 
whether such an arrangement as the defendant had testified to was probable, as a test of the credibility of his testimony, and yet he rejected evidence that just such a contract as the defendant had testified to, was the usual and customary one between brokers and their customers.
If a witness testifies to a transaction which is unusual and extraordinary, one which is at variance with the experience and habits of daily life, it is undoubtedly a ground of suspicion of his accuracy. And on the other hand, if his testimony accords with the general observation and experience of mankind in like circumstances, no jury will hesitate in their judgment of its probable truth.
Now, here, if the transaction described by the witness was in precise conformity to transactions made daily and hourly, to immense amounts in the business of stock dealing, the defendants, when pressed by the test of credibility presented by the judge to the jury, were entitled to the benefit of that fact.
On the main question, viz., whether an agreement by a stock dealer to furnish the means, buy, carry and sell stock for the account of a customer or to profit and loss, creates between them the relation of pawnor and pawnee, I have expressed myself at some length in Morgan v. These Defendants, decided at this present term.
Apart from what I have said to the effect that what such an agreement imports, as to the understanding and intent of the parties, is a question of fact, to be proved by evidence, I am clearly of opinion, that the court cannot say that it imports that the stock purchased shall become and be the property of the customer, and be held by the broker in pledge or pawn, subject to the incidents of such a view of their relations.
If constrained to give an interpretation to the arrangement, without the aid of proof of what is the uniform and customary understanding of those engaged in the business, I am compelled to use the knowledge which observation furnishes, and say that the construction above suggested, and which governed *Page 256 
the present trial, seems to me to be wholly unwarranted by the nature of the transaction and the language of employment, even as detailed by the plaintiff.
In the first place, the stock dealer who is employed, though called a stock broker, does not act as broker in this transaction. It is no part of the office or duty of a broker to pay the price. It is no part of the office or right of a broker to receive the property, still less to take the title to his own name. In this transaction he acts in a peculiar business, in his own name and on his own responsibility, protected against loss by the indemnity furnished, or by the agreement to be furnished to him.
The idea of mere agency, ordinarily suggested by the name broker, does not therefore arise out of the fact that the dealers in stocks for account of others, as to profit and loss, are called stock brokers.
In the next place, the transaction, according to the intent and purpose of the employment of the broker, does not contemplate that the customer will ever receive the stock or own it. It may be, that if the broker desires to close his connection with the transaction, the customer, if he pays the cost, interest and all commissions which the broker has earned or is entitled to earn, will receive the stock, whether he may so insist or not, is a collateral question; and if he be so entitled, it will nevertheless be true, that this is not in pursuance of the arrangement, but a departure from it, for the intent is that the stock shall be carried by the broker until directed to be sold, the customer never having the title to the stock at all.
And finally, in my opinion, the transaction is an executory agreement for a pure speculation in the rise and fall of stock, which the broker, on condition of perfect indemnity against loss, agrees to carry through in his own name and on his own means or credit, accounting to his customer for the profits, if any, and holding him responsible for the loss.
If the customer performs the conditions on his part, and the broker violates the agreement, the latter is responsible for the damages which the customer sustains thereby. And *Page 257 
on the other hand, if the conditions are not performed by the customer, the broker is absolved from any obligation to carry the stock longer for his benefit.
Whether the broker should give the customer notice of the fall in the market, which requires the latter to increase his marginal security, it does not seem to me necessary, in this case, to decide. That depends on the true intent and understanding of the parties, imported by the agreement, and the usages and customs in reference to which it is made. But in the case before us, the proof was given by the defendants, that by two written notices, the plaintiff was called upon to increase such security. That the office, at which they were left, was the plaintiff's place of business in the city, and where he was in the habit of receiving his letters, he himself testified. If there was any doubt on this point, it was withdrawn from the jury by the instruction that it availed nothing, since no notice of the time and place of sale by the defendants was given.
On that subject, the sale in the mode contemplated by the parties, when they entered into the transaction, the mode in which the speculation was to be carried out was the proper mode; and no such notice of the time and place of sale is consistent with the nature of the transaction. The whole was begun and carried on with reference to the customary manner in which sales in such speculations are made, and in that mode, it was intended the transaction should be closed, whenever it was closed, whether by a sale by direction of the customer, or a sale rendered lawful and proper by his default.
And once more, as to the rule of damages, if it were true that the defendants are in default. In that view, they have broken their agreement to carry the stock, so as to give the plaintiff further chance of profit. What then is his position? The title to the stock was not in him, but only such chance of profit. He had not paid for the stock. He has sustained nominal damages only, for he can buy the stock in the market, if he wishes to continue the adventure. It is not the case of one, who has bought and paid for stock to be delivered in the *Page 258 
future. It is not the case of one whose money is already invested in stock which another has tortiously converted. These two cases are supposed to furnish reasons why a party so situated should recover the highest value of the stock down to some indefinite reasonable time after the conversion or breach. Without commenting upon the cases which so hold, and which are very ably and sensibly criticised in the note to this subject in Sedgwick on Damages (4th edition, pp. 554, 560), where the authorities are largely collected and reviewed, it must suffice to say, that the attempt here made is to extend the rule further than ever before, and to a new class of cases.
If there be any analogy, it is rather in the case of a purchaser of personal property not paid for, who, having the money, can buy it at its market price whenever the vendor makes default.
On these various grounds, I think the judgment was properly reversed, and the order granting a new trial should be affirmed.
MURRAY, MASON, LOTT, JAMES and DANIELS, JJ., concurred with HUNT, Ch. J., for reversal.
Order reversed, and judgment for the plaintiff on the verdict. *Page 259