Court Opinion

ID: 5235872
Source: CourtListenerOpinion
Date Created: 2022-01-06 17:08:58.067488+00
Date Added: 2024-06-11T08:27:43.639725
License: Public Domain

Ingraham, P. J. (dissenting):
I concur with my brother Scott except as to the two transactions in which defendant gave orders to sell stock theretofore *170purchased on his account, but of which plaintiffs themselves became the purchasers. It is conceded that this was a speculative account whereby plaintiffs purchased stock for defendant not as an investment, but as speculation, defendant furnishing a small amount as margin and plaintiffs furnishing the balance of the purchase money. The speculation having proved unsuccessful, defendant gave plaintiffs orders to sell this stock, which plaintiffs undertook to carry out, but instead of actually selling the. stock on defendant’s account they purchased it themselves, and in their report of the sale to defendant, plaintiffs stated facts from which a person examining the report could have ascertained that plaintiffs themselves were the purchasers. The defendant . testified in substance that he did not critically examine this report, and the fact that plaintiffs became the purchasers was not called to his attention until after the commencement of the action and an examination of plaintiffs’ books disclosed that fact. This examination was in 1910, some three years after the transaction in question. He then tendered to plaintiffs the amount that the plaintiffs had reported that they had sold the stock for, and demanded the stock, and treated the refusal of such demand as conversion, and claimed and has been allowed to recover the market price at the time of such conversion. The question of whether this was a proper measure of damages is thus presented. In a speculation of this character the courts of this State have settled the rule as to the measure of damages in an action of this character. It did not appear in this action what plaintiffs did with the stock after it was purchased by them, and there is no evidence that plaintiffs retained the stock down to the time the demand was made, or for any period after the transaction in question, or realized any profit out of the purchase of the stock. Baker v. Drake (53 N. Y. 211) presented a case where brokers carrying stock on such a speculation had sold their customer’s stock without authority from the customer. The plaintiff recovered in the trial court on the ground that an unauthorized sale is a conversion, and the measure of damages was the difference between the price of the stock at the time of the sale and the highest market price down to the time of the trial. The Court of Appeals, *171in speaking of that recovery, said: “This enormous amount of profit, given under the name of damages, could not have been arrived at except upon the unreasonable supposition, unsupported by any evidence, that the plaintiff would not only have supplied the necessary margin and caused the stock to be carried through all its fluctuations until it reached its highest point, but that he would have been so fortunate as to seize upon that precise moment to sell. * * * The plaintiff did not hold the stocks as an investment, hut the object of the transaction was to have the chance of realizing a profit by them sale. He had not paid for them. The defendants had supplied all the capital embarked in the speculation, except the comparatively trifling sum which remained in their hands as margin. Assuming that the sale was in violation of the rights of the plaintiff, what was the extent of the injury inflicted upon him ? He was deprived of the chance of a subsequent rise in price. But this was accompanied with the corresponding chance of a decline, or, in case of a rise, of his not availing himself of it at the proper moment; a continuance of the speculation also required him to supply further margin, and involved a risk of ultimate loss. * * * If the stocks had been paid for and owned by the plaintiff, different considerations would arise, but it must he borne in mind that we are treating of a speculation carried on with the capital of the broker, and not of the customer. If the broker has violated his contract, or disposed of the stock without authority, the customer is entitled to recover such damages as would naturally be sustained in restoring himself to the position of which he has been deprived. He certainly has no right to be placed in a better position than he would be in if the wrong had not been done. "x" * * It may he as well to remark here as anywhere, that the rule of damages should not depend upon the form of the action. In civil actions the law awards to the party injured a just indemnity for the wrong which has been done him, and no more, whether the action be in contract or tort; except in those special cases where punitory damages are allowed, the inquiry must always be, what is an adequate indemnity to the party injured, and the answer to that inquiry cannot be affected by the form of the action in which he seeks his *172remedy.” And Baker v. Drake (53 N. Y. 211) seems to have been followed in all the courts of this State as a correct statement of the rule of damages, whether for breach of contract or in tort. The principle of that case was applied by the Supreme Court of the United States in Galigher v. Jones (129 U. S. 193). In discussing the question of the measure of damages in cases of stock held for the customer under such circumstances the court, after stating the common-law rule, said that the courts of the State of New York had introduced a material modification in the form of the rule so as to hold the true and just measure of damages in such cases to be the highest intermediate value between the time of its conversion and a reasonable time after the owner has received notice of it to enable him to replace the stock, and that this modification of the rule was very ably enforced in an opinion of the Court of Appeals delivered by Judge Eapallo in the case of Baker v. Drake (supra), and that on the whole it seemed to the Supreme Court of the United States that the New York rule, as finally settled by the Court of Appeals, has the most reasons in its favor, and that court adopted it as the correct view of the law. Now, it seems to me that, applying the rule as to damages thus established, the defendant could not claim as his damages from this unauthorized act of the plaintiffs in acquiring this stock for themselves, instead of selling it in the open market, the market price of the stock at the time he claims to have discovered the facts, which was some three years after the transaction. The defendant was conducting a speculation, he had purchased this stock not as an investment, but for the purpose of making profit by the sale of the stock at an increased value; he never intended to pay for the stock, never intended to acquire its complete title, but the stock was paid for by the plaintiffs and held by them as security for the amount that they had advanced toward its purchase. Defendant had desired to terminate that speculation and had given orders to the plaintiffs to sell at the market, and it was then the plaintiffs’ duty to sell the stock in the market at the best price they could obtain for it. Now this duty they violated by purchasing the stock for themselves. It is clear from this evidence there was no intention to defraud defendant by this *173transaction. There is no question but that had they sold this stock in the market they would not have been able to obtain any higher price than that fixed by them. There was no attempt to conceal these facts, for in the notice to defendant plaintiffs had stated facts from which any one familiar with such transactions, as defendant was, would have seen that they had purchased the stock themselves. There is an entire absence of any attempt at deceit or fraud, and there is no evidence that within a reasonable time after the transaction the price of the stock advanced, or that the plaintiffs themselves subsequently received any higher price for the stock. The case shows plainly, I think, that the defendant suffered no real damages from the fact that plaintiffs took the stock themselves rather than actually selling it in the market. The price of the stock afterward declined, and it was a long time afterward that the stock sold at a higher price than that at which defendant was credited. Now this is concededly not á case for punitive damages, and that these plaintiffs should be compelled to pay this large sum of money, as represented by the advance in the price of this stock years afterward, it seems to me could only be sustained on the ground that the plaintiffs should be punished for this infraction of their duty in taking this stock themselves instead of selling it in the open market. If the defendant is to be given only the actual loss which he sustained in consequence of this violation of duty by the plaintiffs, it seems to me apparent from this record that there can be no substantial recovery, for the defendant has sustained no actual damages. He desired to close out the transaction and ordered the plaintiffs to sell his stock, and plaintiffs undertook to sell it. They violated their duty to the defendant by taking it themselves, and for any damages that defendant sustained in consequence of that violation of duty defendant is entitled to recover, but it seems to me established that he suffered no damage, for as before stated "the value of the stock subsequently declined, and there can be certainly no assumption that he would continue to speculate if he had appreciated, as he says he did not, that the plaintiffs had purchased the stock themselves rather than selling it in the open market. If there had been evidence that the plaintiffs subsequently sold *174the stock at a profit, defendant could have undoubtedly ratified that sale and obtained credit for the amount that plaintiffs subsequently sold at, or if the stock had increased in value within a reasonable time after the transaction it may be assumed that defendant would be entitled to the increased price, but to say that these plaintiffs should be held responsible for the price of the stock three years afterward when it had substantially increased in value, and when there is no evidence that defendant would have continued to speculate, or that there was the slightest injury to him because plaintiffs took the stock themselves instead of selling in the open market, seems to me to violate the rule established in this State in the case of Baker v. Drake (supra) and the cases that followed it.
Two cases are cited in the prevailing opinion, neither of which, I think, is controlling. In Evans v. Wrenn (93 App. Div. 346; affd., 181 N. Y. 566) plaintiff sued stockbrokers, claiming to recover damages for failure of their duty in regard to a speculative account. The case was tried before a referee, who wrote an opinion in which he allowed to the plaintiff the difference between the value of the stock and the amount credited in the account on one hundred shares of stock sold by Belden to himself. The dates are not given in the case, but as plaintiff disaffirmed the sale made by Belden to himself on June 6, 1901, and on that day the stock sold at 173, the referee found plaintiff entitled to be credited with the value of the stock at that price. There was no objection by the defendants to this credit and they did not appeal from the judgment. Plaintiff, however, appealed because the referee disallowed him certain sums he claimed, and the case was affirmed in this court on opinion of the referee, and in the Court of Appeals in 181 Mew York, 566, without opinion. Mo question was, however, presented as to the correctness of the referee’s ruling, and the dates in the opinion are not sufficient to say that it was error or that -the proof did not show that the plaintiff sustained the damages awarded by the referee. The other case relied on is Brookman v. Rothschild (3 Sim. 153, 224; affirmed by the House of Lords in 5 Bligh [N. S.], 165). That case has been criticised in England and it has not been followed as authority for allowing such recovery as this. But *175whatever may be the law in England on this question, I think that the rule in this State is now well settled as I before indicated, and that we are bound to follow the law as settled by the Court of Appeals and the Supreme Court of the United States rather than the decision of the House of Lords.
My conclusion, therefore, is that this judgment should be modified by striking out the recovery allowed to the defendant on account of these two sales of stock which the plaintiffs purchased, and as thus modified affirmed.
Judgment affirmed, with costs.