Opinion
September 17, 1973
Appeal from the Civil Court of the City of New York, County of New York, JOSEPH A. MACCHIA, J.
Grandefeld Goodman ( Mortimer Goodman of counsel), for appellant.
Irving Mariash, respondent in person.
Plaintiff a stock brokerage firm, commenced this action to recover $506.81 representing the damages allegedly sustained by it on its sale of certain securities ordered by defendant and not paid for. The amount sought represents the difference between $25,375 purchase price of the securities bought by plaintiff for defendant's account at defendant's request and the $24,868.19 net price received by plaintiff when it sold the securities. Defendant does not deny ordering the securities at the price claimed but asserts that the transaction was to be on a C.O.D. basis with payment to be made for the securities only on their physical delivery to defendant or his bank. Scrutiny of the record reveals no express testimony by defendant that the purchase order he placed with plaintiff was conditioned upon the transaction being consummated on a C.O.D. basis. Viewing defendant's testimony and that of plaintiff's witnesses as a whole, there appears at most to have been an understanding that plaintiff would try to accommodate defendant's request, but that failing such accommodation the transaction would simply be a regular trade. There is no basis for a finding on this record that plaintiff agreed to condition the transaction on a C.O.D. basis. Further, there was no proof of any written objection by defendant to the confirmation sent to him by plaintiff, which confirmation did not indicate any special manner of handling the sale. It is also clear that the securities purchased by plaintiff for defendant's account were delivered by plaintiff to defendant within the ambit of section 8-313 (subd. [1], par. [c]) of the Uniform Commercial Code. "The relation between the customer and the broker, after the execution of the customer's order, became one of debtor and creditor as to the amount advanced by the broker, and the commissions, and pledgor and pledgee as to the stock itself" ( Pistell, Deans Co. v. Obletz, 232 App. Div. 313, 316 [4th Dept., 1931]; 6 N.Y. Jur., Brokers, § 53). The general rule is that the title to securities purchased by a stockbroker vests immediately in the customer, whether the purchase is on margin or otherwise, notwithstanding the stock certificates are for convenience of transfer obtained by the broker in a "street name" (6 N.Y. Jur., supra). The broker under the circumstances herein had the remedy of reselling the stock and, having fully executed in connection with the defendant's purchase order, is generally regarded as making the resale as an agent for the defaulting buyer (see Mason v. Decker, 72 N.Y. 595, 599; Ann. 44 A.L.R. 358). Accordingly, the broker is entitled to recover as his damages the difference between the contract price and the net amount received on resale. In light of the Federal Reserve Board requirement of payment for shares within five days after the placement of the order (Code of Fed. Reg., tit. 12) and delivery having been made pursuant to section 8-313 (subd. [1], par. [c]) of the Uniform Commercial Code, the stockbroker on the resale of the securities on the open market is acting as agent for the defaulting purchaser and is impliedly authorized by such purchaser to make the resale for the latter's account.
Plaintiff's sale of the security on the open market at the best price obtainable was entirely proper since defendant's tender of the full purchase price was a conditional tender requiring immediate, reciprocal delivery of the shares. This is not such an offer as puts plaintiff in the position of having failed to mitigate damages. The stockbroker's commission on such resale is under these circumstances a proper charge against the defaulting purchaser.
The judgment should be reversed, with $30 costs, and judgment directed for plaintiff as prayed for in the complaint, with costs.
I concur in part and dissent in part from the decision of the majority. As there was no express testimony by defendant that his order of the securities from plaintiff was, at the time of the order, conditioned upon the transaction being consummated on a C.O.D. basis and, in view of plaintiff's denial of such an agreement, the dismissal of the complaint was improper. Further, there was no proof of any written objection by defendant to the confirmation sent to him by plaintiff. Upon the record presented, I concur in the determination that judgment be reversed and judgment directed for plaintiff.
However, the trial testimony also reveals plaintiff's failure, indeed its refusal, to mitigate damages. As the majority properly observes, "The relation between the customer and the broker, after the excution of the customer's order, became one of debtor and creditor as to the amount advanced by the broker, and the commissions, and pledgor and pledgee as to the stock itself." ( Pistell, Dean Co. v. Obletz, 232 App. Div. 313, 316 [4th Dept., 1931].) It is true that one of the remedies available to the broker-creditor upon the buyer's default in payment, is to resell the stock as an agent for the buyer and thereafter recover as damages the difference between the contract price and the net amount received on resale. It is equally true that the buyer, as pledgor, had the right "to redeem the stock from the pledge by paying his debt". ( Pistell, Deans Co. v. Obletz, supra, p. 316.) Notwithstanding defendant's failure to effect payment within the five-day period specified in Federal Reserve Board regulations, plaintiff did not resell the stock until 12 days after the due date for payment. Standing uncontradicted in the record is defendant's assertion that he offered to pay the full purchase price, and that offer continued to the date of the sale by plaintiff for defendant's account. Indeed, defendant assertedly made an actual tender of the total purchase price by bank teller's check on the very date plaintiff resold the stock, which was declined, plaintiff demanding a certified check or an escrow arrangement as the only alternatives to a liquidation of defendant's position. Plaintiff's proceeding with the sale on the open market, at a certain loss, was improper under the circumstances. As pledgee, it unreasonably prevented redemption of the stock from the pledge. As creditor, it failed to mitigate its damages (see 13 N.Y. Jur., Damages, § 27 et seq). That plaintiff should also be awarded, as damages herein, commissions "earned" for effecting the unnecessary sale, seems, under the particular circumstances presented, to be unconscionable. The award of any more than nominal damages to plaintiff is unwarranted. Accordingly, I vote to reverse the judgment on appeal without costs and to direct judgment for plaintiff in the amount of $1, with costs.
LUPIANO and QUINN, JJ., concur in Per Curiam opinion; FRANK, J.P., dissents, in part, in memorandum.
Judgment reversed, etc.