Opinion
Argued September 25, 1874
Decided October 6, 1874
Edward L. Andrews for the appellants.
W. Shaw for the respondent.
The defendant had a right to repudiate the alleged purchase of 100 shares of Pacific Mail stock of which he was notified February 29, 1868, as soon as the facts came to his knowledge. No such purchase as that stated in the notice had been made. The purchase from Mr. Williams was not at 111 3/8 regular, as stated in the notice, but was in fact at 111 1/8, seller's option, thirty days. That was not a compliance with the defendant's order, which was to buy the stock "regular" and the defendant was not bound to recognize the purchase from Mr. Williams. But the plaintiffs allege that they transferred to the defendant's credit 100 shares of their own stock at 111 3/8, on the day when the stock would have been deliverable had it been bought "regular." That transaction did not help the matter. It amounted to a sale by the plaintiffs of 100 shares of their own stock to the defendant, which was not binding upon the defendant, for the reason that the law does not permit an agent employed to purchase, to buy of himself. It is no answer that the intention was honest and that the brokers did better for their principal by selling him their own stock than they could have done by going into the open market. The rule is inflexible, and although its violation in the particular case caused no damage to the principal, he cannot be compelled to adopt the purchase. Consequently, whether the purchase of 100 shares from Williams was for defendant's account, or the plaintiffs sold to the defendant 100 shares of their own stock, on either theory the referee was justified in rejecting that item of the account.
The credit to the defendant of the value of 100 shares of Pacific Mail stock as of the 17th of March, 1868, was, in our opinion, properly allowed by the referee. Whether the relation of pledgor and pledgee exists between a broker and his customers, or whether the broker holds the stock under a special contract, makes no difference in the result. The broker is in either case bound to keep at all times on hand or under his control, either the particular shares purchased for his customer, or an equal amount of other shares of the same kind, and to have them in such a situation that the customer, on paying the amount due by him thereon, can at any time obtain them. In the present case the plaintiffs, on the 3d of January, 1868, purchased on defendant's order 100 shares of Pacific Mail stock at 113 1/8, and charged him therefor $11.312.50, and received from the seller a certificate for such 100 shares. On the same day they sold 100 shares of such stock, and on such sale delivered the identical certificate they had received on the purchase which they had made for defendant's account. If they had had no other shares on hand at the time, it would be quite clear that they had sold the defendant's shares, and that on learning of such sale the defendant could have adopted and claimed the benefit of it, or, as many cases hold, claimed the value of the shares as upon a conversion thereof by the plaintiffs to their own use. But the plaintiffs did at the time hold other shares of their own, which they could have delivered to the defendant. They, however, between that time and the 17th of March, 1868, sold and delivered all of these shares, and thereafter held none of the same kind of their own or which they could have delivered to the defendant, and went short of the stock. The most that they can claim is that so long as they had any 100 shares of Pacific Mail stock on hand, they had not sold the defendant's shares; but when they sold their last 100 shares and failed to keep any on hand to meet their obligation to the defendant, such sale must, according to the doctrine of all the cases, be deemed to have been a sale of the defendant's shares. He could ratify and claim the benefit of the sale, or claim the value of the shares on the day of sale. The referee has charged the plaintiffs with the value of 100 shares at 109 5/8, which was the market value on the 17th of March, 1868.
The subsequent acquisition by the plaintiffs, after the stock had fallen to a very low figure, of a sufficient number of shares to replace those which they had held for account of the defendant, did not relieve them from liability. Such reacquired stock was never accepted by the defendant, and he was in fact ignorant of the transactions. To allow a broker to sell his customer's stock without authority, and speculate upon replacing it at a lower price, would be encouraging speculations by agents, at the risk of their principals, totally inadmissible under familiar rules. Should the stock rise largely in price after the broker had thus divested himself of all control over the shares which he had purchased on the order of his principal, the broker might be unable to replace the shares, and the principal would have no remedy except a personal claim against the broker. This clearly is not what is contemplated under an agreement to buy and carry stocks. The customer does not rely upon an engagement of the broker to procure and furnish the shares when required, but upon his actually purchasing and holding the number of shares ordered, subject only to the payment of the purchase-price.
These are the principal points raised and argued on this appeal. None of the others are, in view of the findings of fact of the referee, sufficient, in our opinion, to justify a reversal of the judgment.
The judgment should be affirmed, with costs.
All concur.
Judgment affirmed.