182 A.D. 408 | N.Y. App. Div. | 1918
The action is bya customer against a firm of cotton exchange brokers. The recovery was for $7,735, being the amount paid by the plaintiff to the defendants from time to time from the 11th of November, 1911, until the 4th of May, 1912, together with interest from the times of the respective payments. The counterclaims were for balances claimed by the brokers.
The complaint contains two counts. The first is to recover the money on the ground that it was received without consideration and pursuant to a scheme by which the defendants intended to defraud the plaintiff by receiving the money on a false claim that they had made contracts for him on the cotton exchange when they, in fact, had made none, or when those that they had made had been offset and settled by alleged contracts of a similar nature made in behalf of themselves or one of them. The second count is to recover the money on the ground that it was paid without the defendants having purchased or sold cotton to be received or to be delivered by the plaintiff or by any one in his behalf and on a wager or contingency by which both parties intended it to be used as wagers or bets upon the course of quotations upon the price of cotton upon the New York Cotton Exchange in violation of the statutory law of New York. The answer admits the delivery of the money by the plaintiff to the
The plaintiff was a retired fur dealer. He had' traded in stocks on the New York Stock Exchange through brokers on margin account and before opening this account he had made one purchase and sale of cotton contracts through another firm of brokers. He testified that at the instance of an acquaintance, one Sullivan, who was an employee of the former firm of Rothschild & Nuzum, he commenced trading in cotton contracts through that firm.
A purchase and sale of the same quantity or a sale and purchase of the same quantity are referred to as a transaction on the theory that they constitute a complete transaction, and a sale or purchase is referred to as a trade.
According to the testimony first given by the plaintiff and several times repeated all of the trades down to that time were made by the defendants on specific, definite orders given by him involving no discretion on their part. But after so testifying, he testified that the defendant Rothschild commenced trading for him on discretionary orders or account, which he explained to mean that Rothschild was authorized to and did buy and sell for him without specific orders or any orders, about April 1, 1912. Rothschild admitted that he commenced trading for the plaintiff without specific orders and in his discretion in April and May, 1912. There is evidence to the effect that during the time that Rothschild thus traded for the plaintiff on discretionary orders or account the plaintiff was also trading on his own account and there is no evidence identifying any particular trade as having been made by Rothschild for the plaintiff prior to the last payment. All payments made by the plaintiff were after the trades or transactions were had showing him to be indebted to the defendants and no payment exceeded the balance shown by the accounts owing to the firm at the time it was made. The plaintiff at ho time put up any margin with the defendants.
No fraud was shown nor found.
The fraud alleged in the first count not having been sustained by the evidence, that count and the complaint should have been dismissed also. The plaintiff for a large part of the time during the business hours of the exchange was in the office of the defendants and received prompt reports of the execution of the orders given by him as distinguished from trades made for him by Rothschild on discretionary account, and in addition to this he received daily reports in writing by mail with respect to all trades for him and the prices, and also other statements of purchases and sales and commissions charged and monthly ledger statements of the items of the account showing balances. It-is immaterial, I think, whether any of the trades made before the last payment were made for the plaintiff by Rothschild without a specific order, for it is undisputed that before making such payment, he knew and had notice of the orders the defendant claimed to have executed on his behalf and so far as appears he made no objection thereto. The first count contains no appropriate allegations to impeach or surcharge the accounts as kept and rendered by defendants and retained and acquiesced in by plaintiff without objection and which in the absence of such allegations became binding upon the plaintiff (Stiebel v. Haigney, No. 1, 134 App. Div. 516. See, also, Pemberton v. McAdoo, 149 id. 20; Stoughton v. Lynch, 2 Johns. Ch. 209), or to authorize a recovery on any other theory. Aside from the fact that the cause of action is predicated on fraud, the plaintiff, in the
The theory on which the learned referee allowed the plaintiff to recover the amount thus paid is that the manner in which the defendants executed five-orders was not in accordance with the rules of the exchange, and that, therefore, the entire account was impeached, and all of the trades and transactions became presumptively unlawful.
Two of the five were orders for the purchase of contracts for the future delivery of cotton, one on the 9th and the other on the 26th of April, 1912. Those orders were executed by crossing them with orders received by the floor member of the defendants from other customers at the same time to purchase like contracts on the same terms, which was in accord with the custom followed by brokers on the cotton exchange, but was found by the referee not to have been authorized by the rules of the exchange. We agree with the referee with respect to that finding, for crossing the orders involved resorting to the mating of fictitious records in an effort to conform to the rules of the exchange which required that there should be two brokers to every purchase or sale, one on either "side of the trade, and the signing of sales and purchasing slips by them respectively. The floor broker holding the order from different customers to buy and sell on the same terms would cry out the transaction across the ring on the exchange and make the sale and purchase himself at the price shown by the last sale on the exchange. That is called a cross sale or trade. The reason for this custom was to insure the execution of the orders and to give both customers the benefit of the price at which they respectively were willing to sell and buy, for it appears that if the broker offered to execute them separately and to sell at the market the sale might be made at a lower
Two of the other trades which the referee found to have been illegally executed were the purchase of 100 bales of October cotton on the 1st day of May and the sale of 100 bales of July cotton on the 4th of May, 1912. These were also specific, definite orders and they were executed by trades known as switches which are resorted to when the broker cannot execute the order as given or cannot in his judgment execute it advantageously to the customer but is willing to give the customer the benefit of the order as if executed as directed or most advantageously to him. The broker being unable or deeming it inadvisable to execute the order for the particular month specified by the customer executes it for another month and reports it executed as ordered. In such instances the broker assumes the risk of being able later on to effect a sale or purchase of cotton, as the case may be, for the particular period and at the price desired by the customer or which he would ordinarily receive in a normal market and of thus switching the trade. Those transactions likewise were customarily indulged in on the exchange but were not provided for by the rules. With respect to a switch the customer gets the benefit of a purchase or sale in accordance with his order and the brokerage firm assumes the risk of its inability to obtain as favorable terms by switching; and if it fails so to do the brokers stand the loss and the customer suffers no damage. A brokerage firm may, in such a transaction, be able to make the purchase or sale later more favorably and if so, having taken the risk, it appropriates the profits. In Springs v. James (supra) this court had -under review an item involving a switch and it was sustained, but the customer was given the benefit of the profit there made by the broker. In the case at bar there was no profit made by the brokers and, therefore, under the rule .already stated the customer was not prejudiced and has no just ground of complaint.
The remaining questions arise on the dismissal of the counterclaims. On the issues arising on the counterclaims and reply thereto the burden of proof was on the defendants. In addition to the cross sales and switches to which reference has been made, the referee found that There were numerous other similar cross sales and switches represented in the account covering the subsequent period, and he dismissed'the counterclaims on the ground that in so far as the counterclaims were based on accounts stated the accounts stated were impeached by these illegal and unauthorized trades and that with respect to the counterclaim on the general account it was not satisfactorily shown by the defendants that the trades charged and credited to the plaintiff’s account therein were made and settled for his account. The learned referee in his opinion clearly and accurately describes the general method by which defendants transacted business and by which business was customarily transacted on the exchange as follows: “ When an order is given in the office of a cotton broker, the practice is to record it upon so-called telephone sheets and transmit it to the floor of the Exchange over the telephone,- where it is received by the broker’s telephone clerk, who writes it upon a slip and sends it by a page to the floor broker for execution. The name of the customer is not transmitted with the order and is generally not known to the telephone clerk or the floor broker by whom it is executed. The floor broker cries the order across the ring, stating his bid or his offer to sell, as the case may be, and when accepted by another floor broker, the trade is executed. He then records the trade upon his ‘ broker’s card,’ which he has in his possession and retains, records it also on the slip and sends the slip back to the telephone clerk, who advises his office over the telephone that the trade is made. Its execution is recorded opposite the order on the telephone sheets, and is posted from' these sheets into the books. So-called confirmation slips setting
It follows, therefore, that the findings and conclusions
Scott, Smith, Page and Davis, JJ., concurred.
Judgment reversed, with costs, and complaint dismissed, and judgment ordered for the defendants on their counterclaim as stated in opinion, with costs. Order to be settled on notice.