45 N.Y.S. 219 | N.Y. App. Div. | 1897
Lead Opinion
’ The action was'brought by a firm of bankers and stockbrokers, members of" the Stock Exchange, in New York city, to recover the balance of an account growing out of speculative stock, bond and grain operations conducted by; plaintiffs for defendant on man'gvn. The account began October 11, 1888, and continued until Decern- • ber 1, 1893. The defendant, among other things,, claimed that there had been conversion by the' plaintiffs of certain securities belonging to the defendant by their having pledged the same, and that the defendant was entitled to damages for such conversion. There were - other questions in the cáse, some of which have been argued before this court, but this is the important question and the only one which we think it necessary to determine. We need not detail the facts to-show how this question was raised. There is no dispute but that it was in the case; was fairly raiséd, and that the referee decided it in favor of the plaintiffs, and if he Was wrong the judgment must be reversed! Thé question, may be briefly stated as follows: .Were the plaintiffs guilty of a conversion of the defendant’s securities by pledging them for the benefit of- the plaintiffs’ own business, mingling them vvith other securities,'and obtaining loans .thereon for a greater amount than the indebtedness of the defendant to the plaintiffs on account thereof, and without retaining in the plaintiffs’'possession other securities of a like kind and amount?. ■
It would seem that the decision in Gaswell v. Putnam (supra), that the general rule that a sale or loan constitutes a conversion of securities, is to be regarded as modified to the extent that the sale or
It would not' do to say that the plaintiffs might go.into the' market and buy other securities of-a like kind and amount on payment or tender.being made by defendant, because the plaintiffs might not have the .funds to purchase the new securities, and the only reliance. the defendant would have would be.the personal financial responsibility and ability of the plaintiffs, whereas he had a' right to. rely upon the securities themselves, and- if they were retained he could ■ get them, whether, the plaintiffs were financially responsible, or not.
As said by Rapallo, J., in Taussig v. Hart (supra, 430): “ 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
It is not doubted but that the plaintiffs might lawfully have pledged the defendant’s securities, by themselves, separate and apart from others, for an amount not exceeding the indebtedness to them by the defendant thereon. In such case the defendant would have been protected, because he could have gone to the pledgees and have obtained the securities by payment or tender of the amount of his indebtedness and nothing more (Chapman v. Brooks, 31 N. Y. 15); but mingling them with other securities and pledging them for an amount larger than the defendant’s indebtedness would have placed them where the defendant could not have obtained them by a payment or tender of the amount of his indebtedness, and would have been illegal and unauthorized. (McNeil v. Tenth National Bank, 46 N. Y. 325; Schouler on Bailments [1st ed.], 201.) It will not do to say that plaintiffs might be able to get defendant’s securities released from the pledges made by them, by paying up the whole or a part of the amount for which the pledges were made, and so be able to surrender them to defendant on payment or tender of the amount of his indebtedness. His doing this, like his purchasing other securities in the case of a sale or loan already referred to, would be dependent upon his. having the funds to pay the amounts for which the pledges had been made or upon his ability to get such securities released, and the same reasoning is applicable to pledges as would apply to sales or loans- under like circumstances. The referee based his decision upon this point upon the consideration that “ all that the customer lias a right to require is a delivery of his property on payment of the brokers’ lien thereon, and the proof before me is that the plaintiffs at all times had control of the stocks and bonds bought and carried, by them for the defendant, and were at all bienes able a/nd ready to make delivery of them to the defendant on payment of the balance due on his account.”
The conclusion we have arrived at- upon this point requires á reversal of the judgment, and anew trial of the case. .It is. not necessary to consider the other questions raised on this appeal. The case is here determined largely upon the rejection of evidence • offered, and when the defendant is permitted to give such evidence as he can, as to the nature and extent of the pledges alleged to. have been made, the other questions arising in the case, may need consideration.
The judgment appealed from should be reversed, and a new trial ordered before another referee, with costs to appellant to abide event.
Van Brunt, P. .J., Rums'ey and Parker, JJ., concurred; Patterson, J., concurred in result.
Concurrence Opinion
I concur in the conclusion at-which the court has arrived respecting the rejection by the referee of evidence offered by the defend
What is meant by the phrase “ having always in his possession ? ” I do not understand it to be that he must have a certificate of shares in actual and continuous physical possession, hut that he must have shares always under his control, so that when, in due course of business, he is called upon, he can deliver without going into the market to buy. He does not convert the stock of his customer simply by using it in the ordinary way in which brokers conduct their business by borrowing money to carry all their customers’ stocks, pledging and repledging even in bulk from time to time according to the custom of their business and as the necessities of their transactions may require, and to enable them to hold the shares, so long as they have shares under their control and available to perform their specific contracts with their customers when called upon to do so. But the offer of the defendant is broad enough even to
Judgment reversed, new trial ordered before another referee to be appointed in the order entered hereon, with costs to appellant to abide event.