224 Mass. 62 | Mass. | 1916
The plaintiff’s intestate was a customer of the defendants, a firm of stockbrokers, who were carrying for him certain stocks on margin. He seeks to recover from them damages alleged to have been sustained arising out of these transactions. For convenience, the plaintiff’s intestate hereafter will be referred to as the plaintiff.
1. One ground of action is the breach of an oral contract, whereby the defendants agreed to carry for him shares of Copper Range Consolidated Mining Company stock as long as he desired, regardless of the state of his margin account and of the market,
At the close of the evidence the judge instructed the jury that if they should find the contract to have been made between the plaintiff and defendants as contended by the former, his damages for breach of the contract by sales of the stock would be nominal. In view of that ruling, the plaintiff did not care to go to the jury upon the question whether the contract was made.
The case calls for a statement of the rule of damages to be applied when there is a breach of contract to carry stocks. It is contended by the plaintiff that the governing rule of damages is that known as the highest intermediate value rule, whereby he is entitled to recover on the basis of the highest prices which could have been realized for the stock between the times when the several blocks of stock were sold and the time of trial.
The common rule of damages for the breach of á contract is the .actual loss at the time of the breach. Barrie v. Quinby, 206 Mass.
It is a general principle of law, because it is a rule of fair dealing, that when one is deprived of the fruits of a contract, he must use the efforts of a reasonably prudent man to put himself in as good a position as he would have been in if the contract had not been abrogated. He cannot lie idly by and expect to recover all losses which such inaction may entail as damages for breach of the contract. He must be reasonably active and diligent to recoup his loss. Maynard v. Royal Worcester Corset Co. 200 Mass. 1, 6. Jamal v. Moolla Dawood Sons & Co. [1916] A. C. 175, 179. The same rule obtains in actions of tort. Gray v. Boston Elevated Rail
The common rule as to the assessment of damages has been applied, frequently in this Commonwealth in actions for breach of contract for sale, and for delivery, and for conversion of stock. The early case of Gray v. Portland Bank, 3 Mass. 364, was an action for the refusal to let the plaintiff subscribe for and take shares of stock in a corporation according to the terms of his contract. In discussing the rule of damages, reference there was made (pages 390, 391) to the English rule of highest intermediate value, but it was held that the same rule applied to stocks as to other kinds of personal property, and that the time when the stock should have been delivered was the time as of which its value should be ascertained for purposes of determining the damages, and not the time of trial or any intervening time. In Sargent v. Franklin Ins. Co. 8 Pick. 90, 100, the same principle was followed. The rule of intermediate highest value up to the time of trial, recognized as prevailing in New York at that time, was repudiated. The court there followed, in determining the rule of damages to be applied in stock transactions, the rule applicable to the conversion of goods, namely, their value at the time of conversion. To the same effect are Hussey v. Manufacturers & Mechanics’ Bank, 10 Pick. 415, 422; Wyman v. American Powder Co. 8 Cush. 168, 182; Fay v. Gray, 124 Mass. 500; and Greenfield Savings Bank v. Simons, 133 Mass. 415. All these are cases relating to damages for detention of stock, where the rule is followed without discussion. See, also, Greenfield Bank v. Leavitt, 17 Pick. 1, and Stewart v. Joyce, 205 Mass. 371. A case very like that at bar was Parsons v. Martin, 11 Gray, 111, where a broker, having been entrusted with stock for a definite purpose, used it for another purpose, and where at page 116 it was said: “And having thus violated his duty, by making a disposition of the stock which was unauthorized and unjustifiable, he became immediately responsible for. the value of the property with which he had been entrusted. It was in effect a conversion of it to his own use; and
There appears to us to be no sound reason apart from authority why any different rule of damages should be invoked as to stocks from that which governs transactions respecting other property.
In general when exceptional circumstances appear which demonstrate that the rule of fair market value would not afford compensation, then the usual principle becomes no longer applicable and inquiry is made as to the real damage sustained by the breach of duty or other injury. See Stickney v. Allen, 10 Gray, 352; Green v. Boston & Lowell Railroad, 128 Mass. 221; Smith v. Commonwealth, 210 Mass. 259, 261 and cases cited; Weston v. Boston & Maine Railroad, 190 Mass. 298; Wallis, Son & Wells v. Pratt & Haynes, [1911] A. C. 394. The same is true where the evidence established no market value. Whitney v. Lynch, 222 Mass. 112. There is nothing extraordinary or peculiar in the nature of corporate stocks which renders contracts touching them
For these reasons, both on the authority of our own cases and in reason, we decline to follow the rule of highest intermediate value which has been urged in argument. i
That rule appears to prevail in England although it does not seem to have been expressly so decided. See Michael v. Hart & Co. [1901] 2 K. B. 867; S. C. [1902] 1 K. B. 482; Ellis v. Pond, [1898] 1 Q. B. 426. Although it once was adopted in New York, Markham, v. Jaudon, 41 N. Y. 235, it soon was overruled in the able opinion in Baker v. Drake, 53 N. Y. 211; S. C. 66 N. Y. 518, where the present New York rule was established, that damages should be measured by the highest price reached within a reasonable time after the plaintiff has learned of the conversion of his stock within which time he could go into the market and repurchase it. This rule has been elaborated in other cases. Mullen v. Quinlan & Co. 195 N. Y. 109, 115. Colt v. Owens, 90 N. Y. 368. Brewster v. Van Liew, 119 Ill. 554. In re Swift, 50 C. C. A. 264. For the reasons already stated, the New York rule does not prevail in this Commonwealth. Perhaps in its practical operation as applied to some cases, the rule here stated, resting on the authority of our cases as a logical and symmetrical development of the general rule of damages, does not differ materially from the New York rule. Indeed, the statement of the New York rule in Wright v. Bank of Metropolis, 110 N. Y. 237, is not greatly unlike that here given.
The conclusion now reached is a rational application of general principles by which damages have been measured during many years in a vast variety of causes. Its application to the present facts tends toward a symmetrical system of law. It works justice in most cases. It is simple and certain. It finds support in
No exceptional circumstances are disclosed in this case which require the application of any other than the ordinary rule. The sales were made at the prevailing market prices. They were not made on occasions of extraordinary and temporary depressions of value or in panic periods. They were not timed to work oppression to the plaintiff. Immediate notice was given to him in every instance, so that he was kept constantly advised of the situation. Ample opportunity was afforded him to repossess himself of a like amount of stock sold at the same price if he had so desired and had exercised ordinary diligence to that end. It is plain, therefore, that the ruling was right, to the effect that nominal damages alone could be recovered for breach of the general contract to carry these stocks. The plaintiff’s reliance in this connection on P. P. Emory Manuf. Co. v. Salomon, 178 Mass. 582, cannot be supported. That case has no application to these facts. All his counts upon this branch of the case stand on the same footing and are governed by what has been said.
2. The second ground of action set forth by the plaintiff, relates to sales of stock made by.the defendants as brokers, under a general express or implied authority from the plaintiff to sell. It is founded upon the allegation in substance that the defendants reported to him from time to time that they had sold for him certain stocks, whereas in truth these stocks were not actually sold, but were either fictitiously transferred to or bought by the defendants personally or as agents for their other customers, without special authorization to that end and in violation of their duty to him; that these stocks are still the property of the plaintiff, and that this was a breach of their obligation to him and a
There was evidence tending to show that certain sales of stocks (a general express or implied authority to sell which had been given by the plaintiff to the defendants) reported to the plaintiff as made for him by the defendants were purchases directly by themselves as brokers for other customers, according to the rule and practice of the stock exchange; and that in other instances they had purchased or taken over certain of these stocks for themselves on their own account at the market price. This method of doing business was not reported to the plaintiff by the defendants and he did not know of it or of the rule or custom of the stock exchange respecting the subject until the hearing before the auditor; but the plaintiff knew that there were rules of the stock exchange and he contracted with reference to them. On this state of the evidence upon this branch of the case, .the judge ruled that “the defendants, without the plaintiff’s knowledge or assent, had no right to purchase the plaintiff’s stock which they were employed as brokers to sell, and that they had no right while acting as the plaintiff’s brokers to sell his stock . . . also to act as brokers for the purchasers of the stocks.” Accordingly, he ruled that the plaintiff’s “title to such stocks as were thus dealt with is not affected by the transactions whereby the defendants acquired his stocks either for themselves or their customers, and that they continued bound to deliver or account for them upon the payment pr offer of the amount due the defendants.” This branch of the case falls into two divisions.
A. The first part of this ruling means in its essence that, in the absence of assent by the plaintiff, the defendants had no right to buy the stocks directly themselves even though this was permitted by the custom of the stock exchange, and that any custom of the stock exchange permitting such direct purchases was invalid. Although the rule in this Commonwealth is that, in the ordinary relation between customer and broker where the latter « carries stocks on margin, the legal title is in the broker, Chase v. Boston, 180 Mass. 458, differing in this respect from that of some other jurisdictions, Gorman v. Littlefield, 229 U. S. 19, yet the broker owes the same duty to the customer in the purchase and
It is a general principle that an agent clothed with naked power to sell, while he may transfer a good title to a third person, cannot purchase for himself, at least not without the full knowledge and assent of his principal. A broker’s obligation to his principal requires him to secure the highest price obtainable, while his self-interest prompts him to buy at the lowest practicable price. The law does not trust human nature to be exposed to the temptations likely to arise out of such antagonistic duty and influence. This-rule applies even though the sale may be at auction and in fact, free from any actual attempts to overreach or secure personal advantage, and where the full market price has been paid and no-harm has resulted. The converse of the rule is equally binding, that an agent to buy cannot sell his own goods to his principal without the latter’s knowledge and assent. Middlesex Bank v. Minot, 4 Met. 325. Lord v. Hartford, 175 Mass. 320. Quinn v. Burton, 195 Mass. 277, 279. Maxwell v. Massachusetts Title Ins. Co. 206 Mass. 197, 202. Hayes v. Hall, 188 Mass. 510, 514. Rothschild v. Brookman, 5 Bligh, 165. C. S. Wilson & Co. v. Finlay, [1913] 1 Ch. 565, 568, 570.
This rule is so deeply grounded in fundamental reason that no-custom or private rule can override it. Doubtless, when one employs another to trade for him in a particular market, he impliedly authorizes the dealings to be conducted according to the established usages of that particular market, whether he knows of them or not. Cronin v. Hornblower, 211 Mass. 538. Furber v. Dane, 203 Mass. 108, 116, and cases cited. Bibb v. Allen, 149 U. S. 481, 489. Yet, he becomes bound only by such usages as are not-illegal or contrary to sound public policy and “are such as regulate the mode of performing the contracts, and do not change their
B. But so far as the transactions involve sales by the defendants, as brokers for the plaintiff, to themselves acting as brokers for other customers and not for themselves personally, different considerations prevail. There was evidence tending to show, not only the custom of the stock exchange permitting such sales and purchases, but an express rule of the stock exchange authorizing them and governing their conduct.
The employment of a stockbroker in the business of buying and selling on the stock exchange at the market price or for definite prices securities which find there a ready and immediate sale is of a peculiar nature. No discretionary authority is vested in the broker. Commonly, there is no opportunity for the exercise of judgment. The broker becomes a mere intermediary. There is no reasonable possibility for the broker, employed for selling an active stock at the market or at a stipulated price, to assume an antagonistic duty by buying the same stock on the same market for other customers. Macoun v. Erskine Oxenford & Co. [1901] 2 K. B. 493, 500. The duty is equal to both the buying and the selling customer and the element of temptation for personal gain or preference is reduced to a minimum, if not entirely eliminated. The practical effect of the rule ordinarily is to require the stockbroker to try to sell the stock to third persons at a better price than that set in his customer’s order to buy, and to take it for that customer at that customer’s price only after an unsuccessful effort to get a higher price for his selling customer or the customer whose stocks he is carrying. If this rule could not be upheld, possibly all three parties to the transaction might suffer. The buying customer later on might have to pay a higher price, the customer whose stocks are being carried might not get so high a price, and the broker carrying the stock for his .customer might have to take a lower price and hence not be made good.
If there were special conditions showing a private gain to the brokers beyond the usual commission, or unfairness to either customer, a different case would be presented. Erskine Oxenford & Co. v. Sachs, [1901] 2 K. B. 504, 511, 513. Nothing of that sort is disclosed on this record. It is almost a matter of common knowledge that stockbrokers in large business often buy for some customers and sell for other customers on the same day considerable amounts of the same kind of stock. The prevalent method
Therefore, we are brought to the conclusion that, as to stocks of the plaintiff sold by the defendants as brokers for him and bought by them as brokers for others of their customers, such sales and purchases being in accordance with the rule and custom of the stock exchange, at market prices, without any circumstances indicating that in fact the plaintiff was not fairly dealt with, these sales were valid and binding. In this respect the ruling of the Superior Court was erroneous. To prevent misunderstanding,, it may be added that this principle is confined to the facts here stated.
3. The defendants asked for rulings to the effect in substance that upon all the evidence the plaintiff must be held to have affirmed the sales (if any there were) made to the defendants directly on their own account and not as brokers for their other customers. These requests rightly were refused. The plaintiff could not act in the premises until facts came to his attention which would reveal to him the true situation. If he elected to rescind and avoid the sales, he was bound to act within a reasonable time after he knew the facts. Bassett v. Brown, 105 Mass. 551, 557. Learned v. Foster, 117 Mass. 365, 370. Rogers v. Barnes, 169 Mass. 179, 184. A person situated like the plaintiff was bound to act with reference not only to his actual knowledge, but he is also chargeable with such information as he might have obtained on inquiry, provided he knew of circumstances which would have put a man of ordinary intelligence upon an inquiry which would have revealed the truth. And knowledge which one has or ought to have is to be imputed to one in a position like that of the plaintiff. Farnam v. Brooks, 9 Pick. 212. Johnston v. Standard Mining Co. 148 U. S. 360, 370, 371. Higgins v. Crouse, 147 N. Y. 411, 416. The crucial facts appear not to have been established with sufficient clearness to require the giving of any of the rulings requested upon this point. The reception and retention of the check under all the circumstances was not decisive as matter of law, McKay v. Myers, 168 Mass. 312, Worcester Color Co. v. Henry Wood’s Sons Co. 209 Mass. 105, however persuasive might be its force in determining, the fact.
4. The rule of damages as to those sales which the plaintiff may set aside, laid down by the Superior Court, was that the plaintiff might “recover on the basis of the highest prices which could have been realized for such stocks between the time when the transaction referred to took place and the time when the plaintiff had notice or knowledge of the way in which these shares had been dealt with.” This was an adoption of the rule of highest intermediate value. As has been pointed out, that is not the law of this Commonwealth and hence that ruling was erroneous. The plaintiff was at liberty to set aside such sales within a reasonable time after he knew of them and demand the return of the stocks. The trial seems to have proceeded without objection, under amendments to the declaration, upon the theory that he had elected to set aside these sales and demand the return of the stocks. The correct rule of damages to be applied, if the plaintiff should prove that the defendants made sales of stock to themselves, either real or fictitious, is that the plaintiff may recover the difference between the value of the stocks when sold and their value when the sales were made known to and repudiated by him, together with interest from that date.
The result is that the plaintiff is not entitled to recover anything more than nominal damages for the breach of the alleged special contract to carry shares of Copper Range Consolidated Mining Company stock, and hence there is to be no new trial on that issue. There is no right of recovery as to sales of stock made by the defendants as brokers for the plaintiff to themselves as brokers for other customers and made in accordance with the rules of the stock exchange and at market prices. The plaintiff’s only ground for recovery is confined to the remainder of his declaration.
, So ordered.
The case was tried before Brown, J. His other rulings are described in the opinion. The judge ruled that the plaintiff if entitled to damages, might “ recover on the basis of the highest prices which could have been realized for such stocks between the time when the transactions referred to took place and the time when the plaintiff had notice or knowledge of the way in which these shares had been dealt with.” The parties computed the damages under this rule and agreed upon the amount of $116,068.20. By direction of the judge the jury returned a verdict for the plaintiff in this sum, and the judge thereupon reported the case for •determination by this court.
The rule referred to was as follows: “Where parties have orders to buy and orders to sell the same security, said parties must offer said security, whether it be stocks or bonds, at Vs % higher than their bid before making transactions with themselves, but such transactions cannot be quoted when objected to.”