Appeal from Trial Term, New York County.
Action bv William B. Keller against Charles D. Halsey and others. From a judgment for plaintiff, and from an order denying defendants' motion for a new trial, they appeal. Reversed, and new trial granted.
[115 N.Y.S. 565]
Everett P. Wheeler, for appellants.
Otto Horwitz, for respondent.
Argued before INGRAHAM, McLAUGHLIN, HOUGHTON, CLARKE, and SCOTT, JJ.
The complaint alleges, in substance, that on the 3d and 4th of October, 1904, the defendants, at plaintiff's request, and as his brokers, purchased 3,000 shares of the preferred stock of the United States Steel Corporation, on account of which he paid them $2,250; that he thereupon became the owner of the stock, which the defendants agreed to carry for his account and risk; that on the 4th, 5th, and 10th days of October, 1904, the defendants, without his authority, wrongfully sold and converted the same to their own use, to his damage in the sum of $112,712,50, for which judgment is demanded. He had a verdict for $26,054, and from the judgment entered thereon, and an order denying a motion for a new trial, defendants appeal.
At the trial there was no substantial dispute between the parties as to the following facts: That the usual way in which marginal business was done between brokers dealing in stocks on the New York Stock Exchange and their customers was that one wishing to purchase stocks on margin is required to advance to the broker a certain sum, varying according to the credit of the customer and the stock which he desires to purchase, but ordinarily a percentage of the par value of the shares; that the broker then advances the balance required to purchase the stock, which he holds for the account of his customer; that if the stock thereafter depreciates in value, determined by sales made upon the Stock Exchange, so that the margin advanced by the customer falls below a percentage agreed upon, then the broker notifies the customer to furnish additional margin, and if he fails to [115 N.Y.S. 566] do so within a time fixed the stock is sold on the Exchange and the proceeds credited to the account of the customer; that at the time of the transactions in question the margin usually required for the purchase of United States Steel preferred was 7 per cent.; that the plaintiff, prior to the transactions in question, had purchased other stocks on margin through the defendants as his brokers, but his account with them as to such other stocks was closed in May, 1904, when he paid them a balance of about $229 due them, having lost several thousand dollars as the result of his speculations; that between the 26th of September and the 1st of October, 1904, the defendants purchased for the plaintiff, at his request, 1,000 shares of Reading stock, for which he put up a margin of $1,000; that on the 3d of October they purchased for him 500 shares of Steel preferred; that the following day he went to the defendants' office and ordered the purchase of 2,500 additional shares of Steel preferred and paid $1,000 more as margin, and ordered the Reading stock sold, the proceeds of which netted him a profit of about $300, which he left with the defendants to the credit of his account; that later in the day, the price of Steel preferred having gone down, he was requested by the defendants to put up more margin, which he did not do, and thereupon 1,300 shares of the Steel preferred were sold, and he was informed of that fact; that the next day, October 5th, 200 shares more were sold, the prices realized being slightly above what had been paid for the first 500, but below what was paid for the 2500 shares; that when these shares were sold the usual notices were sent to the plaintiff, and defendants also wrote him a letter, which he received on the 6th of October, urging him to furnish further margin, and stating that until he did so they would take such action as might be advisable and best for both his interest and their own protection, but with the understanding that he was to make good any loss they might sustain; that he did not advance any further margin, and on the 10th of October defendants sold the remaining 1,500 shares at a price slightly less than what had been paid for the same; that prompt notices of all the sales and purchases were given the plaintiff; and that when the balance of the stock was sold on the 10th of October a written statement was made, showing a balance of $4.77 due the defendants, which was received and retained by the plaintiff without objection for over 17 months and until about the time this action was commenced.
The appellants' claim, as set forth in their answer, is that by the agreement under which the stock in question was purchased the right was reserved to them to close the transaction when the margin was becoming exhausted in accordance with the rules and customs of the New York Stock Exchange; that the plaintiff was notified his margin was insufficient, and requested to advance a further sum, which he failed to do; that the sales complained of were made with his consent and approval; and that he made no objection to the final statement sent him, but instead ratified and confirmed the same. The answer also set up a counterclaim for the $4.77 due them on the statement rendered.
If the transaction in question was the usual and ordinary one between the broker and client, as governed by the rules of the New York [115 N.Y.S. 567] Stock Exchange, there would be no foundation for plaintiff's claim. He, however, claims that this was not such a transaction, inasmuch as the defendants, through Halsey, the senior member of the firm, agreed that they would carry the Steel stock for him without his paying any additional margin; and it is upon this alleged agreement that plaintiff seeks to sustain the judgment which he has obtained. He testified: That Halsey induced him to purchase the Reading stock, and later urged him to buy Steel preferred, of which he bought about 500 shares on October 3d. That when he went to the defendants' office on October 4th Halsey again urged him to buy Steel preferred, and that he then said:
" If I go in for more Steel, I want to go in for a long pull. I don't intend to jump in and out in the usual way.*** But before I do anything further I want to have an understanding with you as to where I stand and what you are going to do for me."
That after some further conversations he said to Halsey:
" You know there are slumps and recessions in the marker, and you know It better than I do, and I will be frank enough to say that I am not prepared to put up margin every time the market sags off a little."
To which Halsey replied:
" All right, Keller; we will carry you ...