APPEAL by the defendants, Edward J. De Coppet and others, doing business under the firm name and style of De Coppet & Doremus, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 28th day of June, 1911, upon the decision of the court rendered after a trial at the New York Trial Term, a jury having been waived.
Walter F. Taylor, for the appellants.
Henry Escher, Jr., for the respondent.
The defendants are stockbrokers doing business upon the New York Stock Exchange and this action is brought for the purpose of enforcing a contract for the sale to them of certain stock made upon the exchange in the usual way by other brokers who were acting for the plaintiff's assignor.
The appeal presents only a question of law, there being no contest between the parties as to the facts. On January 19, 1910, one James W. Escher, plaintiff's assignor, was the owner of twenty-five shares of the common stock of the Columbus and Hocking Coal and Iron Company, a certificate for which was in his possession. About eleven o'clock in the forenoon of that day he telephoned the firm of Lathrop, Haskins & Co., brokers dealing upon the New York Stock Exchange, to sell this stock--he having previously purchased it through them. This they did, selling upon the exchange in the ordinary way, to the defendants, at eighty-three and five-eighths. The offer to sell and the acceptance to purchase were in writing, signed by the respective brokers in their own names, and the defendants had no knowledge that Lathrop, Haskins & Co.
was not making the sale on its own account. After the sale Lathrop, Haskins & Co. sent a notice in the usual form to Escher, stating the price at which the stock had been sold and naming the defendants as the brokers to whom the sale had been made. This notice was received by Escher, either late in the afternoon of the same day or early the next morning. By the terms of sale the certificate of stock was to be delivered on the day following, when the purchase price was to be paid. The fact is not disputed that under the rules of the Stock Exchange governing such transactions, if this contract had been fully performed in the ordinary course of business, the stock would have been delivered to the defendants by Lathrop, Haskins & Co., and the purchase price paid to them without Escher's appearing in the transaction at all. But on the day of sale, and shortly thereafter, Lathrop, Haskins & Co. notified the exchange it was insolvent and unable to meet its obligations. An announcement of that fact was immediately made upon the floor of the exchange and then the defendants, in accordance with the rules of the exchange applicable to such cases, proceeded to close all its contracts with the insolvent firm. They then had a number of contracts, both for the purchase of stocks from Lathrop, Haskins & Co., and for the sale of stock to them. The stock which they had contracted to purchase they purchased from other brokers at prevailing prices, and the stock which they had contracted to sell they likewise sold to other brokers, with the exception of the twenty-five shares of Columbus and Hocking stock, which was set off against the twenty-five shares which they had contracted to purchase from them. Owing to the difference in prices at which these sales and purchases were made a balance of $564.16 resulted in favor of Lathrop, Haskins & Co., which the defendants subsequently paid to the receiver in bankruptcy of that firm. On the morning following the failure of Lathrop, Haskins & Co., Escher, who had heard of it, called at the office of the defendants and presented to them his stock certificate, duly assigned and ready for transfer, with the notice of sale which he had received from his brokers, and a formal demand that the defendants take and pay for the stock. This they refused to do and Escher thereafter assigned the stock, and all his
right of action against the defendants in connection therewith, to the plaintiff, who thereupon commenced this action to recover the purchase price of the stock. The parties waived a jury trial and the court found in favor of the plaintiff for the full amount claimed. Judgment was entered accordingly and defendants appeal.
The appellants contend that the judgment is erroneous because under the rules of the Stock Exchange Lathrop, Haskins & Co. and the defendants, in the transaction complained of, acted as principals, and after the failure was announced settlement was made in accordance with such rules. One of the rules referred to provides that 'No party to a contract shall be compelled to accept a substitute principal, unless the name proposed to be substituted shall be declared in making the offer and as a part thereof.' Another, 'When written contracts shall have been exchanged, the signers thereof only are liable.' Also, 'When the insolvency of a member or firm is announced to the Exchange, members having contracts subject to the rules of the Exchange with the member or firm shall without unnecessary delay proceed to close the same * * *.' They contend that when Escher gave the direction to sell his stock he knew that Lathrop, Haskins & Co. dealt upon the Stock Exchange and that such dealings were subject to its rules. The defendants, undoubtedly, had the right to determine with whom they would contract ( Arkansas Smelting Co. v. Belden Co.,127 U.S. 379; Moore v. Vulcanite Portland Cement Co.,121 A.D. 667), and in Horton v. Morgan (19 N.Y. 170) it was said: 'The practice at the stock board, by which the brokers only, and not their customers, are known in their dealings with each other, was not unreasonable; and the plaintiff, by directing this purchase to be made, must be understood as consenting that it should be done in the usual manner.' When Escher gave the ...