
    Louis Rothschild, Respondent, v. Henry Allen and Edward L. Norton, Appellants.
    
      Relation between a stockbroker and a customer — extent of the formers’ right to pledge the stock — when such a pledge is not a conversion — effect of a sale by the pledgee without notice to the customer — an assignment of the stock is an assignment of the cause of action for conversion — a failure to deposit further man-gin does not justify a sale without notice — proof of the conditions of the pledge by the brolcer.
    
    The relation existing between a stockbroker and a customer for whom he has purchased stocks on margin is that of pledgor and pledgee, the legal title to the stock being in the customer.
    The stockbroker may pledge the stock, and his pledgee will obtain a good lien therein, which he may enforce by a sale of the stock without notice to the customer and without incurring any liability to him or to the broker.
    If the broker exercises his right to pledge the stock, he is bound at all times - to keep himself in readiness to deliver the particular shares or an equivalent number of similar shares to the customer, whenever the latter offers to pay the unpaid portion of the purchase price of the stock.
    If the pledge effected by the broker secures to the customer the right to obtain the stock from the pledgee upon payment of the balance of the purchase price, the pledge does not constitute a conversion of the stock by the broker, even though he neglects to keep on hand an equivalent number of shares of similar stock.
    If, however, in such a case the broker’s pledgee sells the stock without giving the customer notice of the time or place of the sale, or an opportunity to protect his interest by depositing more margin (to which he wTas entitled under the contract with the broker), and thereafter the broker refuses to comply with the customer’s demand for delivery of the stock upon payment .of the balance of the purchase price, the broker is guilty of a conversion. -
    An assignment by the customer of his right, title and interest in the stock converted vests in the assignee the right of action for the conversion of the stock, although it makes no mention of the right of action.
    Where the contract between the customer and the broker provided that the stock should not be sold unless the customer should fail to deposit additional margin on notice, and that, if sold, the broker would give the customer notice of the time and place of the sale, the failure of the customer to deposit additional margins on notice does not relieve the broker from the necessity of giving notice of the time and place of the sale.
    
      Semble, that, in an action brought against the broker for the conversion of the stock, the broker is entitled to show the arrangement under which he pledged the stock.
    Appeal by the defendants, Henry Allen and another, 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 22d day of April, 1903, upon the verdict of a jury for $3,000, and also from an order entered in said clerk’s office on the lltli day of May, 1903, denying the defendants’ motion for a new trial made- upon the minutes.
    
      John J. Crawford, for the appellants.
    
      William J. Barr, for the respondent.
   Hatch, J.:

This action is brought to recover damages for a claimed tortious act of the defendants in converting certain stocks, the property of plaintiff’s assignor, Jacob M. Frank. It is averred in the complaint and admitted in the answer that the defendants were stockbrokers, and, as such, bought upon margin for Frank'200 shares of Anaconda Mining Company and 200 shares of American Smelting and Refining Company stock, upon which Frank had deposited $5,000 with the defendants to margin the same. There had been other transactions between the parties not material to be now considered. It was agreed by and between the' defendants and Frank that the stock which had been purchased and which remained in the hands of the defendants should not be sold unless Frank’s margin should be exhausted or become insufficient, and not then unless they should demand of him that he give increased security or take the stocks and pay the balance due therefor, and, if sold, that the defendants should give him due notice of the time and place of such sale and due opportunity to make good his margin. The defendants pledged the stocks purchased for Frank with the Bank of Montreal, the Bank of the City of New York and Talbot J. Taylor & Co., for loans to them. It does not appear from the evidence what the agreement of pledge of these stocks was, but upon the trial the defendants were asked what the arrangement was, objection was interposed thereto, the court excluded the same and plaintiff excepted. We think this ruling was error, as the defendants were entitled to show if such was the fact that the agreement of pledge was of such a character that Frank could at any time, upon paying the amount unpaid upon the purchase price of the stocks, obtain the same from "the pledgee. In the disposition, however, which we make of .this appeal such error is unavailing, for we assume as a fact that the agreement of pledge protected Frank’s right to the delivery of the stocks at any time when he should make payment of the purchase price, and this assumption secures to the defendants all possible benefit which they could derive had the entire agreement of pledge been given "in evidence. On the 18th day of December, 1899, the defendants’ firm suspended business, and on that day the pledgees of the stock sold the same and appropriated the money therefor to reimburse them for loans which they had made to the defendants. No notice of the time and place of the sale was given, to Frank, nor was he given a reasonable opportunity to protect his interest by further margins, if such act upon his part would have availed to prevent a sale. Frank, having learned of the suspension, went to the office of the defendants, demanded his stocks and was informed that the firm had suspended business and that they could not make delivery of the same. On the fifth of January following he made another demand for their delivery. While there was some conflict in the evidence as to whether a demand was made by Frank of the defendants for the delivery of the stock, the .evidence warranted the jury in finding that such demand was made. Under date of December 18, 1899, the defendants sent to Frank three letters, signed by the defendants “ Per B,” stating in each “ We have sold for your account and risk,” and then follows in each one respectively the name of the pledgees of the stock and the number of shares respectively sold of each. These notices reached Frank on the twentieth and twenty-first of December. Frank subsequently assigned the shares of stock to the plaintiff herein.

The legal rules which govern the respective rights of the parties in this transaction have been the subject of repeated adjudication, and the law bearing thereon is fairly well settled. The relation which is established between the broker and a customer, who buys stocks upon margin, is that of pledgor and pledgee. The legal title to the stocks is in the customer and the brokers are the pledgees of the same for the repayment of all advances made by them in connecnection with the transaction. (Markham v. Jaudon, 41 N. Y. 235 ; Baker v. Drake, 66 id. 518; Gillett v. Whiting, 120 id. 402.) Under such relation the broker has the right to pledge the stocks and obtain from the pledgee advances of money thereon, and the latter by such transaction obtains a good lien thereon which he may enforce by- a sale of the pledge without notice to the owner of the legal title, and without incurring any liability to him therefor, or to the broker making the pledge. The duty and obligation which the broker owes, to his customer, however, is quite different. It was-said by this court, in speaking of such obligation : “ The plaintiffs might take title to the securities in their own name, and were not bound to retain or deliver the identical securities purchased for the defendant. Their duty was to keep on hand, or under'their control, either the securities of the defendant or a like kind and amount of securities, and to have them in such situation that the defendant, by paying the amount due by him thereon, could, at any time, obtain them. This was what the plaintiffs agreed to do, and so long as they did this, the fact that they used the securities while in their possession, awaiting redemption by the defendant would not amount to a conversion thereof.” And further: “ Any disposition of the defendant’s securities by the plaintiffs which w;ould deprive him of his right to immediate possession thereof, upon payment or tender of the indebtedness by him to the plaintiffs on account of such securities, would amount to a conversion thereof. A sale or loan would do this, no securities of a like kind and amount being kept in their place, because the securities would be gone and could not be delivered to -the defendant.” (Douglas v. Carpenter, 17 App. Div. 329.) While, therefore, the defendants herein had authority to pledge the securities to secure loans to them, yet they were bound in-making use of the securities to at all times during the life of the transaction keep themselves in readiness to deliver such securities or an equivalent number of the same kind of shares to Frank whenever he should offer to pay the unpaid portion of the purchase price. If the stocks were so pledged that delivery from the pledgee could be had when demanded by Frank upon payment by him of the unpaid purchase price, it would answer the obligation assumed by the broker, even though he did riot have other shares of the same stock upon hand to deliver, as all Frank was entitled to was the .delivery of the shares to which he was entitled upon payment, and if he could obtain them by payment conversion of the stock by the broker could not be predicated of the transaction. In the nuinerous cases which have arisen the sale of the stock which lias beeii held to be a conversion was usually by the affirmative act of the broker. In the present case the sale was not in fact made by the broker, but by the pledgee of the stock. It has been said that under such circumstances there was no conversion of the stock by the broker, as he was not guilty of conversion in pledging the stock, and took no affirmative steps resulting in its sale ; .that, therefore, his act constituted only a breach of the contract, which he had made, but did not constitute a conversion of the stock by him. We think this contention cannot be supported. The acts of the defendants herein placed the stock beyond their power to deliver the same when called upon so to do and they did not keep on hand an equivalent number of other shares to meet the demand. They could only make use of the stock by certainly guaranteeing their ability to procure and deliver when called upon by the owner so to do. When they pledged the stock to secure their own loans they did so at the peril of being able to deliver the same if delivery, was demanded by the owner and he tendered payment. They were not authorized to pledge it, except upon that condition. It was their act which placed it beyond their power to deliver this stock or its equivalent when Frank made demand upon them so to do. When that demand was made they were without ability to perform, and as they had not complied with the conditions which alone gave them the right to pledge the stock, the resultant sale of the same became by operation of law their act and such act was as to them and between them and Frank a conversion of his property. In Lawrence v. Maxwell (53 N. Y. 19) the action was for conversion of certificates of stock, delivered by the customer to margin a gold transaction by a broker. The stocks were hypothecated by the broker with the knowledge of the customer. Thereafter the plaintiff tendered to the broker the amount secured by the delivery of the stock and demanded its return, and the broker refused, from inability to comply with the demand. Judge Allen, in delivering the opinion of the court upon this subject, said : Conceding the right to use the stock pledged, by way of hypothecation, or otherwise, as claimed, and that it was at the time of the tender and demand lawfully out of the actual possession of the defendant, it was his duty at once to regain the possession and restore the same to the plaintiff. A, neglect or refusal to do so gave to the plaintiff an action as for a conversion of the property. (Franklin v. Neate, supra.) It is immaterial whether the stock was hypothecated by the defendant upon a loan of money for the benefit of plaintiffs transactions or for his own purposes. In-either case the duty and the obligation were the same. * * * If the pledgee may use the thing pledged he must do so at his peril, and so use it as not to affect the ultimate right and ability of the pledgor to have it again, when the'lien shall be discharged.” It may be further, said that this quéstion was not raised or in anywise presented upon the trial. Indeed the proof shows that plaintiff regarded the act of sale by the pledgees as their act, for in the notice which they gave the statement was “ We have sold for your account and risk,” and no claim was made that they were not chargeable with the legal results which flowed from that transaction, or but that it should be considered as their affirmative act, and as the question was not raised upon the trial it is not available to be considered upon this appeal. That the pledgees exercised a legal.right When they sold the stock does not answer to relieve the defendants from their obligation to deliver the samé when demand was made upon them for delivery. We are of opinion, therefore, that the- failure to deliver the stock when demand was made upon them so to do operated as a conversion of the same and that, therefore, this action can be maintained.

It is said, however, that there, was no assignment by Frank to the plaintiff of the cause of action arising out of the conversion. The assignment in form is of the right, title and interest of Frank in' and to a specified number of shares of stock, which is the stock which was sold. Ho mention therein is made "of an assignment of the cause of action, and it is claimed, therefore, that the cause of action did not pass. Such point was raised,: as the defendant moved to dismiss' upon that ground. ./It was said by Judge Allen in Sherman v. Elder (24 N. Y. 381): “An assignment of the property by name after the conversion, carries the right of action for the conversion, ut res magis vdleat guam pereat¡. Courts will give effect to a transaction if possible, and so construe an instrument as to give effect to the intent of the parties.” (Fitch v. Rathbun, 61 N. Y. 579.)

The court correctly charged the jury that even though there was failure after notice to put up the margin, it Would .not excuse the giving of reasonable notice of the time and place of the sale. There is no evidence in the case which would justify a finding that any notice was given of the time and place of sale. The defendants did not pretend that they gave any notice, nor does the evidence show that a reasonable opportunity was given to deposit further margins. On the contrary, the evidence is satisfactory to show that no such opportunity was given, and testimony which tends otherwise is not sufficient to discredit it. The court submitted to the jury the proper rule of damage, and the amount af the verdict finds support in the evidence.

These views lead us to the conclusion that the judgment and order should be affirmed, with costs.

Van Brunt, P. J., Patterson, Ingraham and Laughlin, JJ., concurred.

Judgment and order affirmed, with costs. 
      
       13 M. & W. 481.
     