
    Joseph B. C. Tuell, Plaintiff, v. John Overton Paine et al., Defendants.
    (Supreme Court, New York Special Term,
    February, 1903.)
    Stock broker and customer — Fictitious sale — Sale where the margin is exhausted — Demand — Injunction.
    Where a customer orders stock brokers to purchase for him certain stocks they must buy for him promptly, report the transaction to him, receive the stocks for him, and have the certificates ready for delivery to him whenever he shall call for them and pay the cost
    Where as matter of fact the stock brokers have never purchased the stocks for which they have rendered the customer an account, they cannot, in a subsequent action for an accounting between the parties, charge him with a loss resulting from the sale.
    Where the stocks have been bought on a margin, the brokers cannot, upon its exhaustion, lawfully sell out the stocks unless the customer specifically waives tender of them, demand of payment of the balance due, and notice of the brokers’ intention to sell the stocks at a fixed time and place.
    Where the stock brokers never purchased the stocks the customer is excused from demanding them.
    Relief by injunction refused.
    Action against stockbrokers.
    Henry W. Harden, for plaintiff.
    Charles E. Travis, for defendants.
   Gildersleeve, J.

This suit arises out of dealings between the plaintiff and the defendants, as, respectively, client and stock brokers, and the relief sought is the opening and correction of two accounts rendered by the defendants to the plaintiff of stock transactions in April and May, 1901. By these accounts the defendants brought the plaintiff in debt to them in $13,083.21 through the April transactions, and in $3,779.88 through the May transactions. The plaintiff accepted the accounts as correct, and made no objection to them until the following October, when he disaffirmed all purchases of stock specified in the accounts as made for him between April 3 and May 10, 1901, on the ground that defendants never made those purchases and never received any certificates of the stocks so reported to have been bought for his account. The question of laches was expressly waived by the defendants on the trial. The defendants claim that they bought the stocks in question through one Hayden of Philadelphia; that plaintiff did not keep his margin good, and that when it became exhausted they sold the stocks for plaintiff’s account at a loss, the amount of which they charged to him in the accounts here in question. Defendants also claim that plaintiff never demanded, nor paid for, the stocks which were so purchased for him. The complaint charges that the accounts were represented by the defendants to be just and true,” but that they were “ false and fraudulent.” In what respect they were fraudulent does not appear from the complaint, except, perhaps, by inference from the charge that they were false. Beyond this there is no evidence of fraud and I shall not regard the case as proceeding for fraud and deceit, but simply for an accounting, and shall treat the allegation that the accounts were fraudulent as not characterizing the action, but as surplusage only. Conaughty v. Nichols, 42 N. Y. 83; Greentree v. Rosenstock, 61 id. 583; Segelken v. Meyer, 94 id. 473. The relative rights and duties of the parties to this suit are easily determined by reference to familiar principles of law. It was the defendants’ duty, upon receiving plaintiff’s order to purchase the stocks for his account, to do so promptly, report the transaction to him, receive the stocks for him and have the certificates ready for delivery to him whenever he should call for them. Markham v. Jaudon, 41 N. Y. 235, 239; Douglas v. Carpenter, 17 App. Div. 329.

It is very clear from the evidence in this cause that the defendants never bought for the plaintiff the particular shares in question; the most they, perhaps, did was to give Mr. Hayden an order for them. Hayden never delivered the stock to defendants, and they never demanded it of him. The claim that they had this stock pledged with ninety-nine per cent, of all their stocks, and could, if plaintiff had demanded it, have obtained enough for delivery to him from the pledgees, or could have borrowed it and thus been in a position to make the delivery within what they call a reasonable time is not satisfactorily proved; but if it were it would, be of no avail to them. If they really bought the stock for the plaintiff, it was his property from the moment it was purchased, subject, of course, to the payment of the purchase price (Dos P. Stock Br., 119; Markham v. Jaudon, 41 N. Y. 235, 240; Gruman v. Smith, 81 id. 25, 28), and defendants were hound to have it ready for delivery immediately on plaintiff’s demand. This is the law, and, as Mr. Burr testified, the custom of brokers. Mr. Burr’s language on the stand was it (the stock) is held for the customer, and he (the broker) is obliged to deliver the stock to the customer at any time he asks for it; he must have it ready for the customer at any moment.” See cases cited, supra.

Mr. Paine, one of the defendants, testified that, according to his understanding, the broker has a reasonable time in which to deliver securities to his customer, which he regarded as “ about two weeks.” Mr. Paine is not a member of the Hew York Stock Exchange, while Mr. Burr is; and he is also a member of its board of governors. But if Mr. Paine’s view of the time allowed to brokers in which to deliver stock bought for a customer should accord with the custom, it is too unreasonable to obtain the sanction of the law. Evidence was given to show that, by the rules of the Stock Exchange Clearing House, a broker receives, on settlement, only the difference between the quantity of stock sold and the quantity bought by him; that is, if for several customers he buys 1,000 shares and sells 900 shares he receives the difference between these two amounts, viz., 100 shares. That custom, however, cannot affect the relations between the broker and his customer. The latter is entitled to the stock which is bought for him without regard to the rights of other customers. It would be a strange thing if a broker could excuse his failure to deliver to his customer stocks bought for him on the ground that, at the clearing-house his sales and purchases in a given case balanced each other, and that, therefore, he had no stock for his client. Holding, as I must, on the testimony that the defendants did not purchase the stocks charged to the plaintiff in their accounts rendered, the plaintiff is not chargeable with any loss on the sale thereof since the defendants could not sell for plaintiff’s account stocks which they never received for him.

The defendants claim that they had the right under their agreement with the plaintiff to sell his securities when his margin was exhausted. The terms of this agreement do not appear, and in the absence of a specific agreement on the part of the plaintiff waiving, not only tender of the stock and demand of payment of the amount due the defendants, but also notice of their intention to sell his securities in default of such payment, with the time and place of sale, the sale was wrongful. Wilson v. Little, 2 N. Y. 443; Markham v. Jaudon, supra; Stenton v. Jerome, 54 N. Y. 480, 483; Usher v. Van Vranken, 48 App. Div. 416. No question of the plaintiff’s duty to demand the stocks in question arises in the case. As the defendants had no stocks to deliver to the plaintiff no demand by him was necessary.

The injunctive relief asked for in the complaint cannot be granted; it was not shown' that defendants were insolvent, nor is this a proper case for that measure of relief. Park v. Musgrave, 2 T. & C. 571.

Judgment for the plaintiff, that the account be settled in accordance with these views. Let findings or a decision be submitted.

Judgment for plaintiff.  