Clappe v. Taylor — 125 A.D. 605

Majority

p. 605

Arthur A. Clappe, Appellant, v. Talbot J. Taylor and Foxhall P. Keene, Respondents, Impleaded with James B. Taylor, Defendant.

Second Department,

April 24, 1908.

Headnote

Bailment — stocks — purchase on margin — conversion.

The relation between a stockbroker and his customer on a purchase of stocks on margin is that of pledgee' and pledgor, and a sale by the broker of the stock without demand and notice is a conversion for which he is liable in damages.

p. 606

Appeal by the plaintiff, Arthur A. Clappe, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of Queens on the 20th day of May, 1907, upon the dismissal of the complaint by direction of the court at the close of the plaintiff’s case upon a trial at the Queens County Trial Term, and also from an order entered in said clerk’s office on the 29th day of May, 1907, denying the plaintiff’s motion for a new trial made upon the minutes.

Robert L. Turk, for the appellant.

Robert W. Candler [Philip J. Britt with him on the brief], for the respondents.

For the purposes of this appeal, the complaint having been dismissed at the close of the plaintiff’s case, the following facts, some of which are admitted in the answers, must be taken as having been established. The defendants were partners when, on the 4th day of May, 1901, the plaintiff engaged them as stockbrokers to purchase and sell stocks for him, and the defendants thereupon purchased for the plaintiff one hundred shares of stock of the Missouri, Kansas and Texas Railway Company at thirty and three-quarters, the plaintiff depositing with the defendants as margin $700. This particular stock was purchased on the recommendation of the defendants’ manager, with whom the plaintiff dealt. -Within a week and without any notice to the plaintiff or demand for more margin, the defendants sold the stock at twenty-three and one-half, and a few weeks later the price of the stock rose to thirty-two and seven-eighths. This action was brought to recover the loss of profits consequent upon the unauthorized sale.

The relation between the defendants and their customer was that of pledgees and pledgor, and the sale by a broker of pledged stock without demand and notice is a conversion. (Markham v. Jaudon, 41 N. Y. 235 ; Baker v. Drake, 66 id. 518; Gruman v. Smith, 81 id. 25; Gillett v. Whiting, 120 id. 402; Content v. Banner, 184 id. 121.) In the case last cited, Willard Bartlett, J., says (p. 124): “ Under the contract, arising by operation of law, out of the relation between the parties, a sale of the stock by the brokers

p. 607

without notice of the time and place of sale, constituted a conversion, in the absence of an agreement dispensing with such notice or providing for otherwise disposing of the pledged property.”

The pledgees are liable for the damages sustained by the pledgor as a result of the conversion of the pledge. (Gruman v. Smith, supra.)

It follows that the dismissal of the complaint was error, which demands a reversal of the judgment, and a new trial should be granted, costs to abide the event.

Jenks, Hooker, Gaynor and Miller, JJ., concurred.

Judgment and order reversed and new trial granted, costs to abide the event.

Cases cited

Markham v. Jaudon 41 N. Y. 235 N.Y. 1869-12-23 p. 606