Leo v. McCormack

The plaintiffs and defendant are brokers, the latter dealing on the curb. The former, acting for certain customers, sold to the latter, acting for an undisclosed customer, 150 shares of stock at $40.00 per share, and this action .is brought to recover said purchase price. The defendant has refused to pay the same upon the ground that the persons owning said stock were guilty of fraud in effecting its sale to him, and that such fraud constitutes a defense against plaintiffs, who were their agents. The learned courts below have respectively directed and affirmed the direction- of a verdict for plaintiffs upon the ground that the ordinary rules of principal and agent did not apply to the plaintiffs as brokers. We think such error has been committed in this disposition of the case as calls for a reversal of the judgment.

Prior to the date of the sale in question plaintiffs, acting as

We do not gather that the courts below doubted, or that" the plaintiffs deny, that the fraud of plaintiffs’ customers would, under ordinary circumstances, be a, bar to an action brought by an agent to enforce a contract made in their behalf. It lias, however, been strenuously urged and thus far found that there is something so peculiar about the relation between a broker and his customer that the same is not subject to the ordinary principles and rules of agency. It very likely may be conceded that, as the result of long usage and of various rules made by the Stock Exchange, some exceptions have been engrafted upon the general rules of principal and agent for the particular benefit and help of brokers. But we are aware of no reason and no adjudication which should or does exempt such relationship from the fundamental principles which are applicable to other phases of the relation of agency. In this particular.case, upon the order and request of Cosmides and Uhren,.the plaintiffs had bought for them certain shares of stock which they then held and carried for their respective accounts. These parties ordered plaintiffs to sell said stock and they did so, delivering, as it appears, the identical certificates which had been taken and carried for their customers. Under such circumstances, it would require

There is, however, still another aspect to this case. The plaintiffs had received margins from their conspiring customers to the apparent extent of about fifty per cent of the price originally paid for the stock, which was about forty dollars per share. The balance of this purchase price the brokers had advanced, and for this amount they were pledgees in possession of, and having a lien upon, the stock. Their customers were not entitled to effect a sale of the stock without the concurrent action of the brokers as pledgees, and, therefore, in making the sale the plaintiffs acted in a dual capacity of brokers and agents for their customers and as pledgees in their own behalf for the amount which they had advanced. As to their own interest as pledgees, we think it may be said that they acted as principals and, therefore, are not contaminated by or charged with the fraud of their customers so as to prevent their recovery of that portion of the purchase price which shall be equivalent to the amount of their lien.

Another reason has been urged why plaintiffs should be allowed to recover the entire amount of the selling price. It appears that immediately after the sale, without waiting to receive from defendant the amount which he had promised to pay, plaintiffs by two checks paid to their customers four thousand dollars which seems to have been about all that was due to them over plaintiffs’ advances. Evidence has been given of the custom of brokers to pay to their customers the proceeds of stock sales before actually received, and it is urged that by these payments plaintiffs have so changed their position that defendant ought not to be allowed to interpose his defense. This argument does not commend itself to our approval. There are some things in the record which suggest

In accordance with these views, the judgment appealed from should be reversed and a new trial granted, with costs to appellant in both courts to abide the event.

Cullen, Ch. J., Edward T. Bartlett, IIaigiit, Vann and Chase, JJ., concur; Gray, J., absent.

Judgment reversed, etc.