White v. Jaudon — 22 N.Y. Super. Ct. 415

Majority

p. 415

John H. White, Plaintiff and Respondent, v. Peyton and Frank Jaudon, Defendants and Appellants.

Headnote

Where a stock broker, without disclosing his principal, or the fact that he acts as broker, contracts to purchase stock, and deposits with the other party to the contract, merely as security for its performance, money which he

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received from his principal for the purpose, such contracting party, not having parted with anything on the faith of the deposit,- cannot, when sued by the principal to recover back the deposit, set off a debt due to him from the broker. (Barbour, J., dissented.)

(Before Bosworth, Ch. J., Monell and Barbour, J. J.)

Heard, April 11, 1862;

decided, June 28, 1862.

This was an appeal by the defendants from a judgment in favor of the plaintiff, entered upon the report of S. P. Fash, Esq., Referee, before whom the cause was tried.

On the 18th of July, 1861, S. Draper, the broker of White, the plaintiff, gave the defendants, who were also stock brokers, a written order, as follows:

“ Few York, 18th July, 1861.

“ Messrs. Peyton and Frank Jaudon :

“ Please buy one hundred • (100) shares of Chicago and Rock Island and two hundred shares of Cleveland and Toledo, both buyer 60, for account and risk of

“ S. Dr., per J. H. D.

“ This order good until countermanded.”

On the same day the defendants made an agreement for the purchase of 100 shares of Chicago & Rock Island, notified Draper of the purchase, and requested ten per cent deposit. Draper obtained the ten per cent from the plaintiff, and paid it to the defendants as security to the seller on the purchase. Fo purchase was, in fact, made by the defendants, but a contract to purchase and to receive within sixty days at the buyer’s option.

On the 31st August the contract was closed by Draper, by the plaintiff’s order, at a loss, leaving, however, out of the 81,000, a balance of $613.38 in the defendants’ hands,t to recover which the action was brought.

The defendants claimed to set off a debt due from Draper to them, which more than exhausted the balance in their hands.

The Referee overruled the set-off, and reported in favor of the plaintiff for the full amount of the balance and interest*

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It did not appear that at any time Draper disclosed, or the defendants knew that he was the plaintiff’s broker, or that the $1,000 was his money.

Clarkson N. Potter, for defendants, appellants.

I. Plaintiff had no right of action. The action should be by Draper.

II. And the parol evidence to show that Draper was an agent, was evidence to contradict what the writings say, and therefore inadmissible. (Newcomb v. Clark, 1 Denio, 229 ; Fenly v. Stewart, 5 Sandf., 101 .)

III. In any event defendants were entitled to prove the offset they claimed.

Where one deals with another, on behalf of a third person, the person dealt with has a right to set off, when called on by such third person, any claim which he may have against the agent. (Story on Agency, §§.390, 404, 420, 423; Paley’s Agency, by Dunl., pp, 325, 151; 1 Parsons on Contracts, 53.) And this whether the amount to be set off was due when the credit was given the agent, or subsequently. For the principal derives his rights through his agent, and stands in his stead. (Authorities cited; George v. Claggett, 7 Term B., 359 ; Rabone v. Williams, Id., 361; Lime Rock Bank v. Plimpton, 17 Pick., 159 ; Hogan v. Shorb, 24 Wend., 458 .)

IV. Nor does defendants being stock brokers affect this rule, for the course of dealing among stock brokers is not as brokers,- but as principals. (Child v. Morley, 8 Term R., 614.)

Jeremiah Larocque, for plaintiff, respondent.

I. It was competent for plaintiff to prove that the written order from Draper to defendants was in fact given for plaintiff’s account and benefit. This did not contradict the order. (Gunn v. Cantine, 10 Johns., 387 ; Dykers v. Townsend, 24 N. Y. R., 57.)

II. Plaintiff could sue in' his own name, although the defendants had not previously known him as the principal

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in the transaction. (Del. and Hud. Canal Co. v. Westchester. Co. Bank, 4 Denio, 97 , and cases cited; White v. Chouteau, 10 Barb., 202 , and cases cited, p. 204; 1 Chitty’s Pleading, 7, 8, 9, marg. fols., and cases cited in notes; Vischer v. Yates, 11 Johns., 23 ; Yates v. Foot, 12 Id., 1.)

III. If plaintiff could sue in his own name, there was, of course, an end of any right of set-off. (2 R. S., 354, marg. page; Code, § 150.)

IV. Defendants, neither by their answer nor offer of evidence, sought to, nor could they, assert or maintain any right of lien upon the balance of this special deposit, for the prior indebtedness of Draper to them.

1. A stock broker, as such, has no general lien upon anything which has not been specifically pledged to him. (Russell on Factors and Brokers, 193 and 194, and cases cited; 32 Law Library, N. S., 127, 128.)

2. Even in such eases, the right of lien exists only in regard to claims arising out of the same factorship, banking or insurance business. It does not exist in regard to indebtedness not connected with that business. (Cross on Lien, 260,277 ; 18 Law Library, N. S., 172,182; Smith’s Mer. Law, 340; 1 Law Library, N. S., 202; Weldon v. Gould, 3 Esp. N. P. R., 268; Houghton v. Matthews, 3 Bos. & Pul., 485; Lanyon v. Blanchard, 2 Camp. R., 597; 1 Condy’s Marshall, 301.)

V. The evidence as to defendants’ prior knowledge, that the orders given by Draper were not for his own account, having been withdrawn, the- exception falls, taken by the defendants; but if it had not been withdrawn, although unnecessary, it would have been admissible.

VI. Defendants’ offer of proof that they understood the order to be for Draper’s own account, and had no notice to the contrary, was irrelevant and inadmissible.

VII The evidence of usage of brokers in Hew York, was also entirely irrelevant and inadmissible. (Horton v. Morgan, 19 N. Y. R., 170.)

VIII. The exception to the Referee’s not finding whether the order was or not given by Draper as an order on his

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own personal account, without notice or knowledge of any agency, is not well taken. He did. find that it was for plaintiff’s account; and the question of knowledge was immaterial.

That Draper was in fact the broker of the plaintiff; was employed by him to make the purchase; and that the plaintiff furnished the $1,000 deposit, is conceded. The defendants claim of set-off rests, in Draper’s having-given the order in his own name, and his furnishing the money as his own, without disclosing his principal. The elementary writers make a distinction between factors and brokers. The latter are described as persons employed to make bargains and contracts between other persons in matters of trade, for a compensation commonly called brokerage; while the former is intrusted with the property which is the subject of his agency. (1 Parsons on Contracts, 78; Story on Agency, ^ 28.) Parsons says, (vol. 2, p. 250,) a broker being one to whom goods are not intrusted, and who usually and properly sells in the name of his principal, and who is understood to be only an agent. Whether he sells in his own name or not, he stands only on the footing of an agent; and hence, he says, if an action be brought by the agent, in his own name, for a debt due to his principal, the defendant may set off a debt due from the principal. And Story says, (§ 28,) if a broker sells the goods of his principal, in his own name, (without any special authority to do so,) inasmuch as he exceeds his authority, the principal will have the samé rights and remedies against the purchaser, as if his name had been disclosed by the broker.

The right to set off a debt against the factor when the principal is not disclosed, arises, first, from the factor’s having the goods in his possession, and, second, from his general lieu. In the case of brokers, with the single exception of insurance brokers, a general lien does not exist. (Russell on Factors, 193.) And it is only in virtue

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of this general lien in favor of factors, that they have the right to dispose of the property as their own.

The $1,000 deposit was as security that-the contract of purchase would be fulfilled. It was to indemnify the defendants against loss, if Draper should fail to comply . with the terms of the contract. It could be held for that purpose, and for no other. Upon Draper’s failing to complete the purchase, it could be retained to meet any loss occasioned by a depreciation of the stock. In this case it was so used to the extent of $386.62.

The defense of set-off of a debt against Draper was properly overruled. Feither under the Revised Statutes, as a set-off, nor under the Oode, as a counterclaim, cohid it be allowed. It did not exist in favor of the defendants against the plaintiff. (3 R. S., (5th ed.,) 635, Code, § 150.)

The transaction constituted Draper the broker of the plaintiff, and it is immaterial whether he made the contract in his own name or in the name of his principal. He had no general lien on the plaintiff’s money which gave him a right to dispose of it to the plaintiff’s prejudice; and so long as the defendants parted with nothing, made no new advance upon the contract or upon the moneys deposited as sécurity, they acquired no right to absorb the plaintiff’s money in extinguishing a debt due from Draper to them.

It was not necessary to prove that Draper was the plaintiff’s broker. The transaction itself sufficiently characterized the nature of his agency, and the existence of the fact ■of agency., whether known to the defendants or not, would deprive the defendants of the right to retain the plaintiff’s money to pay Draper’s debt.

Any evidence, therefore, tending to show that the defendants were informed for whose account the order was given, was immaterial, and its admission under objection was error.

The subsequent withdrawal of this evidence, however, .by the plaintiff, cured the error.

Dissent

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The defendants have no equity. They lost nothing, and should not gain anything from a third and innocent party.

I see no reason for' disturbing the judgment. It must therefore be affirmed.

Bussell, on Factors and Brokers, states the law to be, that only one class of brokers possess the right of general lien possessed by factors, (pp. 191, 196.) That class consists of insurance brokers. I find no case which holds that a stock broker possesses this right. The justice and equity of the case are with the plaintiff, and I am unwilling to reverse a judgment which is just in itself, without any authority to justify the reversal, especially when the judgment is supported not only by its intrinsic justice, but by standard writers upon elementary law.

It is quite clear, upon the testimony, that the funds furnished to the defendants by Draper, to be used as security, were not the identical $1,000 which had been sent to the latter by the plaintiff; Draper having given his own check to the defendants for a much larger amount, out of which the $1,000 was to be taken and applied by them, and having deposited to his own credit, or otherwise appropriated the funds transmitted to him by the plaintiff. The plaintiff, therefore, is not entitled to recover the specific funds deposited, as in an action of replevin, or for the delivery to him of personal property of which he is the owner, and which is unlawfully detained from him. If he has any standing in Oourt to recover the money deposited by Draper, it must be by virtue of his right to claim the substituted fund. It may be added here, that the finding of the Beferee to the effect that the $1,000 placed in the .hands of the defendants by Draper was the same money which was received by him from the plaintiff is erroneous, the evidence, which is entirely uncontradicted, showing that it was not the same. He has also erred in finding, as a fact, that the' deposit was made with the defendants when the order was given,

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instead of at the time the statement of the purchase was rendered by them. As these questions of fact, particularly the former, may be. of importance if the case should be taken to the Court of dernier resort, I think that, under the defendants’ exceptions, the General Term should reverse the judgment and direct a new trial for this reason.

Upon the trial the defendants offered evidence to prove, first, that in receiving the order, the defendants understood the order to be for Draper’s account, and his only, and that they had no notice or information to the contrary until after this action was commenced; second, that by the uniform and established usage and custom of brokers and dealers in stock in the City of Hew York, the purchaser and seller are uniformly regarded and treated, each by the other, as principal, and as making any sale and purchase on his own account, unless at the time of giving the order he declares the same to be for the account of some other person named by him; and, third, that at the time the order was given, Draper was indebted to the defendants in a sum exceeding $9,000, which, at the time of the trial, was still due and unpaid. The testimony in each case was objected to by the counsel for the plaintiff, and excluded by the Referee, whereupon the defendants duly excepted.

The exclusion of the evidence thus offered was erroneous in each instance. The proof of the non-disclosure of' the name of the plaintiff, and of the custom of 'brokers, was not offered for the purpose of invalidating the order, or changing the effect of the terms employed, but to support it by removing any ambiguity that might have been supposed to exist, involving the intentions of the parties, by reason of the relation which had been proved between the plaintiff and Draper, and was therefore admissible. It was upon this principle that the Court held, in Child v, Morley, (8 Term R., 614,) that the fact as to whether, by the general usage of the Stock Exchange, brokers contracting for the sale of stocks, and not disclosing the names of their principals, were considered as

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impliedly pledging their own credit for the faithful performance of the contract, may be proven.

So, too, as to the evidence of Draper’s indebtedness to the defendants. It is true that an unknown principal may recover for goods sold by his agent, and will be liable, when discovered, for goods purchased by him; but, Avhen the name of the principal is not disclosed, that is so only in eases where he assumes the liabilities and obligations of his agent, and stands in his place. Where a principal permits his«,agent to deal as apparent principal, and after-wards intervenes, the person dealing with such agent is entitled to be placed in the same situation as if the agent had been the real contracting party, and is entitled to the same defense, whether it be by payment or set-off, as he would have been entitled to against the agent and apparent principal, had there been no such intervention. (Carr v. Hinchliffe, 4 B. & C., 547; Gordon v. Ellis, 2 Com. B. R., 821; George v. Clagett, 7 Term R., 359; Ratone v. Williams, Id., 360, n.; Tucker v. Tucker, 4 B. & Ad., 745; Isberg v. Bowden, 22 L. & Eq. R., 551; Hogan v. Shorb, 24 Wend., 458 ; Story on Agency, §§ 390, 404, 420, 423; Paley on Agency, 151, 325; 1 Parsons on Cont., 53.) And, in this case, Draper so dealt with the defendants as to exclude the idea that he acted as agent for another person. It is not a mere .question of lien; but the defense of the defendants rests upon their right to offset a demand which they had against the person with Avhom they dealt, in liquidation of a balance that otherwise would have been due from them to Mm, according to the conditions of the contract between them.

It may properly be said, too, that although the defendants are called brokers, they did not act simply, if at all, as brokers, in the restricted sense in which that term is used in the books; that is, as applied to persons who are merely gobetweens for the parties in interest, within the knowledge of such parties, maMng their bargains for them, selling by samples, &e., and never having the property in their possession, nor meddling with its proceeds. Here the defend

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ants, under Draper’s directions, did all this; and may, therefore, be considered, with reference to this transaction, as factors.

The admission of parol evidence to show that the plaintiff was the real party in interest, although that fact was not disclosed to the defendants, seem also to have been erroneous,'the only object and effect of it being to contradict the written order, which directs the defendants to purchase the. stocks for the account and risk of Draper, and the bought and sold note, furnished to Draper*at the time the $1,000 was advanced, which declares upon its face that the stock was purchased for his account and risk.

The judgment should therefore be reversed, and a new ■trial granted.

Judgment affirmed.