Colt v. Owens — 47 N.Y. Super. Ct. 430

Majority

p. 430

ROSWELL L. COLT, Appellant, v. WILLIAM I. OWENS, et al., Respondents.

Headnote

I. Damages, Measure of.

1. SALE OF STOCK, AGREED TO BE PURCHASED AND CARRIED UPON THE GUARANTY OF A THIRD PARTY AGAINST LOSS.

(a) Upon ail unauthorized sale of the stock the measure of damages of the party for whom the stock was to be carried (he not having made any payment on account of the purchase of the stock) is the difference between the purchase price and tlie

p. 431

price he would have been obliged to pay in the market for the stock within a reasonable time after the sale. Baker 0. Drake. 53 W. T. 311 , applied.

1. Reasonable time. Thirty days after notice to the party for whom the stock was to be carried, is. If during all such period the stock could have been bought for the purchase price or less, no damage, recoverable against the party who was to carry the stock, is sustained.

1. The guaranty, effect of. Its existence does not bring it within the distinctions pointed out in Baker 0. Drake.

Before Sedgwick, Oh. J., Speir and Freedman", JJ„

Decided June 13, 1881.

Appeal by plaintiff, from judgment entered upon verdict directed by court, for plaintiff, in nominal damages ; and also from order denying motion for new trial, made upon the minutes.

The defendants were stock-brokers and in consideration of the guaranty of a third person, against loss-in the matter, agreed with the plaintiff to buy and hold for him, subject to his order, certain shares of stock. The shares were bought and held for a time, until the guarantor notified the defendants that he withdrew his guaranty against loss. The defendants notified the plaintiff of that withdrawal and'that they would sell the shares unless the plaintiff gave further security against loss. The plaintiff denied the light of the defendants to assent to the withdrawal of the guaranty, and claimed that the defendants should continue to hold the shares, until the plaintiff should direct their sale. The defendants thereupon sold the shares, under such circumstances, that it was admitted upon the trial that the sale was unauthorized. The only question mooted upon the trial, related to the measure of damages. The testimony showed that on.

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November 15 the defendants sold the stock at 69% and gave the plaintiff notice that the sale had been made and of the price. For thirty days thereafter the stock could have been bought in the market for that price or less. In the following January, the plaintiff gave an order that the stock be sold. At that time its market value was about 80. The plaintiff claimed that as damages' he was entitled to the difference between the purchase price and the value in January. The court held that he was entitled to the difference between the purchase price and the price he would have been obliged to pay in the market, within a reasonable time after the unauthorized sale. The court considered, that the facts were; that within a reasonable time the plaintiff could have' bought the stock for the price of the unauthorized sale or less, and therefore that the defendants were responsible in but nominal damages.

Adolphus D. Pape, attorney, and of counsel. for appellant, urged :

I. It is conceded that the defendants’ sale was unauthorized, and was therefore a conversion. But defendants insist, and the court held, ’ that under the rule of damages established in Baker v. Drake ( 53 N. Y. 211 ,) plaintiff was entitled to nominal damages only, and directed a verdict for six cents. Plaintiff insists that this was a misapplication of that rule, for the following reasons : Plaintiff had supplied defendants with an acceptable guaranty, and his rights were the same as though he had paid the purchase- ' money in full. By this unauthorized sale defendants not only deprived plaintiff of the profits of the subsequent rise, but of the guaranty which secured defendants against loss from carrying the stock till that rise took place. This case is therefore distinguished from Baker v. Drake, because in Baker v. Drake the stock was bought on a margin which had been exhausted, and the loss was only of profits ; and it appearing that

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Baker could have bought back the stock and thereby indemnified himself, it was bis duty to buy it, and not the duty of defendants, because the decline of the stock had exhausted Baker’s margin ; and as Judge Rapallo said : “ But, that where he has paid the purchase-money, i t is unreasonable to require him to pay if the second time, and therefore all fluctuations in price should be at the risk of the vendor who refuses to deliver, while retaining the purchase-money.” The same principle is laid down in the case of Suydam v. Jenkins (3 Sand. 620), and the following cases illustrate and enforce same rule: Paige v. Fowler, 39 Cal. 412 ; Sturges v. Keith, 57 Ill. 451 ; see also Sedgw. on Damages, 561-623.

II. The court erred in not allowing the jury to pass upon the question whether the time between the sale and the rise of the stock was sufficiently reasonable to enable plaintiff to indemnify himself. This is a question of fact (see Baker v. Drake, 66 N. Y. 523 ). There are features in this case which a jury might and should have considered in determining whether the time was reasonable. The defendants destroyed the plaintiff’s guaranty. Their act rendered it inoperative. The plaintiff could not have used it elsewhere for the same purpose. If his margin had been money or collaterals, he could have bought the stock upon it through other brokers. Therefore he was placed in a much more disadvantageous position than though his margin had been transferable and available in other quarters. In Scott v. Rogers ( 31 N. Y. 682 ), it is decided that four months was a reasonable time.

Ely & Smith, attorneys, and Ereling H. Smith,, of counsel, for respondents, urged:

I. It is a familiar rule of law that it is incumbent upon everyone suffering injury from a breach of contract to lessen the damages as far as he can do so by any acts of his own (Ham

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ilton v. McPherson, 38 N. Y. 73 ; Clark v. Marsiglia, 1 Denio, 317 ; Dillon v. Anderson, 43 N. Y. 72 ).231

II. The law is settled in this State that the only damages a customer can recover from a broker for an unauthorized sale of stocks carried on a margin for speculative purposes, is the advance (if any) in the market price of the stocks, from the sale to a reasonable time after notice thereof is received by the customer (Baker v. Drake, 53 N. Y. 211 ; Same v. Same, 66 Id: 518). This case changes the rule of damages adopted in Markham v. Jaudon ( 41 N. Y. 335 ), and to that extent overrules the latter case.

III. The transaction in question was a pure speculation on the part of the plaintiff. He did not even have a margin deposited on his stocks and at the time of the sale there was a loss on them of over $500; All the money to pay for them was advanced by defendants. This case therefore comes directly within Baker v. Drake (supra).

IY. The court would not have been justified in submitting the question to the jury as to whether plaintiff had a reasonable time after notice of the sale to purchase his stocks, before they advanced beyond the price paid for them, viz., $71 per share. The case does not show when they again reached that price, but it was some time after December 18, 1878, and therefore more than thirty-three days after notice of the sale. A verdict against the defendants on this question would have been so palpably erroneous as to have compelled the court to have immediately set it aside.

Y. The guaranty that plaintiff testifies to, in no way changed the speculative character of the transaction. It was simply a promise by a third person to save the defendants from loss. This promise, in the most favorable view for plaintiff, simply took the place of a cash margin. It in no way made the purchase an

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investment, or other than a speculative one of the-same description as that in Baker v. Drake.

VI. The guaranty of Hopper, testified to by plaintiff, not being in writing," was void under the statute-of frauds.

The ruling of' the court is sustained by Baker v. Drake ( 53 N. Y. 311 ). The space of thirty days, within which the1 plaintiff might have regained the stock in the market' without loss, is the reasonable time within which he should have acted. It is not meant to say that a less time would not be reasonable.

The learned counsel for appellant argues from the fact that the defendant had security, in the shape of a guaranty from a third person, that certain distinctions' pointed out in Baker v. Drake recognize that its decision does not affect a case like the present. In that case, it was said that ‘1 if the stocks had been paid for and owned by the plaintiff different considerations would arise,” and “that where he has paid the purchase-money, it is unreasonable to require him to pay it the second time, and therefore all fluctuations in price should be at the risk of the vendor who refuses to deliver.” There is nothing in this case to show that the withdrawal of the guaranty or the arrangement between the guarani Gr- and the plaintiff, had taken any part of plaintiff’s; means of buying the stock on his own account. After the withdrawal he had the same facilities for buying-that he was possessed of before it was given. It was proven that he paid nothing for the guaranty and he-was liable to pay nothing. I am of opinion that the; decision of Baker v. Drake should be applied here,

Judgment and order affirmed, with costs.

Speir and Freedman, JJ., concurred.

Cases cited

Baker v. Drake 53 N. Y. 211 N.Y. 1873-09-23 p. 432, p. 434
Page v. Fowler 39 Cal. 412 Cal. p. 433