Staples v. Gould — 7 N.Y. Super. Ct. 411

Majority

p. 411

John B. Staples v. Charles Gould.

Headnote

The plaintiff not owning any Canton Co. stock, employed defendant, a broker who owned none of it, to sell for him 200 shares, at $66 per share, deliverable at plaintiff's option, at any time within thirty days thereafter, and deposited with defendant $750, to protect him against loss, in the business of such agency. The broker contracted to so sell, and notified the plaintiff, and within the thirty days, but without consulting him, bought and delivered stock in execution of the contract. Held, that the contract, which the defendant was employed to make, and the one made, were prohibited by the statute in relation to stock jobbing. That the money deposited, was advanced to be used for an illegal purpose, and to induce the defendant to engage, on plaintiff’s account, in a business prohibited by law, and could not be recovered back, the agency not having been revoked, nor a return of the money demanded, within the thirty days. Such a deposit, is not a payment, or delivery of money, by way of premium, or difference, within the meaning of § 8, of the act. The fact that the defendant makes the contract to sell, in his own name, without disclosing his principal, does not affect the rights of the parties.

(Before Dunn, Paine, and Bosworth, J. J.)

(February 17, 28, 1852.)

This action was tried before the Chief Justice, in December, 1851, and a verdict taken for the plaintiff, for $800, subject to opinion of the court, at a general term. The pleadings and evidence establish the following facts. The plaintiff, on the 15th of January, 1851, employed the defendant, a broker, to sell for him 200 shares of Canton Company stock, at the price of $66 per share, deliverable at the option of the plaintiff at any time within thirty days from that date, the stock to be paid for on delivery. In pursuance of such employment, the defendant, on the same day, as such broker and agent, and with the knowledge of the plaintiff, contracted to sell 100 shares, to Gilbert, Cobb & Johnson, and 100 shares to Wheelock & Brothers, at $66 per share, deliver

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.able at the option of the plaintiff, any time within thirty days thereafter. The contracts were made in the name of the defendant, without his disclosing to the purchasers, that the plaintiff was his principal. On the same day, the plaintiff deposited with the defendant, $750, in money, “ for the purpose of protecting the defendant against loss or damage in the business of such agency,” and with the agreement and understanding between them, “ tliat the defendant should have the right to retain so much of the moneys, as should be necessary fully to indemnify and save him harmless from loss or damage, by reason of such sales, so to be made by him, as the broker or agent of the plaintiff.” And the plaintiff agreed, in consideration of the acceptance of such agency, by the defendant, to indemnify and save him harmless from all loss and damage, by reason of such agency, and to fulfil and perform the contracts of sale, so made by the defendant, as his agent aiid broker.

The plaintiff did not own any stock when he employed the defendant to make the contract of sale, nor at the times whenthe contracts were -made, nor at any time within thirty days thereafter. The defendant did not own any of the stock, at the time he made the contracts. On the 20th of January, 1850, 850 shares of stock, of this company, were transferred to the defendant, on the transfer books of the company. On the same day he transferred to each of the purchasers, the 100 shares of stock, contracted on the 15th, to be sold them respectively. This stock brought on the morning of the 20th, $80, and at the close of that day, $85, per share. Before and at the expiration of the thirty days, it was worth less than $66, per share. There was no evidence tending to show, that the plaintiff know of the delivery of the stock, on the 20th of January, to the purchasers, or that the defendant requested the plaintiff to furnish any stock, to be delivered in satisfaction of the contracts, or that the plaintiff offered to furnish the stock, to enable the defendant to perform Ms contracts, or as a satisfaction for the defendant’s stock, which had been delivered in execution of the contracts. There was no attempt to prove, that the plaintiff, during the thirty days next after the making of the contracts, demanded a return of the $750, from the defendant, or notified him not to perform the contracts.

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The Chief Justice “ reserved all the .questions in the case, and directed a verdict for the plaintiff, subject to the opinion of the court, upon a case to be made, either party to be at liberty to turn the case into a bill of exceptions, the case to be heard at general term, without an appeal, and with liberty, to the court, to order a nonsuit or judgment for the defendant.”

The case made, shows the facts to be as before stated.

C. P. Kirkland, for plaintiff, insisted that he was entitled to judgment upon the verdict.

I. The $750 was paid by the plaintiff to the defendant substantially as a premium or difference; and the case is within the spirit and intent of the 6th and 8th sections of the act to prevent stock jobbing. (1 R. S. 892, 3d ed.; 710,1st ed.)'

The plaintiff is, on this ground, entitled to recover.

The facts stated in the defendant’s answer, show that the money was paid to and received by him as a difference, and that this was the substance of the transaction between the parties.

■ II. If this is not so, then the contract between the plaintiff and defendant was a legal one ; the plaintiff legally employed the defendant, to make a lawful contract for the sale of the stock. The testimony shows that, at the time the defendant contracted to sell to Gilbert & Johnson, and to Wheelock & Brother, neither he nor the plaintiff had any stock. Consequently, the defendant’s contract with Gilbert & Johnson, an'd Wheelock & Brother, was an illegal contract, such, an one as he had no right or power to make to affect the plaintiff, in any manner. He, of course, is not entitled to retain the money. (Vide Sects, above cited.)

III. But suppose the defendant’s contract with Johnson, &c., to be legal, then, clearly, the defendant has no right to retain the money, because he delivered the stock within five days after the contract, instead of waiting the thirty.. The plaintiff has a right to the thirty days, and if the defendant delivered before, it was at his own risk.

IV. Assuming the whole transaction, in all its parts, to have been legal, it is manifest that the defendant cannot retain the money. He could, in no legal sense, have been damnified,

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because at the expiration of the thirty days, fixed by the contract, the stock was below the contract price with Johnson, &c., viz. 66. The defendant could, therefore, have delivered it, and thus fulfilled the contract, without any loss whatever.

J. Larocque, for defendant.

I. Neither the plaintiff, nor the defendant, at the time when the latter was employed by the former to sell stock, having had the possession, ownership, or control thereof, the whole contract was illegal and void. (2 R. S. 892, 3d edition, secs. 6 and 7.)

II. The deposit of the $750, now sought to be recovered back, was made to secure this illegal contract; and the well settled principle, that the law will not assist either party to such a contract to enforce any of its provisions, or to recover back any thing advanced under it, therefore applies, and bars a' recovery. (Pennington v. Townsend, 7 Wend. 276 ; Nellis v. Clark, 4 Hill, 424 ; 2 Sand. S. C. 146, Bell v. Quin.) (1.) This is not the case of a premium or difference actually paid, under the 8th section of the act, but only that of a deposit of money, with the agent or broker employed to make the contract, as an indemnity or security to him, against a premium or difference which he might be compelled to pay, in consequence of making it. (2.) The 8th section, giving the action to recover back a premium or difference paid, is highly penal, and must therefore be strictly construed. (3.) It has been decided, that money lent to be staked on the event of a horse race, cannot be recovered back, on account of the illegality of the contract, to facilitate the making of which it is lent. (Ruckman v. Bryan, 3 Denio, 340 , ed. 307; McKinnel v. Robinson, 3 Mees. & W. 434; Cannan v. Bryce, 3 Barn. & Ald. 179; and other cases cited in Ruckman v. Bryan, 1 R. S. 639, § 9.) (4.) This is a stronger case for the defendant than that, because there is no evidence here, that when the contract was made, the defendant knew that the plaintiff had not the stock, while the borrower, in the case of the bet, was himself a particeps criminis.

III. The defendant, on discovering that the plaintiff had not the stock, which he had employed him to sell, as his broker, was

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justified in fulfilling the contract before the expiration of the thirty days. (1.) He was exposed to, and has actually sustained a very severe loss, in addition to the $750, now in controversy, and which loss would have been more than doubled at the price to which the stock afterwards rose. (2.) The defendant was not bound to take advantage of the illegality of a contract, which he had made, according to established usage, in his own name, without disclosing his principal.

For these reasons, there should be judgment for defendant, with costs.

By the Court.

The plaintiff advanced his money to the defendant, to indemnify him against any losses he might incur by reason of making, or having made, contracts for the sale of two hundred shares of Canton stock. The obvious purpose of the advance was to furnish moneys, with which the defendants might pay the amount of any increase there might be in the value of the stock on the day for the delivery of it, above the contract price of $66 per share. The plaintiff did not own any stock at the time he authorized the contract to be made, nor at the time he was notified that the contracts had been made, nor within thirty days thereafter. The only inference is, that he employed the defendant to make a contract, which is declared void by statute. If it was intended that the defendant should contract in the plaintiff’s name, as principal, then he employed the defendant to make a contract, falling within the express words of the statute, in relation to stock jobbing, 1 R. S. 710, § 6.

It was probably intended that the defendant should contract it in his own name, without disclosing his principal. If this was not intended, the deposit of the $750, as an indemnity against the consequences of contracting, would»be an idle ceremony. For if it was intended that the defendant should expressly contract, as agent, in behalf of the plaintiff, as principal, no indemnity would be wanted, as the defendant could not then in any event be subjected to liability, or loss, by reason of making the contract, whether the transaction was lawful or unlawful. A contract on time for the sale of stock, made through the medium of a broker, where the name of the principal is not disclosed,

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is as much within the mischief of the statute, as if made by the principal personally in his own name. (6 Paige, 124, Gram v. Stebbins and Stebbins; 2 Hall, 162 , J. & W. G. Ward v. Van Duzer.)

The defendant did not own any stock, when he made the contracts. The contracts were therefore void, whether regarded as his contracts or those of the plaintiff. The answer and complaint severally aver that the contracts were made by the defendant, on account of the plaintiff.

The money advanced was delivered to the defendant, to secure his aid in furtherance • of an object, repugnant to the express provisions of the statute, and to be put by the latter to an unlawful use, if such use of it should become necessary to save him from loss or damage on his contracts. It was therefore advanced to be used for an illegal purpose, and as an inducement to the defendant, to engage, on the account of the plaintiff, in transactions contravening the policy of a statute law of the state. It is well settled that an act malum prohibitum, or malum in se, cannot be made the foundation of a civil right, which will be enforced in a court of justice. If a person lends money, or sells property to be put to an unlawful use, and if such unlawful use enters into the contract, and is the inducement to the loan -or sale, the lender cannot recover back the money lent, nor the vendor, for the property sold, though not in any other respect, a party to, or connected with, the unlawful action. ( 5 Denio, 364 , Morgan v. Groff; 2 Sand. S. C. R. 146, Bell v. Quin; 7 Wend. 276 , Pennington & Kean v. Townsend; 3 Mees. & Wells, 434, McKinnell v. Robinson; Vide Gray v. Hook, 4 Coms. 449.)

The plaintiff cannot recover under § 8 of the statute. That section provides that, “ every person who shall pay and deliver any money, by way of premium or difference, in pursuance of any contract or wager, in the two last sections declared void, may recover such money, &c., of and from the party receiving the same, and his personal representatives.”

This was not paid or delivered as a premium ór difference. It was paid or delivered to indemnify the defendant against the losses to which his contract might subject him. It was not paid either as a premium or difference, in pursuance of the contract

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of sale which defendant made with Gilbert, Cobb & Johnson, or with Wheelock & Brother. There was never anything paid in pursuance of either of those contracts, as a premium or difference ; there was a literal performance of each of those contracts by a delivery of the stock sold. That section evidently means that where a person sells stock on time, not then being the owner of any, at a stipulated price, and, instead of delivering it, pays the excess of its market value above the contract price, or receives the excess of the contract price above the market value, the party so paying the premium or the difference, may recover back the amount thus paid. The extent of the statutory provisions is simply this: the contract of sale is made void ; it cannot be enforced by either party, neither can recover damages for the breach of it. If, instead of being literally executed, either party, in pursuance of such contract, has paid or delivered money by way of premium or difference, he may recover it back. In this case the defendant, in substance and effect, received the money, to be paid by him by way of premium or difference, if the market value of stock at the period for fulfilling the contracts, should exceed the contract price; this, at all events, is the interpretation of the object of the advance most favorable to the plaintiff, so far as his right to recover under the eighth section is concerned. If it was in fact advanced, or deposited, merely to secure the defendant from loss, by reason of making the contract, without any intention that it should be actually applied in any event, to pay a premium or difference, then the advance or deposit is not such a payment or delivery, as is specified in the eighth section of this act, therefore it cannot be recovered back under that section ( 5 Denio, 364 , Morgan v. Gross). Neither can the plaintiff say that he repented of his intended violation of the statute before it was violated, that he so notified the defendant, revoked the agency, and demanded a return of the money, and that therefore he is entitled to recover it back. The plaintiff cannot recover on such grounds ; even if the law would aid him to recover back the money, on such a state of facts, it is a sufficient answer to say, that such are not the facts of this case.

There is no proof of a revocation of the agency; on the contrary, the contracts were made for the plaintiff’s benefit. He

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was so notified, and did not dissent ,• no request for a return of the money was made, until after the whole time, allowed for a delivery of the stock, had elapsed. If the locus ■penitentim could continue beyond that period, it would continue until the plaintiff’s claim should be barred by the statute of limitations ; the repentance for which the law gives opportunity to a party is repentance of a purpose to offend against public policy, or to violate the laws, and not of having lost his money ; it must therefore be exercised while a contract is executory, or before the contingent event happens; the happening of the event is the crisis in the contract, which terminates all election, option, or repentance. -If that principle could by any possibility be applied to a case of this character, the rescission of the contract, and demand of a return of the money, should have been made within the thirty days fixed for the delivery of the stock.

What would have been the rights of the parties if it had appeared that the plaintiff, during the thirty days, had notified the defendant not to perform the contracts, and had demanded a return of the money advanced, it is unnecessary, therefore, to discuss, and no opinion is intended to be expressed on that point.

On the case as now presented to the court, the verdict should be set aside, and a judgment of non-suit entered.

Cases cited

Pennington v. Townsend 7 Wend. 276 N.Y. Sup. Ct. p. 414, p. 416