White v. . Smith

*525 Earl, C. On the trial the defendants claimed that the plaintiff suffered no loss from their disobedience of his order, because he could have bought the stock in the market for the same price they could, and that the plaintiff should be defeated, because he had no right to insist that they should advance the cost of the stock which they were ordered to purchase. The court ruled that the proper measure of damages was the profit the plaintiff would have made if the defendants had obeyed his order, and instructed the jury that this was to be arrived at by comparing the price at which the stock was sold on the eighteenth day of October, with the price at which it could have been bought to cover the short sale on the second day of November, when the order to cover was given by plaintiff. There are two questions for our consideration: Whether the plaintiff was entitled to recover anything, and, if he was, whether the court laid down the proper rule of damages. That the plaintiff was entitled to recover something, I can entertain no doubt. He had made an arrangement with the defendants, whereby they were to buy and sell stocks for him, he furnishing a margin of at least ten per cent, and paying them the usual commissions and interest on money advanced. On the 18th day of October, 1869, he had on deposit with them, as margin, about $5,900, and he ordered them to sell for him 300 shares of New York Central railroad stock. This order they at once filled for him, by what is called a short sale of 300 shares of the stock, at an average price of 186 per share. They borrowed the stock and delivered it to the purchasers. As nothing appears to the contrary, we must assume that the purchasers paid for the stock, and thus the defendants had, including the margin, over $60,000 to cover the short sale by buying in stock to replace that borrowed. By a sale of the stock, the transaction was but half completed. Every short sale is made by the seller with the contemplation of covering it when the market shall have declined, and for the purpose of making a profit by the decline. I believe, in such case, until the stock is bought in and the short sale covered, the *526 broker is said to cany the stock for his principal, and while he carries it he generally relies upon the margin placed in his hands as his security against -loss by any advance in the market. I am of opinion that when a broker agrees, for a commission to be.paidtohim, and upon the deposit with him of a margin agreed on, to make a short sale for a customer, it is part of the bargain that the broker shall carry the stock for a reasonable time, for in no other way can the object of the parties be effectuated. A short sale to be covered immediately, without waiting for any decline in the market, would be a very idle transaction. The broker can, however, close the transaction at any time if the margin, upon his demand and notice, is not kept good; and after he has carried the stock for a reasonable time, thus affording his customer an opportunity to realize his expectations, he may, upon notice, close the transaction with his customer. But however this' may be, the broker has not the right, unless it be specially conferred upon him, to buy in the stock, cover the sale, and thus close the transaction, without some notice to or direction from his customer. He is the agent of his customer, and must obey his orders both in making the sale and in covering it. If he acts without orders or against the. orders -of his principal he commits a breach of duty, and becomes liable, like any agent, for any loss he may thus occasion his principal. On the first of ¡November the plain- ^ tiff’s margin had become reduced to about $3,000, less than the ten per cent required by his arrangement with the defendants. But they had not made any demand upon him for more margin. On that day, without any notice to him, and without any authority from him, they bought in the stock and replaced the borrowed stock, and thus covered the short sale. The next day the plaintiff, without knowing what had been done, directed them to cover the sale, which they did not do and could not do, because they had disabled themselves from doing it. For this breach of duty they became ■ liable to the plaintiff for any damage he suffered as the direct consequence thereof. (Story on Agency, § 217, c.) *527 It is no answer to plaintiff’s claim for defendants to say that he could have gone into market on the same day and made the purchase of stock himself. He was far away from New York, and d'id not know that the defendants did not obey and were not willing to obey his order. Besides, the defendants had covered the sale the day before, and it could not be again covered by plaintiff on the second of November or any subsequent day. Neither is it any answer for defendants to say that the plaintiff did not furnish them any money to make the purchase. The contract required them to furnish the funds. But if it did not, what they realized when they made the short sale, together with the margin in their hands, was more than sufficient to enable them to buy stock to cover the sale. The very nature of the whole transaction was such that the plaintiff could not be required to advance any funds so long as he kept his margin good. It is, therefore, quite clear that the plaintiff was entitled to recover something, and the next inquiry is how much. If the defendants had not disabled themselves from obeying the order, and had obeyed it, the plaintiff would have made the precise sum which the jury awarded him. The loss of this profit was the direct and proximate consequence of the defendants’ breach of duty to the plaintiff, and I know of no rule of law that was violated by the measure of damages adopted. The judgment should, therefore, be affirmed, with costs. All concur. Judgment affirmed.