Hurd v. . Taylor

Cullen, Ch. J. The complaint alleged in general terms that the defendant was indebted to the plaintiff for moneys laid out and expended on the defendant’s, behalf in six several sums of money which constituted as many several causes of action. The defendant answered, interposing a general denial *233 and alleging that the sums claimed to have been expended by the plaintiff for the defendant were paid under a gambling contract between the parties dependent on the fluctuations in the market values of certain stocks. The only testimony given on the trial was that of the plaintiff himself. At the close of the evidence the defendant asked the court to dismiss the complaint on the ground that the plaintiff’s testimony showed that the transactions between the parties did not contemplate an actual purchase of stocks but were mere wagers or bets on the fluctuations of the stock market. This request was refused and the question of the character and legality of the transactions was submitted to the jury for determination, which found a verdict for the plaintiff. The Appellate Division, by a divided court, has affirmed the judgment entered on that verdict, the minority holding that the testimony conclusively established that those transactions were mere wagers or betting contracts. The law of this state as to the purchase and sale of stocks is well settled. The purchase of stocks through a broker, though the party ordering such purchase does not intend to hold the stocks as an investment, but expects the broker to carry them for him with the design on the part of the purchaser to sell again the stocks when their market value has enhanced is, however speculative, entirely legal. Equally so is a “ short ” sale, where the seller has not the stock he assumes to sell, but borrows it and expects to replace it when the market value has declined. But to make such transactions legal they must contemplate an actual purchase or an actual sale of stocks by the broker, or through him. (Bigelow v. Benedict, 70 N. Y. 202; Yerkes v. Salomon, 11 Hun, 471; Kingsbury v. Kirwan, 77 N. Y. 612; Peck v. Doran & Wright Co., 57 Hun, 343; Embrey v. Jemison, 131 U. S. 336.) If the intention is that the so-called broker shall pay his customer the difference between the market price at which the stocks were ordered purchased and that at which they were ordered sold, in case such fluctuation is in favor of the customer, or that in case it is against the customer the customer *234 shall pay the broker that difference, no purchases or sales being made, the transaction is a wager and, therefore, illegal. Such business is merely gambling in which the so-called, com mission for purchases and sales that are never made is simply the percentage which in other gambling games is reserved in favor of the keeper of the establishment. The testimony given by the plaintiff in this case is very meagre. He had a place of business in Auburn where he purported to deal in the purchase and sale of stocks. He states that he did not himself make such purchases or sales, but telegraphed the orders received by him to the Albany Municipal Telegraph & Stock Company, a corporation as he understood, but of which and its business methods he professes to have known almost nothing. The arrangement between that company and the plaintiff was that the plaintiff should keep half the commissions he received while the profits on the stock transactions were taken or the losses thereon borne by the Albany company. The plaintiff testified that he received from the defendant various orders for the sale and purchase of stocks, and losses having occurred thereon he paid the amount thereof to the Albany company. It is for such losses that this action is brought. There is no proof in this case that the Albany company ever actually bought or sold a single share of stock. The only testimony in that respect is that of the plaintiff, who says that he telegraphed the Albany company to make such sales or purchases and that the company reported it had done so. The right of a broker to recover from his customer results solely from the execution of the latter’s orders. Even where the transaction .is entirely legitimate, if the broker fails to carry out the order óf a customer for the purchase or sale of stocks he cannot recover of the customer the loss that would have accrued had the order actually been executed; in other words, he cannot bet against his customer. Therefore, in the case before us had the motion for nonsuit been made on the ground that there was no legal proof of any purchase or sale of stocks the motion must have been granted. The fact that no proof of that character was given is not without *235 force in determining the nature of the transactions between the parties, and in determining the nature of the business the plaintiff carried on. On the witness stand he was naturally desirous of avoiding a disclosure of the real character of his business. He fenced with counsel, but finally there was elicited from him the following testimony: “ Q. It was not thought by you to be a regular sale of the scrip of the Colorado Fuel & Iron Company ? A. Ho, sir. * * * Q. But you expected a settlement would be made according to the market value when the transaction was closed — you expected to pay him in money if he won, and if he lost he would pay you money ? A. I would not pay him any money, it would come from the house. Q. The money would come through you ? A. Yes, sir. Q. You intended that when the transaction was closed the fluctuation of the market would decide who had won or lost? A. Y"es, sir.” In the light of these admissions and of the fact that there was no proof of any actual sales or purchase of stock we agree with the minority of the learned Appellate Division in the opinion that the agreement under which a recovery is sought in this action was clearly shown to have been a mere wager contract and that the motion to dismiss the complaint on that ground should have been granted. The judgment appealed from should be reversed and a new trial granted, costs to abide the event. Gray, O’Brien, Bartlett, Haight, Vann and Werner, JJ., concur. Judgment reversed, etc.