Covell v. Loud

Devens, J. The relation of the parties existed by force of a mutual and dependent contract, by which the defendants agreed to purchase and hold, or carry, for the plaintiff a certain number of shares of stock, he paying a certain sum of money at the time, agreeing to pay interest on the sums advanced by the defendants, and, in case the stock depreciated, to make what is termed a margin of $10 per share in excess of the market price of the stock, as that might change from time to time. As the plaintiff failed to perform his part of the contract by making the necessary advances upon demand, the stock having rapidly depreciated in value, he has no ground of complaint that the defendants ceased to hold and carry it for him, and thereafter disposed of it. We are aware that transactions of this nature have sometimes been held to make the broker who purchases the stock an agent for the customer, and to treat him as holding it thereafter as a pledgee for the money advanced for its purchase. Markham v. Jaudon, 41 N. Y. 235. Stenton v. Jerome, 54 N. Y. 480. Baker v. Drake, 66 N. Y. 518. Gruman v. Smith, 81 N. Y. 25. But [44] in Wood v. Hayes, 15 Gray, 375, it was held that a broker who advanced money to buy stock for another, and held it in his own name, might, so long as he had not been paid or tendered the amount of his advances, pledge it as security for his own debt to a third person, without making himself liable to an action by his employer, and this upon the ground that the contract was conditional to deliver the shares upon the payment of the money. It ■ cannot make any difference that, in this case, a small portion of the money necessary for the original purchase was advanced by the customer. If the transaction were treated as creating a pledge, we should here, upon the facts as they appear, reach a similar result. When the money to be paid or the thing to be done is not paid or performed, the pledgee may not only dispose of the pledge by public auction, as provided in the Pub. Sts. c. 192, §§ 10, 11, but may also do so “ in any other manner allowed by the contract or by the rules of law.” Pub. Sts. c. 192, § 12. When the plaintiff was called on to make good his margin, by advancing the necessary sums, he told the defendants that he could pay them no more, and requested them to do the best they could for him. This was sufficient to give them authority to sell the stock, if in so doing they acted fairly, and with proper regard to the interests of the plaintiff. Nothing appears tending to show that they acted otherwise. We have not deemed it necessary to consider whether a usage of brokers, known to the plaintiff, to sell stocks which are carried on a margin when the customer fails to make the advances agreed, is to be treated as forming a part of the contract; nor whether a contract like this of buying stocks on a margin is to be deemed so contrary to the policy of the law that neither party can maintain any action against the other for breach of it. Exceptions sustained.