A stockbroker received orders by telegraph from his principal to
sell certain securities belonging to the principal in his hands and
invest the proceeds in certain other securities named in the order
at a fixed limit. When the telegram arrived, the order might have
been executed that day, and the securities ordered could have been
bought within the limit. The principal was in the habit of dealing
with the agent in that way, the agent executing the orders, making
advances when necessary, and charging the principal with
commissions and interest. At the time when this order was received,
the principal was indebted to the agent for advances, commissions,
and interest about $4,000 more than the value of the securities in
his hands; the broker did not execute the order, did not notify the
principal by telegraph that he declined to do so, and made no
demand for further advances, but notified him of his refusal by a
letter written on the day when the order was received, but received
by the principal
Page 129 U. S. 194
two days later. The securities which had been ordered sold
depreciated below the prices at which they could have been sold on
that day, and those which had been ordered bought advanced, so that
they could have been sold at a large profit. The broker sued the
principal for advances on an open account current and interest and
commissions. The principal set up as a counterclaim the losses from
these sources
Held:
(1) That the broker was bound to follow the directions of his
principal or give notice that he declined to continue the
agency.
(2) That this notice should have been given by telegraph, and
that the delay caused by using the mail alone was inexcusable under
the circumstances.
(3) That in the absence of a special agreement to the contrary,
it was the principal's judgment, and not the broker's, that was to
control.
(4) That the broker was liable for all the damages which the
principal sustained by the refusal to change the stock, both on the
stocks ordered sold, and those ordered purchased.
The measure of damages in stock transactions between a
stockbroker and his principal, in which the principal suffers from
the neglect of the broker to execute orders, either for the sale of
stock which he holds for the principal or for the purchase of stock
which the principal orders, is not the highest intermediate value
up to the time of trial, but the highest intermediate value between
the time of the conversion and a reasonable time after the owner
has received notice of it, in this respect disregarding the rule
adopted in England and in several of the states in this country and
following the more recent rulings in the Court of Appeals of the
New York.
The case is stated in the opinion.
MR. JUSTICE BRADLEY delivered the opinion of the Court.
This is a suit brought by Jones, a stockbroker, against his
customer for the balance of account alleged to be due to the
plaintiff arising out of advances of money, and purchases and sales
made, and commissions. The complaint or declaration states
"that between the 15th day of January, 1877, and 15th day of
January, 1879, the plaintiff, as a stockbroker at the special
instance and request of the defendant, paid and advanced on an open
account current, to and for the use of the defendant, divers sums
of money, and also earned
Page 129 U. S. 195
at the defendant's request, and became entitled to, divers
commissions as a broker, for all of which monthly accounts were
rendered and balances struck, and, by agreement, interest charged
monthly on balances, and that on the 1st day of March, 1879, there
was due and unpaid from defendant to plaintiff the sum of
$6,232.30, no part of which has been paid."
Judgment is demanded for this sum, with interest and costs.
Galigher, the defendant below, in his answer, after denying any
indebtedness to the plaintiff, states that the plaintiff is a
banker at Salt Lake City, and that the defendant has had for two
years past an account with him as such, and that
"the plaintiff at the defendant's request, and as his agent,
bought or caused to be bought at the Mining Stock Exchange Board,
in San Francisco, California, certain mining stocks for and on
account of this defendant, and at various times thereafter in the
years 1877 and 1878, on the order and at the direction of this
defendant, and as his agent aforesaid, bought and sold mining and
other stocks up to about the date of the complaint; that at divers
times during and between the dates above specified, this defendant
paid into said plaintiff's bank sums of money on account of said
purchases and to the credit thereof, and which was so applied by
plaintiff on defendant's order."
"And defendant denies that at the date of the complaint the sum
of five thousand dollars, or any sum, was due the plaintiff on said
account, or on any account, for loans or advances from plaintiff to
defendant. Defendant further alleges that it was distinctly agreed
between the plaintiff and this defendant in the business that said
purchases of stock by the plaintiff were made on defendant's
credit, and that said stocks were bought and were to be held
subject to defendant's order at all times, this defendant agreeing
to pay said plaintiff commissions for his services as agent, and an
agreed rate of interest on any advances he might make, and at no
time had the plaintiff any authority to either buy or sell stocks
on defendant's account except by his order."
The defendant then set up the following counterclaims,
to-wit:
1. That on the 13th day of November, 1878, being at
Page 129 U. S. 196
Virginia City, he ordered the plaintiff (at Salt Lake City) by
telegraphic dispatch to sell certain mining stocks then in his
hands as defendant's agent, to-wit, 320 shares of "Justice" stock,
worth $9 per share; 50 shares of "Alta" stock, worth $8 per share;
200 shares of "Tip Top" stock, worth $1.60 per share, and to invest
the proceeds in "North Bonanza" stock, another mining stock on the
same board, which the defendant had been investigating. That the
plaintiff received this dispatch in ample time to make the
transaction as directed on that day, but refused and neglected to
do so, and that the defendant relied on its being done, and agreed
with another party to sell the stock he had ordered purchased. That
the plaintiff did not give notice to the defendant of his refusal
to comply with said order until several days afterwards, and then
by letter. That afterwards, and without any orders so to do, the
plaintiff sold the "Alta" stock at $7.75 per share; the "Justice"
at $4.40 per share, and the "Tip Top" at $1.25 per share, making a
net loss to defendant of $1,200, and that the "North Bonanza" stock
was not worth more than $2 per share on that day, and within five
days thereafter it advanced to $5.60 per share, which the defendant
would have realized if the plaintiff had complied with his order,
whereby the defendant lost the sum of $6,125.
2. The defendant further alleged that in the same month of
November, 1878, the plaintiff, as defendant's agent, held for him
600 shares of mining stock known as "Challenge" stock, and without
his consent, on the 27th and 29th of said November, sold the same
for his (the plaintiff's) own use, to the damage of the defendant
of $2,850.
3. That on the 22d day of November, 1877, the plaintiff held for
the defendant, as his agent, as aforesaid, 50 shares of mining
stock known as "Ophir" stock, worth at that date $37.50 per share,
and on that day pretended to defendant that he had sold said stock
for defendant, and so reported to him, when in fact he had not sold
said stock, but continued to hold the same, and afterwards sold it
for $100 per share, the advance amounting to $3,125, which is
justly due from the plaintiff to the defendant.
Page 129 U. S. 197
The case, being at issue, was tried by a jury and resulted in a
verdict of $5,412.50 for the defendant. This verdict was set aside
and a new trial awarded, and the case was next tried by a referee
appointed by the court. He duly reported his findings of fact and
law, upon which the court gave judgment for the plaintiff for the
sum of $7,028. The substance of the findings of fact was that the
plaintiff was a banker in Salt Lake City; that during the years
1878 and 1879, he bought and sold mining stocks for the defendant
upon defendant's order and request, and made the advances necessary
for the purchases, and was to receive commissions on the purchases
and sales, and interest on the advances, and to hold the stocks
purchased for defendant in his own name as collateral security for
any balance due to him. With regard to the first defense set up by
the defendant, the referee found that on the 13th of November,
1878, the plaintiff held of stocks purchased for defendant, among
others, 320 shares of "Justice," then worth $9 per share; 50 of
"Alta," worth $18 per share, and 200 of "Tip Top," worth $1.60 per
share, and that on that day the defendant, being at Virginia City,
ordered plaintiff by telegram to turn his said stocks, without
limit, into "North Bonanza" at limit of $2.75. That the plaintiff
received said telegram at Salt Lake City on the same day in time to
have sold the stocks ordered sold, and to have purchased the North
Bonanza, which was then selling for $2 and $2.50 per share. That
the plaintiff failed and refused to obey the directions given in
the telegram, and failed to notify the defendant of his refusal
until the 15th of November, when he notified him by letter written
on the 13th, and received by defendant on the 15th. That within a
few days, the price of North Bonanza advanced to $5 and $5.50 per
share, having reached $3.50 on the 16th of November, and before the
23d receded to a point below what it was on the 13th. The defendant
at the time of sending his telegram to the plaintiff, was owing him
more than $4,000 for advances, commissions, and interest, over and
above the market value of the stocks then held by him for the
defendant. As a conclusion of law and under the decision of the
supreme court of the territory given upon setting
Page 129 U. S. 198
aside the verdict rendered on the first trial, the referee
disallowed this counterclaim, holding, in conformity with the view
of the court, that the plaintiff was not bound to comply with the
defendant's directions about the stock and not bound to give him
any prompter notice than he did give. The court, in its opinion as
quoted by the referee in his report, had said:
"Was the plaintiff under obligation to sell the stock and invest
the proceeds of such sale as directed by the defendant? . . . This
order in effect directed the plaintiff to dispose of certain
securities held by him and to take another in place of them. I do
not find, in the examination of the record and testimony, any
contract or understanding between the parties requiring the
plaintiff to do it. The order to sell and reinvest being one, the
plaintiff was not obliged to comply with it. The difference between
the values of the stocks at the time the order was made and at the
time they were afterwards sold is immaterial in this action. The
right of the plaintiff to sell at the time of sale, and the good
faith and sound discretion in which it was made, are not in issue.
I am therefore of the opinion that the verdict allowing damages for
the failure of plaintiff to sell the Justice, Alta, and Tip Top
mining stocks, as directed by the defendant on November 13, 1878,
is not supported by evidence rightly before the jury, and that
there was error in admitting evidence as to the value of the stock
of the North Bonanza in support of the item of counterclaim, based
upon the failure of the plaintiff to comply with the order to
purchase."
In this we think the court was in error. A broker is but an
agent, and is bound to follow the directions of his principal or
give notice that he declines to continue the agency. In the absence
of a special agreement to the contrary, it is the principal's
judgment, and not his, that is to control in the purchase and sale
of stocks. The latter did not ask for any further advances by the
order in question; he only directed a conversion or change of one
stock into another. The plaintiff should have given prompt notice
that he objected, and declined to make the change. Telegraphic
communication was used by the defendant, and no reason appears why
the plaintiff could
Page 129 U. S. 199
not have used the same. The delay caused by using the mail alone
was inexcusable under the circumstances. The plaintiff charged
ample compensation for his services, and was bound to act
faithfully, fairly, and promptly. We think that he was liable for
all the damages which the defendant sustained by his refusal to
change the stocks, both for the loss on the sales of the "Justice,"
"Alta," and "Tip Top," and the loss occasioned by not purchasing
the "North Bonanza." The report of the referee, being made in
conformity with the decision of the supreme court, does not show
sufficient facts to determine the amount of loss in these respects.
If the answer states the facts truly, the loss on the failure to
sell the old stocks was over $2,000, and it appears from the report
that the North Bonanza could have been purchased at $2 to $2.50 per
share on the 13th of November, and sold for $5 to $5.50 within a
few days, showing a loss of $3 per share, and as the proceeds of
the other stocks, if they had been sold as directed, would have
been sufficient to purchase 1,600 to 2,000 shares of North Bonanza,
the loss on this account must have been more than $5,000. But the
want of a sufficient finding of facts necessitates a new trial.
As to the second item of counterclaim set up in the answer --
namely the alleged wrongful sale by the plaintiff of 600 shares of
"Challenge" stock -- the referee found that the plaintiff held such
stock for the defendant, and on the 27th and 29th of November,
1878, of his own motion and without notice to the defendant, sold
it for $1.25 per share; that in December, the stock sold as high as
$2 per share; in January, the highest price was $3.10; in February,
the highest price was $5.50. The referee allowed the defendant the
highest price in January, namely $3.10 per share, being an advance
of $1.85 above what the plaintiff sold the stock for, which, for
the whole 600 shares, amounted to $1,110. The reason assigned by
the referee for not allowing the defendant the highest price in
February (namely, $5.50 per share) was that before that time, the
defendant had reasonable time, after receiving notice of the sale
of his stock by the plaintiff, to replace it by the purchase of new
stock if he desired so to do, and he allowed him the
Page 129 U. S. 200
highest price which the stock reached within that reasonable
time. In this conclusion we think the referee was correct, and as
to this item we see no error in the result.
With respect to the third counterclaim set up in the answer, the
referee found that the plaintiff did sell the fifty shares of
"Ophir" stock mentioned therein on the 22d day of November, 1877,
as reported by him to the defendant. Consequently the referee
correctly found that the defendant was not entitled to any damages
on that account, as no dissatisfaction with the sale was expressed
by the defendant at the time. We see no error in this
conclusion.
It has been assumed in the consideration of the case that the
measure of damages in stock transactions of this kind is the
highest intermediate value reached by the stock between the time of
the wrongful act complained of and a reasonable time thereafter, to
be allowed to the party injured to place himself in the position he
would have been in had not his rights been violated. This rule is
most frequently exemplified in the wrongful conversion by one
person of stocks belonging to another. To allow merely their value
at the time of conversion would in most cases afford a very
inadequate remedy, and in the case of a broker holding the stocks
of his principal it would afford no remedy at all. The effect would
be to give to the broker the control of the stock, subject only to
nominal damages. The real injury sustained by the principal
consists not merely in the assumption of control over the stock,
but in the sale of it at an unfavorable time and for an unfavorable
price. Other goods wrongfully converted are generally supposed to
have a fixed market value at which they can be replaced at any
time, and hence, with regard to them, the ordinary measure of
damages is their value at the time of conversion, or, in case of
sale and purchase at the time fixed for their delivery. But the
application of this rule to stocks would, as before said, be very
inadequate and unjust. The rule of highest intermediate value, as
applied to stock transactions, has been adopted in England and in
several of the states in this country, while in some others it has
not obtained. The form and extent of the rule have been the
subject
Page 129 U. S. 201
of much discussion and conflict of opinion. The cases will be
found collected in Sedgwick on the Measure of Damages [479]. vol.
2, 7th ed. 379, note (b); Bayne on Damages 83, 92 Law Lib.; 1
Smith, Lead.Cas. (7th Amer. ed.) 367. The English cases usually
referred to are
Cud v. Rutter, 1 P.Wms. 572, 4th ed.
[London, 1777] note 3;
Owen v. Routh, 14 C.B. 327;
Loder v. Kekule, 3 C.B. (N.S.) 128;
France v.
Gaudet, L.R. 6 Q.B. 199. It is laid down in these cases that
where there has been a loan of stock and a breach of the agreement
to replace it, the measure of damages will be the value of the
stock at its highest price on or before the day of trial.
The same rule was approved by the Supreme Court of Pennsylvania
in
Bank of Montgomery v. Reese, 26 Penn.St. 143, and
Musgrave v. Zeckendorf, 53 Penn.St. 310. But it has been
restricted in that state to cases in which a trust relation exists
between the parties -- a relation which would probably be deemed to
exist between a stockbroker and his client.
See Wilson v.
Whitaker, 49 Penn.St. 114;
Huntingdon R. Co. v.
English, 86 Penn.St. 247.
Perhaps more transactions of this kind arise in the State of New
York than in all other parts of the country. The rule of highest
intermediate value up to the time of trial formerly prevailed in
that state, and may be found laid down in
Romaine v. Van
Allen, 26 N.Y. 309, and
Markham v. Judson, 41 N.Y.
235, and other cases, although the rigid application of the rule
was deprecated by the New York superior court in an able opinion by
Judge Duer in
Suydam v. Jenkins, 3 Sandf. 614. The
hardship which arose from estimating the damages by the highest
price up to the time of trial, which might be years after the
transaction occurred, was often so great that the Court of Appeals
of New York was constrained to introduce a material modification in
the form of the rule, and to hold the true and just measure of
damages in these cases to be the highest intermediate value of the
stock between the time of its conversion and a reasonable time
after the owner has received notice of it to enable him to replace
the stock. This modification of the rule was
Page 129 U. S. 202
very ably enforced in an opinion of the Court of Appeals
delivered by Judge Apollo in the case of
Baker v. Drake,
53 N.Y. 211, which was subsequently followed in the same case in 66
N.Y. 518, and in
Grumman v. Smith, 81 N.Y. 25;
Colt v.
Owens, 90 N.Y. 368, and
Wright v. Bank of Metropolis,
110 N.Y. 237.
It would be a Herculean task to review all the various and
conflicting opinions that have been delivered on this subject. On
the whole, it seems to us that the New York rule, as finally
settled by the Court of Appeals, has the most reasons in its favor,
and we adopt it as a correct view of the law.
The judgment is reversed and the cause remanded to the
Supreme Court of Utah with instructions to enter judgment in
conformity with this opinion.