Adams v. Dick

• Decision Date: 09 January 1917
• Citation: 115 N.E. 227,226 Mass. 46
• Parties: ADAMS v. DICK et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

226 Mass. 46

115 N.E. 227

ADAMS

v.DICK et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Jan. 9, 1917.

Report from Superior Court, Suffolk County.

Action by Francis W. Adams against Evans R. Dick and others. On report from the superior court after judgment for plaintiff on trial on an auditor's report for plaintiff. Affirmed.

Defendants' second, sixth, seventh, and eleventh requests for findings and rulings were as follows:

(2) The only evidence offered before me, in addition to the auditor's report put in by the plaintiff, being evidence offered by the defendants in support of their affirmative defense, I rule that the findings in the auditor's report respecting the plaintiff's intention and lack of intention are not such as to enable the plaintiff to recover under section 4 of the statute.

(6) It appearing that all the actual transactions of the defendants in carrying out the plaintiff's orders were had, and were intended by the plaintiff and defendants to be had, wholly in the state of New York, the plaintiff cannot recover if the defendants made, for the plaintiff's account and in accordance with the terms of their employment, purchases and sales of the securities which were valid under the New York law, or contracts for such purchases and sales valid under that law.

(7) I find that the defendants made, in accordance with the terms of the plaintiff's employment and for his account, actual purchases or sales of the securities in question and contracts therefor, all of which were valid under the law of New York.

(11) I find that the plaintiff paid to the defendants from time to time on account of the transactions in question sums amounting in the aggregate to $23,031.50; that the defendants have repaid to the plaintiff from time to time on that account sums aggregating $17,486.38; and that the payment of the balance, $5,545.12 with proper interest, would put the plaintiff in the position which he would have been in if the transactions had never occurred; and I rule that if the plaintiff can maintain this action he can recover only $5,545.12, with proper interest.

Wm. R. Bigelow, of Boston, for plaintiff.

Warner, Warner & Stackpole, R. G. Dodge, and E. B. Chapin, all of Boston, for defendants.

RUGG, C. J.

This is an action brought under R. L. c. 99, §§ 4 and 6, to recover moneys paid to the defendants, who are stockbrokers, on account of stock transactions had with them by the plaintiff. That statute permits one who, upon credit or upon margin, employs another to buy or sell securities for his account, ‘intending at the time that there shall be no actual purchase or sale,’ to sue for and recover payments made on account of such transactions, if such other person ‘had reasonable cause to believe that said intent existed’; but that there shall be no right of action if such other person makes ‘an actual purchase or sale of said securities * * * or a valid contract therefor.’

The case was sent to an auditor, whose finding was for the plaintiff. It then was tried upon the auditor's report and some oral evidence from witnesses called by the defendants before a judge of the superior court, who also found for the plaintiff and reported the case for the consideration of this court.

[1] The general finding for the plaintiff was amply warranted. There was abundant evidence of numerous short sales ordered by the plaintiff and carried out by the defendants. A short sale was defined by one of the defendants as ‘a sale of stock when the certificate is not received from the customer.’ ‘A short sale is selling stock which a man does not own. * * * I won't say it is covered by that. * * * I should say that a short sale is recognized by brokers as a sale of stock where there has been no certificate received from the party that the broker is selling for.’ It well might have been found that a short sale was a sale of stock which the seller did not own. It is provided by section 6 that in a proceeding to recover money under section 4 ‘the fact that the seller or the person employing another to sell for his account did not own the securities * * * at the time of the contract of sale or at the time of the giving of the order to sell * * * shall * * * be prima facie evidence that * * * there was an intention that there should be no actual purchase or sale, and that there was reasonable cause to believe that said intention existed.’

The evidence of short sales at the trial before the judge came from the evidence offered by the defendants. But the plaintiff was entitled to whatever advantage he could find in it. A prima facie case was made out in his favor by evidence of short sales quite apart from the auditor's report. Hence the defendants' second request for instructions did not state the facts truly and was refused rightly.

The general finding for the plaintiff imports a finding of all the subsidiary facts essential to that conclusion. It necessarily includes a finding that the plaintiff intended that there should be no actual purchases or sales on his orders. This is not inconsistent with the express finding that the plaintiff had no intention as to the point whether defendants, in carrying out his orders to buy or sell, should actually receive from or deliver to any one else certificates of stock ordered by him to be bought or sold. This is not a finding that there was a negative lack of intention by the plaintiff upon the vital point that there should be ‘no actual purchase or sale’ on his orders. It relates to the different subject of delivery and receipt of certificates. His mind might be a blank upon that matter and still the positive intention that there should be no actual purchases or sales on his orders arise from the prima facie case to that effect made out by the short sales and from all the other circumstances in the case tending to that conclusion. It was expressly found that the plaintiff ‘intended not to receive nor to deliver himself any of the stocks ordered by him to be bought or sold by the defendants and the defendants knew he so intended,’ although this is not conclusive. Wilson v. Head, 184 Mass. 515, 69 N. E. 317, and like cases, have no bearing upon this aspect of the case at bar.

The finding that the plaintiff ‘intended that all dealings upon his orders should be carried on by the defendants upon the New York Stock Exchange in accordance with its rules' is not incompatible with a general finding for the plaintiff. There may be wagering even though the rules of the Stock Exchange are strictly observed. Higgins v. McCrea, 116 U. S. 671, 6 Sup. Ct. 557, 29 L. Ed. 764;Fiske v. Doucette, 206 Mass. 275, 92 N. E. 455.

The plaintiff made out a prima facie case by showing short sales of stocks. The burden then rested on the defendants to prove actual purchases and sales or valid contracts therefor in defense, in order to escape from the liability established by the statute. Greene v. Corey, 210 Mass. 536, 546, 97 N. E. 70.

The finding in this respect also is against the defendants, and imports a finding of all the subsidiary facts essential to that conclusion. As the burden of proof rested on the defendants, they can prevail only by showing that certain specific facts found by the judge are incompatible as matter of law with his decision. Fisher v. Doe, 204 Mass. 34, 90 N. E. 592.

It was decided in Fiske v. Doucette, 206 Mass. 275, 283, 284, 92 N. E. 455, 457, that the stockbroker can establish this affirmative defense as to actual purchases and sales only when he has made purchases and sales honestly ‘in pursuance of a true intent to consummate a veritable change of title to definite property. Actual purchase or sale means in this connection a real and tangible transfer of a full and complete title to an existing, defined and certain security or commodity. * * * The defense * * * is not made out unless by reason of the purchase on the Stock Exchange the broker or his agent has within his immediate control certificates of stock at all times ready to deliver to the plaintiff upon demand, or in case of sales, like certificates for delivery to a purchaser.’

The judge found that the defendants had only five sources from which to comply with possible demands upon them for the delivery of stocks sold on the plaintiff's orders or for delivery to the plaintiff of stocks bought on his orders, viz. stocks actually in the hands of the defendants, stocks pledged by the defendants as collateral for loans made to them from banks, stocks pledged by the defendants to other brokers, stocks loaned by the defendants to other brokers, and the obligations of persons who had sold stock short through the defendants without furnishing them with the certificates, and that, unless all these sources complied with the law, the defendants were not ready to respond to such demands. Manifestly stock in actual possession was available to the defendants. The plaintiff concedes that stocks pledged to the banks also were available. See Chase v. Boston, 180 Mass. 458, 62 N. E. 1059. Without discussing whether stocks pledged or loaned to other brokers were available to the defendants, it is plain that the obligations of persons who had sold stock short, to deliver certificates of such stock on demand, utterly fails...