Fiske v. Doucette

• Decision Date: 25 June 1910
• Citation: 206 Mass. 275,92 N.E. 455
• Parties: FISKE v. DOUCETTE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

206 Mass. 275

92 N.E. 455

FISKE v. DOUCETTE.

Supreme Judicial Court of Massachusetts, Suffolk.

June 25, 1910

COUNSEL

William Reed Bigelow, for appellant.

Whipple Sears & Ogden, for appellee.

OPINION

RUGG J.

This is a suit in equity to recover securities (or the value of them) alleged to have been deposited with the defendant, a stockbroker, for the purpose of carrying on that species of gambling referred to in Rev. Laws, c. 99, § 4. The cause was sent to a master, who found that the plaintiff at the solicitation of one Smith, an employé of the defendant deposited the bonds in question with the defendant as security for stock transactions; that Smith ordered purchases and sales of stocks without personal directions from the plaintiff, only occasionally reporting to him what was being done; that shares of stocks aggregating large amounts in value were bought or sold from time to time, monthly statements of which were sent to the plaintiff.

The first question raised is whether there was evidence sufficient to warrant a finding that the plaintiff intended that there should be 'no actual purchases or sales' of stocks, and that the defendant 'had reasonable cause to believe that said intention existed,' in the sense in which these words are used in Rev. Laws, c. 99, § 4. The master found that the plaintiff had an affirmative intention that actual purchases and sales should not be made, and a justice of the superior court refused to override this finding. A reading of the evidence reported touching this matter convinces us that this conclusion of the master was amply warranted. All the circumstances of the transactions go far toward establishing such intention. The testimony of the plaintiff tends in the same direction. The master saw the witnesses and heard their oral testimony, and there is no foundation for argument that his decision is plainly wrong. Therefore it must stand. For the same reasons the finding that the defendant had reasonable cause to believe that such intent existed cannot be reversed. Holt v. Silva, 169 Mass. 435, 48 N.E. 837; Joslin v. Goddard, 187 Mass. 165-167, 72 N.E. 948. The first three exceptions taken by the defendant to the master's report were overruled rightly.

It becomes necessary to determine whether upon all the evidence the defendant ought to prevail on the ground that he made 'an actual purchase or sale of said securities' in accordance with Rev. Laws, c. 99, § 4. This was an affirmative defense set up by the defendant in his answer, and the burden of proving it rests upon him. Lonergan v. Peck, 136 Mass. 361-364; Sayles v. Quinn, 196 Mass. 492, 82 N.E. 713; Wylie v. Marinofsky, 201 Mass. 583- 584, 88 N.E. 448. This is in accordance with the ruling of the master, to which no exception was taken. The law of New York was found to be that one who relies upon an affirmative defense is bound to prove it. Whether valid contracts for such securities were made is not raised by the defendant's exception. The defense was not and could not well have been based upon this ground, the claim being that according to the practice of the stock exchanges actual sales and purchases were shown. There was nothing in the case to indicate contracts for future deliveries. The dealings were all on the footing of present deliveries. The clearing houses of the several stock exchanges were used, and purported to be used, not to set off and cancel contracts to be performed in the future between parties who did not have the stocks called for by contracts, but to effect deliveries under existing contracts between parties who had the stocks in hand. Transactions occurred upon stock exchanges in Boston and New York. The purchases and sales made upon the Boston Stock Exchange, during the period when the defendant was a member of it in good and regular standing, were conducted by the use of the clearing house maintained for the convenience of its members, according to which adjustments were made on the basis of the trading of each day, and the balances only of the securities and payments were passed, and none of the stocks bought or sold by the defendant for the plaintiff's account were actually received from the selling or delivered to the buying broker. The fact that there was no evidence that in any instance the stock bought or sold by the defendant for the plaintiff's account was the only order executed by the defendant in the particular stock on the same day is immaterial, in view of the ground upon which this decision rests. As to some of the stocks, it appeared that the defendant was in possession of or had control of certificates therefor. As to others, it appeared that purchases were offset by sales made for other customers, and there was no evidence that in these instances the defendant had, or had received from such selling customers, control of certificates for the stocks purchased. Stock purchased for the plaintiff were not always carried until sold for his account, but were sold earlier in several instances for the account of other customers. In these instances there was no evidence that at the time the sales purported to have been made for the plaintiff's account the defendant had control of any certificates.

The defendant was for a time under suspension as a member of the Boston Stock Exchange. A substantial part of the transactions which formed the subject of account between the plaintiff and defendant related to stocks traded in on New York Stock Exchanges. As to the trading done in Boston, while he was under suspension from the Boston Exchange, and in New York, the defendant dealt with other brokers as their customer, giving orders in his own name as to buying and selling upon margin, furnishing the necessary security himself, and not disclosing to them the plaintiff's name. With these brokers the defendant had running accounts which were balanced monthly, but he did not actually receive or deliver any certificates for the shares bought or sold at his order, but debited and credited the plaintiff on the account with him. The New York transactions were executed on the New York Stock Exchange or on the New York Consolidated Stock Exchange, both of which maintained clearing houses through which settlements were made on daily balances of the total of purchases and sales by each member. There was no evidence that the brokers employed by the defendant had at any time during the transactions in issue in their possession or control certificates for any of the stocks claimed to have been bought for the plaintiff's account.

The master found that it was the law of New York that the broker is the pledgee of stocks, bought by him for a customer upon margins, to secure the repayment of all advances made by him thereon, and is bound at all times until the stocks are sold upon the order of the customer to have in his name and under his control ready for delivering to the customer the stock purchased or an equal amount of other shares of the same stock, and that if a broker for his own benefit mingles or pledges such stocks so as to be unable to make such delivery to the customers upon demand he is guilty of conversion. In this regard the law of New York probably differs from our own. Chase v. Boston, 180 Mass. 459, 62 N.E. 1059; Chase v. Boston, 193 Mass. 522, 79 N.E. 736; Richardson v. Shaw, 209 U.S. 365, 28 S.Ct. 512, 52 L.Ed. 835; Furber v. Dane, 203 Mass. 108-116, 89 N.E. 227.

The result of these findings is that there were numerous transactions in Massachusetts in which the defendant had no certificates of stock in his possession or control to correspond with or meet the alleged purchases or sales on account of the plaintiff, and that as to transactions on the New York Exchanges the defendant at no time had such certificates, and there was no evidence that the New York brokers at any time had them, and there was no evidence to show whether any seller of any securities bought for the plaintiff's account was the owner or assignee of such securities or authorized by an owner or assignee to sell them. The question narrowly stated is whether a defendant in a case like this makes out a defense by showing purchases and sales of stock on the stock exchange, and settlement by the adjustment of balances through the clearing house, without showing more, or whether he must go further and prove in addition that as a result of the purchases he or his agents had within his or their immediate control certificates of the particular stock to an amount equal to that purchased at all times ready to deliver to the plaintiff if called for by him, or, in case of sales, similar certificates ready to deliver to the purchasers.

The method of...