Wagering Contract. Stockholder. Stock Exchange. Evidence, Competency. Conflict of Laws. Contract, Validity, Performance and breach.
St. 1919, c. 247, amending R. L. c. 99, § 4, has no application to "odd lot" transactions in securities which are not shown to be purchases or sales to be received or delivered by "direction of the clearing house" of "a stock exchange or board of trade," although it appears that the business of "odd lot" brokers is in effect similar to that of a clearing house.
In an action against a stockbroker under R. L. c. 99, it appeared that a finding for the plaintiff was warranted unless the defendant brought himself within the defence provided by § 4 by proving actual purchases and sales of securities ordered by the plaintiff to be bought and sold from time to time. At the trial it appeared that the transactions were in stocks in blocks of less than one hundred shares, called "odd lots," and that the plaintiff's orders to the defendant were carried out through the employment of "odd lot" brokers, and, upon the evidence, findings were warranted that, as a witness for the defendant testified, the "odd lot" purchases and sales were "delivered by paying the broker at the end of the day the difference in cash, which saves us drawing numerous number of checks and instead of passing numerous certificates, the purchases and sales are offset;" that the process of adjustment was mere bookkeeping; that the defendant made no actual purchases and sales of the stocks ordered by the plaintiff to be bought, sold and carried on margin, and that the defendant's correspondents or agents from the first transaction to the last did not have a sufficient number of shares in their possession or control to satisfy the demands of all their customers. Held, that a finding was warranted that the defendant had not made out a defence under § 4 of the statute.
At the trial of an action against a stockbroker under R. L. c. 99, where the entire detailed account of the plaintiff with the defendant as it appeared on the defendant's books, extending over a period from August, 1915, to April, 1917, was annexed to a report of an auditor in evidence, a clerk of the defendant, who had testified that he "had charge of the accounts of various customers having particular reference to the state of their account, its value, etc." and that he had investigated the situation as to the plaintiff's account on May 9, 1916, which, according to a finding of the auditor, was the day before the plaintiff had begun gambling transactions, may be allowed further to testify as to the amount of the balance of the account in the plaintiff's favor if from the value of the stocks the defendant then was "carrying" for the plaintiff the amount which the plaintiff then owed the defendant was deducted.
One, who in Boston had with a Boston stockbroker dealings of the character described in G.L.c. 137, is entitled to recover under that statute although the stockbrokers carried out the transactions through their agents in New York.
At the trial of an action against a stockbroker under R. L. c. 99, the defendant contended that under § 4 of the statute he was not liable because all transactions on behalf of the plaintiff were carried out by means of actual purchases or sales. It appeared that the defendant had with ninety per cent of his customers an agreement that he might make use of any stock that he was carrying for them, and that he at all times had on hand sufficient stock to satisfy the demands of all customers other than those who had made such an agreement with him. The plaintiff had made no such agreement. Held, that the existence of such agreements with others did not affect the rights of the plaintiff under the statute.
An auditor, to whom was referred an action against a stockbroker under R. L. c. 99, found that the plaintiff, who had had an account with the defendant beginning in August, 1915, "without any such definite idea as to" the nature of the transactions that he could be said to have an affirmative intention that there should be no actual transactions, by the following May 10 "was obviously gambling on the market," and that, "beginning with that date he had an affirmative intention that there should be no actual transactions of purchase and sale and that the defendant had reasonable cause to believe that he had that intent. . . . The transactions in which I find that he had the intent . . . began before his original purchases had all been sold and his original margin was used in part on account of these transactions. I find that the transactions in which the intent that there should not be actual purchases and sales existed are sufficiently numerous to taint the entire account." There was evidence that on May 9 the value of securities owned by the plaintiff and held by the defendant exceeded the amount owed to the defendant by the plaintiff by $400, that thereafter he paid the defendant in the transactions $300 and that the defendant received as dividends on securities of the plaintiff which he held the sum of $10.50. Other transactions preceding May 10, if found to be within the statute, would have warranted a finding for the plaintiff in the sum of $1,735.45. Evidence warranted a finding that a defence under § 4 of the statute was not made out. There was a finding for the plaintiff in the sum of $710.50 with interest from the date of the writ. Held, that the finding by the judge, based on transactions after May 10, was warranted.
BRALEY, J.
The defendants' first contention is that St. 1919, c. 247, amending R. L. c. 99, § 4, under which the case at bar is brought, defeats the plaintiffs' right of recovery. But, even if the amendatory act, passed after the transactions in question had been completed, is to be read with the original statute, Wilson v. Head, 184 Mass. 515, the evidence does not show that the "odd lot" transactions, to which we shall later refer, were purchases, or sales, to be received or delivered by the defendants by "direction of the clearing house" of "a stock exchange or board of trade." The defendants therefore fail to bring themselves within the amendment.
It is unnecessary to restate the grounds of alleged liability which are fully set forth in Barrell v. Paine, 236 Mass. 157, when the case was first before us. It was there held that under the finding of the auditor, "that at all times . . . during the period covered by the transactions with the plaintiffs, the defendants had on hand or under their control shares in the stocks they purported to be carrying for the plaintiffs equal in number to those to which the plaintiffs were entitled," the exceptions of the defendants must be sustained and a new trial ordered. At the second trial the report was again put in evidence supplemented by the answers of the defendants to interrogatories propounded by the plaintiffs, and the evidence of Leonard D. Draper, one of the defendants. It could be found that the plaintiffs intended there should be no actual purchase and sale of the stocks and that the defendants knew of and participated in their intention, and the parties are at issue over the question whether on the record the judge was warranted in finding there were no actual purchases and sales of the stock ordered to be bought and sold from time to time by the plaintiffs.
The judge as we have said not only had before him the auditor's report, but also the answers to interrogatories, and Draper's evidence. In substance the defendants admitted that there was no physical delivery of a certificate for each share purchased and sold on the orders of the plaintiffs. The defendant Draper testified, and the judge could find, that the "odd lot" purchases and sales, each lot being less than one hundred shares, in which the plaintiffs and defendants dealt, "are delivered by paying the broker at the end of the day the difference in cash which saves us drawing numerous number of checks and instead of passing numerous certificates, the purchases and sales are offset." The process of adjustment was mere bookkeeping. The schedule of "Balances Received and Delivered" shows each day the transactions of that day with the odd lot brokers, and the first transaction of May 10, 1916, is the only one in which a certificate was delivered for the total number of shares of the daily transactions. The judge on all the evidence also could find, that the defendants made no actual purchases and sales of the stocks ordered by the plaintiffs to be bought, sold and carried on margin, and that the defendants' correspondents or agents from the first transaction to the last, and until the stocks were bought in or sold on the orders of the plaintiffs did not have a sufficient number of shares in their possession or control to satisfy the demands of all their customers. We perceive no error in the admission of evidence nor in the refusal of the defendants' requests for rulings numbered 21 and 22. It follows on the present record that a further finding was warranted, that the defendants had not proved, that "an actual purchase or sale of said securities" had ever been made or contemplated by the parties. R. L. c. 99, § 4.
The defendants did business in Boston where the plaintiffs dealt with them, and, even if the alleged purchases and sales were made through the defendants' agent or agents in New York, the plaintiffs are within the protection of our laws under which their rights are to be ascertained and established. American Malting Co. v. Souther Brewing Co. 194 Mass. 89. Bearse v. McLean, 199 Mass. 242. See Fiske v. Doucette, 206 Mass. 275, 285. The law of New York moreover was a question of fact. Electric Welding Co. Ltd. v. Prince, 200 Mass. 386. It does not appear that the courts of that State have ever been asked to determine the meaning and application of the words "actual purchase or sale" found in R. L. c. 94, § 4. But on the evidence introduced by the plaintiffs a wagering contract in the purchase and sale of stocks on margin would be held invalid at common law. Bellegarde v. Union Bag Paper Co. 90 App. D. (N.Y.) 577, affirmed, 181 N.Y. 519. Leonard v. Columbia Steam Navigation Co. 84 N.Y. 48. See Beers v. Wardwell, 198 Mass. 236, 239, and cases cited.
The agreement of some of the defendants' customers that the defendants' agent in New York might apply stock held for delivery, to satisfy the orders of other customers, was not binding upon the plaintiffs who were not parties to it. If the doctrine of set-off is thus invoked it is not applicable. "It is not that purchases and sales cannot be properly set off against each other; it is rather that the set-off cannot be a real one unless the opposite transactions that are so set off are themselves real ones, have really been made and carried out." Greene v. Corey, 210 Mass. 536, 548.
The defendants' requests in so far as not given were denied rightly. Matthys v. Hornblower, 224 Mass. 248, 252. Adams v. Dick, 226 Mass. 46. Zembler v. Fitzgerald, 234 Mass. 236, and kindred cases are very plainly distinguishable.
The plaintiffs however contend that the finding in their favor should have been for $1,735.45, the amount found by the auditor, instead of $903.26 as found by the judge. But, even if the auditor treated the account opened by the plaintiffs, who are husband and wife, as a continuation of a previous account of the husband individually, the judge properly could determine as a question of fact that the first account had been substantially adjusted and closed before the plaintiffs jointly entered into the relation of customer and broker, and that the two accounts had been treated by the parties as separate and distinct; and the computation by the judge based upon the finding of the auditor that the gambling transactions began on May 10, 1916, was justified by the evidence.
By the terms of the report judgment for the plaintiffs is to be entered on the finding.
So ordered.