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his employer; and this upon the ground that the contract was conditional to deliver the shares upon the payment of the money. It can not make any difference that, in this case, a small portion of the money necessary for the original purchase was advanced by the customer."

§ 499. This decision introduces a new doctrine as regards the relation of a stock-broker and customer, which has heretofore always been regarded as that of pledgor and pledgee. And such, in fact, is the relation, in all ordinary cases where the broker has purchased stocks for a customer, and carries them for him upon the payment of a portion of the purchase-money. The broker holds the stock as collateral security for the remainder of the purchase-money, and should be subject to the established rules of law governing the contract of pledge. The case is wholly different from that where a broker simply makes a contract with another for the future delivery of grain, which is not delivered into the broker's actual possession. In the latter case there is no pledge, for no property of the customer is delivered to the broker. This distinction was pointed out in the Illinois case, in which it was decided that a broker holding for a customer an executory contract for the future delivery of corn which never came into his possession did not stand in the relation of a pledgee of his customer. The court in that case say that if the corn purchased had been delivered to the broker, and he had paid for the same, and held the possession of it as security for the money advanced, then it might, with propriety, be claimed that the relation of pledgor and pledgee existed, and that notice of the time and place of sale should be given.'

§ 500. But a broker can not recover for a purchase which is fictitious, or which he has charged to his customer at an enhanced price. In such case he fails to perform the contract of purchase. A usage of brokers that one, on receipt of an


1 § 497; Corbett v. Underwood, 83 Mass. 285; Farnsworth v. Hemmer, Ill. 324, 327, 25 Am. Rep. 392. 1 Allen (Mass.) 494, 79 Am. Dec. 756.

2 Commonwealth v. Cooper, 130

order to buy stocks on a margin, may assume the contract himself, instead of making it with a third person, is illegal. The broker has no right to put himself in a position antagonistic to the interests of his employer. He can not make himself both buyer and seller. A broker purchased for a customer certain United States bonds, under an agreement that the broker should advance the purchase-price and should carry the original bonds purchased at a specified rate of interest. In the purchase the broker overcharged for a part of the bonds, and for another part charged a commission for buying and received a commission for selling. Before the maturity of the loan the broker sold the bonds without the knowledge of the customer. The latter made a payment on account of the supposed loan. At the maturity of the loan the broker demanded payment of the customer, and notified him that in case of default he would be sold out. Payment was not made, and the broker thereupon sold other bonds of a like amount. In an action by the customer to recover the money he had paid on this transaction, the broker set up a counter claim for a deficiency arising on such sale. It was held that the counter claim was properly rejected; that substantial performance of his contract was a condition precedent to the broker's right of recovery, while in essential elements he had not performed it.'

'Levy v. Loeb, 85 N. Y. 365. Mr. Justice Finch, delivering the opinion of the court, said: "The contract was not merely for the loan of so much money. That was but a single element in an entire and much broader agreement. The defendants were to buy the bonds as agents of the plaintiffs. They were to make the purchase in that capacity, with the skill and ability which their business and experience indicated, and in entire good faith to their clients, without any adverse or hostile interest; and the identical bonds thus bought they agreed to carry, advancing the money for that purpose, and holding the

bonds as collateral. That contract was not performed by the defendants in any of its essential elements. They did not buy for their clients in good faith as agents, but on the contrary, buying without disclosing their agency, sought to transfer the bonds to the plaintiffs at a larger price, concealing the profit intended to be realized. They broke their contract by taking commissions from both sides. They broke it again by not carrying the original bonds as agreed, and the deficiency upon which they rely sprang from a sale of their own bonds and not plaintiffs'. Not only was there thus a total failure to perform

In a subsequent suit by the customer against the broker to recover the moneys he had paid in this transaction, it was held that upon obtaining knowledge of the facts he was entitled to repudiate the purchase and to recover back the moneys paid.'

§ 500a. One pledging securities to a stock-broker under a wagering contract as to the purchase and sale of stocks or of commodities is entitled to recover from him the value of the securities lost in such transactions. A statute in Massachusetts' provides that: "Whoever contracts to buy or sell upon credit or upon margin any securities or commodities, having at the time of contract no intention to perform the same by the actual receipt or delivery of the securities or commodities, and payment of the price, or whoever employs another so to buy and sell on his behalf, may sue for and recover in an action of contract from the other party to the contract, or from the person so employed, any payment made or the value of anything

on the part of defendants, but it is entirely possible that the sale which they did make of the original bonds, brought their full cost and left no deficiency. The defendants choose not to disclose either the date or terms of that sale. Doing so they can not sell their own bonds at a sacrifice and claim that deficiency of the plaintiffs. The rule might be otherwise if the defendants had not specially agreed to carry the original bonds. It is that fact, as found by the trial judge, which is fatal to the counter claim alleged. The agreements were mutual and the acts to be done concurrent. Since no directions to sell the bonds were given by plaintiffs upon the expiration of the contract by the lapse of the stipulated time, it was the duty of the defendants to deliver the original bonds which had been carried at the price actually and in truth paid for them, and the duty concurrently of plaintiffs

to pay that price with the interest. The defendants, therefore, could not put the plaintiffs in default without a tender of performance or at least proof of a readiness and willingness to perform. No such proof was given. No bonds were tendered. The original bonds could not be, since the brokers had sold them by their own unauthorized act and rendered their delivery impossible. They did not even offer similar bonds at the price actually paid, but demanded a greater one. There was no element of performance or readiness to perform in the case. Not a single stipulation of the contract was fairly and in good faith fulfilled, and no valid counter claim was established."

1 Levy v. Loeb, 89 N. Y. 386, 15 N. Y. Weekly Dig. 176, reversing 15 J. & S. 61.

2 Stats. 1890, c. 437.

delivered: provided, such other party or other person so employed had reasonable cause to believe that no intention to actually perform existed." At the trial of an action under this statute relative to wagering contracts in securities and commodities, to recover the value of stock deposited with the defendant, a broker, as collateral security on account of the agent of the plaintiff, who, as such agent, bought and sold stock on margin, with no intention on the part of either himself or the plaintiff of performing the contract of purchase or sale by the actual receipt or delivery of the stock, the judge properly ruled that the plaintiff would be entitled to recover, if he proved that neither he nor his agent intended to perform the contract by the actual receipt and delivery of the stock and the payment of the price, and that the defendant had reasonable cause to believe that no intention to actually perform existed; but that he could not recover unless he proved both these facts, nor if either he or his agent intended such performance to be made by either of them, or by the defendant as the agent of either of them: and that if the plaintiff was entitled to recover, the measure of damage would be the value of the stock when demand for it was made.'

In Irwin v. Williar,' the supreme court of the United States says of wagering contracts: "In England, it is held that the contracts, although wagers, were not void at common law, and that the statute has not made them illegal, but only nonenforceable, Thacker v. Hardy,' while generally, in this coun

1 1 Davy v. Bangs, 174 Mass. 238, 243, 54 N. E. Rep. 536; Lyons v. Coe, (Mass. 1901), Banker & Tradesman for Jan. 23, 1901; Northrup v. Buffington, 171 Mass. 468, 51 N. E. Rep. 7. See, also, Barnes v. Smith, 159 Mass. 344, 34 N. E. Rep. 403; Harvey v. Merrill, 150 Mass. 1, 10, 22 N. E. Rep. 49; Wakefield v. Farnum, 170 Mass. 422, 49 N. E. Rep. 640; Embrey v. Jemison, 131 U. S. 336, 9 S. C. Rep. 776; Irwin v. Williar, 110 U. S. 499, 510, 4 S. C. Rep. 160;

Cothran v. Ellis, 125 Ill. 496, 16 N. E. Rep. 646; Whitesides v. Hunt, 97 Ind. 191, 49 Am. Rep. 441; First National Bank v. Oskaloosa Packing Co., 66 Iowa 41, 23 N. W. Rep. 255; Rumsey v. Berry, 65 Me. 570, Crawford v. Spencer, 92 Mo. 498, 4 S. W. Rep. 713; Kahn v. Walton, 46 Ohio St. 195, 20 N. E. Rep. 203; Fareira v. Gabell, 89 Pa. St. 89; Lowry v. Dillman, 59 Wis. 197, 18 N. W. Rep. 4.

2110 U. S. 499, 510, 4 S. C. Rep. 160. 34 Q. B. D. 685.

try, all wagering contracts are held to be illegal and void as against public policy."


V. His Right to Use and Hypothecate Pledged Stock.

§ 501. Authority to use collateral stock.-In the absence of an agreement on the part of the pledgor, either express or implied, the pledgee has no right to use a thing held in pledge. It is not a common law right. A general authority to a creditor holding corporate stock as collateral security "to use, transfer, or hypothecate the same," at his option, he being required, on payment or tender of the amount of the loan, to return an equal quantity of the stock, but not the specific stock deposited, authorizes the pledgee to sell it for his own benefit before maturity; and such a sale is not a conversion of the stock for which an action will lie. The object of such a clause is to enable the creditor, if he finds it inconvenient to carry the loan, to obtain the money upon the stock, by sale or otherwise. It was doubtless an inducement to him to make the loan. In selling the stock, by virtue of the contract, he simply took upon himself the burden of returning to the debtor, upon demand, when the loan should be made, the same quantity of stock.

One borrowed money of a broker, pledging shares of stock under such a contract allowing the pledgee to hypothecate the stock, and at the maturity of the loan paid the debt, the broker saying the certificate was at a bank, and that he would return it to the pledgor immediately. The broker had pledged the

1 Citing Dickson v. Thomas, 97 Pa. St. 278; Gregory v. Wendell, 40 Mich. 432; Lyon v. Culbertson, 83 Ill. 33; Melchert v. American Union Telegraph Co., 3 McCrary 521, 11 Fed. Rep. 193, and note; Barnard v. Backhaus, 52 Wis. 593, 6 N. W. Rep. 252, 9 N. W. Rep. 595; Kingsbury v. Kirwan, 77 N. Y. 612; Story v. Saloman,

71 N. Y. 420; Love v. Harvey, 114 Mass. 80.

2 Lawrence v. Maxwell, 53 N. Y. 19; Skiff v. Stoddard, 63 Conn. 198, 218, 26 Atl. Rep. 874, 28 Atl. Rep. 104.


Ogden v. Lathrop, 65 N. Y. 158, reversing 1 Sweeny 643, 3 J. & S. 73, where it was thought that the power "to use," etc., did not authorize a sale.

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