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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Cunningham v. Lee [1874] ScotLR 12_58_2 (13 November 1874) URL: http://www.bailii.org/scot/cases/ScotCS/1874/12SLR0058_2.html Cite as: [1874] ScotLR 12_58_2, [1874] SLR 12_58_2 |
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A, who was not a stockbroker, purchased stocks in his own name for B, for settlement on a certain day. When settling day arrived, B refused to give A any instructions, so A closed his account with B, “carried over” the stocks to next settling day, and intimated
Page: 59↓
to B that they had been sold at a certain loss, of which he demanded payment. B did not accede to this demand, and subsequently became bankrupt.— Held that A was not entitled to claim upon the sequestrated estate for the loss which he would have sustained if the sale on settling day had been bona fide.
This was an appeal by Peter Cunningham,’ stockbroker, Edinburgh, one of the creditors on the sequestrated estate of James Kirk, grocer and wine merchant, Edinburgh, from the deliverance of Mr Robert Weir, trustee on the bankrupt estate. The deliverance appealed against was one in which the trustee had allowed a claim by Mr Lee, Solicitor before the Supreme Courts of Scotland, to be ranked as a creditor on the sequestrated estate for £1623, 5s., to the amount of £1100.
The following were the circumstances of the case as brought out by the proof, parole and documentary:—
Mr Lee was employed by the bankrupt Kirk to buy and sell stocks for him. These transactions were all in Mr Lee's own name with the London brokers. In October 1873 Mr Lee bought for the bankrupt certain stock, for settlement on 14th November. Mr Lee intimated this purchase to Mr Kirk by the following letter:—
“ Edinburgh, 29 th Oct. 1873.
Dear Sir,—I enclose my account-current with you up to this date, showing a balance in your favour, after you deliver £10,000 British, of £6653, 12s. 11d.
I yesterday purchased for you in London £17,000 North British, at 67·16/3,
£11,528
2
6
Commission on £7000 at 1/16,
4
7
6
2000 Caledonians at 96·8/9,
1928
15
0
No commission charged,
100 Eries at 39
and 1/ cont, 1 4 888
2
6
50 Erie Preferences at 56 and 1/5, say 56 dollars and 1/3 con.,
633
2
6
£14,982
10
0
for settlement in London on 14th November current, for which you will hold this to be the contract, as also the contract for the sales made yesterday for you, as stated in the account.— Yours, &c.”
Mr Lee had a standing arrangement with his brokers, that if he did not telegraph to the contrary, they should on settling day carry over all his purchases. In view of this arrangement the following letters were written by Lee to Kirk:—
“ Edinburgh, 12 th Nov. 1873.
Dear Sir,—My London brokers, through whom I purchased your £17,000 British, £2000 Caledonian, 100 Eries, and 50 Erie Preferences, for settlement this account, require me to have written instructions before they sell for the present account, and purchase for next account. You failed to send me these yesterday, and unless I can telegraph to-day before 12 o'clock they may be sold out. Please to give the bearer written instructions, and call for me before 12 o'clock without fail.—Yours, Ac.”
“ Edinburgh, 12 th Nov. 1873.
Dear Sir,—I am quite astonished at your not returning to-day as promised. If I do not hear from you to-night, or see you here before 10 o'clock, I will conclude that you are not to fulfil your obligations unless compelled, and act accordingly. I hope that you will see it to be for your interest to do what is right.—Yours, &c.”
“ Edinburgh, 12 th Nov. 1873.
Dear Sir,—After you left to-day at about 11 o'clock, I waited anxiously for your promised return before 12 o'clock, so that I might telegraph instructions as to the stock which I purchased for you in London, for settlement on 14th current. As you neither furnished me with the name into which you wished the stock transferred, nor gave me instructions within business hours to-day, the stock was sold in London, and is closed in accordance with the rules of the London Stock Exchange in such cases. The £17,000 North British was sold at 58
p. share; the £2000 Caledonians at 92 3 4 ; the 50 Erie preferences at 64 dollars p. share; and the 100 Erie ordinary shares at 33 3 4 p. share. I send you annexed an account-current between us to this date, showing a balance against you of £1619, 9s. 7d., which please settle to-morrow, as I must remit it to London to-morrow afternoon. I purchased stocks to the same amount for the next account, but as I had not your instructions, I cannot hold that I purchased them on your account. If, however, you settle up the balance due tomorrow, and give me written instructions, I will invoice a similar amount of stock to you for the new account at the new prices. Let me hear from you tomorrow morning.— Yours, &c. 3 4 “ P.S.—I shall expect you to attend to this matter tomorrow before 12 o'clock.”
“ Edinburgh, 12 th Nov. 1873.
Dear Sir,—I sold you to-day in London for settlement there on 14, subject to the rules of the London Stock Exchange.
£17,000 Stock North British Railway Co., at 58
3 4 £9987
10
0
2000 Caledonian Co., at 92
3 4 1855
0
0
50 Erie Preference, at 54
607
10
0
100 Erie ordinary shares, at 33
3 4 75
7
6
£13,209
7
6
—Yours, &c.”
“ Edinburgh, 13 th Nov. 1873.
Dear Sir,—I wrote to you last night, and I am this morning in receipt of a note from you in pencil, stating that you have to go to Leith, and that you will not be down till the 10·45 train.
Had you yesterday acted a fair and honest part, given me instructions to sell your stock purchased through me, and made arrangements as to the balance due to me, I would have been inclined to deal leniently with you, and not to have taken immediate proceedings, though you could not pay in full at once. But I consider that your not coming back yesterday forenoon, after faithfully promising to do so, to give me instructions, and failing to arrange your debt to me, is such treatment that I would do wrong to submit to it for any period of time. Unless, therefore, you to—morrow arrange the balance due to me, I will, on Saturday, prepare a summons against you, and for doing so no one who knows the circumstances will blame me.—Yours, &c.”
It is thus seen that Lee, on 12th November (called carrying-over day), upon the bankrupt neglecting to give him any instructions, carried over the stocks, which already stood in his name, and claimed from the bankrupt the loss which he would have suffered if they had actually been sold to a third party.
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In December Mr Lee finally sold out the stock, not only without loss but with a gain of £400.
The Lord Ordinary (
Young ) pronounced the following interlocutor:—“16 th July 1874.—Lord Young— Act. Solicitor-General et Mackintosh for Appellant— Alt. Marshall et Moncreiff for Trustee— Alt. Guthrie Smith for Livingstone & Weir— Alt. Campbell Smith for J. B. W. Lee.—The Lord Ordinary having considered the Closed Record, proof adduced, and whole proceedings, and thereafter made avizandum with the debate,—Finds that Livingstone & Weir have a right of pledge or security for cash advances, rent, cooperage, and interest on the goods in question, the property of the bankrupt: Finds that the amount of said advances is £2514, 11s. 1d., and that the estate falls to be accredited with £2476, 8s. 9d., as the value of said goods at the date of sequestration, and that Messrs Livingstone & Weir are entitled to be ranked for the balance of their claim, amounting to £760, 13s. 4d.: To that extent recals the deliverance of the trustee, and remits to him to rank them accordingly: Recals the deliverance of the trustee on the claim of J. B. W. Lee: Finds that the said J. B. W. Lee is not entitled to a ranking in the sequestration to any extent, and remits to the trustee to reject the claim in toto: Recals the deliverance of the trustee on the claim of David Hunter, in so far as the claim is ranked as a preferable claim: Finds that the said David Hunter is not entitled to be ranked as a preferable creditor, and remits to the trustee to rank the claim as an ordinary claim in the sequestration, and decerns.”
His Lordship gave the following opinion upon the claim:—
“I do not think this is a legitimate claim to any extent. Mr Lee's position with reference to the transactions referred to was peculiar. He did not act as a broker, but as a sort of agent, who, while speculating in the share market on his own account through the instrumentality of a broker in London whom he employed, associated others (his clients or customers) in his speculations to such an extent as they desired or was agreed to. The purchases and sales were in his own name, and were made for him by the London broker, his customers or clients being interested through him to the extent agreed on. In October 1873 he was speculating in the purchase of North British Railway stock, and the bankrupt agreed with him to join to the extent of £17,000 of that stock, and a purchase of that amount was on 28th October notified by him to the bankrupt as made on his account, for settlement on 14th November. The account of Lee's purchases, and the extent to which he was speculating for himself, or people other than the bankrupt, does not appear. The market fell, and so this particular speculation was for the time unfortunate. But Lee's broker, in pursuance of general instructions to that effect, on 12th November (called carry-over day), carried over, by an arrangement familiar on the Stock Exchange, all Lee's purchases, including that made on account of the bankrupt, till next settling day, which was on 28th November. On the same day (12th November) Lee applied to the bankrupt to provide him with the means of meeting the loss on his purchase, or arrange for carrying over; and receiving no reply, intimated to him that he was held liable for the loss. The loss is the subject of the claim in the sequestration. But, as already stated, the purchase being in Lee's name, was in fact carried over by his broker, acting on standing instructions. In truth, Lee acted exactly as if the purchase had been, in respect of interest, as it was, ostensibly his own, and carried it over with his other purchases till December, when he finally sold out so far as the bankrupt's purchase (or interest in Lee's purchases) extended, not only without loss, but with a gain of about £400. There were also speculations in other stocks or shares, but these standing in the same position as that in the North British Railway stock, to which I have adverted, were not made the subject of separate argument, and need not be particularly noticed.
The claim is certainly of an unfavourable character. The transactions were in reality mere gambling for differences, according to the rise or fall of the share market; and I venture to doubt the propriety of this Court aiding a claim in bankruptcy founded on such transactions, and for that purpose considering what would have been the rights and duties of the parties respectively had the purchases been real. Had the bankrupt employed Lee to purchase on his account £17,000 of North British Railway stock for delivery on 14th November, Lee would no doubt have been entitled to demand the price in return for the stock purchased by him on such employment. But the reality being mere speculation, with no intention of receiving any stock, but only of paying or receiving the amount of rise or fall, and Lee having himself carried on the speculation till he terminated it with, fortunately, a gain realised within a few weeks, I cannot allow him a ranking for the loss which would have resulted had it been terminated on 12th or 13th November. It is true that his gain was a fortunate accident, but still it puts him in this position, that he is seeking, not to save himself from loss, but to make a still further gain to the extent of the ranking which he demands. Had he taken up the stock on 14th November, it is not clear that there would have been any loss to the sequestrated estate, for the stock rose in the market. This was the legitimate course if reality of transaction be assumed, Lee very naturally shrank from it as involving too much risk, and preferred to carry over, and so carry on the speculation on his own account. But having taken this course, and made, and not lost, money by it, I am unable to think that he is in a position to demand a ranking on the view that it would have been a losing speculation had it been closed on 12th November, and that the eventual gain is a separate matter, to the whole benefit of which he is entitled plus a dividend on the theoretical loss as at 12th November. I quite understand the argument on which the claim is maintained, but it has not overcome my repugnance to follow it to the conclusion contended for. The argument is not illogical, but is, in my opinion, outweighed by the considerations on the other side to which I have adverted.
I therefore reject this claim.
Mr Lee reclaimed, and argued — When his account with Kirk was closed on 12th November, and the stocks were carried over, the amount to which Kirk was indebted to him was ascertained. The transaction of carrying over was a sale and a re-purchase, which involved very serious obligations on the party carrying-over, and was not a mere holding on by Lee for himself of the stocks which he had formerly held for Kirk. Kirk refused to have anything to do with the matter, and so his
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account was closed, and his shares sold at the selling price on 12th November. It did not matter who was the purchaser, whether Lee or a third party, as far as Kirk was concerned. The stocks were sold out on the 12th November, and his liability to Lee ascertained at that date. Lee had a right to sell out—he had no choice but to do so; and the fact that he took the risk of being able to recoup himself by buying the stocks himself, did not alter the fact that he did sell, and that the loss upon that sale was £1600. Argued for Cunningham:— (1) There was no sale. Here the stocks stood in Lee's name before the carrying over; and a sale in which the emptor and venditor are the same person is no sale. (2) Even if there was a sale, it was a bad one. Lee acted as Kirk's broker, or, at all events, as his agent; and in either capacity it was illegal for him to buy the stocks. (3) In any case Lee had no claim but for loss which he ultimately suffered; and it was admitted that in the long run he was a considerable gainer.
Authorities— Brookman v. Rothschild, 1829, 3 Simon's Reports, 153; Gourley's Trs. v. Kerr, 18 D. 619, and 19 D. 135; Cox on Joint-Stock Companies, pp. 66—67; Powers v. Thomson, June 10, 1857, 19 D. 803; Booth v. Fielding Parkinson, June 21, 1866, 1 Weekly Notes, 245.
At advising—
The
“Dear Sir,—I enclose my account current with you up to this date, showing a balance in your favour, after you deliver £10,000 British, of £6653, 12s. 11d.
|
I yesterday purchased for yon in London £17,000 North British, at 67·16/2, |
£11,528 |
2 |
6 |
|
Commission on £7000 at 1/16, |
4 |
7 |
6 |
|
2000 Caledonians at 96·8/9, |
1928 |
15 |
0 |
|
No commission charged, |
|||
|
100 Eries at 39
|
888 |
2 |
6 |
|
50 Erie Preferences at 56 and 1/5, say 56 dollars and 1/3 con., |
632 |
2 |
6 |
|
£14,982 |
10 |
0 |
for settlement in London on 14th November current, for which you will hold this to be the contract, as also the contract for the sales made yesterday for you as stated in the account,—Yours, &c.”
This was accordingly taken as a contract between Lee and Kirk, and thus Lee bought for Kirk these stocks for settlement on the 14th November following. In short, this was what is called a time bargain, and was thus a speculative bargain. The Lord Ordinary suggests whether this was not a gaming and wagering transaction within the meaning of the Act 8 and 9 Vict., c. 100. But it is settled by the decision in the case of Foulds v. Burn, 19 D. 803, that a transaction of this sort is neither gaming nor wagering in terms of the statute, nor at common law. Therefore Lee's claim cannot be objected to on these grounds. But there were many other circumstances occurring after this, which it is necessary to examine in order to see exactly what Mr Lee did.
On the 12th of November he wrote Kirk thus—
“Dear Sir,—My London brokers, through whom I purchased your £17,000 British, £2000 Caledonians, 100 Eries, and 50 Erie Preferences, for settlement this account, require me to have written instructions before they sell for the present account, and purchase for next account. You failed to send me these yesterday, and unless I can telegraph today before 12 o'clock they may be sold out. Please to give the bearer written instructions, and call for me before 12 o'clock without fail.—Yours, &c.”
From this it appears that Kirk had conceived the intention, or what Lee understood to be the intention, not to take delivery of the shares on the settling day, the 14th of November, but to carry over till next settling day, and so Lee desired to have written instructions to do so. Kirk however took no notice of Lee's resquest. In this he acted very unreasonably, and placed Lee in a position of considerable embarrassment. The question is, what in these circumstances Lee did, and what he ought to have done? There was a great deal of argument upon the kind of relation which existed between Lee and Kirk. One side maintained that he acted as a broker, and the other that he acted as an agent. I do not think that a decision of this point is absolutely necessary to the settlement of the question before us. But the relation between them was undoubtedly that of principal and agent, and I would be inclined to say that Lee occupied the position of a factor rather than of a broker. Certain distinctions between the offices of broker and factor lead me to this conclusion. Thus, a broker buys and sells not in his own name but in the name of his principal, whereas a factor buys in his own name. Again, a broker has no possession of the subject, no control over it, no power of disposal. The factor has such powers and a consequent lien over the subjects. In these respects Lee was rather a factor than a broker, and it is not necessary more precisely to determine the relation between the two. It is sufficient that Lee was agent.
Now, as already said, Lee was left without instructions. He says that he sold on 12th November, and that is the only matter in dispute on record. The appellant says in the 3d article of his condescendence—“Between 28th October and 12th November 1873 these shares fell considerably in value. On the latter date Mr Lee made entries in the bankrupt's account as if the shares had been then sold on his behalf, and this brought out a deficit on the account corresponding to the fall in the value of the shares. It is for this deficit that he claimed as a creditor in the sequestration. But, in point of fact, the shares were not sold by Mr Lee on 12th November, as indicated in the account produced with his claims. They were retained by him for some weeks till they rose to the price at which they had been purchased, when they were realised without any loss resulting on them at all.”
This is a matter of fact which has been cleared up completely by the proof, both parole and
Page: 62↓
In circumstances of this sort, when a principal will not advance funds or give instructions, either a broker or a factor is entitled to sell, to take the price he receives in order to cover his loss, and to charge his principal for any balance which may remain. But, instead of selling, is the agent, be he broker or factor, entitled to appropriate the subjects to himself? That, also, is very well settled. No agent can buy the property of his principal in any case, except when he is specially authorised to do so. But here there was no authority or consent, Lee obviously took the course which he did in the belief he was entitled to do so. He seems to have acted in perfect good faith, and with great forbearance towards Kirk. But still, upon the question whether he did what he was entitled to do, I am of opinion that he did not. His actings were quite against the settled rule of law.
On that ground Lee's claim falls to be rejected, and it is a matter of indifference what became of the shares after he took them. For he can't say that £1600 are due to him on the sale when he did not sell, but retained. It is however satisfactory to know that the loss which he sustained was ultimately very small or nothing at all.
I am therefore of opinion that we should adhere to the interlocutor of the Lord Ordinary.
I wish, however, to guard myself in this respect, that while I am of opinion that an agent might have kept the shares to himself, I do not think it would have been legal for a stockbroker to do so.
I think that the simple finding of the Lord Ordinary, that Mr Lee is not entitled to rank on the bankrupt estate, is the right finding.
I do not think it important to consider whether Mr Lee acted as a broker or only as an agent or a factor. It appears from the record that Mr Lee considered himself to be acting as a broker, and he alleges that he was employed by Kirk to act for him in the capacity of a broker. He also alleges that the business which he so transacted for Kirk was to be conducted, and was conducted, in accordance with the rules of the London Stock Exchange. But whether it may be considered that he acted as a broker, or not, he certainly acted as agent; and it is clear beyond dispute that the transactions on the London Stock Exchange, out of which this dispute has arisen, were parts of a more extensive speculation by Mr Lee, and were conducted by Mr Lee through the medium of London stock brokers, employed and directed by him, and not employed by, or in any way brought in contact with, Mr Kirk. Lee, as acting for Kirk, had purchased North British stock for Kirk, not as
Page: 63↓
In any view of the case, I could not sustain this claim. At the close of the whole transaction there was no loss. Mr Lee is not seeking reimbursement of a loss; but, having ultimately been a gainer, he is suing for payment of a sum which would have been lost if the transaction had terminated by sale on Kirk's failure to remit funds on the 12th or 13th of November. That Lee was the purchaser of the shares at that time, and the holder of the shares after that time, is clear, and he having so purchased and so held the shares, I am disposed to agree with the Lord Ordinary in thinking that he is not entitled to demand from Kirk, or his estate, the sum here claimed, which is a theoretical or hypothetical loss as on 12th November. He cannot recover the loss which he avoided, and at the same time keep the gain which he made.
But, separately, and on a broader ground, I fully concur with your Lordship in opinion that Mr Lee being agent for Kirk,—agent in this speculative transaction,—could not lawfully purchase for himself the stock which he sold as agent for Kirk. He represented Kirk, and as Kirk's agent he sold to himself the stock which he held for Kirk. My mind is not disturbed by the Dean of Faculty's ingenious introduction of the “jobbers” on the London Exchange. We have nothing to do with them. They are the mere instruments by which the machinery of stock-jobbing speculation is worked. I am clearly of opinion that he was not entitled so to act as to transfer the shares to himself. It is well settled, both in England and in Scotland, that an agent cannot purchase what he is employed to sell, nor sell what he is employed to purchase. If directed and empowered to sell for his client, he cannot be himself the purchaser. If directed and empowered to purchase for his client, he cannot purchase from himself. On this point it were easy to quote authorities in support of a principle which must commend itself to our minds. One of the most striking cases is that of Brookman v. Rothschild, 5 Bligh's Reports, new series, p. 165, where the rule was enforced nothwithstanding the good faith of the proceeding. I may also mention the case of Gillett v. Peppercorne, decided by Lord Lungdale, 8 Beaven 78, and the case of Crowe v. Ballard, 3 Bro., Ch. C., p. 119. See also Sugden on Vendor and Purchaser, vol. 2, p. 887; Addison on Contracts, p. 72.
If, therefore, Lee, being employed to sell certain shares, had purchased these shares for himself, I should have had no doubt that he acted unlawfully, whether he be considered as an agent or as a stock broker.
But if, being agent, he sold as a step in the process of carrying over and thus continuing the speculation, I think he cannot be permitted to separate the carrying over into two parts, the one being a sale by himself as agent to some jobber for himself as an individual, and the next a retransmission or recovery of the shares back from the jobber to himself, to be held on by him to his own ultimate gain, and then to take the date of the sale to himself and sue his employer as for a loss at that date. Such a proceeding by an agent, whether stock broker or not, was in my opinion illegal. It necessarily involved the purchase by himself from his client,—or rather by himself as an individual from himself as an agent,—or purchase which terminated in a resulting gain to himself. Such a transaction is, in my view, contrary to law.
On this separate ground, even more clearly than on the ground stated by the Lord Ordinary, I am of opinion that Mr Lee's claim has been rightly rejected.
When I say that Mr Lee's conduct in this transaction was illegal, I do not mean to impute or suggest any fraud or intentional unfairness on his part. But in these transactions on the Stock Exchange, where such speculation on time bargains, though not gaming and wagering within the meaning of the statute, do certainly tend to gambling, it is essential to protect, and to enforce firmly, the rules of law and equity which regulate the relations between principal and agent. I feel, therefore, no hesitation in rejecting this claim.
I agree with your Lordship in the chair that Lee was in a position of such trust towards Kirk that be was prevented from buying the subjects himself. I do not think it material to inquire whether he acted as a broker or as a factor or agent, for in whichever capacity he acted he stood in a confidential position towards Kirk. The rule is laid down in several decisions that in no circumstances can a broker purchase from a party for whom he acts; and the reason is the confidential position in which he stands. On the same ground, I think that Lee was prevented from purchasing the shares which he had already purchased for Kirk.
The Court adhered.
Counsel for Appellant—Solicitor-General ( Watson) and Mackintosh. Agents— Morton, Neilson, & Smart, W.S.
Counsel for Respondent—Dean of Faculty (Clark) and Campbell Smith. Agent— David Hunter, S.S.C.
