Sproul v. Sloan

Citations

• 241 Pa. 284
• 88 A. 501
• 1913 Pa. LEXIS 778

Syllabus

<p>Stock brokers — Purchase of stock on margin — Hypothecation by broker — Conversion—Measure of damages — Usage.</p> <p>1. One to whom stock has been pledged for a loan has full power to hypothecate it so long as the original pledgor may obtain possession of it upon payment of his debt; but if it has been mingled with the other securities of the pledgee, or has been rehypothecated by him to secure a different or larger debt than that for which it was pledged to him, or if the collaterals have been transferred, but the obligation they were given to secure retained, or if it has been in any way placed .beyond the control of the pledgee, this is a conversion.</p> <p>2. Stock brofers purchased for a customer in May, June and August, 1907, 1,500 shares of a certain stock at prices varying from $61.50 to $54 per share. The brokers agreed to carry the (stock for the customer on a margin of $20 per share, which he deposited with them. As the stock was purchased from time to time the brokers mingled it with other securities under their control, and pledged them to a trust company and bankers as collateral for indebtedness of their own amounting to more than a million and a half dollars. This was without the authority or knowledge of the customer. In April, 1908, the brokers sold at $6.25 per share the stock which they had purchased for the customer but which he refused to pay for and take off their hands, and, after crediting him with the proceeds, the margins deposited and the devidends received on the stock, brought suit against him to recover the' balance alleged to be due amounting to $84,214.51, with interest from the date of the sale of the stock. Held, 1, that a verdict was properly directed for the defendant for the reason that the brokers had converted to their own use the stock purchased for the customer by hypothecating it for their own indebtedness and, having so broken their contract with the customer, they were in no position to demand performance by him; 2, t