Scott, J.:
This controversy is between a firm of stockbrokers and a customer. Defendant was a speculator in stocks and plaintiffs acted as his brokers for a period of about thirteen months, during which time he had about 100 transactions resulting, according to the accounts kept by plaintiffs, in a considerable loss. Defendant received from plaintiffs the. usual memoranda or slips showing each transaction, and also received at the end of each month an account showing the transactions for the month. These he accepted as veracious accounts of his transactions, and on April 1, 1907, when his relations with plaintiffs had terminated, they made a statement of the general account, which he accepted. This statement showed a balance against him of $14,910.15, for which he gave a series of notes, on which he subsequently paid $4,090. He then refused to pay further, and the present action is commenced. It is found by the referee, and is undoubtedly the fact, that defendant accepted plaintiffs’ statement of the account as accurate, and, because he so believed it, gave the notes.
[166]*166The action was originally brought upon the unpaid notes alone, and the answer set up as defenses that some of the transactions had been mere gambling ones, and also that plaintiffs had agreed to a composition. An examination was had of three of the plaintiffs before trial and an expert accountant was set to work upon plaintiffs’ books. Following this examination, and undoubtedly as a result of it, the defendant amended his answer by dropping the defense of a composition agreement, alleging fraud in the transactions between himself and plaintiffs in four particulars, and asking by way of counterclaim for damages as for a conversion as to two transactions. Plaintiffs thereupon amended their complaint by adding to the causes of action upon the notes one upon the account stated.
Defendant again amended his answer by adding a counterclaim for what he had already paid upon the notes. Plaintiffs replied, but did not otherwise amend their complaint. Nowhere did plaintiffs assert a cause of action upon the general account between defendant and themselves. We have thus stated the course of pleading in detail because it has a direct bearing upon the final judgment from which the appeal is taken.
We have examined with care the voluminous record of the trial before the referee, in the light of the very careful and exhaustive briefs of counsel for the respective parties. It would serve no good purpose to go over in detail the evidence upon which the referee has based his findings as to the facts. It will suffice to say that we entirely agree with his conclusions. These in brief are that one of the transactions upon which the account stated is based was in no sense a bona fide transaction, but was merely a cover for a bet upon the future price of a certain stock made between defendant and one of the plaintiffs, in the presence and with the knowledge of at least one other of the plaintiffs; that as to two transactions going to make up the account stated, in which defendant gave orders to sell stocks for his account, plaintiffs without defendant’s knowledge, became themselves the purchasers; that as to two other transactions in which defendant gave orders to buy stocks for his account, plaintiffs, without defendant’s knowledge, became [167]*167themselves the sellers; that no effectual notice was given to or received by defendant, at the time, that plaintiffs instead of buying and selling as instructed had themselves acted as sellers or purchasers; and that the fact that they had so acted was not actually known to defendant until January or February, 1910, when he repudiated the transactions. Upon these facts the referee has held, and we think rightly, that the five transactions above referred to created no legal liability upon the part of defendant to plaintiffs, and that their inclusion in the account destroyed its conclusive effect as an account stated. It follows of course that plaintiffs cannot recover upon either count of their complaint because, the account stated having been successfully impeached, the notes resting for consideration upon that account can furnish no better basis for a recovery than does the account itself. (Bergen v. Hitchings, 22 App. Div. 395.)
The complaint, therefore, was rightly dismissed, and it follows logically that defendant is entitled to recover back what he has already paid upon the notes. His payment of them cannot be considered as voluntary because when he paid them he relied, as he did when he gave them, upon the accuracy of the account.
It is urged that the referee should have restated the account, eliminating the objectionable items and awarding judgment upon the account as thus restated. Apart from the practical difficulties of doing this which are well pointed out in the opinion of the referee, it is obvious that to adopt this course would be to render judgment upon an issue not tendered by the pleadings. As already pointed out, the plaintiffs, although warned by defendant’s amended answer that he proposed to impeach the account stated, elected deliberately to stand upon it, by omitting to plead, as they might have done, the general account between themselves and the defendant. Thus the plaintiffs elected to stand upon causes of action which affirmed the integrity and conclusiveness of the account stated as a whole. Its integrity and conclusiveness having been successfully attacked the whole basis of the action fails. It remained, and still remains, if no statute of limitations intervenes, open to them to sue upon the general account making common-law proof of [168]*168defendant’s indebtedness. If they have not availed themselves of this opportunity or have waited too long, the fault is their own. It is true that in equity actions where the debtor comes into court asking that an account be surcharged or falsified, the court will proceed to state the true account and require the plaintiff to pay what that shows him to owe. That rule, however, is not obligatory in an action at law in which the debtor on the account merely defends against liability thereon.
- A large part of the judgment in defendant’s favor is made up of damages for the conversion of those stocks ordered to be sold for his account of which plaintiffs themselves became the purchasers. On February 9,1910, upon discovery of the facts, defendant, electing to disavow plaintiffs’ acts in themselves purchasing the stocks, tendered to them the amount which would have been due them for purchasing and carrying said • stocks to the date of tender, and demanded delivery of the stocks which was refused. Treating this refusal as a conversion of the stocks defendant counterclaimed for damages which have been allowed by the referee on the basis of the value of the stocks at the date of tender, being the difference between the market prices of the stocks at the date of the alleged sale, and the market prices on the date of tender. The plaintiffs insist that the conversion, if any, took place when they purchased defendant’s stocks and credited him on their books with the proceeds thereof, and that, since that purchase was made at the market prices on that day, defendant suffered no damage through their unauthorized act. They concede that the rule of damages adopted by the referee is the correct one where the customer desires to continue to carry the stocks for an anticipated profit (McIntyre v. Whitney, 139 App. Div. 557; affd., 201 N. Y. 526), but insist that it has no application where, as in the present case, the customer has ordered the stocks to be sold.
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Scott, J.:
This controversy is between a firm of stockbrokers and a customer. Defendant was a speculator in stocks and plaintiffs acted as his brokers for a period of about thirteen months, during which time he had about 100 transactions resulting, according to the accounts kept by plaintiffs, in a considerable loss. Defendant received from plaintiffs the. usual memoranda or slips showing each transaction, and also received at the end of each month an account showing the transactions for the month. These he accepted as veracious accounts of his transactions, and on April 1, 1907, when his relations with plaintiffs had terminated, they made a statement of the general account, which he accepted. This statement showed a balance against him of $14,910.15, for which he gave a series of notes, on which he subsequently paid $4,090. He then refused to pay further, and the present action is commenced. It is found by the referee, and is undoubtedly the fact, that defendant accepted plaintiffs’ statement of the account as accurate, and, because he so believed it, gave the notes.
[166]*166The action was originally brought upon the unpaid notes alone, and the answer set up as defenses that some of the transactions had been mere gambling ones, and also that plaintiffs had agreed to a composition. An examination was had of three of the plaintiffs before trial and an expert accountant was set to work upon plaintiffs’ books. Following this examination, and undoubtedly as a result of it, the defendant amended his answer by dropping the defense of a composition agreement, alleging fraud in the transactions between himself and plaintiffs in four particulars, and asking by way of counterclaim for damages as for a conversion as to two transactions. Plaintiffs thereupon amended their complaint by adding to the causes of action upon the notes one upon the account stated.
Defendant again amended his answer by adding a counterclaim for what he had already paid upon the notes. Plaintiffs replied, but did not otherwise amend their complaint. Nowhere did plaintiffs assert a cause of action upon the general account between defendant and themselves. We have thus stated the course of pleading in detail because it has a direct bearing upon the final judgment from which the appeal is taken.
We have examined with care the voluminous record of the trial before the referee, in the light of the very careful and exhaustive briefs of counsel for the respective parties. It would serve no good purpose to go over in detail the evidence upon which the referee has based his findings as to the facts. It will suffice to say that we entirely agree with his conclusions. These in brief are that one of the transactions upon which the account stated is based was in no sense a bona fide transaction, but was merely a cover for a bet upon the future price of a certain stock made between defendant and one of the plaintiffs, in the presence and with the knowledge of at least one other of the plaintiffs; that as to two transactions going to make up the account stated, in which defendant gave orders to sell stocks for his account, plaintiffs without defendant’s knowledge, became themselves the purchasers; that as to two other transactions in which defendant gave orders to buy stocks for his account, plaintiffs, without defendant’s knowledge, became [167]*167themselves the sellers; that no effectual notice was given to or received by defendant, at the time, that plaintiffs instead of buying and selling as instructed had themselves acted as sellers or purchasers; and that the fact that they had so acted was not actually known to defendant until January or February, 1910, when he repudiated the transactions. Upon these facts the referee has held, and we think rightly, that the five transactions above referred to created no legal liability upon the part of defendant to plaintiffs, and that their inclusion in the account destroyed its conclusive effect as an account stated. It follows of course that plaintiffs cannot recover upon either count of their complaint because, the account stated having been successfully impeached, the notes resting for consideration upon that account can furnish no better basis for a recovery than does the account itself. (Bergen v. Hitchings, 22 App. Div. 395.)
The complaint, therefore, was rightly dismissed, and it follows logically that defendant is entitled to recover back what he has already paid upon the notes. His payment of them cannot be considered as voluntary because when he paid them he relied, as he did when he gave them, upon the accuracy of the account.
It is urged that the referee should have restated the account, eliminating the objectionable items and awarding judgment upon the account as thus restated. Apart from the practical difficulties of doing this which are well pointed out in the opinion of the referee, it is obvious that to adopt this course would be to render judgment upon an issue not tendered by the pleadings. As already pointed out, the plaintiffs, although warned by defendant’s amended answer that he proposed to impeach the account stated, elected deliberately to stand upon it, by omitting to plead, as they might have done, the general account between themselves and the defendant. Thus the plaintiffs elected to stand upon causes of action which affirmed the integrity and conclusiveness of the account stated as a whole. Its integrity and conclusiveness having been successfully attacked the whole basis of the action fails. It remained, and still remains, if no statute of limitations intervenes, open to them to sue upon the general account making common-law proof of [168]*168defendant’s indebtedness. If they have not availed themselves of this opportunity or have waited too long, the fault is their own. It is true that in equity actions where the debtor comes into court asking that an account be surcharged or falsified, the court will proceed to state the true account and require the plaintiff to pay what that shows him to owe. That rule, however, is not obligatory in an action at law in which the debtor on the account merely defends against liability thereon.
- A large part of the judgment in defendant’s favor is made up of damages for the conversion of those stocks ordered to be sold for his account of which plaintiffs themselves became the purchasers. On February 9,1910, upon discovery of the facts, defendant, electing to disavow plaintiffs’ acts in themselves purchasing the stocks, tendered to them the amount which would have been due them for purchasing and carrying said • stocks to the date of tender, and demanded delivery of the stocks which was refused. Treating this refusal as a conversion of the stocks defendant counterclaimed for damages which have been allowed by the referee on the basis of the value of the stocks at the date of tender, being the difference between the market prices of the stocks at the date of the alleged sale, and the market prices on the date of tender. The plaintiffs insist that the conversion, if any, took place when they purchased defendant’s stocks and credited him on their books with the proceeds thereof, and that, since that purchase was made at the market prices on that day, defendant suffered no damage through their unauthorized act. They concede that the rule of damages adopted by the referee is the correct one where the customer desires to continue to carry the stocks for an anticipated profit (McIntyre v. Whitney, 139 App. Div. 557; affd., 201 N. Y. 526), but insist that it has no application where, as in the present case, the customer has ordered the stocks to be sold. The argument is plausible, but fails to take note of the law applicable to the relations of principal and agent. These are well settled and are stated in Dos Passes on Stock Brokers and Stock Exchanges (Vol. 1 [2d ed.], p. 382), as follows: “The effect of a purchase by a Broker or pledgee of the stocks of the Client or pledgor, as we have seen, is to render the transaction void, and the cases hold that such a [169]*169purchase does not change the creditor’s relation to his debtor, but that the securities are still held by the creditor under the original titles as security for the original debt. The transaction is treated precisely as if no sale had been made; and the debtor, in order to obtain another sale of the securities, or to redeem them, is not required to prove that the Broker or pledgee made a fraudulent sale or one disadvantageous to himself, hut only that he became the purchaser. The Broker or pledgee in selling the securities is in the position of trustee for the Client or pledgor, and the law will not allow of the temptation to fraud or the possibility of the same through the trustee becoming purchaser at his own sale. But the pledgor has the option to treat the sale as valid, and to accept the benefits thereof.”
The rule of damages adopted by the referee is supported in this State by Evans v. Wrenn (93 App. Div. 346; affd., 181 N. Y. 566), and in England by Brookman v. Rothschild (3 Sim. 153, 224; affd., H. L. 5 Bligh [N. S.], 165). To apply the rule contended for by plaintiffs would be to require the customer to forego his privilege of election, upon discovery of the facts, whether to adopt or to disavow the unauthorized act of his brokers, and to compel him to accept and ratify their unlawful act. The practical efficacy of the rule forbidding a broker to deal himself with his customers’ property would be wholly destroyed.
We regret to observe in the appellants’ brief (not signed by the counsel who argued the appeal) many intemperate reflections upon the intelligence and impartiality of the referee — reflections which are in no degree justified by the record. Experienced counsel must know, and those less experienced should learn, that appellate courts are never favorably impressed by practices of this nature.
The judgment should be affirmed, with costs.
Laughlin, Dowling and Hotchkiss, JJ., concurred; Ingraham, P. J., dissented.