Alexas v. Post & Flagg

July 7, 1924. The opinion of the Court was delivered by Action for $2,375 damages alleged to have been sustained through the failure of the defendants to carry out the plaintiff's instructions with reference to the sale of corn for future delivery on the Chicago Board of Trade.

The facts are as follows:

On July 9, 1920, the plaintiff, Alexas, living at Greenwood, S.C. wired the defendants, Post Flagg, brokers, doing business in the City of New York: "Sell 5 Dec. Corn stop loss 144." It is conceded that the first part of the telegram was an order for the defendants to sell for the account of the plaintiff 5,000 bushels of corn for delivery in the month of December; the controversy involves the meaning of the latter part "stop loss 144," as will be seen.

The defendants accepted the order and sold for account of the plaintiff, on the Chicago Board of Trade, 5,000 bushels of corn for December delivery at $1.39 1/2 per bushel. On the following day the market price reached $1.44 per bushel, and the defendants, as they supposed, complying with the stop order of the plaintiff, closed the transaction in the usual way by buying a similar contract, which entailed a loss of 4 1/2 cents per bushel, $225, upon the plaintiff. This occurred on July 10th. The defendants did not notify the plaintiff by wire of the latter transaction, but wrote him by mail, which the plaintiff claims he did not receive until July 14th, at which time he replied by wire repudiating the transaction upon the ground that the defendants had not notified him by wire. Thereafter there was correspondence between the parties, the plaintiff taking the position that his opening telegram, so far as the stop order was concerned, was limited to the day upon which it was sent, and that the original selling contract was still in force. In September the price of corn had fallen to 96 cents per bushel, and the plaintiff wired the defendants to close the original contract by buying at that figure. The defendants, standing upon their contention that they were authorized to close the contract on July 10th at $1.44, refused to recognize that the plaintiff had an open contract as claimed. The plaintiff bases his claim on the difference between $1.39 1/2 and 96, 43 1/2 cents per bushel on 5,000 bushels, $2,175, and $225 loss charged to him, making $2,400, which, however, he places at $2,375.

The case turns upon the construction of the words in the telegram of July 9th: "Stop loss 144." The plaintiff contends that he meant that, if the price reached 144 on that day, July 9th, the defendant should close him out, and he would take his loss, and that the usage of trade confirms his interpretation. The defendants contend that there was no limit to the stop order, and that they were bound to close out the contract at any time during its life that the price reached 144.

His Honor, the presiding Judge, sustained the contention of the defendants, and directed a verdict in their favor. From the judgment entered thereon the plaintiff has appealed. We are of opinion that the Circuit Judge was entirely right in his construction of the contract, and that the judgment must be affirmed. The language upon its face is unambiguous and perfectly clear; and how the defendants could have divined that the plaintiff meant something which he did not express we are unable to see.

A "stop order" is a direction given by the purchaser or seller, as the case may be, to his broker, to the effect that, if the commodity on the market touches the price named, the broker shall close the trade by selling or buying, as the case may be, at the best available price. It may not be possible for the broker, when the price has reached the "stop" figure, to close out at that price, but he must do the best he can at that moment. It is a measure of protection which the operator provides for himself against loss beyond a certain point in a fluctuating market, and it is the duty of the broker who accepts a contract under such conditions to comply with the instructions. It obviously is entirely distinct from the matter of margins already put up or that may be called for. The operator has settled that matter for himself, regardless of the question of margins; he in effect directs the broker to close him out when the market reaches a certain price upon the best available terms, and he will accept his loss or profit accordingly; it is playing a comparatively safe game; at least he is putting a curb upon his own spirit of speculation. Why that cautious spirit should be limited to the day of initiation no sound reason has been suggested. Hall v. Paine, L.R.A., 1917C, 757; 9 C.J., 539. Richter v. Poe, 109 Md., 20; 71 Atl., 420; 22 L.R.A. (N.S.), 181. Campbell v. Wright, 118 N.Y., 594;23 N.E., 914.

The duty is imperative upon the broker to close the transaction when the price limit has been reached; if he should fail to do so, the customer may recover the loss sustained by such failure. Policastro v. Sprague,175 App. Div., 417; 161 N.Y. Supp., 912; note, 75 Am. Dec., 321. In the absence of a very clear showing that the stop order was effective only for the day of the initiation of the contract, it should be considered as a standing order as long as the contract had life.

The plaintiff undertook to show that by the usage of the trade his contention should be sustained. He produced but a single witness who testified that according to his interpretation the stop order was limited to the day; he, however, admitted that a majority of the brokers who did business on the Chicago Board of Trade took a different view.

The rule is settled in this state and everywhere else that —

"Evidence of custom and usage is not admissible to explain or vary the terms of an express contract, whether written or verbal, unambiguous in its terms, unless it be to show the meaning of certain terms used in such contract which, by well-established custom or long usage, have acquired a meaning different from that which they primarily bear." Fairly v. Wappoo Mills, 44 S.C. 227;22 S.E., 108; 29 L.R.A., 215. Thomas v. Graves, 1 Mill. Const., 308. Patton v. Magrath, Dud., 159; 31 Am. Dec., 552. Hayward v. Middleton, 3 McCord, 121; 15 Am. Dec., 615. Martin v. Tel. Co., 81 S.C. 432; 62 S.E., 833; 27 R.C.L., 155, 158, 160; 17 C.J., 451, 458.

The judgment of this Court is that the judgment of the Circuit Court be affirmed.

MESSRS. JUSTICES WATTS, FRASER and MARION concur.

MR. CHIEF JUSTICE GARY did not participate.