The defendants are stockbrokers doing business upon the New York Stock Exchange and this action is brought for the purpose of enforcing a contract for the sale to them of certain stock made upon the exchange in the usual way by other brokers who were acting for the plaintiff’s assignor.
The appeal presents only a question of law, there being no contest between the parties-as to the facts. On January 19,, 1910, one James W. Escher, plaintiff’s assignor, was the owner of twenty-five shares of the common stock of the Columbus and Hocking Coal and Iron Company, a certificate for which was in his possession. About eleven o’clock in the forenoon of that day he telephoned the firm of Lathrop, Haskins & Co., brokers dealing upon the New York Stock Exchange, to sell this stock — he having previously purchased it through them. This they did, selling upon the exchange in the ordinary way, to the defendants, at eighty-three and five-eighths. The offer to sell and the acceptance to purchase were in writing, signed by the respective brokers in their own names, and the defendants had no knowledge that Lathrop, Haskins & Co. *591was not making the sale on its own account. After the sale Lathrop, Haskins & Go. sent a notice in the usual form to Escher, stating the price at which the stock had been sold and naming the defendants as the brokers to whom the sale had been made. This notice was received by Escher, either late in the afternoon of the same day or early the next morning. By the terms of sale the certificate of stock was to be delivered on the day following, when the purchase price was to be paid. The fact is not disputed that under the rules of the Stock Exchange governing such transactions, if this contract had been fully performed in the ordinary course of business, the stock would have been delivered to the defendants by Lathrop, Haskins & Go., and the purchase price paid to them without Escher’s appearing in the transaction at all. But on the day of sale, and shortly thereafter, Lathrop, Haskins & Go. notified the exchange it was insolvent and unable to meet its obligations. An announcement of that fact was immediately made upon the floor of the exchange and then the defendants, in accordance with the rules of the exchange applicable to such cases, proceeded to close all its contracts with the insolvent firm. They then had a number of contracts, both for the purchase of stocks from Lathrop, Haskins & Go., and for the sale of stock to them. The stock which they had contracted to purchase they purchased from other brokers at prevailing prices, and the stock which they had contracted to sell they likewise sold to other brokers, with the exception of the twenty-five shares of Columbus and Hocking stock, which was set off against the twenty-five shares which they had contracted to purchase from them. Owing to the difference in prices at which these sales and purchases were made a balance of $564.16 resulted in favor of Lathrop, Haskins & Go., which the defendants subsequently paid to the receiver in bankruptcy of that firm. On the morning following the failure of Lathrop, Haskins & Go., Escher, who had heard of it,' called at the office of the defendants and presented to them his stock certificate, duly assigned and ready for transfer, with the notice of sale which he had received from his brokers, and a formal demand that the defendants take and pay for the stock. This they refused to do and Escher thereafter assigned the stock, and all his *592right of action against the defendants in connection therewith, to the plaintiff, who thereupon commenced this action to recover the purchase price of the stock. The parties waived a jury trial and the court found in favor of the plaintiff for the full amount claimed. Judgment was entered accordingly and defendants appeal.
The appellants contend that the judgment is erroneous because under the rules of the Stock Exchange Lathrop, Has-kins & Co. and the defendants, in the transaction complained of, acted as principals, and after the failure was announced settlement was made in accordance with such rules. One of the rules referred to provides that “ No party to a contract shall be compelled to accept a substitute principal, unless the name proposed to be substituted shall be declared in making the offer and as a part thereof.” Another, “ When written contracts shall have been exchanged, the signers thereof only are liable. ” Also, “When the insolvency of a member or firm is announced to the Exchange, members having contracts subject to the rules of the Exchange with the member or firm shall without unnecessary delay proceed to close the same * * *.” They contend that when Escher gave the direction to sell his stock he knew that Lathrop, Haskins & Co. dealt upon the Stock Exchange and that such dealings were subject to its rules. The defendants, undoubtedly, had the right to determine with whom they would contract (Arkansas Smelting Co. v. Belden Co., 127 U. S. 379; Moore v. Vulcanite Portland Cement Co., 121 App. Div. 667), and in Horton v. Morgan (19 N. Y. 170) it was said: “The practice at the stock board, by which the brokers only, and not their customers, are known in their dealings with each other, was not 'unreasonable; and the plaintiff, by directing this purchase to be made, must be understood as consenting that it should be done in the usual manner.” When Escher gave the order to sell, he also knew and intended that the sale would be made upon the exchange and there is much force in the claim that thereby the rules and usages of the exchange, including the right to close the contract upon the insolvency of the broker, were imported into the contract by his authority. (Bibb v. Allen, 149 U. S. 481; Springs v. James, 137 App. Div. 110; Skiff v. Stoddard, 63 Conn. 198; *593cited with approval in Richardson v. Shaw, 209 U. S. 365; Nickalls v. Merry, L. R. 7 H. L. [Eng. & Ir. App. Cas.] 330.) If he did not know the rules of the exchange it was his own fault, and not that of the defendants. The notice of sale received by him from Lathrop, Haskins & Go. stated that the sale v.ras “subject in all respects to the rules and regulations of the Hew York Stock Exchange,” and this is undoubtedly what both of the brokers, who were parties to the transaction, intended. Under such circumstances it is difficult to see, as urged by the appellants, how Escher could obtain any other or greater rights to enforce the contract than the brokers themselves had. Defendants certainly cannot be held liable upon a contract other than the one which they actually made, and if the one made were different from the one which Escher intended and authorized then his remedy is against his agent and not against defendants.
In answer to the appellants’ contention the respondent urges, and the decision of the trial court is upon the ground, that Escher was the undisclosed principal of Lathrop, Haskins & Go., and he could not be deprived of the benefit of his contract by the rules of the Stock Exchange making the brokers principals in their dealings with each other, and prescribing the manner in which contracts shall be closed upon the insolvency of a member; in other words, that the relation of customer and broker in transactions upon the exchange is, in general- subject to the ordinary rules and principles of agency. There is high authority for this claim. (Leo v. McCormack, 186 N. Y. 330; Humphrey v. Lucas, 2 Car. & K. 152; Cooke v. Eshelby, L. R. 12 App. Cas. 271.)
The conclusion, however, at which I have arrived renders it unnecessary in the case now before us to determine whether the appellants’ or respondent’s contention is correct, because, assuming that the transaction is governed by the ordinary rules and principles of agency, irrespective of the rules of the Stock Exchange, I am of the opinion that the plaintiff was not entitled to recover. The contract was not for the sale of the specific shares of stock owned by Escher. • It would have been fully performed by the delivery to the defendants of the *594requisite number of shares, regardless of their ownership and the shares were' not to be delivered and the purchase price paid until the next day. On J anuary nineteenth, therefore, the contract was wholly executory, and if on that day Lathrop, Haskins & Co. had, before their failure, requested the defendants to cancel the contract and they had consented to do so, it would have been at an end. The mere fact that Lathrop, Haskins & Co. were brokers would not have compelled defendants to inquire whether they had made the contract for an undisclosed principal and whether they had been authorized by him to cancel it. And for the same reason if instead of canceling a single contract Lathrop, Haskins & Co. had informed defendants they were unable to meet their obligations and requested them to close their contracts in the manner in which they were actually closed, I do not see how it can be doubted but that defendants would have been justified in complying with the request. Lathrop, Haskins & Co. actuafiy had with the defendants, at the time of their failure, several contracts for the purchase and sale of different stocks, involving many thousands of dollars. To say that, under these circumstances, before taking any steps to protect themselves against loss, defendants would have been obliged to investigate each contract so as to find out whether an undisclosed principal were involved, and whether such undisclosed principal were able to perform, is to extend, as it seems to me, the right of an undisclosed principal beyond reason. No authority has, so far as I am aware, gone to that extent. But the announcement of the failure of Lathrop, Haskins & Co. upon the Stock Exchange, at their request, was equivalent to just such a request to defendants to close their contracts. For the purpose of the argument only, it may be assumed that if Escher had notified the defendants that the contract for the sale of the Hocking stock had been made for his account, before the announcement of the failure was made, and the brokers had thereby changed their positions, he might have enforced the contract. But he did not do so, and, without having any actual knowledge that he or any one besides the insolvent brokers were interested, the defendants did close the contract by setting off their contract for the sale of an equal number of *595shares to the insolvents at a much lower price, thereby rendering themselves liable for the difference. ‘ It is possible Escher might have been entitled to this difference (Cooke v. Eshelby, supra), but, as is specifically stated in the respondent’s brief, this action is not brought to recover the difference in price, and that question is not before the court; on the contrary, the respondent’s claim is that, notwithstanding the settlement of the contract made by the brokers, Escher was entitled to enforce .performance. The rule is well settled that the rights of an undisclosed principal are subject to claims acquired in good faith against the agent. (McLachlin v. Brett, 105 N. Y. 391; Nichols v. Martin, 35 Hun, 168; Charlotte Iron Works v. American Exchange Nat. Bank, 34 id. 26; Hogan v. Shorb, 24 Wend. 458.) This rule, of course, does not apply where the persons dealing with the agent know, or are chargeable with knowledge, of the existence of an undisclosed principal. (Wright v. Cabot, 89 N. Y. 570.)
The trial court held, relying upon certain English authorities, that the fact that Lathrop, Haskins & Co. were brokers dealing for others as well as themselves was sufficient to charge the defendants with such knowledge. But there is in this case the additional fact, not present in the English authorities relied upon, that the defendants actually closed their contracts with the insolvents at their request by actual sales and purchases. It is difficult to see, if thereafter Escher could compel the defendants to perform, how any one could deal with safety with a person known at times to act as an agent. Here, the brokers, the only persons known to the defendants in the transaction, announced their inability to meet their contracts. That inability might very easily have been due to the inability of the principals in behalf of whom they had contracted. Yet, if this judgment is to be sustained, it must be held that the defendants had no right to rely upon this announcement, and were bound to ascertain the identity of the real party in interest before closing any contract. The law is not so harsh and unreasonable. It imposes no such duty upon a person dealing with an agent known to act for himself as well as for others, especially where contracts made by such an agent and principal are as numerous and extensive as in the case before us.
*596I understand the law to he as stated in Le Marchant v. Moore (150 N. Y. 209), where the plaintiffs had purchased stocks from the defendant brokers, through Evans & Co., plaintiffs’ brokers. The purchase price had not been paid in full so that the defendants retained the stock as pledgees for the unpaid balance. Haight, J., writing for the court, said: “ The defendants, as pledgees, were entitled to regard Evans & Company as the owners until they were notified of the plaintiffs’ rights. Thereafter they were bound to recognize the plaintiffs’ claim and deal with the stock accordingly/’ This expresses, as it seems to me, the only point which we are called upon to decide in the present case. At the time the defendants were notified of Escher’s claim, their contract with Lathrop, Haskins & Co. had been terminated. What rights Escher may then have had, if he had any rights against the defendants at all, it is unnecessary, for the reason heretofore given, to determine. He certainly did not have the right to enforce a contract which they, in perfect good faith, and without any knowledge whatever of his interest, had closed at the request of his brokers.
The judgment appealed from must be reversed, and a new trial ordered, with costs to appellants to abide event.
Ingraham, P. J., Laughlin and Clarke, JJ., concurred; Miller, J., dissented.