Zacks v. Gentles & Co.

Zacks v. Gentles & Co.

Where a broker's client failed to meet repeated margin demands, the broker was entitled to make reasonable purchases to close a short position; the trial judge's finding that the critical January 23 purchases were for other customers and that later purchases to cover the appellant's short position were made in good faith was not open to be disturbed, and the brokers were therefore entitled to recover the resulting debit balance of $2,413.72.

Citation
[1939] SCR 45
Parties
Appellant (defendant): A.B. Zacks; Respondent (plaintiffs): C.A. Gentles & Company
Court
Supreme Court of Canada
Jurisdiction
Canada
Judgment Date
5 December 1938
Procedural Posture
Civil Appeal (securities/brokerage) / Appeal to the Supreme Court of Canada From the Court of Appeal for Ontario
Outcome
Appeal dismissed with costs
Legal Topics
Short Sale, Margin Requirements, Brokers' Duty to Protect Account, Indemnity for Purchases to Cover Short Positions
Source Language
English
Securities Brokerage Law Contract Law Short Sale Margin Requirements Brokers' Duty to Protect Account Indemnity for Purchases to Cover Short Positions

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Parties

A.B. Zacks

Appellant (defendant)

C.A. Gentles & Company

Respondent (plaintiffs)

Procedural Posture

Civil Appeal (securities/brokerage) / Appeal to the Supreme Court of Canada From the Court of Appeal for Ontario

Legal Issues

  1. 1 Whether a broker may, without express client instruction, purchase securities to cover a client's short position when the client fails to meet margin requirements
  2. 2 Whether the purchases of January 23, 1936 were made for the appellant's account or for other customers or the brokers' own accounts
  3. 3 Extent of broker's right of indemnity from the client for losses caused by subsequent purchases to cover a short sale

Ratio Decidendi

Where a broker's client failed to meet repeated margin demands, the broker was entitled to make reasonable purchases to close a short position; the trial judge's finding that the critical January 23 purchases were for other customers and that later purchases to cover the appellant's short position were made in good faith was not open to be disturbed, and the brokers were therefore entitled to recover the resulting debit balance of $2,413.72.

Court Disposition

Appeal dismissed with costs

Orders

  • Judgment entered for respondents for $2,413.72 plus interest from date of writ
  • Costs awarded to respondents