WANG LUSI V. SICHUAN PROVINCE SECURITIES CO. LTD.
Plaintiff: Wang Lusui, male, 41 years of age, employee with Chengdu Airplane Industry Company.
Attorney.: Chen Meisen, lawyer with Sichuan Renhe Law Office, Sichuan Province.
Attorney: Wang Yongai, employee with Professional School of Chengdu Airplane Industry Company.
Defendant: Sichuan Province Securities Co. Ltd.
Legal Representative: Tu Jongwei, General Manager with the Company.
Attorney.: Cao Zongliang, legal counsel with the Company.
Attorney: Shi Chuanjin, employee with the Company.
Plaintiff Wang Lusui brought a suit in at Qingyang District People's Court, Chengdu, Sichuan Province, against defendant Sichuan Province Securities Co. Ltd.( short as Securities Company) concerning stock disputes.
Plaintiff Wang Lusui claimed: on August 11, 1994, I authorized Yulong Branch Office under defendant to sell 1,000 shares of 'Hebei Huayao'. The day after, when settling account, it was found out that the direction to sell out didn't went into effect. As was found out, the broker with Yulong Branch Office wrongly typed direction for selling as direction for buying. When settling accounts on the morning of 15 of the same month, I found that there were 1,000 shares more of 'Hebei Huayao' on my account for stock. On the morning of 19 of the same month, I found that 5,301.62 yuan of cash was taken away from my account. Through negotiation with the Securities Company, I only got a letter of apology from the Company. Because of the influence of the wrong accounts, the normal exchange that I made on August 11 failed. Although I sold out the shares that were bought wrongly the next day, the price was very bad. It was prayed that the Securities Company shall bear my economic losses of 30,000 yuan as well as the acceptance fee of the present case. During the trial, plaintiff asked to change the claims into: the Securities Company shall compensate me for my direct as well as indirect losses, which was 77,383.70 yuan in total.
Defendant Securities Company pleaded: it was true as claimed by plaintiff Wang Lusui that on August 11, 1994, the in-house broker with Yulong Branch Office of the Company negligently typed his direction to sell as direction to buy. But this was an act of negligence in agency instead of an act beyond authorization. What's more, our Company took remedial measures in time and listed the money that was wrongly spent on our account without using the money of the plaintiff. So we didn't cause economic loss to the plaintiff and no torts were constituted. The court shall dismiss the claims of the plaintiff.
Qingyang District People's Court found out through public sessions:
On June 14, 1994, plaintiff Wang Lusui signed authorized trading agreement with the defendant at Yulong Branch Office of defendant Securities Company. It was agreed: the parties agreed for Wang Lusui to choose Yulong Branch Office as the location for authorized trading, the code of the account for shares of authorized trading was A108557882, and the scope of authorized trading was limited to the kinds of shares without paper traded at Shanghai Securities Exchange. During the period of authorized trading, the trading of Wang Lusui shall all be made through Yulong Branch Office and the accounts shall be settled according to the rules, and Yulong Branch Office shall guarantee that the rights and interests of Wang Lusui be not infringed upon. The acts of the parties shall be in compliance with relevant laws and regulations of the state and the business rules of Shanghai Securities Exchange. During the period of authorized trading, if an act against the contract were done incurring losses on the other party, the liabilities shall be born accordingly.
On August 10, 1994, plaintiff Wang Lusui authorized Yulong Branch Office to buy 1,000 shares of 'Hebei Huayao' at the price of 3.217 yuan per share. At the 48th second of the 22nd minute of 10 o'clock of the day after, Wang Lusui sent out direction against authorizing Yulong Branch Office to sell these shares at 5 yuan per share. Because of the negligence in operation by the in-house broker of Yulong Branch Office, however, the direction to sell was wrongly typed as direction to buy, so 1,000 shares of 'Hebei Huayao' was bought under the name of Wang Lusui at the price of 5 yuan per share. Because this data of wrongly buying couldn't pair with the data of Wang Lusui's direcition to sell, computers found out the mistake. Then this wrong trading was selected out and placed on the Company's list for selling shares in wrong accounts. The Company bought the shares itself without using the cash of Wang Lusui. But 1,000 shares of 'Hebei Huayao' that was wrongly bought was placed under Wang Lusui's account for shares. At the same time, Securities Company also placed the shares of 'Hebei Huayao' that Wang Lusui authorized to sell but on which no transaction was concluded on its list for settling accounts of August 11. On that day, the opening price of the shares of 'Hebei Huayao' was 4.90 yuan, the closing price was 5.11 yuan, highest price 5,98 yaun and lowest price 4,65 yuan. At 30 past 9 of August 12, at the opening of stock trading, Yulong Branch Office placed at F18 big dealer's seat the 1,000 shares of 'Hebei Huayao' that was bought in wrongly and placed them on sale at 5.34 yuan per share. All the cash for buying and selling were through Wang Lusui's account. On the same day, when taking out vouch for settling accounts for the 11th, Wang Lusui got to know that the 1,000 shares of 'Hebei Huayao' that he authorized to sell weren't traded. At the 9th second of the 17th minute of 10 o'clock of the same day, Wang Lusui submitted to sell the 1,000 shares of 'Hebei Huayao' at 5.30 yuan per share that was authorized to be sold the day before but failed. After the offer was drawn back, he made another offer to sell the stocks at 5.70 yuan per share. This failed, too. This offer was again drawn back and the Securities Company was authorized at the 28th second of the 22nd minute of 15 o'clock of the same day to sell at 5.10 yuan per share. Finally, a deal was stricken in two transactions through Seat No. 212 that was locked by Wang Lusui and the average price of the transactions was 5.172 yuan per share. On August 19, the Securities Company transferred the sales price 5301.62 yuan of the stock of 'Hebei Huayao' that was bought in to correct mistaken accounts. Afterward, Wang Lusui insisted that the Securities Company pay damages although the Company had explained the situation to him.
The facts above are supported by 'authorized trading agreement', vouches for settling accounts for selling and buying on August 10, 11 and 12 of 1994, certificate for authorization to sell and other evidences.
Qingyang District People's Court held through trial: the in-house broker of the defendant carelessly typed the order to sell as the order to buy. Although afterwards the Securities Company treated the mistaken accounts in accordance with customary process, this caused the objective fact that Wang Lusui wasn't able to make a deal on the very day. What's more, the defendant didn't discuss the matter with the plaintiff in time after the occurrence. As to the disputes that resulted therefrom, according to the provisions of Paragraph 2, Article 106 and Section 7, Paragraph 1, Article 134 of the General Principles of Civil Law, the Securities Company shall shoulder the civil responsibility of paying damages that was the difference between the highest price of the shares of 'Hebei Huayao' of August 11 and the price at which Wang Lusui sold the shares the following day. The other petitions of Wang Lusui lacked legal ground and shall not be adopted. Accordingly, the court declared judgement as follows on December 13, 1994:
1. Defendant the Securities Company shall pay damages RMB 808 yuan within five days since the present judgement go into effect;
2. Other petitions of Wang Lusui shall be dismissed.
After the judgement of the first instance was announced, neither of the parties was satisfied and both appealed to Chengdu Intermediate People's Court.
Wang Lusui stated in his appeal: Without my permission, the Securities Company unwarrantedly bought and sold stocks through my account in name of 'business scope', causing the stocks to be sold the following day that was originally authorized to be sold. But at that time the stocks trade was in 'bull market rising', and the loss of opportunity and time in this was hard to be calculated. The conduct of the Securities Company was in violation of Section 2, Article 10 of the Interim Measures on the Prohibition of Fraudulent Activities in Securities, which prohibited 'securities-trading institutions buy and sell stocks in contravention to the orders of the principal, and Section 7 thereof, which prohibited 'with the purpose of getting more commissions, securities-trading institutions induce customers into buying and selling unnecessarily or buy and sell stocks on the accounts of their customers. This has constituted fraud of the customers, and all the economic damages resulting therefrom shall be compensated by the Securities Company, who shall also publicly apologize in China Securities Daily.
The Securities Company stated on appeal: Although the negligence in the work of our Company caused the failure to strike a deal at the moment on Wang Lusui's 1,000 shares of 'Hebei Huayao', no economic losses were incurred, so we were not obliged to compensate. It was groundless for the court of the first instance to order our Company to pay damages in 808 yuan to Wang Lusui according to the highest price of the transaction on August 11, which was 5.90 yuan per share. It was the lawful right and interest of our Company, instead of for making profits using the accounts of customers, for us to sell stocks that had been mistakenly bought in accordance with the current rules of Shanghai Securities Exchange.
Chengdu Intermediate People's Court held: the authorized trading agreement signed by Wang Lusui and the Securities Company on June 14, 1994 was reached on the ground of free will and lawfulness, and so it shall be valid. During the period of transaction as stipulated in the agreement, appellant the Securities Company shall bear corresponding responsibility for the mistyping of selling as buying by its employee. The investment risk of securities was high, the rise and fall of the price were fast, and the various factors in particular transactions were hard to forecast. In the actual transaction, Wang Lusui had re-authorized the Securities Company to sell on the following day after he learned that the stocks of 'Hebei Huayao' wasn't sold on the authorized date, and the price at which he authorized to sell the stocks and the actual price of transaction were both higher than the price authorized on the previous day and on the exact day. So no economic losses were incurred to Wang Lusui although the Securities Company caused the failure to make a deal of the stocks that was authorized to be sold by Wang Lusui on the very day because of its own negligence. According to Section 10, Paragraph 1, Article 134 of the General Principles of Civil Law, the Securities Company shall apologize to Wang Lusui. When the Securities Company found out the mistake, it bought the shares that was mistakenly bought with its own contingent fund, and the interests of the stocks shall belong to the Securities Company; and the risk of the rise and fall of the price of the shares shall be on the Securities Company itself. This was within the lawful scope of rights of the Securities Company; it was also in compliance with the provision of Paragraph 2, Article 108 of the Trading Market Operating Rules of the Shanghai Securities Exchange, stipulating that 'securities brokers shall correct by themselves in the Exchange the mistakes concerning buying and selling in contravention to the order'. At the same time, according to the current rules of Shanghai Securities Exchange, because the stocks were mistakenly bought in through Wang Lusui's account, they could only be disposed of through the original account. Although the Securities Company used the same account to dispose of the wrongly bought shares as that through which Wang Lusui re-authorized to sell, the Securities Company submitted to sell through big dealers' seat, and Wang Lusui submitted to sell through seat no. 212 as was locked by himself; so the channel of communications was different for the parties. There is essential difference between disposal of the mistakes in operation by the securities brokers and the unwarranted use of the accounts of the customers by the securities brokers or buying and selling stocks in the name of the clients. Therefore the conduct of the Securities Company constituted mistake in securities transaction instead of fraud in securities. It lacked both legal ground and factual ground for the court of the first instance to calculate the loss of Wang Lusui according to the highest price of transaction of August 11. And the ground for appeal of the Securities Company shall be supported. The facts as were ascertained in the first instance were clear, but the application of law was inappropriate. Accordingly, Chengdu Intermediate People's Court judged as follows on May 12, 1995 in accordance with Section 2, Paragraph 1, Article 153 of the Civil Procedure Law of the People's Republic of China:
1. Section 1 of the civil judgement of the first instance shall be vacated.
2. Section 2 of the civil judgement of the first instance shall be sustained.
3. The Securities Company shall apologize on paper to Wang Lusui within three days since the present judgement go into effect.
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