Sillcocks v. Gallaudet

Prior to November, 1890, the defendants, Gallaudet & Pitch, were partners doing business as stock brokers, in the city of New York. In July, 1890, the plaintiff employed the said defendants to purchase for him 200 shares of the capital stock of the New York. Ontario & Western Railway Company, and left with them, as security for the purchase price, 100 shares of the same stock, represented by a certificate thereof numbered 27,988, which order the defendants, Gallaudet & Pitch, executed. In August, 1890, the plaintiff employed the same firm to buy for him 100 shares of Quicksilver mining stock, which they did. In October they bought for the plaintiff 100 shares New York & New England Railroad Company stock, and subsequently the plaintiff deposited with them at their request, as additional margin, 100 shares of New York, Ontario & Western Railway stock, represented by certificate No. 27,987. Subsequently said firm sold for the plaintiff fifty shares of American Tobacco Company stock, and received the cash therefor. Gallaudet & Pitch never delivered to the plaintiff any qf the shares so purchased, nor the proceeds thereof, nor returned' to him the certificates deposited by him. In making the purchases for the plaintiff, they advanced for the payment thereof, $4,175, and the same remained unpaid to them at the time of their assignment. It appears that at the time of their assignment the brokers themselves owned no stocks, all that they held belonging to customers, for whom they were carrying them upon margin. All the stocks were hypothecated upon various loans, and, on closing out these loans in' a few cases, a balance of money was delivered to the assignee, but in most cases there was a deficiency. The plaintiff claims that he has been able to trace certain stocks which were pledged as margins as having been bought for him, andthat, therefore, he is entitled to a superior equity over and above other creditors who have not been able to iden

We think, however, that the plaintiff’s claims in respect to the stocks deposited as margin, belonging to himself, stand upon a somewhat different basis, and that, so far as he is able to trace those stocks and their proceeds, he is entitled to a superior equity over the other creditors whose stocks were purchased upon a margin. There seems to be no reason in equity why such a preference should not be given to property belonging absolutely to the plaintiff, and which the defendant firm only held 'as security for the advances which they might make in the execution of the orders given by the plaintiff, there being none others similarly situated. And this brings us to a consideration of the case in respect to the two certificates numbered 27,988 and 27,987.

It appears that prior to the assignment the said firm hypothecated to the Bank of Commerce, with other securities, as collateral against a loan to them from the bank, said certificate No.' 27,-988, and also a certificate of the same stock No. 26,989, hereinafter mentioned. The bank, on default of payment, sold out a part of the securities so pledged, including said certificate No. 27,988. The sale made a surplus over the amount due to the bank of $1,483.84. The certificate in question sold for $1,600. The stock which was so hypothecated that was not sold was returned by the bank to the assignee, who, after surrendering eight shares of American Cable Company stock to a claimant, sold the rest for $16,743.12. This certificate was directly traced as above stated, and, pursuant to the principles which have been heretofore enunciated, it would seem that the plaintiff, instead of being entitled to have impressed upon the surplus arising from such sale a trust limited in its character, has a superior equity, and, in case no sale had been made, would have been entitled to have insisted upon the sale of the other securities first, so that he might receive his securities intact, and that this right ought to follow the proceeds of the securities pledged.

In respect to certificate No. 27,987, it appears that that was sold on the 13th o£ November, 1890, without the direction or knowledge of the plaintiff; and it is claimed that because at that time the said firm had in their hands another certificate, No. 26,939, for the same number of shares, the plaintiff became the equitable owner of such certificate, and that it must be assumed that the firm had reserved and set it aside for him as a matter of fact, and that he was entitled to follow it when it was put up as a collateral

Lawrence, J., concurs.

(dissenting).—I dissent for the reason that I think the judgment of the referee correct, both in the extent of the relief granted to plaintiff and in awarding him costs. As to the 100 shares of Hew York, Ontario & Western represented by certificate Ho. 27,988, I agree with the presiding justice in the view (being plaintiff’s property, and directly traced to the bank) that, in case no sale had been made, he would have been entitled to have insisted upon the sale of the other securities first; but other parties, similarly situated, and upon a like showing, would have a like equity and a like right. Where, therefore, securities which belong to third persons are pledged by the insolvents as collateral for a loan, all have an equal right to have other securities sold first. But the plaintiff here, as against owners of identified stock so pledged, lias no superior right or equity. Such superior equity only holds good as against general creditors, or persons not establishing title to the identical securities pledged. It here appears that among the other securities so pledged to the bank were some where the persons make a similar claim to that presented by plaintiff. All these securities, as well as plaintiff’s, were sold; and the contest is as to their respective rights in the surplus. I think the referee correctly states the rule that, while plaintiff is entitled to follow his certificate of stock as far as it can be traced, “ even his diligence in prosecuting his claim cannot avail to give him prior equities over other creditors of the insolvent firm similarly situated with himself; * * "x" that they were all entitled to be heard, and have their rights determined, either in this action or upon the final accounting ” of the assignee. Upon the question of costs, the referee, in the exercise of his discretion, awarded them to plaintiff. As affecting such discretion, the judgment is more favorable than was conceded by defendants before action. I find no valid ground presented for interfering with the discretion so exercised by the referee, and I, therefore, think the judgment should be affirmed.

Judgment reversed and new trial ordered, with costs to plaintiff to abide the event.