125 A. 199 | Conn. | 1924
The ownership in the stocks purchased by Tracy on a margin account with Hull Company and by them hypothecated with Clarke and Company and Latham, brokers in New York, under the customary conditions of margin accounts between stock brokers and their customers, is not, under our law, in doubt. Nor is there anything in the corrections of the finding, with a single exception or two, which, if made, could change the result under the rules of law which were announced in Skiff v. Stoddard,
Collier on Bankruptcy (13th Ed.) Vol. 2, § 70, p. 1662, condenses the law upon this subject as found in the decisions of the United States Supreme Court and in Skiff v. Stoddard: "When a broker agrees to carry stock for a customer on margin he may buy stock to fill several orders in a lump; he may increase his single purchase by stock of the same kind that he wants for himself; he may pledge the whole block thus purchased for what sum he likes, or deliver it all in satisfaction of later orders, and he may satisfy the earlier customer with any stock that he has on hand or that he buys when the time for delivery comes. It is the duty of the broker, however, if he sells shares specifically purchased for a customer, to buy others of like kind, and to keep on hand subject to the order of the customer certificates sufficient for the legal demands upon him. For this reason a delivery of stock to a customer by an insolvent broker is not a preference."
Hull Company, though insolvent, upon demand by Tracy for the delivery of his stocks on March 3d, could have made such delivery from the stocks of like kind pledged by it with Clarke and Company and Latham, upon the payment by Tracy of the balance owed upon the stocks purchased for him. Tracy's ownership in *128 these stocks did not cease because of the subsequent insolvency and bankruptcy of Hull Company, unless he had by his own conduct given up or abandoned his ownership. The trial court so held and met this issue fairly and definitely by holding that Tracy had by his conduct abandoned the stocks in Clarke and Company's possession and likewise those in Latham's possession. "The defendants had," says the trial court, "their election; they might have rested on their ownership of the stock held by Latham in the account of the bankrupts, and have redeemed it by paying such amounts as might be necessary, . . . or they might have waived their title to that stock and rested upon their position as creditors of the bankrupts. . . . This latter is the course they took." The difficulty in this conclusion is in the finding. The transaction of March 5th, upon which the court relies for this conclusion, does not sustain it. Hull Company's letter of March 5th to Latham directed him to deliver to the Hanover National Bank for the account of the Bristol National Bank all of the securities purchased by Hull Company for Tracy upon the receipt of the total amount of the unpaid purchase price of these stocks. Latham held a number of shares of stocks of the same kind pledged by Hull Company with him. It is an unreasonable interpretation of this order to hold it to mean that Latham was to go into the market and buy all of these stocks when he held about $10,000 worth of these stocks pledged with him by Hull Company. What he did do was to deliver to the Hanover National Bank the stocks of the kind purchased by Tracy and held by him in pledge for Hull Company, and the balance of these stocks which he purchased in the market. What Latham did accords with the reasonable interpretation of the direction of Hull Company to him. There is no suggestion in the record that Latham disobeyed Hull Company's *129 direction; on the contrary, the fair inference is that he obeyed it.
It hardly appears credible that anyone experienced as Tracy evidently was in margin transactions, would deliberately abandon his ownership of the stocks in which he had an ownership and in place of this ownership elect to stand as a creditor for his entire claim, when he knew Hull Company was insolvent. Such course would have been extreme folly. The trial court stated with accuracy and definiteness our law as to Tracy's right of ownership of these stocks in Latham's hands. The trial court reached the conclusion that when Tracy ordered Hull Company to deliver all of the stocks purchased by it, he knew that Clarke and Company had failed and the stocks purchased for him and hypothecated by it could not be made available in meeting this order for some time, and hence he knew that as to all such stocks not in the hands of Hull Company and Latham, it was necessary that Latham purchase these in the market. When Tracy issued this order to Hull Company on March 5th, it was an abandonment of his position as pledgor of the stocks in the hands of Clarke and Company, for he knew that Hull Company could not get possession of these stocks. To this extent we agree with the trial judge. But we are unable to take the next step in his process of reasoning. "Fundamentally," he says, "we are dealing here with the intention of the defendants in the transaction of March 5th, and it seems to me clear that no distinction can be made as to the stocks in the hands of Latham and those in the hands of Clarke; they must be deemed to have abandoned both as far as concerns their title to them, as their own specific property, and to have assumed as to both the position of seeking, not the surrender to them of their own property, but the satisfaction of an obligation to them by reason of the bankrupts' inability *130 to deliver to them in its entirety the stock they owned."
There was no such inseparable connection between the pledged stocks in the hands of Clarke and Company and in those of Latham. And no reason why the pledgor could not abandon his title as to the one without affecting his title as to the other. If we are "dealing . . . with the intention of the defendant in the transaction of March 5th," as the court says, there are no facts found from which an intention on the part of Tracy to abandon his title as pledgor of the stocks in the hands of Latham can be found. Every relevant fact found or inference from the facts found denies this conclusion. Tracy had ordered the stocks delivered to him on March 1st, March 3d, and again in the order of March 5th, and it was to his interest that Hull Company should deliver to him all stock which it had purchased for him, or was holding directly or through hypothecation, and which were subject to his order. What the transaction of March 5th was and was intended by the parties to be, was this: Hull Company was to deliver such stocks as Tracy and others had purchased of them as it or its pledgees had in their possession and which were then obtainable by it, and to secure the balance in the market. That is, Hull Company agreed to deliver all such stocks as it or Latham held, and to purchase like shares of the stocks hypothecated with Clarke and Company, in the market, and Tracy and others agreed to pay therefor the balance owed upon the stocks purchased for them and hypothecated with Clarke and Company and Latham, viz: $27,300. Latham, on Hull Company's order, purchased the balance of such stocks with the $27,300, and applied the balance of this sum $1,686.85 to reduce the indebtedness of Hull Company to Latham by this amount. Latham turned over on Hull Company's order to him the stocks held *131 by him as pledgee for Hull Company which had purchased such stocks for the account of customers and in which stocks Tracy and others had an interest and a right to demand, on payment of the balance owed Hull Company on them. They did not pay any part of this balance except $1,686.85, and obtained stocks of the then market value of about $10,000. Tracy and others still owe this difference between the unpaid purchase price of these stocks and the $1,686.85. The balance of the $27,300 which Tracy paid to Latham through the agency of the Bristol and Hanover banks was used to purchase and pay for stocks delivered to him. As to these there can be no question of a preference. Tracy's and the others' money paid for them. As to the unpaid balance of the purchase price of the stocks pledged with Latham, Tracy and others are still indebted to Hull Company, which either paid this unpaid balance or became obligated to Latham to pay him for it.
Tracy and others and Hull Company intended by the transaction of March 5th, to effect delivery to Tracy and others of all of the stock purchased for them by Hull Company upon their paying the unpaid balance of the purchase price. The agreement would have been unassailable had not Hull Company within four months become bankrupts. In the absence of such bankruptcy they not only had the right, but were obliged to meet the order of Tracy and others. But they could not use their general funds in order to do this, without having the amount so used declared a preference in case within four months they should go into bankruptcy. The unpaid balance of the purchase price less the $1,686.85 which Hull Company in effect gave to Tracy upon the delivery by Latham of the pledged stock was a preference, and remains a debt owed by Tracy to Hull Company, to which the plaintiff *132 trustee is entitled. The transfer of the pledged stocks was made when Hull Company was insolvent and within four months of the filing of the petition in bankruptcy, and its effect was to take from the assets of the bankrupt estate this unpaid balance and give to Tracy and others a greater percentage of their debt than any other creditors of the same class, and this constituted a preference under the Bankruptcy Act, § 60a.
The judgment against Tracy would be the balance payable by him upon the shares of stock owned by him as pledgor in the hands of Latham and delivered to the Hanover National Bank for Tracy less his proportionate share of the $1,686.85, which the Hanover National Bank paid to Latham in excess of the amount expended by him in the purchase of stocks delivered to the bank for Tracy. What these proportionate amounts of the $1,686.85 are can be computed from the facts found. What the unpaid balance due on these stocks by Tracy on March 10th was cannot be ascertained upon the record; for this reason the case must be sent back for a rehearing on the damages.
There is error; the judgment is set aside and the cause remanded for a hearing upon the amount of the damages, with direction to the Superior Court upon such hearing to enter judgment in favor of plaintiff in accordance with the foregoing opinion.
In this opinion the other judges concurred, except CURTIS, J., who dissented.