175 F. 769 | 2d Cir. | 1910
(after stating the facts as above). The theory of the claimant is that upon the conversion of its shares by.the brokers it had the right to follow the purchase price as a trust fund. This also seems to have been the theory of the referee in bankruptcy and of the District Judge, who said in his opinion that, upon “showing that the stocks purchased by the broker were subsequently sold, he [the claimant] is in a position to rescind the whole transaction and make a claim upon his purchase money.” The District Judge also said that the claimant might follow the purchase money, but held that the proof was insufficient to identify it in the bankrupt estate, and dismissed the petition.
While we approve the ultimate result reached by the District Judge, we think the ruling that the claimant had the right to rescind the whole transaction upon the conversion of its shares and follow the purchase price erroneous. The right to rescind a contract and recover that which has been parted with under it does not exist in a case like the present. That specific right is available only in cases of fraud, undue influence, or duress.
When the brokers, after purchasing the shares ordered and paid for by the claimant, wrongfully converted them, the claimant had an election of remedies:
(1) It might have brought an action of tort for the conversion.
(2) It might have waived the tort and sued for the proceeds of the shares—if in money—and also "have followed such proceeds as a trust fund in the hands of the brokers or their bankrupt estate.
(3) Assuming that it was the obligation of the brokers under tlidir contract, not only to purchase the shares, but to deliver them, the claimant had the right to treat the conversion as a breach of contract and sue for damages.
(4) Similarly, it had the right to tre"t the conversion as a discharge of the contract and sue in assumpsit upon the implied contract to refund the money paid.
But in the last case—as in the others—the right of action originated when the conversion took place. Then for the first time there was an implied contract to repay the moneys advanced to purchase the shares. Nothing which had taken place was annulled. The claimant’s moneys had been expended precisely L. accordance with its directions. Any trust attaching thereto had been fulfilled. There was no money in the brokers’ hands clothed with a trust after the stocks brdered had been bought and paid for. And if there were any such money after the conversion, it was the proceeds of the shares, and not the purchase price thereof.
It follows, then, that while the claimant had a right of action in assumpsit—as well as other remedies—it had no right to follow the” purchase price as a trust fund, and as its petition was based upon that theory it was properly dismissed. However much we may disagree
Under ordinary conditions we would not be expected to say more. Having ruled that the purchase price cannot be followed, we are not called upon to determine whether in case it could be followed it could be identified. But upon the fragmentary case presented upon the record it would seem that the claimant might have a meritorious demand —might he able to follow the proceeds of its shares—and we feel that we should, especially in view of the opinions of the District Judge and of the referee, briefly examine it. -
It seems quite clear that, if the brokers received money for the shares, there were funds continually on hand from the time of the conversion to the failure in excess of any such proceeds. It is agreed that very much more than the price of the shares came into the hands of the receiver and trustee. In view of the presumptions with respect to the continuance of conditions, and that men will use their own money to pay their debts, it would seem that, conversion into money being assumed, the claimant might be able, according to the late decisions upon the trust fund doctrine, to follow the proceeds into the bankrupt estate.
The difficulty is that it does not satisfactorily appear how the brokers converted the claimant’s shares. If they were delivered to pay a debt, undoubtedly the brokers’ assets were not augmented by the transaction. On the other hand, we are by no means prepared to accede to the proposition that, if the shares were delivered in the fulfillment of antecedent contracts, moneys previously paid and on hand would not in law he treated as the proceeds thereof. Thus, in ca-se the brokers by incurring an obligation received a sum of money, and, that money still remaining in their bank, subsequently delivered the claimant’s shares in fulfillment of the obligation, it would seem that the moneys received ought to stand as the proceeds of the shares. But, in view of the form of the petition and the obscurity of the facts, we express no definite opinion upon these questions. We do think, however, that the petitioner should be given an opportunity to present these questions upon a new or amended petition, if it desires to do so.
In view of the fact that, had the rulings of the District Court been in accordance with this opinion, this petition for review might never have been brought, we think it equitable that no costs in this court should be taxed against the claimant.
The decision of the District Court is modified, by providing that it shall he without prejudice to further proceedings by the claimant as herein indicated, and. as so modified, is affirmed, without costs.