113 F. 131 | E.D. Mo. | 1902
The bankrupts, under the firm name of Gaylord, Blessing & Co., were brokers engaged in the business of buying and selling stocks, bonds, cotton, grain, and provisions for their customers. D. M. Gilbert was one of their customers. As the result of prior dealings with the bankrupts, he had to his credit on their books on October 31, 1900, the sum of $1,419.82. On November 3, 1900, he deposited with them the further sum of $250, which went to his general credit in an account kept with him by the bankrupts. The bankrupts had before then purchased for Slim 250 shares of the common stock of the St. Louis Transit Company, th« purchase price for which, with commissions, etc., amounting to $5,400, stood on their books as a debit charge against Gilbert. On different dates between December 3, 1900, and .March 4, 1901, the last-mentioned shares of stock, by Gilbert’s direction, were sold for him by the bankrupts, resulting in a net profit of $424.50. This went to his credit in the general account. That account, on March 4, 1901, showed a balance due Gilbert of $2,094.32 as a net result of all the debit and credit entries. On the following day — March 5, 1901 — the bankrupts, being then insolvent, and having'been so insolvent for nine months theretofore, paid to Gilbert $1,200 011 account, and charged the same to him in his account. This left abalance then due Gilbert of $894.32. On March xi, 1901, the bankrupts made a voluntary assignment under the laws of the state of Missouri, and on March 20, 1901, proceedings were instituted by their creditors to secure an adjudication of bankruptcy against them. An adjudication followed in due course. The main question submitted by the certificate of the referee is whether Gilbert can prove his demand for the sum of $894.33 without first surrendering the $1,200 so received by him on March 5th, within 15 days of the institution of the proceedings in bankruptcy. The payment of the $1,200 to Gilbert at the time and in the manner hereinbefore stated constituted a transfer of property by the bankrupts, so as to be an unlawful preference within the meaning of section 60 of the bankruptcy act. By the provisions of section 57g, the
Section 63 of the bankruptcy act provides: “Debts of the bankrupt may be proved and allowed against his estate, which are * * * (4) founded upon an open account or upon a contract express or implied.” The facts found by the referee show that for some time before bankruptcy proceedings were instituted the bankrupts had an open running account on their books with the claimant. It does not appear that the claimant had ever actually purchased any stocks through the agency of the bankrupts, so as to finally receive any certificate upon full payment therefor. He had, on the other hand, been putting up “margins” as and when required to secure the bankrupts against fluctuations in market prices, ordering the purchase of one stock or another at a given price, and ordering the same sold when, in his judgment, he had made profit enough to satisfy his requirements, or sustained the limit of loss to which he was willing to submit. So far as he was concerned, his transactions seem to have amounted to a wager on the market price from day to day or week .to week, and, so far as the bankrupts were concerned, the transactions, while doubtless in some instances of the character which might have bound the claimant to a legal liability to take and pay for the stock actually ordered purchased and actually purchased for his account, were in fact not intended for such purpose, but rather as bookkeeping transactions, intended by them as well as by the claimant to be closed out for a profit when possible, and at a loss when necessary. The account kept in the books was a running account, showing on one side credits to the claimant for all moneys put up as margins, and also for any and all profits when such were realized on sales, and on
Counsel were unable at the argument to call my attention to any authorities arising under the bankruptcy act of 1898 relating to the subject now before the court, and J have been unable to find any such authorities. But fortunately the bankruptcy acts of 1841 and 1867 gave occasion for consideration by the supreme court of the United States of questions kindred to those involved in the present inquiry. By the provisions of the bankruptcy act of 1841 (5 Stat. 441, § 1) the benefits of the acts were withheld from persons owing debts “created in consequence of a defalcation as a public officer or as executor, administrator, guardian or trustee or while acting In any
In the very early case of Chapman v. Forsyth, 2 How. 202, 11 L. Ed. 236, a case arose involving the interpretation of the foregoing provision of the act of 1841. The important question for determination was whether a commission merchant or factor who sells for others was indebted in a fiduciary capacity, within the meaning of the act of 1841, if he withheld the money received from property sold by him for his principal. The supreme court, speaking by Mr. Justice McEean, said, on this subject:
“If the act embraces such a debt, it will be difficult to' limit its application. It must include all debts arising from agencies, and, indeed, all cases where the law implies an obligation from the trust reposed in the debtor. Such a construction would have left but few debts on which the law could operate. In almost all the commercial transactions of the country confidence is reposed in the punctuality and integrity of the debtor, and a violation of these is, in a commercial sense, a disregard of a trust. But this is not the relation spoken of in the first section of the act”
The court finally concludes that a factor occupies no such fiduciary relation to his principal as to create a trust as distinguished from.a debt, within the meaning of the bankruptcy act.
In the case of Hennequin v. Clews, 111 U. S. 676, 4 Sup. Ct. 576, 28 L. Ed. 565, the supreme court, speaking by Mr. Justice Bradley on the subject of what is a fiduciary debt within the purview of the act of 1867, states the question before the court as follows:
“We have to decide the question whether a discharge in bankruptcy under the act of 1S67 operates to discharge the bankrupt from a debt or obligation which arises from his appropriating to his own use collateral securities deposited with him as security for the payment of money or the performance of a duty, and his failure or refusal to return the same after the money has been paid or the duty performed; or whether a debt or obligation thus incurred is within the meaning of the thirty-third section of said act (section 5117, Rev. St.), which declares that ‘no debt created by the bankrupt * * * while acting in any fiduciary character shall be discharged under this act.’ ”
It seems to me that this question presents a case fully covering the contention now before this court. If the appropriation of col-laterals given to secure advances does not create a debt of a fiduciary character, certainly the balance found in the running account, resulting from mutual dealings between a broker and his principal, such as is disclosed in this case, does not constitute a trust fund in favor of the principal.
After so stating the question before the court, Mr. Justice Bradley first takes up the opinion in Chapman v. Forsyth, supra, and approves the same. He afterwards reviews many other cases, federal, state, and English, and concludes thus:
*135 “The creditor who holds collateral holds it for his benefit under contract. He is in no sense trustee. His contract binds him to return it if its purpose as security is fulfilled; but, if he fails to do so, it is only a breach of contract, and not a breach of trust,”
He also remarks as follows:
“It is no doubt true, as said in Chapman v. Forsyth, that a construction ©f the excepting clauses which would make them include debts arising from agencies would leave but few debts upon which the law could operate.”
The following eases also afford ample authority for holding that the relation between the bankrupts and Gilbert was not fiduciary in its character within the meaning of the bankruptcy act, but was only that of debtor and creditor: Upshur v. Briscoe, 138 U. S. 365, 11 Sup. Ct. 313, 34 L. Ed. 931; Fleitas v. Richardson, 147 U. S. 538, 13 Sup. Ct. 429, 37 L. Ed. 272; Cronan v. Cotting, 104 Mass. 245, 6 Am. Rep. 232.
Collier, in the third edition of his work on Bankruptcy (page 206), says as follows:
“If factors are not fiduciary debtors, agents clothed with similar powers cannot be regarded as fiduciary debtors. Thus agents authorized by agreement to make sales, and to collect moneys and carry them into account, and pay over monthly or at other regular intervals, are to be treated as debtors, and not as trustees. They do not occupy a fiduciary capacity.”
He cites in support of the text the following cases: Grover v. Clinton, Fed. Cas. No. 5,845; Kaufman v. Alexander, 53 Tex. 562; Guilfoyle v. Anderson, 9 Daly, 64 ; Cronan v. Cotting, supra. These cases have been examined, and, in my opinion, fully sustain the text.
The definition of a provable debt (section 63 of the act of 1898, supra) seems also to satisfactorily determine that the obligation of the bankrupts to Gilbert is a debt within the meaning of the act. It is undoubtedly founded upon an open account, and likewise creates an implied promise or contract on the part of the bankrupts to pay any balance appearing thereby to be due to Gilbert. According to the definition aforesaid, an obligation ‘‘founded upon an open account, or upon a contract, express or implied,” is a provable debt under the bankruptcy act. There is no showing that the bankrupts kept Gilbert’s money by itself. On the contrary, it sufficiently appears that the same was intermingled with that of other customers as well as that of the bankrupts themselves. The parties permitted the account to run for months in such a way as to dearly indicate their purpose to establish the relation of debtor and creditor between themselves. The obligation to pay was not only implied, but Gilbert, by presenting a claim for a debt instead of a claim for a trust fund belonging to him exclusively, affirmed the reasonable legal import of the relation between himself and the bankrupts to be that of debtor and creditor. On reason as well as authority 1 have reached the conclusion that Gilbert cannot be allowed to occupy any other position, and cannot make proof of any balance due him from the bankrupts, without first conforming to the provisions of section 57g, and stirrendering the preferential payment received by him on account only a few days before bankruptcy proceedings were instituted.
The vital question in controversy has been determined. The result is that the action of the referee in allowing the claim of Gilbert without a previous surrender of the preferential payment received by him was error, and the same 'is disapproved. An order will now be made vacating the allowance as made, leaving Gilbert to take such action in the future as seems advisable to- him.