290 Mass. 501 | Mass. | 1935
This is a bill in equity by the assignee of four customers of the stock brokerage firm of Riley, Fitzgerald and Company, adjudicated bankrupt (hereinafter referred to as the bankrupts) to recover certain bonds deposited by the customers with the bankrupts and by them pledged to the defendant bank. The trustee in bankruptcy of the bankrupts was allowed to intervene in the suit.
The case was submitted to the trial judge on an agreed statement of facts which in substance are as follows: The bankrupts for some years prior to October 29, 1929, had carried on a stock brokerage business in Worcester. They were not members of any stock exchange but were correspondents of Clark, Childs and Company, whose members were members of the New York Stock Exchange and of the Boston Stock Exchange. The plaintiff's assignors had been customers of the bankrupts for some time prior to October, 1929, under an agreement by which, upon the supplying of a twenty-five per cent margin, the bank
The bankrupts ceased doing business on October 29,1929, and made an assignment for the benefit of creditors. On the same date, because of a general fall in securities values, Clark, Childs and Company demanded of the bankrupts additional property to support their marginal account. No notice of this demand was given to customers of the bankrupts. The bankrupts were unable to comply with this demand, and Clark, Childs and Company began to sell out the property held by it as security for the account of the bankrupts on October 29, 1929, and continued to sell said securities until the indebtedness of the bankrupts to it was satisfied. The securities thus sold included purchases of these customers whose accounts were assigned to the plaintiff. After the sale and the satisfaction of the
On October 29, 1929, the bankrupts owed the defendant bank $75,709. Gradually the defendant bank made sales of the property pledged to it by the bankrupts as security for their indebtedness, and made application of the proceeds in payment of the indebtedness of the bankrupts to the bank, and continued to do so until the indebtedness was paid. After these sales and application of the proceeds, the bank held a cash surplus of $4,305.73, subject to a legitimate charge for its expenses in the sum of $350. The securities thus sold included certain bonds deposited by the assignors of the plaintiff, as well as securities deposited by other marginal customers of the bankrupts. After the termination of these sales the defendant bank also had in its possession some of the bonds sought to be recovered by the plaintiff, which had been deposited with the bankrupts by the assignors of the plaintiff. The unpaid balance owed the bankrupts on October 29, 1929, by the plaintiff’s assignors was $29,653.82. This amount was reached by charging the assignors with the purchase price of the securities ordered from the bankrupts by the plaintiff’s assignors, after crediting each account with proceeds of sales, at the order of each customer, of securities deposited as margin by these customers and the proceeds of sales, without their orders, of securities of theirs held by Clark, Childs and Company and sold by it in satisfaction of the bankrupts’ marginal account. The bankrupts rendered monthly statements to the customers whose accounts were assigned to the plaintiff, showing in detail the transactions of the previous month and the balance claimed to
The bankrupts before the close of their business on October 29, 1929, had hypothecated with the defendant bank bonds thus deposited with them, as also those of other customers, in the usual course of their business, as collateral security for the general loans of the bankrupts from the defendant bank. The bank had no actual knowledge as to how the bankrupts came into possession of said bonds, and it obtained possession of them in good faith. On May 6, 1931, the plaintiff made demand upon the defendant bank to deliver to her forthwith the bonds claimed by her bill of complaint and those now in suit. It is agreed that the securities are owned by the plaintiff subject to a lien, if any, for the alleged indebtedness owed by the plaintiff’s assignors to the trustee in bankruptcy; and that, if the claimed balances are established and were owed by the assignors of the plaintiff, the trustee in bankruptcy has the right to the possession of the bonds demanded in this suit for the purpose of selling the same to satisfy said balances, and that a decree to that effect may be entered.
After a hearing upon the agreed statement of facts a decree was made to the effect that the bonds in the possession of the defendant bank, and the balance of cash in its hands, less $350, be delivered to the trustee in bankruptcy. From this final decree the plaintiff appeals to this court.
As the case comes before this court on an agreed statement of facts it may draw its own inferences of fact. Donahoe v. Turner, 204 Mass. 274, 275. Stuart v. Sargent, 283 Mass. 536, 541. It is settled in this Commonwealth that in margin transactions the title to stocks purchased for a customer and carried by a broker is in the broker. Covell v. Loud, 135 Mass. 41, 44. Brown v. Rushton, 223 Mass. 80, 83. Crehan v. Megargel, 235 Mass. 279. The bonds in the possession of the defendant bank which the
As to the manner in which the bankrupts purchased stocks upon the order of their customers through their own marginal account with Clark, Childs and Company, the plaintiff contends that such proceedings were entirely unauthorized and irregular, with the result that no debt arose in favor of the bankrupts as against the customer, and that as agents the bankrupts were not entitled to reimbursement. See Todd v. Bishop, 136 Mass. 386. Hall v. Paine, 224 Mass. 62, 72. In this connection it is to be noted that had the bankrupts purchased the stock outright for the customers they could lawfully have pledged these carried securities to secure their general loans and that the power extended to the “carried” stocks referred to in the monthly statement above quoted. It is to be further noted that the stock ordered could be purchased on the New York Stock Exchange only. In similar circumstances it has been held that a Boston broker could rightfully execute a transaction for his customers in a manner similar to that in which the bankrupts here executed their transactions. Bendslev v. Lovell, 235 Mass. 133, 136. Doucette v. Baldwin, 194 Mass. 131, 135. Papadopulos v. Bright, 264 Mass. 42, 43, 47. Lavien v. Norman, 55 Fed. Rep. (2d) 91, 93. From the agreed statement it is also to be noted 'that the purchase of stocks as executed was not merely colorable, but that all stocks ordered by the customers were actually purchased by the bankrupts’ correspondent and carried in the bankrupts’ account. And it does not appear that
It remains to consider the rights of the plaintiff to any surplus of the bonds belonging to the plaintiff’s assignors after the debt of the bankrupts to the defendant bank has been satisfied. While for the purpose of pledging and selling deposits of margins the title to such securities is in the broker, still, where the rights of the customer to reach a surplus of collateral is the question, the special title of the broker no longer exists, and the pledged property should be returned to the general owner if its identity has been preserved. Furber v. Dane, 203 Mass. 108, 116. In re Gay & Sturgis, 251 Fed. Rep. 420, 421. If, therefore, in the case at bar, as between the plaintiff’s assignors and the bankrupts there was a balance in favor of the customers, it is clear that the plaintiff is entitled to the surplus bonds in the possession of the defendant bank. Boston Safe Deposit & Trust Co. v. Adams, 224 Mass. 442, 443, 444. Leonard v. Boston Five Cents Savings Bank, 278 Mass. 36, 43. The question then is, whether or not the indebtedness of the assignors, as appears by the records of the bankrupts at the close of business, has been paid and does not exist in fact.
The plaintiff’s claim is, in substance, that the bankrupts, in executing the transactions for their customers, advanced no money of their own, but passed on to their New York correspondent as security for the bankrupts’ marginal account with the correspondent, marginal securities 1 deposited by the bankrupts’ customers as well as money obtained by the pledging of other securities with banks.
On the facts we find no reversible error by reason of the fact that the bankrupts charged in their account with the customers one per cent more interest, upon the purchase prices of securities purchased by the bankrupts’ correspondent at their request to execute the orders of their customers, than they were charged by their correspondent upon such purchase prices. Copies of the accounts between the bankrupts and the plaintiff’s assignors were deposited with the clerk of the Supreme Judicial Court for the use of the court. It follows that the balance claimed by the trustee in bankruptcy to be due the bankrupts is correct, and that in accordance with the agreement of the parties the trustee has the right to the possession of the bonds in suit for the purpose of selling the same to satisfy the said balance.
Decree affirmed with costs.