Skiff v. Stoddard.

Whether a custom of the market which authorizes a pledgee in a marginbuying transaction, temporarily, and to effect short sales, to reduce his carrying of any stock below the amount required to meet the demands of all his customers will be sanctioned: Quære.

The plaintiffs as pledgeors were entitled to redeem the stocks and securities purchased by them.

The assignment did not interfere with the exercise of this right.

In order to enable the plaintiffs to redeem they must be able to reasonably identify their stocks or securities.

Where any plaintiff or other customer was able to identify any certificate or evidence of title as the precise one bought upon his order, or as actually carried in the fulfillment of such order as a substitute for the original one, the identification would be sufficient.

Where it appears that a block of any kind of stock sufficient to meet the

demands of all customers of that stock was being carried, each customer would be entitled to redeem shares in amount equal to his carrying. Where, after all efforts at precise identification have been exhausted, it appears that there is a shortage of any kind of stock, it will be presumed, in the absence of proof to the contrary, that such shortage arose by reason of sales of stock of the firm or its members, and that the stocks on hand were being carried for the outside customers. In such cases,

if there remained stocks sufficient to satisfy the demands of all such customers, each might redeem his full amount; otherwise, each would take his ratable proportion.

Any burden incident to the redemption of stocks in the hands of subpledgees, over and above that involved in the payment of customers' debit balances, would have to be averaged between the stocks of all classes of margin customers, including the firm and its members. Where a customer had deposited his own stocks with the firm as security for his margins, and these stocks had been re-hypothecated, there appearing to have been no express or implied authority for such rehypothecation, the customer attempting to redeem such stocks would be entitled to a priority over other customers whose stocks had been hypothecated with his.

An administratrix who left with the firm for sale bonds registered in the name of the deceased and accompanied with a power to transfer signed by her as administratrix, and who was able to trace the proceeds of the sale into the hands of the trustee, was held entitled to recover the same as trust funds.

The case of Ingraham v. Taylor, 55 Conn., 503, commented on.

[Argued January 24th-decided June 7th, 1893.]

ACTIONS by Sundry claimants on the insolvent and assigned estate of Bunnell & Scranton, who had been bankers and brokers in New Haven, the defendant being the trustee in insolvency. The plaintiffs were creditors by virtue of deposits of money with the firm for the purchase and carrying

Skiff v. Stoddard.

by them for the depositors of stock, in the New York market, and claimed a right to the stocks so far as they could be traced. The defendant represented the interests of the general depositors and creditors. The claimants had united in an amicable proceeding, under an arrangement by which they were to apportion the amount recovered equitably among themselves. The action was brought to the Superior Court in New Haven County, and referred to a committee, upon whose finding of the facts the case was reserved for the advice of this court. The facts are fully stated in the opinion.

The following counsel argued or filed briefs for the different plaintiffs: J. W. Alling, J. H. Webb, H. C. White, O. S. White, L. M. Daggett, H. G. Newton, E. B. Gager, W. H. Williams, D. G. Watrous, D. Stouse, and E. J. Buckland.

H. Stoddard and J. W. Bristol, for the defendant.

In

PRENTICE, J. H. H. Bunnell and C. W. Scranton, under the name of Bunnell & Scranton, were for more than twenty years bankers and brokers, having their office in New Haven. In their banking department they received deposits and conducted a private banking business in the usual manner. their brokerage department they bought, sold and exchanged stocks, bonds and other securities or evidences of title to personal property of various kinds, upon their own account and for others, upon commission, after the usual custom of stockbrokers in this state and the state of New York. By far the largest part of their business consisted in executing the orders of their customers to buy and sell upon margins. Many persons so dealt with them, and among them were the plaintiffs. The firm and its individual members also dealt in the market upon their own account.

On May 16th, 1891, Bunnell died. Four days later his surviving partner made an assignment in insolvency of the partnership estate and likewise of his individual estate. The defendant is the trustee upon both estates, which are now in process of settlement.

Skiff v. Stoddard.

At the time of the assignment Bunnell & Scranton, by reason of the orders of their margin customers and of their own margin dealings, were in some manner carrying various stocks and securities. A few of them were in their own hands, others in the hands of pledgees from them, and others still in the hands of their New York agents, who held them as security for advances to the insolvent firm. The firm. kept an account with each of their customers, in which they charged the purchase price of all stocks and securities ordered by them, the commission thereon, and interest on debit balances, and credited the selling price of what was ordered sold, margins paid, and dividends received. A settlement of these accounts, after crediting to each customer the market price of stocks and securities not closed out, shows a credit balance to the plaintiffs. These customers we will, for convenience sake, call creditor customers. A like settlement shows that other customers, whom we will call debtor customers, were indebted to the firm. Before this final credit is made, the accounts of all, save one or two customers, show an apparent indebtedness. The stocks and securities of the various kinds carried as aforesaid were not sufficient to fill the orders of all the firm's customers.

The plaintiffs desire to pay their debit balances and redeem the stocks and securities which they have ordered bought. The defendant contests their right so to do. They have therefore united in the present action, which is amicable in its character, for the purpose of obtaining the advice of this court upon the questions which relate to the contention between the several plaintiffs and the defendant.

The record sets out in full the details of the dealings of each customer, the state of his account at the time of the assignment, the various kinds and amounts of property called for by his orders, the kinds and amounts of property carried by Bunnell & Scranton as the result of these orders, and the manner in which that property was holden in sub-pledge.

We are not asked to determine all the questions which might upon the facts arise between the plaintiffs themselves. As between themselves they profess to be able to make a

Skiff v. Stoddard.

satisfactory distribution of the property which may fall to their share and of the burdens it must bear. We are therefore left to the consideration of those questions only which grow out of the rights or interests of the trustee as against the plaintiffs. These questions relate―(1) to the plaintiffs' claimed right of redemption; and (2) to the conditions, if any, upon which redemption may be made.

Since the appointment of the trustee most of the stocks. and securities which were being carried by Bunnell & Scranton have, pursuant to an agreement made by the parties in interest, been sold and turned into money, which is now held in lieu of the property sold and under the same conditions. The questions presented by the record relate to the situation as it was when Bunnell & Scranton assigned, and we shall treat of the facts as they then were and as they in legal contemplation continue to be.

The mode of dealing between Bunnell & Scranton and their customers, and by Bunnell & Scranton in the execution of the orders of their customers, is set out in the record, with a careful attention to detail, as follows:

The course of business of Bunnell & Scranton in receiving and executing orders from customers was as follows. The customer desiring to deal in stocks or other property was required to sign and deliver to Bunnell & Scranton an order, upon a printed blank supplied by them, of which the following is a copy:

"BANKING HOUSE OF BUNNELL & SCRANTON,

"Please

"NEW HAVEN, Conn., for my account and risk

18

shares

order good until countermanded. It is agreed that Bunnell & Scranton have the right to dispose of, without notice, all stocks, bonds, petroleum and grain purchased or sold on margin, whenever said margin is reduced to two per cent."

When the customer's order to purchase or sell had been executed in the manner hereinafter stated, Bunnell & Scranton sent him a notice advising him thereof, upon a printed blank, of which the following are copies :

1

Skiff v. Stoddard.

"OFFICE OF BUNNELL & SCRANTON,

"No. 108 ORANGE ST., NEW HAVEN, CONN.

“Mr.............Dear Sir:-We have this day bought for

your account and risk..

"Yours respectfully, BUNNELL & SCRANTON."

"OFFICE OF BUNNELL & SCRANTON,

"No. 108 ORANGE ST., NEW HAVEN, CONN.

"Mr...........Dear Sir:-We have this day sold for your account and risk.

"Yours respectfully, BUNNELL & SCRANTON." If the customer desired the delivery of the certificate or other proper evidence of title to the property ordered to be purchased, such certificate or evidence of title of such security or property was obtained by the firm and delivered to him upon payment to them of the purchase price and commission. If the transaction was to be upon margin, then the customer giving such order was required to place and keep with the firm cash or securities equal to a stipulated per cent of the par value of the securities or property ordered by such customer to be bought, which deposit was called a 'margin.'

When stocks were ordered to be purchased upon margin, the certificate or other evidence of title of the property thus ordered to be purchased was not delivered to the customer, but was held and made use of as hereinafter set out.

It was understood between the customer and Bunnell & Scranton that the certificates of the property should not be delivered to the customer until the price thereof, with interest thereon and commission, was paid. It was also understood that Bunnell & Scranton might, under certain circumstances, sell the securities thus carried to protect themselves from loss. Subject to such right, it was agreed that the brokers would carry the property for the customer at the