
    Catharine C. Hunt and Richard H. Hunt, as Executors, etc., of Richard M. Hunt, Deceased, Respondents, v. Henry Marquand and Others, Defendants, Impleaded with Frank Sullivan Smith, as Assignee for the Benefit of Creditors of Henry Marquand & Company, and Individually, Appellant, and Louisa B. Allen, Respondent.
    First Department,
    December, 1905.
    Assignment for benefit of creditors— when creditors entitled to proceeds of bonds held by insolvent brokers as against their assignee—when findings by referee not inconsistent.
    When a firm of stockbrokers has, on account of various customers, purchased bonds and retained possession of them, and treated the customers as common owners of whatever bonds of that description the firm had on hand, the title of such customers to the bonds is superior to that of the assignee for the benefit of creditors of such brokers or such creditors. Such customers are entitled to the surplus proceeds of. such bonds, which, without authority, have been pledged as collateral by the brokers and sold by the pledgee for the debt of said brokers.
    A finding by a referee that such bonds were treated by the brokers as belonging to the plaintiff is not nullified by nor is it inconsistent with a subsequent finding that the broker bought bonds of certain numbers “ when issued ” and credited the account of the plaintiff and others with bonds without number and afterwards sold the numbered bonds to third parties, when such course has been customary with the brokers in dealing with a large number of customers.
    Appeal by the defendant, Frank Sullivan Smith, as assignee for the benefit of .creditors of Henry Marquand & Co., and individually, from a judgment of the Supreme Court in favor of the plaintiffs and the defendant Louisa B. Allen, entered in the office of the clerk of the county of Hew York on the 22d day of March, 1905, upon the report of a referee.
    
      Henry W. Taft, for the appellant.
    
      
      Charles. P. Howland, for the respondents Hunt.
    
      Thomas Allen, 3d, for the respondent Allen.
   Houghton, J.:

On the 28th of Juné, 1901, the firm of Henry Marquand & Co., doing business as brokers and bankers, • made a general assignment .for the benefit of their creditors to the appellant Smith who qualified as such assignee. ' ,e .

The plaintiffs and defendant Allen were for. some time prior to the failure customers of the firm, and the plaintiffs had purchased' through it and fully paid for sixteen four per cent 'bonds of the St. Louis, Iron Mountain and Southern. Bail way of the denomination of $1,000 each, and the defendant Allen had' purchased' and fully paid for twenty similar bonds.

On the day of the' failure the firm had on hand and in its constructive possession, but pledged,, however, to various banks and - trust companies as security for loans, exactly thirty-six of these bonds. ‘ Upon their sale the loans were satisfied, and a surplus remained which was paid to the assignee. It is to reach this surplus that., this action is brdught.. The position of the assignee is that it belongs to the general, creditors of, the. firm. The position of the plaintiffs and the defendant Allen is that it belongs to them in the proportion in. which they had purchased and paid for the bonds. Their contention Was upheld by the referee and the' plaintiffs were awarded sixteen-thirty-sixths of such' 'surplus and the defendant Allen' twenty-thirty-Sixths, and from such disposition the assignee appeals to this court.

The judgment roll only is before us, the appellant, insisting that the facts found by the referee do not sustain his conclusions of law.

In' subsfcan.ee the findings of fact are: That Marquand & Co. during the two years or more preceding its failure, purchased for various customers a large number of St. Louis, Iron Mountain and Southern Bail way four per cent bonds, some of them being purchased prior to their- actual issue, delivery to the firm being made at a later time; that all the bonds were kept in a general mass or lot, none being ear-marked or set apart by the firm by numbers in individual accounts, or otherwise / as belonging to' or having been purchased for any particular. customer; that when any customer required delivery of the bonds purchased for him the number of bonds paid for was taken from the general lot; that, in no case where any customer directed a sale or demanded delivery of these bonds, were the identical bonds purchased for or sold for him delivered, but his direction was complied with out of any bonds of the same issue which were accessible without regard to their serial numbers or past history; that at all times the firm had in its actual possession or pledged for loans, the exact number of bonds to which their several customers were at any time entitled ; that all the bonds which they so had were bonds of customers and were not owned by the firm itself; that on January 1, 1901, the only customers who had purchased and paid for bonds and were entitled to delivery thereof from the firm were these plaintiffs, defendant Allen, the Rutherford Rational Bank, and one Carter; that on that day the firm collected the coupons falling due and credited each of said customers with the exact interest received on the number of bonds purchased by him, and that during said month of January the. number of bonds purchased by the Rutherford Rational Bank were delivered to it, and the number purchased by Carter.were delivered to him, leaving in the hands of the firm, pledged, however, for Joans, sixteen bonds, the number purchased by plaintiffs and twenty bonds, the number purchased by defendant Allen; that thereafter and until the failure of the firm it purchased no more of these bonds and had no dealings with any other customers in relation to them; that Harquand & Co. held the bonds of the plaintiffs and defendant Allen as bankers and custodians, without any claim or lien thereon, having no authority to sell or pledge them, and'that neither the plaintiffs nor the defendant Allen ever knew of or consented to the pledging of any of them.

We think these findings are, in effect, that' Harquand <& Co. assumed that' their several customers were owners in common of whatever bonds of -this particular description they had on hand, to the respective amounts which each had ordered purchased, and that they recognized them as such owners and that the customers did in fact own them in such manner, and that when only thirty-six of these bonds remained the firm did in fact set them apart as belonging to plaintiffs and respondent Allen in the respective proportions in which each had originally purchased, and regarded them, although pledged, as belonging to those two customers, and that, therefore, the conclusion of the reíéreé that the plaintiffs and defendant Allen were entitled to the surplus remaining after the satisfaction of the loans for which they were pledged, was sustained by the findings.

The appellant insists, however, that' the additional finding that on the 21st day of April, 1899, the firm purchased twenty-one bonds “ when issued,” sixteen for the’account of plaintiffs and five for the . account of one Gaston, and that on the following eleventh of July, in pursuance of such purchase, the firm paid for and received bonds of a certain number and credited the account of plaintiffs with sixteen bonds without number, and on the 9th of August, 1899, bought for the account of defendant Allen twenty bonds, and on the samé day received bonds of a certain number and credited the account of defendant Allen with twenty bonds without number, all of which numbered' bonds were subsequently sold by the firm to third parties, nullifies even our construction of the findings of the referee. We think not. This course was in accordance with the custom of the' firm in dealing with its large number'of customers with respect to these bonds, and is not inconsistent with a recognition of common OAvnership. The disposition of the five bonds purchased by Gaston illustrates this. On the twelfth of Jiily the firm delivered to him his five bonds, but none of them were of the numbers bargained for on the twenty-first of April and delivered to the firm on the eleventh of July. Márquand & Co. had the right to transfer a common ownership in the. mass of bonds purchased by them to their' several customers and to treat them as • such.owners, and- if they in fact did so they would be bound thereby. Their assignee for the.benefit of creditors has no greater rights than they themselves would have had in case .no assignment had been made. Their general creditors have no claim on any bonds actually belonging to customers or in any proceeds realized from them sale, ( Welch v, Polley, 177 N. Y. 117.) -

The judgment should be affirmed, .with costs payable out of the general fund in the hands of the assignee.

O’Brien, P. J., Patterson, Ingraham and Claree, JJ., concurred.

Judgment affirmed, with costs payable out of the general fund.  