
    Matter of the Assignment of S. Frederic Mills, J. H. Masson, Jr., and Philip O. Mills, Individually and as Copartners under the Firm Name of Mills Brothers & Company, to Edward Harding.
    (Supreme Court, New York Special Term,
    January, 1908.)
    Pledge: Eights and liabilities created; Eight to return of pledge on extinguishment of debt; Pledge by one without title — Eights acr cruing: Enforcement — Proceeds of sale of ' wrongfully pledged property.
    Insolvency — Administration of estate of insolvent — Distribution.
    Where two customers of a stock brokerage firm, who.were carrying stocks on margin or had deposited stocks as security for .their trading accounts, tender the amount due the firm and demand a delivery of their stock, the rights of the firm to retain the securities are terminated, and the customers are vested with an immediate right to possession.
    Where such tender and demand were made prior to a general assignment for creditors by the stock brokerage firm, and the firm had pledged the deposited stocks, with others belonging to a third customer who had left her stock with the firm for safe keeping only, for a firm indebtedness, for the payment of which the pledgee had afterward sold them, the assignee, on his application for instructions as to the disposition of securities in Ms possession, will he ordered to sell all securities received by him as assignee, and to divide the proceeds among the three customers in proportion to the value of their interests at the time of the making of the general assignment.
    Motion by Edward Harding, the assignee of the firm of Mills Brothers & Company, insolvent stock brokers, for directions as to the disposition of certain securities now in his possession.
    Douglas Campbell, for petitioner.
    MacFarland,'Taylor & Costello, for respondent Adelaide Thaw Beach.
    Noble, Jackson & Hubbard, for respondent Edward Warren Henck.
    Hoge & Humphrey, for respondent Arthur B. Townsend.
   Giegerich, J.

This application, made by the assignee of a firm of insolvent stock brokers for directions as to the disposition of certain securities now in his possession, presents interesting questions. While still doing business, and before its failure, the petitioner’s assignor pledged with the Colonial Bank of New York various securities as collateral to a note which, with interest, amounted to $35,004.86 on the 22d day of August, 1907, the latter being the date of the failure and assignment. Most of the stocks pledged as collateral on this loan were being carried for various customers of the firm on margin. Three hundred shares of United States Steel common stock, however, belonged to one Mrs. Adelaide Thaw Beach, free of any lien or charges, she having left it 'for safe-keeping with the said brokers. The market value on August 22, 1907, of all the securities thus pledged as collateral aggregated about $42,965.72. Enough of the stock was sold to satisfy the loan. Among the securities so sold were 300 shares of United States Steel common stock owned by the said Adelaide Thaw Beach, and the price realized for these 300 shares was $9,337.50. Among the ' securities delivered to the petitioner, the market value of which on August 22, 1907, aggregated $6,700, were securities which were heing carried for customers on margin or which were owned by the customers and had been deposited by them to secure their trading accounts. Prior to the' assignment made by the brokers to the petitioner two of the customers, Henck and Townsend, who were carrying stocks on margin or had deposited stocks as security/ respectively made or caused to be made to the brokers a tender of the amount due and a demand for delivery of the stocks, but the tender was rejected and delivery was refused. This tender and demand terminated the right of the brokers to retain the securities and vested in the customers an immediate right of possession. Lawrence v. Maxwell, 53 N. Y. 19; Kortright v. Cady, 21 id. 343; Stoddard v. Hart, 23 id. 556; Douglas v. Carpenter, 17 App. Div. 329; Matter of Pierson, 19 id. 478; Field v. Sibley, 74 id. 81; Rothschild v. Allen, 90 id. 233; Sheridan v. Presas, 18 Misc. Rep. 180; Whitlock v. Seaboard Nat. Bank, 29 id. 84. Upon such tender and demand and refusal Henck and Townsend stood on an equal footing with Mrs. Beach, so far as concerned their right to their stock or to the proceeds thereof. Rhinelander v. National City Bank, 36 App. Div. 11. In the latter ease, which was quite similar in many of its features to the present one, it was held that the equity of a customer who was the absolute owner of stocks unincumbered by any lien in favor of the firm of brokers, which held them merely on deposit for sale and until sold for safe-keeping, was not superior to that of other claimants whose stock was held by the firm as pledgee, where it appeared that on the failure of the firm all that was due to it from the other claimants was duly tendered, and that neither the firm nor its assignee could deliver the specific shares or an equivalent number. The court further held that upon tender, demand and refusal the pledgee’s right to the securities was lost, and that such securities being released from the lien of the pledge the proceeds thereof in the hands of the bank were also released from any claim of the pledgee firm, and that the fund was distributable among the customers proportionately, and that the assignee had no right to any part of it. Another customer, Browning, claims equities, but his position is inferior in my judgment to that of the customers named above because of his failure to make any tender when he demanded that his stock be delivered to him. In Tompkins v. Morton Trust Co., 91 App. Div. 274; affd. upon opinion below, 181 N. Y. 578, the converse of the present situation was presented. There the stocks of customers upon which the brokers had a lien for advances made and which they had a right to hypothecate in order to raise money were sold, and a claim was made by such customers for contribution from a customer who had left stock with the brokers for safe-keeping merely, just as Mrs. Beach did in the present case, and which stock was pledged with the securities of the other customers, but which was not sold when the trust company which made the loan disposed of enough of the collateral to satisfy its demand. The situation of the customers who owed the brokers upon their stock in that case was not the same as in this, however, because there it would appear that no tender had been made of the amount due. This difference alone is enough to distinguish that case from the present one. There is another difference which might, if necessary, be deemed of controlling importance, and that is that in the case just cited customers whose stock the brokers had a right to pledge and whose stocks had been sold sought contribution against another customer whose stock the brokers had no right to pledge and which had not been .sold; while in the present case a customer who was the absolute and unincumbered owner of stocks which were deposited merely for safe-keeping and wrongfully pledged by the brokers • and later sold, seeks contribution, or, to state her claim as broadly as it is made, exoneration at the expense of other customers whose stocks were rightfully pledged by the brokers, .but which, by the accident of circumstance, were not reached when the bank which made the loan sold enough of the collateral to satisfy the amount due it. There seems to be no case reported that is directly in point. Rhinelander v. Nat. City Bank, supra, was similar in some of its features, but there the question was not one of contribution or exoneration or subrogation, but merely that of the right of various customers to the balance of moneys arising from the sale, all of the securities deposited as collateral having been disposed of. My conclusion is that an equitable disposition of this matter will be to direct a sale of the securities turned over by the bank to the assignee and the division of the proceeds among the three -customers named above, proportionately to the value of their respective interests on the 22d day of August, ID 07. That is to -say, Mrs. Beach’s share will be based upon the value of $9,337.50, the amount realized from the sale of her stock, and Mr. Henck’s and Mr. Townsend’s shares will be based, respectively, upon the excess of the value of their stocks on-that date over and above the amounts owed thereon by them. Motion granted as indicated, with - ten dollars costs to the petitioner.

Motion granted as indicated, with ten dollars costs to petitioner.  