
    SILLCOCKS v. GALLAUDET et al.
    (Supreme Court, General Term, First Department.
    December 16, 1892.)
    1. Insolvency—Rights of Creditors—Superior Equities—Trust Funds. Insolvent stockbrokers, who had purchased stock for plaintiff, on margim pledged it, with other stock belonging to other customers, for their own debts. Held, that the fact that plaintiff may be able to trace the stock which belonged to him, or its proceeds, does not entitle him to a lien on the-assets of the insolvent brokers superior to that of the other customers, who. dealt with them on the same basis as plaintiff.
    2. Same. As to stock deposited by plaintiff with the insolvent brokers as security for the advances which they might make in execution of plaintiff’s orders, and. which had also heen pledged by them, plaintiff is entitled to a preference over other customers, whose stock was purchased on a margin, since they and plaintiff are not similarly situated.
    8. Same. One of plaintiff’s certificates of stock so deposited as security by him, andt pledged by the stockbrokers, with other stock purchased by them on margins for other customers, was sold by the pledgee, with a portion of the other stock. The balance of the pledged stock was subsequently sold by the assignee of the-brokers, to whom it had heen turned over by the pledgee. Held that, since plaintiff’s superior equity as to this particular certificate would have entitled him to the right to insist that the other stock he first sold, he had the right to. follow the proceeds of the sales, and was entitled to priority in payment over, the other customers. O’Brien, J., dissenting.
    4. Same. The mere fact that the insolvent brokers had in their possession a certificate of stock for the same number of shares in the same corporation as a centificate belonging to plaintiff, which had been sold by them, and the money converted to their own use, does not make plaintiff the equitable owner of the other certificate, so as to entitle him to follow it into the hands of the pledgee.
    Appeal from judgment on report of referee.
    Action by Warren S. Sillcocks against Peter W. Gallaudet, Henry Fitch, Jr., and C. Elliott Minor, assignee for the benefit of the creditors of Gallaudet & Fitch, to recover stock deposited by plaintiff with defendants Gallaudet & Fitch, and other stock purchased by said defendants for plaintiff. From the judgment entered on the report of a referee, both parties appeal. Reversed.
    Argued before VAN BRUNT, P. J., and O’BRIEN and LAWRENCE, JJ.
    Russell & Percy, (W. A. Poste, of counsel,) for plaintiff.
    Wingate & Cullen, (Geo. W. Wingate, of counsel,) for assignee.
   VAN BRUNT, P. J.

Prior to November, 1890, the defendants Gallaudet & Fitch were partners doing business as stockbrokers in the-city of New York. In July, 1890, the plaintiff employed the said defendants to purchase for him 200 shares of the capital stock of the New York, Ontario & Western Railway Company, and left with them, as security for the purchase price, 100 shares of the same stock, represented by a certificate thereof numbered 27,988, which order the defendantsGallaudet & Fitch executed. In August, 1890, the plaintiff employed the same firm to buy for him 100 shares of Quicksilver mining stock, which they did. In October they bought for the plaintiff 100 shares-New York & New England Railroad Company stock, and subsequently the plaintiff deposited with them at their request, as additional margin, 100 shares of New York, Ontario & Western Railway stock, represented-by certificate No. 27,987. Subsequently said firm sold for the plaintiff' 50 shares of American Tobacco Company stock, and received the cash therefor. Gallaudet & Fitch never delivered to the plaintiff any of the shares so purchased, nor the proceeds thereof, nor returned to him the-certificates deposited by him. In making the purchases for the plaintiff, they advanced for the payment thereof $4,175, and the same remained unpaid to them at the time of their assignment. It appears that at the time of their assignment the brokers themselves owned no stocks, all that they held belonging to customers, for whom they were carrying them upon margin. All the stocks were hypothecated upon various loans, and, on closing out these loans in a few cases, a balance-of money was delivered to the assignee, but in most cases there was a deficiency. The plaintiff claims that he has been able to trace certain stocks-which were pledged as margins as having been bought for him, and that, therefore, he is entitled to a superior equity over and above other creditors, who have not been able to identify any particular stocks as having-been purchased for them. This contention we do not think can prevail. These stocks were purchased upon margin, precisely the same as the stocks-of other customers, and the same course was pursued with them as with, the plaintiff’s stocks; and therefore there would appear to be no foundatian for the plaintiff’s claim to impress a superior lien upon any of the •assets of the firm, because of the disposition of these securities, from that of all the other creditors who were dealing with the stockbrokers -upon the same basis; and it is for this reason that it has not been deemed necessary to state in the foregoing summary of the facts the particulars in reference to the claims which have been made in respect to the stocks bought. We think, however, that the plaintiff’s claims in respect to the stocks deposited as margin belonging to himself stand upon a somewhat different basis, and that, so far as he is able to trace those stocks and their proceeds, he is entitled to a superior equity over the other creditors, whose stocks were purchased upon a margin. There •seems to be no reason in equity why such a preference should not be ■given to property belonging absolutely to the plaintiff, and which the •defendant firm only held as security for the advances, which they might-make in the execution of the orders given by the plaintiff, there being none others similarly situated. And this brings us to a consideration -of the case in respect to the two certificates numbered 27,988 and 27,-'987.

It appears that prior to the assignment the said firm hypothecated to ■the Bank of Commerce, with other securities, as collateral against a loan ■to them from the bank, said certificate No. 27,988, and also a certificate of the same stock No. 26,939, hereinafter mentioned. The bank, on default of payment, sold out a part of the securities so pledged, in-cluding said certificate No. 27,988. The sale made a surplus over the -amount due to the bank of $1,483.84. The certificate in question sold for $1,600. The stock which was so hypothecated that was not sold was returned by the bank to the assignee, who, after surrendering eight ■shares of American Cable Company stock to a claimant, sold the rest for $16,743.12. This certificate was directly traced as above stated, and, pursuant to the principles which have been heretofore enunciated, it "would seem that the plaintiff, instead of being entitled to have impressed upon the surplus arising from such sale a trust limited in its character, •has a superior equity, and, in case no sale had been made, would have been entitled to have insisted upon the sale of the other securities first, •so that he might receive his securities intact, and that this right ought "to follow the proceeds of the securities pledged.

In respect to certificate No. 27,987, it appears that that was sold on "the 13th of November, 1890, without the direction or knowledge of the plaintiff; and it is claimed that because at that time the said firm •had in their hands another certificate, No. 26.939, for the same number of shares, the plaintiff became the equitable owner of such certificate, and that it must be assumed that the firm had reserved and set it -aside for him as a matter of fact, and that he was entitled to follow it when it was put up as a collateral to the Bank of Commerce loan. This, we think, is a violent assumption, as there is no evidence whatever, except the existence of this certificate, which would justify the same; and this •single fact is manifestly insufficient. It seems to be based upon the claim that, by the mere pledge of the stock which the firm had bought for •the plaintiff upon margin, they converted the same to their own use,—a proposition which we neither admit nor deny, because it does not seem to be necessary for the disposition of the questions involved in the case at bar. We are of opinion, therefore, that the plaintiff was entitled to additional relief to that which was given by the referee, and a new trial must be had. It is consequently unnecessary to discuss the question raised by the appeal of the defendant assignee as to his liability for costs. The judgment must be reversed, and a new trial ordered, with costs to the appellant plaintiff to abide the event.

LAWRENCE, J., concurs.

O’BRIEN, J.

I dissent for the reason that I think the judgment of the referee correct, both in the extent of the relief granted to plaintiff and in awarding him costs. As to the 100 shares of New York, Ontario & Western represented by certificate No. 27,988, I agree with the presiding justice in the view (being plaintiff’s property, and directly traced to the bank) that, in case no sale had been made, he would have been entitled to have insisted upon the sale of the other securities first; but other parties, similarly situated, and upon a like showing, would have a like equity and a like right. Where, therefore, securities which belong to third persons are pledged by the insolvents as collateral for a loan, all have an equal right to have other securities sold first. But the plaintiff here, as against owners of identified stock so pledged, has no superior right or equity. Such superior- equity only holds good as against general creditors, or persons not establishing title to the identical securities pledged. It here appears that among the other securities so pledged to the bank were some where the persons make a similar claim to.that presented by plaintiff. All these securities, as well as plaintiff’s, were sold; and the contest is as to their respective rights in the surplus. I think the referee correctly states the rule that, while plaintiff is entitled to follow his certificate of stock as far as it can be traced, “even his diligence in prosecuting his claim cannot avail to give him prior equities over other creditors of the insolvent firm, similarly situated with himself; * * * that they were all entitled to be heard, and have their rights determined, either in this action or upon the final accounting” of the assignee. Upon the question of costs, the referee, in the exercise of his discretion, awarded them to plaintiff. As affecting such discretion, the judgment is more favorable than was conceded by defendants before action. I find no valid ground presented for interfering with the discretion so exercised by the referee, and I therefore think the judgment should be affirmed.  