
    In the Matter of the Final Judicial Settlement of the Accounts of Henry R. Pierson, as Executor, etc., of Henry R, Pierson, Deceased. Henry R. Pierson, as Executor, etc., of Henry R. Pierson Deceased, and Thomas F. Mason, as Receiver of the Guardian Mutual Life Insurance Company, The Widows and Orphans’ Benefit Life Insurance Company and the Reserve Mutual Life Insurance Company, Appellants; Edward A. Durant and Others, Respondents.
    
      Marshalling of assets—firm creditors, after obtaining the proceeds of specific stocks purchased, for theriij may recover against an individual partner for their conversion by pledge — stipulation for judgment as to payment of claims,, construed — estoppel by a statement of account n- silence of an executor as to a claim.
    
    An action was brought by a general assignee of a firm of stockbrokers and of the surviving partner against the New York correspondent of such firm, through whom stocks were purchased for the firm customers on a margin, and against' all the creditors of the firm and of each individual partner, asking for a final decision as to- the rights of all parties, and a stipulation was entered into by all the parties that a decree be made in -such action adjudging that certain stocks, in the possession of the New York correspondent at the time of the failure of the firm, be sold and -the proceeds -thereof be distributed among such of the firm creditors only as at that time were entitled to stock then in the hands of the New York correspondent. Such a decree was entered and' a distribution pf the proceeds of such stocks was made accordingly — after there had been deducted therefrom the claim- of the New- York correspondent against .the firm'of stockbrokers, by the deceased member of which the stocks bought for the customers of the firm, which were at all times in the hands of the New York correspondent, had been wrongfully pledged as a general collateral to the firm account.
    
      Held, that such action on-the part of such creditors, in thus obtaining part payment of their claims from the proceeds of such stocks, did not prevent them from thereafter presenting their claims against the executor of the deceased member of the firm as an individual indebtedness of such deceased member arising out of his tortious act in the pledging of their stocks, and from sharing equally with the individual creditors of the deceased partner in his individual property;
    That a provision in such stipulation and decree, “That the claim of Thomas F. Mason, as receiver of the Guardian Mutual Life Insurance Company, constituted * * * also an individual obligation on the part of Henry E. Pierson, Sr., now deceased, and is entitled to payment from th.e executor of Henry B. Pier-son, Sr., now deceased, out of the assets of the individual estate of Henry B. Pierson, now deceased, in preference to the claims which existed against him as a member of the late firm of H. B. Pierson & Son, arising or contracted in the business of said firm,” postponed the claims of those of the firm creditors who had participated in the proceeds of the stocks in the hands of the New York correspondent to the claim of Mason as receiver as regarded the division of the assets of the individual estate of the deceased partner, but did not give such claim of Mason, as receiver, any preference over the claims of the other firm creditors, parties to such stipulation, claiming, by reason of the conversion of their stocks by the deceased partner, to share in the distribution of his individual assets.
    A statement, rendered by a stockbroker to a customer, to the effect that he has purchased stocks ordered by the customer, upon which statement the latter relies, and entries of which purchase appear in the books of the stockbroker, estops the stockbroker from denying the fact of such purchase.
    Where a stockbroker under such circumstances pledges the stock, purchased on a margin for his customer, for an amount in excess of his customer’s obligation to him, he is guilty of a conversion.
    The silence of an executor in reference to a claim, after it has been presented to him, does not preclude his objecting to it before the surrogate.
    Appeal by the petitioner, Henry R. Pierson, as executor, etc., of Henry R. Pierson, deceased, and another, upon the law and the facts, from so much of a decree of the Surrogate’s Court of the county of Albany, entered in the office of said Surrogate’s Court on the 19th day of March, 1896, as adjudges that the claims of Edward A. Durant, Gertrude M; Frazer, William Barnes, Jr., and the two claims of Charles Bridge, the claims of Jared P. Smith, Charles Tracey, Matthew W. Bender, John F. Rathbone, Dewey Brimmer and A. Bleecker Banks, and each of them, or either of them, were-entitled to share in the distribution of the individual estate of the said Henry R. Pierson, deceased, in the proportion which each or either of their said claims bears to the claims of the other individual creditors of the said Henry R. Pierson, deceased.
    And, also, from so much of the said decree as decides or adjudges that the claims of Mary 0. ■Miller,’as executrix, etc., of Hiram Miller, deceased; William Parrott, Frederick P. Gordon, Annie E. Gordon, Charles M. Cuvier and Eleanor F. Van Dyke, or either of them,.are to be admitted and established as claims against the individual estate of Henry R. Pierson, deceased, within the ■ principle of the decision made by Surrogate Conway ; that is to say, that they, or either of them, are to share in the distribution of the individual estate in the proportion which each or either of said claims bears to the claims of the other individual creditors of said Henry R. Pierson, deceased.
    And, also, from so much of the said decree as decides or adjudges that Schedule “ D ” therein referred to is amended so as to include therein the claims of the persons above referred to, and each of them, or . either of them, and as thus amended that said account of proceedings is approved and confirmed.
    And, also, from that portion of the said decree which decides or adjudges that the executor pay a dividend of thirty-three and one-third per cent to the persons above mentioned, or either of them, upon their, or either of their, claims so ascertained and determined in and by said decree.
    And the appellants also intend to ■ bring up for review on said appeal the order of-the surrogate of the county of Albany, made on: the 24th day of January, 1896, whereby it was ordered that the above-entitled'proceedings be opened so far as to admit-proper proof of the claim made by Mary 0. Miller, as executrix, etc., of Hiram Miller,. deceased, and that William Parrott, Annie E. Gordon, Frederick P. Gordon and Charles M. Cuyler, and each of them, or either of them, were authorized to make proof of the claims held by each of them, respectively.
    
      Marcus T. Hum, for the appellant Pierson.
    
      Simon W. Rosendale and Albert Hessberg, for the appellant Mason.
    
      Arthur L. Andrews, for the respondents Durant and Rathbone.
    
      
      Robert G. Scherer, for the respondent Bender.
    
      James F. Tracey, for the respondent Tracey.
    
      Isaac Lamson, for the respondent Bridge.
    
      William Loucks, for the respondent Loucks.
    
      Henry A. Peckham, for the respondent Banks.
    
      George B. Wellington, for the respondent Miller.
    
      Charles J. Buchanan, for the respondent Cuyler.
    
      Abraham V. De Witt, for the respondents Van Dyck and others.
   Landon, J.:

It appeared before the surrogate' that Henry R. Pierson died January 1, 1890. At the time of his death, and for some years prior thereto, he was the senior member of the firm of Henry R. Pierson & Son, doing business in the city of Albany as bankers and stockbrokers. The firm was insolvent at the time of his death, and his individual estate was also insolvent. His son, Henry R. Pierson, Jr., was the sole surviving member of the firm, and is the executor of his last will and testament. As the surviving member of the firm, on January 16, 1890, he executed an assignment of all the firm property and assets, and of his individual property, to Robert C. Pruyn, for the benefit of the firm and of his individual creditors. He was also insolvent — made so by his. connection with the firm. Mr. Pruyn assumed the trust and undertook the settlement of the firm estate. The respondents were customers of the firm of Henry R. Pierson & Son, and they presented claims to the assignee. The appellant, Thomas F. Mason, is the receiver of the Guardian Mutual Life Insurance Company, having been appointed such receiver in place of the senior Pierson, who was appointed as the receiver in 1877. Pierson, as the receiver, misappropriated $24,042.95 of the funds of said company, and between June 17, 1888, and the day of his death, transferred them to the possession and use of his firm. Many other persons presented claims to the assignee. With respect to some of tliese claims, the assignee was embarrassed in determining whether they- were claims against the firm estate, or claims against the individual estate of the deceased Pierson, or both.' He, therefore, as assignee of the surviving' member of the firm and of the junior Pierson, brought an action in the Supreme Court against Loomis L. White and others, the creditors of the firm and of the -individual partners, including all the parties to this appeal. The pleadings in that action are not in evidence, but the judgment is, :and it was thereby determined that certain assets in the hands of Loomis L. White & Co. were firm assets, and certain other' assets, were individual assets of the estate of the senior Pierson, and.cér- ■ tain of these .respondents were firm creditors. The issues framed in the action were referred to a referee to; report the proofs and his findings thereon; Such report being made, the'action was brought to trial at the Special Term of the court, and upon the trial the parties entered into astipulation as to the facts and as to the decision and judgment to be entered, and thereupon decision was made and ■judgment entered accordingly.

Loomis L. White & Co., of New York, were the correspondents of •the firm of Pierson & Son. The respondents had been customers of Pierson & Son, having contracted with the firm to have it buy stocks or securities for them. When the firm received an order from any one ■of these respondents to buy any security, it gave an order in its own ■name to White & Co. to buy it, and the latter bought it for Pierson & Son. Pierson & Son kept with White & Co. a margin of about ■ten jier cent upon all its purchases and sales of stock and securities •with that company. Pierson & Son had received from each customer a much larger margin, either in money or bonds or stocks. White & Col reported each purchase to Pierson & Son, and the latter opened and kept an account with each of the.respondents as to the stock iba the same manner as if the firm had it in its own possession ; but, except in the cases of Matthew W. Bender, Jared P. Smith and Charles Bridge, in respect to his second claim, so called, Pierson & Son never had the custody of any of the stock or securities in question in this proceeding, except such as their customers •furnished as margin.

Pursuant to the stipulation and judgment in Pruyn v. White, all the' respondents were adjudged to be firm creditors, and each a*eceived a dividend of seventy-eight and one-half per cent upon the amount of Ms claim, except Durant, Bender, Charles Bridge, as to his second claim, and Jared P. Smith. The latter received no dividend, because their stocks, unlike those of the other respondents, were not in White & Co.’s hands at the time of Pierson’s death, and, therefore, did not contribute to the firm assets.

The respondents participating in such dividend severally presented to the executor their claims for the balance not satisfied by such dividend, claiming that the act of Pierson & Son in pledging their stocks with White & Go. in an amount in excess of the sums they respectively owed Pierson & Son thereon, was a conversion by the firm and by each individual member thereof. Durant, Bender, Bridge as to his second claim, and Smith presented their respective claims, alleging that the acts of the firm were a conversion,-and, therefore, that each had a claim against the individual assets.

Mason, as receiver, also presented his claim to the executor. The executor was silent in respect to any of these claims until the hearr ing before the surrogate, but there insisted upon the same order of preference as did the appellant Mason. They both claimed before the surrogate as they now claim upon this appeal, that the respondents, by force of the stipulation and judgment in the action of Pruyn v. White, were precluded from participating in the distribution of the individual assets of the estate, until after Mason and all the other individual creditors should be paid. They also claimed that there was no competent evidence before the surrogate of the fact that any of the respondents who were parties to the action of Pruyn v. White, except Bender and Smith, ever had purchased any stock or securities; that there was no evidence of the fact, except the entries in the books of Pierson & Son and the memorandum they gave each customer; that while it was true that each respondent gave his order to Pierson & Son to purchase stock for him, the statements in the books of Pierson & Son to the effect that it had been done were mere hearsay, and, in fact, not true. Pierson & Son, in fact, did not receive the stock of any respondent, except that of Bender and Smith, and such as its customers pledged with them as margin, but probably 'expected to furnish any one of them with the stock ordered by him if he should pay for it in full and demand it. The appellants urge that whoever did not pay. for it in full and demand it never became entitled to the possession of it, and, therefore, could not allege that he had lost it through Pierson & Son’s conversion,

But we think that inasmuch as Pierson & Son rendered a statement to each customer, and also, made entries in their books, such entries being evidence against the firm and each member thereof, and, therefore, against the executor of the deceased member (.Matter of Saltus, 3 Keyes, 500), stating in effect that they had bought and were holding for him the number of shares of stock ordered by him, giving the name, price and how the account stood between them and the respondent, the latter believing such statement and acting upon it, could treat it as true, and that thus the executor is estopped from denying it. Moreover, the position taken by the executor upon the hearing before the surrogate was that the firm made the-contracts, as alleged, but the executor denied the tort charged.

Pierson & Son, by pledging the stock with White & Co. in an amount greater than their own lien thereon, and thereafter becoming insolvent, so that the customer could not obtain his stock upon payment of the amount of Pierson & Son’s lien thereon, thereby converted the stock. (Chester v. Dickerson, 54 N. Y. 1,11,) That is to say, the firm was estopped to deny such pledge. The event — that is, Pierson & Son’s insolvency — disabled the firm from- complying with their contract, and thus completed the. conversion. ' No demand of. the money or stock was necessary, as such demand would only be cumulative evidence of the conversion. (Ganley v. Troy City National Bank, 98 N. Y. 487, 494.) As between the customer and Pierson & Son, the customer was the owner of the stock; Pierson & Son, the pledgee thereof, with a lien, for the amount unpaid thereon by "the customer. Pierson & Son had' no right to so sub-pledge the stock as to deprive the purchaser of the right to redeem it by paying the balance due upon. it. (Chapman v. Brooks, 31 N. Y. 75; Lawrence v. Maxwell, 53 id. 23.) The firm’s pledge of the stock with White & Co. to secure its indebtedness to the latter company did result in depriving the customer of that right of redemption, and, therefore, was a conversion. (Le Marchant v. Moore, 150 N. Y. 209; Wilson v. Little, 2 id. 443; Gruman v. Smith, 81 id. 25.)

The respondents, claimants, may be .divided into two classes :

First class. Those who, as parties to the action of Pruyn v. White, recovered seventy-eight and one-half per cent of their claims out of the firm assets therein distributed. These are Gertrude M. Fraser, William Barnes, Jr., Charles Bridge, as to one of his claims, called herein his first claim, Charles Tracey, John F. Rathbone, Dewey Brimmer, A. Bleecker Banks, William Parrott, Frederick P. Gordon, Anua M. Gordon, Charles P. Ouyler, Hiram Miller and Eleanor F. Yan Dyke. They consented to the judgment which converted their stocks and bonds, including such as they had pledged to Pierson & Son as margin, which White & Co. held at Pierson’s death, into money, from which, with the proceeds of the sale of the senior Pierson’s seat in the Stock Exchange, after White & Co.’s lien thereon as Pierson & Son’s pledgee was satisfied, their dividends were realized, and they also released White & Co. from further liability.

Second class. The respondents who, although parties to the action of Pruyn v. White, received no dividend because White & Co. did not hold their stocks at Pierson’s death. ' These are Edward A. Durant, whose stock was fully paid for as between him and Pierson & Son, but lawfully sold November 17, 1889, by White & Co. as between' White & Co. and Pierson & Son, but wrongfully as between Pierson & Son and Durant; Charles Bridge, in respect to his second claim, so called. As between him and Pierson & Son his negotiable bonds were fully paid for, and Pierson & Son had the custody of them, but they pledged them as collateral security upon their own notes to the Commercial Bank, which took them without notice of Bridge’s title, and the bank being thus a bona fide pledgee, lawfully applied them or their whole proceeds in satisfaction of such notes. Matthew W. Bender, whose case is like Bridge’s.

Durant sued the survivor of the firm for damages, setting forth the facts, but without characterizing them either as a conversion or as a breach of implied contract, and recovered judgment.

Bender also sued the survivor, setting forth the facts and alleging an indebtedness.

We will first consider the claim of Thomas F. Mason, as receiver of the Guardian Mutual Life Insurance Company. His claim for preference rests upon the stipulation and judgment in Pruyn v. White. All the respondents united with him in the stipulation, as follows:

“ Eleventh. That the claim of Thomas F. Mason, as receiver of the Guardian Mutual Life Insurance Company, constituted ■ * * * also an individual obligation on the part of Henry R. Pierson, Sr., now deceased, and is entitled to payment from the executor of Henry R. Pierson, Sr., now deceased, out of the assets of the individual estate of Henry R. Pierson, Sr., now deceased, in preference to the claims which existed against him as a member of the late firm of H. R. Pierson & Son, arising or contracted in the business of said firm.”

The judgment entered in said action contained the like provision.

The respondents first above named, who received in Pruyn v. White their dividends out of the firm-assets, cannot, with . the firm proceeds in their pockets, deny that their claims “ existed against him (the senior Pierson) as a member of the late firm of H. R. Pier-son & Son, arising or contracted, in the business of said firm.” They have been largely paid because their claims so arose and existed. The fact that the senior Pierson converted to his own use the funds of the life insurance company and afterwards transferred them to his firm, gave his successor, Mason, at least a disputable claim which he might fairly urge for participation in the firm .assets. By entering into the stipulation with the respondents he secured to such of them as participated in such distribution a greater dividend.

But the case of the respondents' who did not participate in such dividend is different. Their respective claims are either firm claims, as for breach of the .implied contract between them arid the firm, or as for the conversion of their property, as they may elect. For what signifies the election of remedies, if it may not, while the. choice is yet open, be exercised as a shield against total defeat ? The claims of the respondents Durant and Bender, and Bridge, as to his second claim, were not in issue in Pruyn v. White, and nothing was therein adjudged as to their character as firm or individual claims, except what may be inferred from the fact that they were excluded from participation in the firm assets; and, therefore, they could elect .to treat them as claims against the estate arising because of the tort of the testator. It is true that Bender brought his separate action against the survivor as upon an indebtedness for a breach of the implied contract with the firm, and the judgment he obtained therein bound the firm assets and the survivor,, but not the individual assets of the testator. (Morgan v. Skidmore, 3 Abb. N. C. 92.) The wrong done in pledging Bender’s stock was the active-personal wrong of the senior Pierson. . By the judgment against, the survivor and the inability to collect upon it, the extent of the: damages done to Mr. Bender by the personal wrong .of the senior member is ascertained, and thus the extent of the personal claim against him. But it is said that if he elected to charge that the firm owed him as upon breach of contract, then he waived the tort. Tes, he thereby waived the tort of the firm, but not thereby that of the wrongdoing member. In Morgan v. Skidmore (supra) the damage done the plaintiff by the deceit of one member of an insolvent firm in inducing the plaintiff to enter into a contract with the firm was not merged in the uncollectible judgment against the survivor of the firm upon the contract, which merely served to show how great that damage was. Here the wrong of one member took from Mr. Bender his property and left him with a worthless implied contract with the firm. By his action upon it against the survivor he found out how worthless it was. Why should he not pursue the individual who did him the wrong, or, as he is doing here, pursue his executor ? The liability is both firm and individual, and does not cease to be individual because the firm is first pursued. The election • of one ■remedy against the firm may preclude the other; and so the election of one remedy against the individual may preclude the other. But the election against the individual is here made for the first time and it is in tort.

The respondents Durant, Bender,, and Bridge, as to his second claim, are not obliged to give Mason a preference in the distribution of the assets of the testator.

. But the stipulation of the first class of respondents gives to Mason a preference over them, but it does not give it to any other creditor. We, think the first class of respondents, subject to the preference given to Mason, have a right to participate ratably with all the other creditors in the distribution.

By participating in the distribution in Pruyn v. White, the first class of respondents made no election of remedies. As to them, White & Co. were not wrongdoers, but lawfrd pledgees; They pursued White & Co. because that firm’s liability to Pierson & Son was, as between the two firms, upon contract. White & Co. com.mitted no tort against any respondent. They purchased the, stock in the stock market for Pierson & Son upon a margin, and thus the relation of pledgor and pledgee existed between them without any infirmity in White & Co.’s rights as pledgee. Such securities as the respondents pledged with Pierson & Son as margin, and Pierson & Son again pledged with White & Co., the latter received without notice of the respondents’ rights therein. As the respondents had no remedy in tort against White & Co. they could not elect to abandon it. Having secured from White & Co. what that company was obliged to turn over to Pruyn, the assignee, for their benefit, they .then could pursue the estate of the testator for the -wrong he had done them by so dealing with the stocks they had ordered through his firm or had deposited with it as margin, as to deprive them of the full benefit of their contract with the firm .in regard to them. And in testing their rights in this respect against Pierson & Son, although they were obliged to treat White & Co. as the lawful pledgees of the stock, they could treat Pierson & Son as the wrongful pledgors thereof. ■ And the fact that Pierson & Son never had the custody of the stocks purchased by White & Co. was immaterial; for their representations to, the respondents that they had bought them- and were, holding them — representations upon which the respondents relied and acted.— estopped Pierson & Son severally, as well as collectively, from denying the truth of their representations. The action of Pruyn v. White was a friendly one, in which. all the -parties co-operated, not to condone the tort of Pierson & Son, but to.secure what salvage, they could from the wreck it had caused to the property of the respondents The respondents, therefore, could pursue, as they herein elect to pursue, the estate of the senior Pierson for the actual damage which his wrong caused them; that damage is the difference between what they have secured from White & Co. and what they would be entitled to if Pierson & Son or the senior Pierson had done them no wrong. The .case of Morgan v. Skidmore (supra) applies.

This result is not affected by the 20th finding of. fact in Pruyn v. White, which is as follows:

Twentieth. That the business between the firm of Loomis L. White ■& Co. and the Piersons at Albany was entirely a business between the firm of Loomis L. White & Co. and the firm of H. R. Pierson & Son; and there was no business between the firm of Loomis L. White & Co. and Henry R. Pierson, Sr., as an individual.”

■ The several liability of the senior Pierson inhered in the wrong which he did for his firm.

The claims of Jared P. Smith and the first claim of Charles Bridge are withdrawn, because, being' contested by the executor and Mason, they were not supported by evidence necessary to establish them. The claim of William Barnes, Jr., must be rejected for the same reason. The silence of the executor as to it after its presentation to him, until the hearing before the surrogate, did not preclude the executor from contesting it there. (Matter of Callahan, 152 N. Y. 320.) He contested Barnes’ right to participate in the distribution of the testa'tor’s assets, except as a firm creditor, after all the individual debts should be paid. This right as firm creditors, if desired, should be reserved also to Jared P. Smith and to Charles Bridge as to his first claim.

Several other questions are presented upon this appeal which we do • not think it necessary to discuss. Our purpose has been to see whether substantial justice has been done. • Whether any evidence was improperly received is of no consequence, since from that which was competent all the material facts in the case are clearly, perceived. (Code Civ. Proc. § 2545.)

We think that it was within the discretion of the surrogate to open the proceedings and admit claimants to a hearing who had not presented their claims until after the surrogate had announced the principle of his decision. If that principle was right, justice required that those claims which came within it should be admitted upon equitable terms.

The claims of Jared P. Smith, William Barnes, Jr., and the first claim of Charles Bridge should be excluded from participation in the distribution as individual creditors; that is, the decree in these respects is reversed.

The claim of Thomas F. Mason should be preferred in the distribution over the claims of the first class of respondents herein so called. Of course, to the extent that this preference increases Mason’s dividend, it decreases that of the first class of respondents, but not that of the second class or of the other individual creditors.

Each of the two appellants should have costs; • also one bill of costs to the second class of respondents, to be out of the fund. Ordered accordingly. The decree to be settled by Justice Landon.

Say fund.."............................„......• $30,000

Mason’s claim....................................... $30,000,

First class of respondents...............■;............ 30,000

Second class and all others........................... 30,000

$90,000

Second class of respondents and others get one-third. Mason ■ gets the rest.

All concurred, except Herrioic, J., not sitting.

Decree of the surrogate modified by excluding Jared P. Smith, William Barnes, Jr., and Charles Bridge, as to his first claim, from, participation in the assets, and by giving to Mason preference in the distribution over such respondents as received' a dividend in the action of Pruyn v. White, but not over other individual creditors. Decree to be settled" by Landon, J., and as thus settled, affirmed, with costs to Mason and the executor, and one bill of costs out of the fund, to the class of respondents who did receive a dividend in Pruyn v. White.  