
    Edward Whitlock, Plaintiff, v. The Seaboard National Bank et al., Defendants.
    (Supreme Court, New York Special Term,
    September, 1899.)
    1. Pledge— Stockbroker may repledge.
    A stockbroker may pledge margin collaterals of his customers up to the amount of the debts due him from them, and, even beyond that amount, where the customers’ transfers to him are absolute in their nature. He is guilty of a conversion if, upon tender of the original debt, he cannot return to his customers their identical or similar securities.
    2, Same — Bights of customers under a blanket rehypothecation — Co-sureties.
    Where a stockbroker has pledged the collaterals of many of his customers, without their knowledge and in excess of their debts to him, to a bank as security for loans made him by it and for any other indebtedness due or to become due, and the bank, upon his insolvency, reimburses itself by selling at a sacrifice a part only of the collaterals, the customers are entitled to share ratably in all the proceeds of all the collaterals, as their relation to the bank is that of cosureties for the stockbroker.
    Action for conversion.
    Dallas Flannagan, for plaintiff.
    Parker & Aaron, for Seaboard Bank.
    Weeks & Battle (H. Snowden Marshall, of counsel), for defendant O’Brien.
    Adolph Oohen, for defendant Wolff.
    B. H. Landale, for defendants Warren & Walker.
    Taylor & Seymour (O. S. Seymour and W. A. Bobbins, of counsel), for receiver.
    Stanton & Hopkins, for Ball, assignee.
    H. 0- White, for defendant Cuthbert.
   Russell, J.

A stockbroker, holding marginal collateral, may pledge the same up to the amount of the indebtedness owing him as an incident to his right of assignment; his pledgee, for value, takes unassailable title even beyond that amount if the transfer of the certificate to him by the original owner appears to be absolute, and the broker is guilty of conversion if he cannot return the stock originally pledged or similar certificates, upon payment by the original debtor of the amount owing on his stock transactions. Douglas v. Carpenter, 17 App. Div. 330; Lawrence v. Maxwell, 53 N. Y. 19; Smith v. Savin, 141 id. 315.

Edward B. Cuthbert did a stock business in New York city under the name of E. B. Cuthbert & Co. He failed in August, 1897, having pledged to the Seaboard National Bank certain stocks of the plaintiff and various of the defendants, as collateral to loans made on five notes and for any other indebtedness due or to become due to the bank. He made an assignment to the defendant Ball, which was afterwards set aside, and the defendant Lees was made receiver. The bank sold all the collateral except two certificates of stock and one bond, more than satisfying the balance owing it. The two certificates of stock have been sold by consent of the parties, and the proceeds deposited with the bank to await the issue of this action, which is to determine the rights of the several parties. The bond remains yet to be disposed of. The pledge of the securities to the bank by Cuthbert was without knowledge of the owners, and apparently, as to most of the parties, without regard to sums owing Cuthbert by them. From the time of pledging Cuthbert was unable to redeem and could not respond to the owners for the property left with him.

The Seaboard Bank obtained good title by the blanket transfer to hold the securities as collateral for the particular indebtedness for which the securities were pledged, and for any balance on general indebtedness owing the bank by Cuthbert. The stocks of all the parties were mingled by Cuthbert in pledging to the bank in one common pool, and, as there is no right of recovery against the bank by the owners, the question arises as to whether any separation can be made in the adjustment of the legal rights of 'the several owners to the proceeds remaining.

As these several owners, though dealing with Cuthbert separately, became involuntarily involved in common in the payment of indebtedness to the bank by the burden laid upon their several securities for one common debt, their separate relations, as against Outhbert, became changed into a common cosuretyship for him with the bank, to the extent, relatively, that their property was forced to pay his obligations. What then are the several rights of those entitled to the balance left?

As against Outhbert, and the bank itself, when satisfied, each owner- has the right to follow his property and appropriate any specific- items left on hand as his own, and, if converted into moñey, has the right to the proceeds of that property. As to his cosufferers, however, a different rule prevails. Equitable considerations govern the relations of sureties towards their cosureties, as well as. towards the principal debtor and creditor. The securities here fizist' sold were the vanguard of the contest and bore the brunt of the advance sacrifice, thus shielding the other stocks and any balance of money left after the sale. The rights of the sureties between themselves were fixed by the insolvency of the broker and the necessity of a sale to free the whole of the property from the unwarranted act of the person to whom it was first pledged. Those rights could not be changed or determined by any hazard of chance in the order of sale, or by any selection of the pledgee bank. The right of redemption existed to relieve that burden, and, if all the sureties had united for that purpose so that the bank was obliged to- accept the full sum tendered, the several contributions would have been rated proportionately to the extent of the loss or injury. Though the right of redemption was lost by nonaction the equities survive.

Therefore, my conclusion is:

First. The remaining security should be sold as impressed by the trust for contribution.

. Second. The proceeds and any balance in the bank should be distributed upon the ratio of the loss of each of the parties pledging securities, including Walker & Warren.

Third. A personal judgment for the deficiency should go in favor of the plaintiff against Outhbert, and also in favor of those defendants-who served an affirmative answer upon the attorney for Cuthb'erti

The evidence is insufficient for me to determine and adjust the amounts- as between the sureties in the absence of the books of Outhbert & Oo., and, therefore, unless the counsel can substantially. agree- upon the amount of loss of each of the original pledgors, there must he a reference for that purpose. I have no difficulty, however, as between the pledgors and Cuthbert, in applying the usual presumptive rules calling for an account and giving judgment upon the evidence as it now stands for a deficiency, after deducting the costs of the action and the payments reached. Costs and an additional allowance should be given to each party recovering and to the bank and the receiver. The latter was obliged, under the circumstances, to protect his trust and gather in any remnants which an investigation might disclose. He should be, to some extent, at indemnified.

Let counsel prepare proposed decision and judgment and submit, with proof of service.

Ordered accordingly.  