229 U.S. 19
33 S.Ct. 690
57 L.Ed. 1047
JAMES E. GORMAN, Appt.,
CHARLES E. LITTLEFIELD, Trustee in Bankruptcy of Albert O. Brown et al., Coparteners, Trading under the Name of A. O. Brown & Company.
Argued April 21 and 22, 1913.
Decided May 26, 1913.
Messrs. James L. Coleman and Robert Dunlap for appellant.
Messrs. Daniel P. Hays and Ralph Wolf for appellee.
[Argument of Counsel from page 20 intentionally omitted]
Mr. Justice Day delivered the opinion of the court:
This case presents a controversy over 250 shares of Green Cananea Copper Company stock, which came into the possession of the trustee in bankruptcy of Albert O. Brown and others, copartners, trading under the name of A. O. Brown & Company. Appellant, James E. Gorman, claimed to be the owner of the shares of stock, and instituted proceedings in the district court to recover them. The matter was referred to a special master, who found the facts and recommended the transfer of the stock to the claimant. The district court, upon hearing, ruled otherwise, and, upon appeal to the circuit court of appeals, the ruling of the district court was sustained.
The claimant for a year or more before the failure of A. O. Brown & Company was a customer dealing with one of the Chicago offices of that firm, buying stocks on margin and also paying for them in full. On or about April 14, 1908, Gorman directed the Chicago office to buy 250 shares of Green Cananea Copper stock for him. The stock was brought on the understanding that it was to be paid for in full, and at the time that the order was executed the claimant had an ample credit balance with the firm, applicable on its books to the payment in full of the shares purchased. The certificates of stock were left by the claimant in the possession of the broker, subject to the claimant's future order. The books of the bankrupt firm show that on April 14, 1908, they bought for the account of Gorman, 100 shares of Green Cananea Copper stock, and received certificate A-335. This certificate was delivered to J. T. ________ on May 6, 1908, on account of a sale from H. Wright & Company, of Cleveland, Ohio. On April 14, 1908, the bankrupt firm bought for the claimant 50 shares of Green Cananea Copper stock, and received certificate Y-11083. This certificate was, on May 14, 1908, delivered to DeCoppet & Doremus, on account of balance of trade on that date. On April 14, 1908, the bankrupt firm bought for the claimant 50 shares of the same stock, and received certificate B-6589. This certificate was delivered to DeCoppet & Doremus on April 16, 1908, on account of the sale of L. E. Gorton, of Detroit, Michigan. On April 14, 1908, the bankrupt firm bought for the claimant 50 shares of the same stock, and received certificate B-6537. This certificate was delivered to Carpenter & Baggott on May 14, 1908, on account of a sale to Parson, Snyder, & Company, of Cleveland, Ohio. The receiver in bankruptcy, now the trustee, came into the possession of, and still has in his possession, certificates indorsed in blank for an aggregate of 350 shares of Green Cananea Copper stock. As to this stock no claim has been filed with the receiver or trustee, although the master says the time for filing claims has expired. The certificates of stock in question, with those purchased for other clients, which were paid for in full or were purchased on margin, were placed without discrimination in the same tin box. It was customary to take certificates to make delivery from that box, indiscriminately, unless the certificate had been transferred to the name of the customer. At no time before the failure did the claimant receive his shares of the Green Cananea Copper stock, nor did he order its sale.
Upon these facts the question is, Are these shares of stock p part of the general estate for the benefit of creditors, or should they be turned over to the claimants?
In Richardson v. Shaw, 209 U. S. 365, 52 L. ed. 835, 28 Sup. Ct. Rep. 512, 14 Ann. Cas. 981, the nature of this property was the subject of discussion and decision in this court. In that case a broker, who had been adjudicated a bankrupt, shortly before the bankruptcy, and after his insolvency, turned over upon demand to a customer shares of stock similar to those which had been held for the customer, and for an equal number of shares. It was contended that, under the circumstances, this delivery of certificates amounted to a preference under the bankruptcy act. This court therefore had to consider the legal relation of customer and broker, in buying and holding shares of stock, and it was held that the certificates of stock were not the property itself, but merely the evidence of it, and that a certificate for the same number of shares represented precisely the same kind and value of property as another certificate for a like number of shares in the same corporation; that the return of a different certificate or the substitution of one certificate for another made no material change in the property right of the customer; that such shares were unlike distinct articles of personal property, differing in kind or value, as a horse, wagon, or harness, and that stock has no earmark which distinguishes one share from another, but is like grain of a uniform quality in an elevator, one bushel being of the same kind and value as another. It was therefore concluded that the turning over of the certificates for the shares of stock belonging to the customer, and held by the broker for him, did not amount to a preferential transfer of the bankrupt's property.
In the subsequent case of Sexton v. Kessler & Co. 225 U. S. 90, 56 L. ed. 995, 32 Sup. Ct. Rep. 657, this court, speaking of the relation of customer and broker, said (p. 97):
'When a broker agrees to carry stock for a customer, he may buy stock to fill several orders in a lump; he may increase his single purchase by stock of the same kind that he wants for himself; he may pledge the whole block thus purchased for what sum he likes, or deliver it all in satisfaction of later orders, and he may satisfy the earlier customer with any stock that he has on hand or that he buys when the time for delivery comes. Yet, as he is bound to keep stock enough to satisfy his contracts, as the New York firm in this case was bound to substitute other security if it withdrew any, the customer is held to have such an interest that a delivery to him by an insolvent broker is not a preference. Richardson v. Shaw, supra; Markham v. Jaudon, 41 N. Y. 235. So, a depositor in a grain elevator may have a property in grain in a certain elevator, although the keeper is at liberty to mix his own or other grain with the deposit, and empty and refill the receptacle twenty times before making good his receipt to the depositor concerned.'
It is therefore unnecessary for a customer, where shares of stock of the same kind are in the hands of a broker, being held to satisfy his claims, to be able to put his finger upon the identical certificates of stock purchased for him. It is enough that the broker has shares of the same kind which are legally subject to the demand of the customer. And in this respect the trustee in bankruptcy is in the same position as the broker. Richardson v. Shaw, supra.
It is said, however, that the shares in this particular case are not so identified as to come within the rule. But it does appear that at the time of bankruptcy certificates were found in the bankrupt's possession in an amount greater than those which should have been on hand for this customer, and the significant fact is shown that no other customer claimed any right in those shares of stock. It was, as we have seen, the duty of the broker, if he sold the shares specifically purchased for the appellant, to buy others of like kind, and to keep on hand subject to the order of the customer certificates sufficient for the legitimate demands upon him. If he did this, the identification of particular certificates is unimportant. Furthermore, it was the right and duty of the broker, if he sold the certificates, to use his own funds to keep the amount good, and this he could do without depleting his estate to the detriment of other creditors who had no property rights in the certificates held for particular customers. No creditor could justly demand that the estate be augmented by a wrongful conversion of the property of another in this manner, or the application to the general estate of property which never rightfully belonged to the bankrupt.
The ground upon which the circuit court of appeals decided the case seems to have been that the certificates were not sufficiently identified; but, as we have said, they were on hand to an amount claimed by the appellant, and more, and were not claimed by any other customer. We think there should be no presumption that the stock was stolen or embezzled with intent to deprive the rightful owner of it, and when the unclaimed shares are found in the possession of the bankrupt it is only fair to accept the general presumption in favor of fair dealing, and to decide, in the absence of countervailing proof, that the broker, out of his funds, has supplied the deficiency for the benefit of his customer, which he had a perfect right to do.