#### Willard *et al. v.*White et *al.*

*(Supreme Court, General Term, First Department.*

May 16, 1890.)

1. Factors and Brokers—Lien for Advances—Assignment by Principal.

W. & Go., stock-brokers in Syracuse, filled orders to purchase stocks on margin, by directing plaintiffs, their New York correspondents, to buy the stocks desired. Plaintiffs held the certificates of the stock thus purchased, and also received other stocks from W. & Co., as collaterals, to secure the price, and kept their accounts withW. & Co., knowing no other person in the transactions. During this course of dealing, W. & Co. made an assignment for benefit of creditors, and plaintiffs sued to determine the rights to the stocks thus held by them. *Seld,*that plaintiffs’ advances to W. *& Go.*would first he satisfied out of the proceeds of the stocks in their hands at the time of the assignment, and that, as between the assignee and the customers of W. *&*Co., who identified stocks in plaintiffs’ hands as having been purchased for them, the customers had the prior right.

2. Same—Pledge to Cover Margins—Rights of Pledgeor.

Among the collaterals pledged by W. & Co. to plaintiffs was stock which M., a customer of W. & Co., had deposited with them to cover margins, hut plaintiffs *171had no knowledge of M.’s rights. *Held*that, after satisfying plaintiffs’ claim, M. was entitled to the proceeds of the stock pledged by him before the alleged owners of the securities bought on margin could receive anything.

8. Pledge—Conflicting Claims—Action by Pledgee—Attorney’s Fees.

In such action, it was error to allow plaintiffs fees and disbursements claimed to have been paid to their counsel in examining the claims of the various parties and conducting the litigation, as the relation of trustee and *cestuls que trustent*in no sense existed between them and W. & Co.

Appeal from judgment on report of referee.

Action by Edward K. Willard and others, composing the firm of E. K. Willard & Co., against Edward H. Westcott and Alfred Wilkinson, their assignees, James 8. Crouse, Hamilton S. White, Giles Everson, Lucius Moses, and others, brought to determine the rights to stocks in the possession of plaintiffs. The action was referred, and from the judgment entered upon the report of the referee defendants White, Everson, and Moses appeal.

Argued before Van Brhht, P. J., and Bartlett and Barrett, JJ.

*IP. H. Iiiseoclt,*for appellants White and Everson. *W. (f.*Tracy, for appellant Moses. *T. D. Kenneson*and *H. A. Root,*for respondents E. K. Willard & Co. *L. Marshall,*for respondent Krouse.

Van Brunt, P. J.

The evidence in this case showed that' the plaintiffs, for many years prior to the 11th of December, 1884, had been stock-brokers, doing business in Hew York under the firm name of E. K. Willard & Co., and that the defendants Westcott and Wilkinson were at the time of the transactions hereinafter mentioned, and for some time previous thereto had been, copartners and also stock-brokers, doing business at Syracuse, H. Y„ under the firm name of Westcott & Co. Westcott & Co. had been in the habit of receiving from their customers in or about Syracuse orders for the purchase of stocks. These orders Westcott & Co. filled by directing the plaintiffs Willard & Co. to buy the stocks. The plaintiffs, in their transactions with Westcott & Co., kept their account with them, and with them only, and knew no other persons in connection therewith. Westcott & Co., in giving these orders to purchase stock, did not inform the plaintiffs for whom these purchases were made, and they were made by the plaintiffs for and on account of Westcott & Co. The plaintiffs required ample margin to cover the advances which they made in money in the purchase of stocks ordered by Westcott, for which they received remittances of money and of securities, and also held the securities purchased. The plaintiffs made up monthly balances, and sent them to Westcott & Co., as to the condition of their account. These statements contained all the items of transactions between the plaintiffs and Westcott & Co. In October, 1884, the defendant Everson had ordered Westcott & Co. to purchase for him 100 shares of the Chicago, Rock Island & Pacific Railroad stock, paying to them the sum of $3,755.47, which Westcott & Co. were toholdasamargin upon the purchase. Westcott *&*Co. directed the plaintiffs to purchase this stock, which they did for the sum of $11,231.25, and they placed the stock in the account of Westcott & Co., crediting them with it on their books, and debiting them with the price. This stock has ever since been continuously held by the plaintiffs in said account to the credit of Westcott & Co. In like manner, on the lltti of August, 1884, the defendant White had ordered Westcott to purchase for him three of the first mortgage $1,000 bonds of the Lafayette, Bloomington & Muneie Railroad, and at the time of such purchase had in the hands of Westcott & Co. $1,265.90 as a margin upon said purchase. Westcott & Co. directed the plaintiffs to purchase these bonds, which was done at the price of $2,448, in the same manner as in the previous case, and the plaintiffs have ever since held said bonds. All of these stocks were purchased upon margin, and were never paid for by the parties for whose account they were purchased, and none of the certificates were ever transferred to them or to Westcott & Co.; Willard & Co. holding the same as security for the indebt*172edness of Westcott & Co. to them. On the 11th of December, 1884, Westcott & Co. failed, and made an assignment for the benefit of creditors to the defendant Krouse. The defendants White and Everson, after the failure, and before the commencement of this action, demanded of the plaintiffs the amount so paid by them on their respective purchases, and, upon refusal thereof, demanded of the plaintiffs their respective purchases, at the same time tendering the amount of the purchase price thereof unpaid, which was refused, the plaintiffs disclaiming any knowledge of the defendants White and Everson in this transaction, and claiming Westcott & Co. as their principals, who were largely indebted to them. It further appeared that at the time of the failure of Westcott *&*Co. they had purchased from the plaintiffs, for account of the defendant. Moses, 200 shares of. Northwestern stock, 100 shares of Lake Shore stock, and some Erie stock, and w-ere carrying the same for said Moses upon margins; and that, to secure Westcott *&*Co., Moses had pledged to them 100 shares of Lake Shore stock owned by him, and that before the failure of Westcott *&*Co., and without the authority of Moses, or his knowledge or consent, Westcott & Co. had repledged said 100 shares of stock owned by Moses, with other stocks, to the plaintiffs, as security for a general balance of account, amounting to over $100,000. It further appeared that, subsequent to the failure, the plaintiffs, to reimburse themselves for the advances made by them, sold a large number of stocks standing to the credit of Westcott & Co., among which was the stock belonging to the defendant Moses,—both that which Westcott & Co. had purchased for his account, and the 100 shares of Lake Shore stock which Moses had pledged as margin. And it further appeared that the proceeds of the sale of said stock, with the dividend collected thereon, amounted to $3,690 over and above the indebtedness of Moses to Westcott & Co. It further appeared that, by the sale of the stocks aforesaid, the plaintiffs had repaid themselves all but $8,865.79. They still held the 100 shares of Chicago & Bock Island stock bought by the plaintiffs upon the order of Westcott & Co., and w-hich the defendant Everson had directed Westcott & Co. to buy, and also the $3,000 first mortgage bonds bought by the plaintiffs for Westcott & Co., and which the defendant White had requested Westcott & Co. to purchase; also, 20 shares of Bock Island stock, claimed by the defendant Tracy, and 100 shares of Chesapeake & Ohio Bail way stock. The total value of these stocks, exclusive of interest and dividends, on the 15th of December, 1884, was about $16,000. There being various claimants for these stocks, the plaintiffs filed this bill to determine the rights and interests of the parties; and, a reference being had, upon the foregoing facts the referee adjudged that the stock remaining in the hands of the plaintiffs should be sold, and that the plaintiffs should repay themselves out of the proceeds thereof thie sum of $10,414, with interest, included in w-hich amount was the sum of $2,504.85, counsel fees and disbursements which the plaintiffs claimed to have paid to their counsel in examining the claims of the various parties and conducting the present litigation; and, further, that the plaintiffs should pay over to the assignee of Westcott & Co. all surplus moneys resulting from the sales above directed to be made, after payment therefrom of the lawful expenses of such sale, and deducting the above amount that the plaintiffs are .directed to retain therefrom to their own use, and also that the plaintiffs should deliver to certain defendants therein named certain other stocks which they had on hand; and from the judgment thereupon entered the defendants White, Ever-son, and Moses have appealed.

It is claimed upon the part of the defendants White and Everson that Westcott & Co. were their agents, and, as to their stocks, trustees, and Willard & Co. held them subject to the same rights, and that White and Everson were entitled to have their securities at any time upon demand and upon payment of the balance of the purchase price, and that Westcott & Co. were guilty of wrongful conversion in depositing or leaving them with the plaintiffs as se*173curity for future advances. Upon the part of the defendant Moses it is claimed that he has a superior right to this fund over any of the other defendants to the amount of $8,691 and interest, being the proceeds.of sale of his 100 shares of stock deposited with Westcott & Co., and which they pledged with the plaintiffs, over and above the indebtedness due from Moses to Westcott & Co. It seems to us to be entirely clear that the referee erred in holding that the surplus of these sales should be paid to the assignee. He was not a purchaser for value, and he.had no right to take any more than Westcott & Go. could themselves have taken if they had not made the assignment. These parties, having traced their security or securities which had been bought upon their account in the hands of the plaintiffs, were at least entitled to receive from the plaintiffs whatever balance might remain after paying the indebtedness for which they were pledged. It is true that the plaintiffs had the right to hold these securities for the purpose of the payment of the balance due to them from Westcott & Co. They knew nothing of the rights or interests of these various parties, and these were negotiable securities which they held for value, and, consequently, they were entitled to reimburse themselves before they could be compelled to deliver up these securities which had been deposited with them as margin. The fact that Westcott & Co. had received part payment from White and Everson upon the purchase of these stocks in no manner affected the rights of the plaintiffs. They knew nothing in respect to this payment. They were dealing entirely with Westcott & Co., and they were holding these securities as the property of Westcott & Co., as security for the indebtedness due from Westcott. & Co. to them. Under these circumstances, it is clear that the plaintiffs had the right to hold these securities until their indebtedness from Westcott & Co. should be paid. It is urged that the plaintiffs must have known that Westcott *&*Co. .were acting for other people. It may be true that they knew that Westcott & Co. were giving these orders for the purchase of stock on behalf of other people. But what other people, or who they were, or whether in fact Westcott & Co. were operating on their own account, they had no means of knowing and no reason to surmise. They were dealing with Westcott *&*Co., and with them alone, and they looked to Westcott & Co. for the payment of their account, and held these securities received from Westcott & Co. as security therefor.

As to the defendant Moses, in respect to the 100 shares of Lake Shore stock pledged by him with Westcott & Co., it seems to us that he stands in a different position from that occupied by White and Everson. White and Everson knew, in fact all these parties knew, that Westcott & Co. were executing these orders through correspondents in Hew York; but whether Westcott & Co. were themselves carrying the stocks after they were purchased, or their correspondents, they did not know, and, when the defendant Moses deposited these 100 shares of Lake Shore stock with Westcott & Co. as an additional margin, he by no means conferred upon Westcott & Co. any title further than such as was necessary to secure the indebtedness of Moses to them; and therefore, as the referee has found, the pledge by Westcott & Co. of this 100 shares deposited with them, as collateral, to the plaintiffs was wrongful, and, he having traced that stock in the hands of the plaintiffs, it would seem that he is entitled to receive whatever excess might arise from the sales of the stock over and above the indebtedness due from him to Westcott & Co., provided the debt to the plaintiffs was satisfied. In other words, his equity seems to be greater than the equity of those parties, who gave the orders for the purchase of these stocks with the expectation that money should be raised by the pledge of these stocks to pay for the same. This 100 shares of the defendant Moses was his own property, apparently, which he had paid for, and which in no manner formed the subject of the speculation which was being carried on in the purchase of these stocks. We think, therefore, that his equity is superior to that of the other parties, and that he should be paid the surplus aris*174ing from the sale of these 100 shares of stock before any sum. should be received by the alleged owners of the other securities involved in this appeal.

We think, also, that the referee erred in the allowance made for counsel fees and disbursements. It is sought to sustain this claim upon the ground that the plaintiffs were in some sense acting as the trustees of Westcott & Co., and their counsel fees in protecting their interests as trustees were a proper charge against the *cestui que trust.*But we think that this relation in no way existed between the plaintiffs and Westcott & Co. The sole position which the plaintiffs occupied towards Westcott & Co. was that of creditors, with security for the payment of their debt, and this idea that they were trustees in any way does not seem to have any foundation in the facts, any more than every creditor holding security for his debt is a trustee of the debtor. The plaintiffs may have thought it prudent to file this bill in order to have the rights of the parties determined, but it was not necessary. They could have gone on and sold these securities and'paid their debt without the intervention of this litigation, and that is in" fact what they did in respect to a large part of the securities which they held. They sold securities sufficient to pay every dollar of debt which they felt certain Westcott & Co. were bound to pay to them, and it was only in respect to a claim in regard to the payment, whereof there might be some doubt as to their right to hold these securities, that they sought the intervention of the court. Some authorities have been cited for the purpose of sustaining the decision of the referee in this respect, but they do not seem to be applicable. The case of *Griggs*v. *Howe, 2*Abb. Dec. 291, presents an entirely different state of facts. There the holder of the security was compelled to sue upon it in order to collect it, and was compelled to incur expense in realizing upon the collateral, and which he was allow.ed to charge as expenses. In the case at bar the plaintiffs were under no difficulty in realizing upon their claim. All they had to do was to sell upon proper notice, and the only question seems to have been as to the amount which they could claim against Westcott & Co. as an indebtedness, for which they held these securities as collateral; in other words, they proposed to make the collaterals pay the expense of determining the amount of their own claims. This we do not think any of the cases cited permit, and therefore the allowance of these counsel fees was erroneous.

It seems to us, therefore, that the judgment appealed from should be reversed, and a new trial ordered, with costs to the appellants to abide the event. All concur.