The Washington herald., 1908-04-07
BROKER AGENT OF CLIENT
New York Court Passes Upon Rela-
tions with Customer.
Rulings of Massachusetts Tribunals
Ignored by supreme BeHeh-Im-
portant 10 Commission Houses.

The practice in New York that broker
/ IS the agent OF the customer. and the lat
| ter can redeem stocks purchased on mar
gin, and that such transactions do not
come within the prohibition against un-
due preferences laid down by the Federal
bankruptcy law, was affirmed by the Su-
preme Court yesterday in two test cases.
A different rule prevails in Massachu-
setts There a broker carrying stocks
for a customer is held both by Federal
and State courts to be the debtor Of the
latter.
Although the court had no case from
the Massachusetts, courts before It. one
Of the cases was brought under their de-
cisions by Henry Arnold Richardson. re-
| ceiver Of J. Francis Brown. a Boston
broker. The transactions out Of which
the suit grew took place in that city in
1909.
The stocks were purchased by J. 81
Shaw & Co, OF New York, who, upon
learning Of Browns financial difficulties.
called upon him for the stock pledged TO
bankers in Boston. rendering the differ
ence between the margins deposited and
the cost OF the stock.
, The collateral was delivered 10 the New
= ork brokers' After Browns failure his
trustee brought suit in the Federal Court
Of New York to recover on the ground
that 1t was a fraud on the other creditors
of Brown and an undue preference pro-
hibited by the Federal bankruptcy Law.
That court dismissed the action The
Court Of Appeals affirmed that judgment.
In delivering the opinion Justice Day
cited numerous decisions upholdng the
New York rule
Notwithstanding the opinion Of the
Massachusetts, courts. the conclusion was
! inevitable that the broker could not be
held TO bs the owner Of stock he puT-
chased and carried for his customers. The
broker was but an agent and was bound
TO follow the directions OF his principal
or give notice that he declined the agency.
The dividends on the stocks and the
profits or losses belonged 10 the customer
who alone took the risk OF the venture.
To the contention that the usual con-
diti0ns did not exist. because the broker
was not obliged TO return the very stocks
pledged. which showed only a proprietary
interest. Justice Day said that claim lost
sight Of the fact that the certificate Of
6IOCh Was not int property llScI. DelH8
but an evidence Of property in the shares.
The certificate. as the term implied
merely certified the ownership Of the
property and rights in the corporation
represented by the number OF shares
named.
While the right Of the broker for his
own protection. to sell the stock might
| complicate the situation, nevertheless. II
did not change the essential relations of
/ the parties, and did not convert the b5ok-
eT into what he never intended 20 be and
/ for which he assumed no responsibility y
/ in the purchase and carrying OF stock.
The other case grew out of the failure
OF Jacob Berry & Co. Of New York, in
/ 1904. The firm had borrowed $500 from
/ the Hanover National Bank, giving as
/ collateral stocks deposited as collateral
/ by customers When the failure came the
/ bank sold the stocks and after reimburs-
| ing itself for the loans turned over the
balance, Sa1,s10, to the trustee In bank
ruptcy.
/ The owners Of the stock were awarded
/ the amount so returned. thus excluding
some 1.400 other creditors who had de-
| posted cash margins.