Case Name: In re MILLS et al.
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1910-06-10
Citations: 123 N.Y.S. 671
Docket Number: 
Parties: In re MILLS et al.
Judges: 
Reporter: West's New York Supplement
Volume: 123
Pages: 671–678

Head Matter:
In re MILLS et al.
(Supreme Court, Appellate Division, First Department.
June 10, 1910.)
Assignments fob Benefit of Ceeditors (§ 178 )—Compromise and Settlement—Conclusiveness.
Claimant having sold short 10,000 shares of stock through the assignors as stockbrokers, they borrowed the stock for delivery from H., paying him the market price therefor under an agreement that H., .in case of a decrease in the value of the stock, should return an amount of the price equal to the difference in market value until the stock was returned. A marked decline in the stock occurred, and H., being unable to equalize the transaction, failed, and afterwards executed notes in question to the assignors representing the difference in the amount due. The assignors were indebted to claimant in a large amount which was in dispute, one of the items disputed being $20,000 growing out of the borrowing óf the stock, the assignors claiming that they acted in the transaction as claimant’s agent and that the resulting loss was his. Thereafter claimant acquiesced in this contention, and notified the assignors that .he would accept the borrowing transaction as his own and demanded the notes, but the assignors made an assignment for the benefit of creditors before the notes were delivered. Held that, whatever the relation of the parties under an ordinary short sale by brokers, the settlement transaction was valid, and entitled claimant to the notes as against the assignee and the assignor’s creditors.
[Ed. Note.—Eor other cases, see Assignments for Benefit of Creditors, Cent; Dig. §§ 523, 525; Dec. Dig. § 178. ]
Ingraham, P. J., dissenting.
Appeal from Special Term, New York County.
, In the matter of the assignment of S. Frederick Mills and others in•dividually and as members of the firm of Mills Bros. & Co. to Edward Harding, assignee. From an order affirming a referee’s report awarding certain notes payable to the assignors to Richard A. Canfield, the .assignee and Adelaide T. Beach, a creditor, appeal.
See, also, 120 N. Y. Supp. 1136.
■ The opinion of Giegerich, J,, at Special Term, is as follows :
The motion is for confirmation of the report of a referee and for a direction to the assignee for the benefit of creditors to turn over to the claimant certain notes in controversy. The claimant Canfield prior to the 22d day of August, 1907, was a customer of the firm of Mills Bros. &. Co., stockbrokers. In the course of his dealings with such firm he made a transaction known as “selling short” 10,000 shares of the stock of the Reading Railroad Company. The firm borrowed the stock from J. W. Henning, a member of the New York Stock Exchange, and delivered it to the persons to whom they had made the short sale on the claimant’s order. In accordance with the custom obtaining in •such cases, they paid' to Henning the market price of the stock so borrowed, and received for the claimant’s account from the purchasers of the stock the full purchase price thereof. According to the custom governing such transactions, if the stock increased in value, the firm, as borrowers, would pay to Henning, as lender, the amount of the increase; while, if the stock decreased in value, the lender would pay to the borrower the amount of such decrease, in order that at all times the loan should be kept as nearly as possible equal to the market price of the stock.
In the course of time there was a marked decline in the price of the stock, :and the firm was unable to obtain from Henning the money he ought to have paid to equalize the transaction, as above outlined, and shortly afterward he failed, and ultimately the matter was adjusted in February, 1907, by his giving to the firm the three notes in question, each for $6,793.48. In the summer of 1907 the firm became financially embarrassed, apparently due largely, it not chiefly, to the question of the amount of its indebtedness to the claimant Canfield, the claim being made on his behalf that it owed him between $300,-000 and $400,000, only $91,000 of which was admitted by the firm. One of the items in dispute was this sum of approximately $20,000 growing out of the Henning transaction, the firm claiming that the transaction was one which it, as agent, made on behalf of Canfield, as principal, and that the resulting loss was his. Finally, in the summer of 1907, and a short time prior to the failure of the firm, which took place on August 22, 1907, Canfield acquiesced in the contention of the firm, and notified it that he would accept the transaction as his own, which would entitle him to receive the Henning notes which had been given in settlement. After the firm made an assignment, the assignee for the benefit of creditors refused to deliver the notes, and this proceeding was brought to determine Canfield’s right thereto.'
The conclusion I have reached is that the referee was right in finding that there was an agreement reached between Mills Bros. & Co. on the one hand and Canfield on the other, in August, 1007, that the latter should assume the loss in this Henning transaction, and should receive the Henning notes. Without referring further to the facts in the case, it is sufficient to say that a fair construction is to -hold that the agreement with respect to this transaction was distinct and independent from the other and broader negotiations, that were in progress at the same time, and that it took effect and became binding on both sides notwithstanding the fact that the other negotiations did not result in an agreement and the firm was forced to make an assignment. This conclusion renders it unnecessary to consider what the result» would be if there had not been any special agreement between the parties and their rights had to be determined upon the general relations which exist between customer and stockbroker in transactions of this character, which, it seems are very common, but which it is said in the briefs, have never yet led to any litigation adjudicating whether such a loss as was here sustained should be borne by the broker or the customer.
The motion is therefore granted, with $10 costs.
Argued before INGRAHAM, P. J., and McLAUGHLIN, LAUGH-LIN, CLARKE, SCOTT, MILLER, and DOWLING, JJ.
Douglas Campbell, for appellants.
George Gordon Battle, for respondent.
For other cases see same topic & $ number in Dec. & Am. Digs. 1907 to date, & Bep’r Indexes
For other cases see same topic & § number in Dec. & Am. Digs. 1907 to date, * Rep’r Indexes

Opinion:
PER CURIAM.
Affirmed on opinion at Special Term.