Court Opinion

ID: 8779118
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:12:18.710949+00
Date Added: 2024-06-11T17:02:44.543853
License: Public Domain

NOYES, Circuit Judge
(after stating the facts as 'above). The equities of this appellant are inferior to those of the appellant in the Bamford Case. The account as “restated” by the special master— whether rightfully or wrongfully — shows an indebtedness to the bankrupt estate) instead of a balance to the credit of the appellant. Moreover, as in the Bamford Case, the proof is insufficient to establish the conversion of an}’ particular “long” stocks at any particular times. The right of the appellant to he placed in class A, instead of class B, depends altogether upon the testimony showing that at the lime of the failure the bankrupts were not earning the securities which they had purchased for his account and pretended to he carrying for him. As stated in the Bamford Case, this testimony makes out a prima facie case of conversion at some time prior to the failure, and it may be that the bankrupts at the time of the failure had no rights in the pledged “deposit” securities to which other claimants could have been subrogated. It may be that the bankrupts, before the failure, owed the appellant the duty of withdrawing such securities from the Mechanics’ Bank and of surrendering them to him. But the testimony leaves the actual state of the account between the appellant and the bankrupts in a state of uncertainty. Clearly the “restatement” of the account by the special master was wrong. The bankrupts were not carrying the appellant’s “long” stocks which the statement 'purports to liquidate. But when they had been converted is not shown, so that the value at which their proceeds should have been credited does not appear, and it cannot be determined whether the appellant owed the estate, or vice versa. While *728the testimony goes far to negative any right in the bankrupts to have-the securities in question in the loan at the Mechanics’ Bank, we think his equities are not strong enough to place the appellant in the superior class.
While, however, the appellant, with respect to his “deposit” securities and notes, is properly in class B, a'nd should bear the same burden as other claimants in that class, we think that the special master-erred in requiring him to bear the additional burden of paying the indebtedness as “restated” by the special master. As already shown, this restatement was incorrect. The bankrupts were not carrying the stocks which they were bound to carry. The testimony is wholly insufficient to afford a basis for charging the appellant with the balance stated, nor does it definitely establish any balance.
The appellant ought not to be required to make any payment on account of this alleged, but not established, indebtedness as a condition to obtaining his “deposit” stocks; and we also think that this proceeding should not be delayed and reopened for further proof. When it appears that stockbrokers have violated every obligation which they owe a customer, and have converted the shares which they pretend to carry, the courts should not go out of their way to afford them or their trustee the benefit of securities deposited to make good losses incurred through fair dealings. But this conclusion will not prejudice the right of the trustee to bring an independent action against the appellant to recover any balance which he may be able to establish.
The order, of the District Court is reversed, with costs, and the cause remanded for further proceedings in accordance with this opinion.
For reasons stated in the Bamford Case, the order in the matter of People’s Bank of Passaic is affirmed, with one-half costs,against the appellant, Braun.