Court Opinion

ID: 6918133
Source: CourtListenerOpinion
Date Created: 2022-07-23 22:50:10.635945+00
Date Added: 2024-06-11T16:06:43.345399
License: Public Domain

RIVES, Circuit Judge
(dissenting).
The bankrupt was, in my opinion, a stockbroker and was acting as a stockbroker when he received the check for $3,550.00 from the claimant’s assignors. The claimant, the trustee in bankruptcy, and the bankrupt entered into a stipulation of facts including the following:
“1. On and prior to September 3rd, 1956, the Bankrupt, John Raymond Lucas, was engaged in business in Birmingham, Alabama, as a stockbroker.
“2. On some date between August 27, 1956 and September 3rd, 1956, said Bankrupt accepted an order from Charlie Thompson and Otis R. Brown of Chattanooga, Tennessee for the purchase of 100 shares of the Common Stock of Vulcan Life & Accident Insurance Company at a price of $3,550.00, which said stock the Bankrupt had on order and had purchased from Sellers, Doe & Bon-ham of Montgomery, Alabama, which said sale of said stock the Bankrupt confirmed to Thompson and Brown about said dates by written instrument of confirmation.”
The referee’s first finding of fact was:
"1. The bankrupt as a stockbroker a few days after September 3, 1956, confirmed the sale of One Hundred (100) shares of common stock of Vulcan Life and Accident Insurance Company at a price of Three Thousand Five Hundred Fifty ($3550.00) Dollars to Charlie Thompson and Otis R. Brown, which stock the bankrupt had purchased from a dealer in Montgomery, Alabama.”
The bankrupt testified:
“Q. Did you receive an order for the 100 shares, or did you first offer a hundred shares of Vulcan Life & Accident Company at thirty-five and a half? A. Yes, sir; I did.
“Q. Did you have the stock at that time? A. The stock at that time had been bought either the day or two days previously.
* * * * -x- #
“Q. But you had sold the 100 shares of stock before you received the cheek? A. That is right. It was necessary.
“Q. You did not return the check? A. No, sir.”
The fact that the stock was ordered in the bankrupt’s name a day or two days before it was sold to claimant’s assignors did not remove the transaction from the bankrupt’s ordinary business of stockbroker. So far as appears, claimant’s assignors dealt with him as a stockbroker.
The dictionary definition of “stockbroker” 1 adopted by the majority is certainly too narrow and restricted. Collier quotes the same definition but notes other definitions.2 In my view, Collier correctly states: “This term should, therefore, be given its common, accepted *333meaning, provided this harmonizes with the general context and objective of subdivision e.” 3 Collier, 14th ed., p. 1079.
A similar problem was discussed by the district court and by the Third Circuit in In re McMillan, Rapp & Co., D.C. E.D.Pa.1941, 38 F.Supp. 40, 41, affirmed 3 Cir., 1941, 123 F.2d 428, 429, 430, and both courts agreed that that bankrupt was a stockbroker. My understanding is that stockbrokers often keep securities on hand for immediate sale and delivery to their customers at the then current market. In such transactions they do not cease to act as stockbrokers because they may make a profit or loss exclusive of their commission, or because, as a mere conduit, they are temporarily owners of the securities. The narrow definition adopted by the majority will, in my opinion, unduly restrict and, in large part, emasculate the operation of Section 60, sub. e.
In applying Section 60, sub. e, it may be helpful first to trace the relative rights and priorities of the parties under Alabama law. Certainly when, after he had already sold the stock, the bankrupt received the check and deposited it to his own account, he committed a wrong, and I would agree, under the cases cited in footnote 7 to the majority opinion, that the bankrupt held the proceeds of the check under a constructive trust. It is nonetheless essential that the proceeds of the check “be kept in view, traced, and ultimately located in some particular batch of money,” before “it or its equivalent in value may be recovered by the wronged cestui que trust.” Robinson v. Williams, 1935, 229 Ala. 692, 159 So. 239, 241; see also, Maryland Casualty Co. v. Williams, 1935, 229 Ala. 663, 159 So. 242, 244; compare 9 C.J.S. Banks and Banking §§ 531, 531b. When $3,550.00 was added to the bankrupt’s bank account on September 12, 1956, he already had on deposit $3,794.33 and his total balance was raised to $7,344.43. The next day, September 13, he deposited an additional $700.00 so that his total balance would be $8,044.43. For that amount the relation of creditor and debtor existed between the bankrupt and the bank. Ex parte First National Bank of Montgomery, 1921, 206 Ala. 394, 90 So. 340, 341. The $8,044.43 balance was thereafter debited with five items in the following amounts: $1.71, $9.68, $297.72, $95.88, and $4,000.00, or an aggregate of $4,404.99, leaving the balance of $3,-639.44 which reached the hands of the trustee in bankruptcy. Actually, there is no way to trace the proceeds of the check into this $3,639.44. We are cited to no authority for the application of the fiction of last-in last-out, and in any event its application would authorize a recovery of $2,939.44 instead of the full $3,550.00.
The law of the State of Alabama, as I understand it, required that the proceeds of the check be traced into the $3,-639.44 which reached the hands of the trustee in bankruptcy. Paragraphs 2 and 4 of Section 60, sub. e of the Bankruptcy Act would seem to require that, to be specifically identified, the certified check3 or its proceeds must remain “in its (or their) identical form in the stockbroker’s possession until the date of bankruptcy.” I see no material difference in the application of the two tests to the facts of this case.
If there should be a difference, it seems clear to me that Section 60, sub. e con*334trols, for as was well said in In re Chicago Rapid Transit Co., 7 Cir., 1942, 129 F.2d 1, 4:
“Sole jurisdiction in bankruptcy is by the Constitution lodged in the National Government. That power, when given expression in legislation by Congress is paramount and transcends and supersedes all inconsistent state laws. State of Colorado v. United States, 271 U.S. 153, 162-166, 46 S.Ct. 452, 70 L.Ed. 878; Transit Commission of State of New York v. United States, 284 U.S. 360, 52 S.Ct. 157, 76 L.Ed. 342; State of New York v. United States, 257 U.S. 591, 42 S.Ct. 239, 66 L.Ed. 385; American Brake Shoe & Foundry Co. v. Interborough Rapid Transit Co., D.C., 10 F.Supp. 512; affirmed, 2 Cir., 76 F.2d 1002, certiorari denied New York City v. Murray, 295 U.S. 760, 55 S.Ct. 923, 79 L.Ed. 1702.
“Congress has not thus far attempted to reach the utmost horizon of the power. Under existing bankruptcy legislation, contractual relationships and obligations may be discharged; under certain circumstances judgments valid under the state law set aside; preferences otherwise valid abrogated, and debts composed and settled for less than their face value. Even before the more recent extensions of bankruptcy jurisdiction by Sections 75, 77 and 77B, 11 U.S.C.A. §§ 203, 205, 207, a trustee was allowed to abandon assets deemed valueless and, in operation and maintenance of the assets, in liquidation and in equitable division of proceeds, to reject burdensome leases. All these are forceful illustrations of the far-reaching extent of this paramount federal power. The power to rid the trust estate of exorbitant unjustified expenditures and thereby to protect its beneficiaries, the creditors, is incidental to the power to fix the rights of creditors as of the date of attachment of jurisdiction in bankruptcy and to liquidate the assets and divide them ratably among beneficiaries. * * * ”
To date the occasions for the application of Section 60, sub. e have, fortunately, been few indeed. Paragraphs 2 and 4 of that section will ultimately present some real problems of construction to be solved by the courts. See 3 Collier on Bankruptcy, 14th ed., pp. 1086, 1087. Certainly, however, we are not authorized to question the wisdom of Congress in enacting Section 60, sub. e, and it is our duty to apply it to cases coming within its letter and spirit. This seems to me such a case. With genuine deference to the views of the majority, I think that the judgment should be reversed, and therefore respectfully dissent.

. “A person who acts as an agent in buying and selling stocks and bonds.”

. “The quoted provision is taken from Webster. He also adds the following definition: ‘A dealer in negotiable securities, esp. stocks and bonds such as are dealt in by stock exchanges.’ Other common definitions are: ‘Those employed to buy and sell stocks and bonds of incorporated companies, and government bonds.’ - — Bouvier (Rawle’s 3d rev.); ‘A stockbroker is a broker who, for a commission, attends to the purchase and sale *333of stocks or sliares, and of government and other securities, in behalf and for the account of clients.’ — 23 Am. & Eng.Ency. of Law (1st ed.) 700. See also 40 Words and Phrases [Stockbroker] (1940) 173.” Collier, 14th ed., Yol. 3, 1[ 60.73, n. 6, p. 1079.

. Both the stock earmarked for the claimant’s assignors and the certified cheek which they sent to the stockbroker seem to me to be “securities” within the meaning of Section 60, sub. e. As to the stock, however, claimant’s assignors did not become “cash customers,” because the stockbroker had disposed of it before they became “entitled to its immediate possession.” They were then entitled to a prompt return of their certified check. I think, therefore, that the claimant has pursued the right security or its proceeds.