In re the Assignment of Mills

Present — Ingraham, P. J., McLaughlin, Laughlin, Miller and Dowling, JJ. ' The following is the opinion delivered at Special Term : Giegerich, J.: 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, Can-field, 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 Hew 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, if 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 [56] $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 o'f 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, Oanfield acquiesced in the ' contention of the .firm, and notified it that lie 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, 1907, 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 ten dollars costs.