In re Phoenix Bond & Mortgage Co.

BREWSTER, District Judge. Review on certificate of an order of the referee entered in a reclamation proceeding which authorized the return to the petitioner of certain securities in the possession of the trustee in bankruptcy upon payment of $5,000, which the petitioner has received as dividends from the bankrupt, and upon the further payment by her of any debit balance due from her to the bankrupt estate on her open account. I am unable to affirm this order. The certificate is accompanied by an agreed-statement of facts, from which the following appears: That one McClaskey organized and was president, treasurer, and principal stockholder of the bankrupt corporation; that McClaskey, prior to the organization of the company, had acted for the petitioner as her adviser and broker in investment matters; that he had sold her stock in the bankrupt corporation upon which he had paid dividends aggregating $5,000', which were unlawfully paid. I do not understand that it is seriously disputed that the petitioner owed the bankrupt estate this amount. Without going too much in detail into the transactions entered into by the bankrupt, apparently for the account of the petitioner, it is enough to say that, according to the books of the bankrupt, Mrs. Knapp owed a debit balance of $12,069.18. The books of a bankrupt broker, however, are not conclusive against its customers. They have a right to show that what appeared to be a debit balance was, in fact, a credit balance. Leonard v. Hunt (C. C. A.) 36 F.(2d) 13. From the agreed statement of facts, it appears that the petitioner’s account had been charged with the following items: $26,764.00 for 480 shares Associated Gas & Electric. $2,535.70 for 100 shares Fed. Cap. Pfd. $2,502.00 for 25 shares American Water Works. None of these stocks were ever transferred to the petitioner. For a time the bankrupt carried a sufficient number of shares of the Associated Gas & Electric Company to enable it to make deliveries of the 480 shares in that company, but the bankrupt never allocated any particular 480 shares to the petitioner’s account. Respecting the other shares, the bankrupt never was in a position to make delivery of these shares to satisfy the petitioner and other customers. All of the shares were finally sold by the bankrupt, or its pledgees, without the knowledge or consent of the petitioner, and the account of the petitioner never received any credit on account of these shares or the sale thereof. It also appears that the petitioner is entitled to a further credit of $1,456.90, representing the proceeds of 15 shares of J. S. Young Company stock belonging to the petitioner which was sold by the bankrupt on November 13, 1930, and for which no credit appears upon the books of the bankrupt. It is also agreed that the market value, on the date of bankruptcy, of the stock which the bankrupt should have been holding for this petitioner was $15,660. I think, however, that this market value is not the extent of the bankrupt’s liability arising from these transactions. I agree with the petitioner that she is entitled to receive credit for the full amount charged against her on account of these shares, which were never delivered to her and never set apart for her. Compare Crehan v. Megargel, 235 Mass. 279, 126 N. E. 477. The Massachusetts law controls. Leonard v. Hunt, supra; Lavien v. Norman (C. C. A.) 55 F.(2d) 91. If proper credits were given the petitioner for the sums improperly charged to her and for the 15 shares of J. S. Young Company sold, together with interest, the bankrupt’s account would show a credit balance of over $24,000, against which she would be entitled to set off $5,000 which she owed the trustee in bankruptcy. I do not conceive it my province to determine in these proceedings the exact amount of any claim for which petitioner may be permitted to prove. I have no doubt the parties can agree on this matter. The petitioner is entitled to a return of the securities now in the possession of the trustee which she can identify as her own, without the payment of any money to the trustee.